Commons Sitting of 13 February 1991

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
NEW WRIT
For the county constituency of Ribble Valley, in the room of the right hon. David Charles Waddington., QC, called up to the House of Peers.—[Mr. Ryder.]
Oral Answers to Questions
  FOREIGN AND COMMONWEALTH AFFAIRS

    Sudan
    Mr. Day: To ask the Secretary of State for Foreign and Commonwealth Affairs whether he will make a statement on Her Majesty's Government's policy in respect of the situation in the Sudan.
    Mr. Stanbrook: To ask the Secretary of State for Foreign and Commonwealth Affairs whether he is making representations to the Sudanese Government about the situation in the Sudan.
    The Minister of State, Foreign and Commonwealth Office (Mr. Douglas Hogg): We have serious differences with the Sudanese Government over their policies on the Gulf conflict, human rights, and terrorism. We are also most concerned about their failure to co-ordinate effectively with foreign relief agencies in order to deal with the major famine that is in prospect. We have made our position on these issues clear to the Sudanese authorities.
    Mr. Day: What representations have Her Majesty's Government made to the Government of Sudan about the latter's rather unhelpful approach to the Gulf crisis?
    Mr. Hogg: The Government of Sudan are one of the few Governments in the world who have given support to the Government of Iraq. That is wrong in principle and it is contrary to the interests of the Sudan. We have made both those things clear to the Sudanese Government.
    Mr. Stanbrook: That huge country, with its immense resources and its wonderful people, has not enjoyed political stability since it was under British administration. Is my hon. and learned Friend aware that Britain has a vast reservoir of experience and expertise with regard to the problems of the Sudan which is not sufficiently tapped? Will he please ensure that that resource, which is available to Her Majesty's Government and to the authorities in the Sudan, is used for the mutual benefit of both countries?
    Mr. Hogg: My hon. Friend makes an interesting point. I am aware that the Sudanese civil service attracted some
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    of the ablest administrators in the colonial service and there is thus a pool of informed opinion. I shall give careful thought to my hon. Friend's ingenious suggestion.
    Mr. Anderson: I fully support the Government's robust response to the release on 7 January by the Sudanese Government of the terrorists who murdered five British citizens. Will the Minister say a little more about the extent of the co-operation between Sudan and Iraq in the Gulf war? For example, Christian Sudanese from the south say that chemical weapons have been supplied by Iraq to the Sudanese Government and ABC News recently carried a report that before the conflict Iraq had positioned combat aircraft and missiles via Port Sudan in Sudan itself for possible use against strategic targets either in Saudi Arabia or against targets such as the Aswan dam in Egypt.
    Mr. Hogg: As regards the second part of the hon. Gentleman's question, yes there have been rumours to the effect that Iraq has been basing equipment of various kinds in the Sudan, but we have no evidence to substantiate them. Our view would be that that would be wrong in principle and contrary to the interests of the Sudan. As to the first part of the hon. Gentleman's question, I am grateful to him for the support that he has given to the Government for the way we responded to the disgraceful decision to release the terrorists who murdered five British citizens and two others.

    Cambodia
    Mr. Wallace: To ask the Secretary of State for Foreign and Commonwealth Affairs whether Her Majesty's Government propose to take any initiative in the United Nations to seek an immediate ceasefire of hostilities in Cambodia.
    Mr. Cryer: To ask the Secretary of State for Foreign and Commonwealth Affairs what representations he has received regarding the situation in Cambodia; and if he will make a statement.
    The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Mark Lennox-Boyd): Britain has contributed fully to the agreement between the Permanent Five and the co-chairmen of the Paris conference on Cambodia on a draft comprehensive settlement document, an integral part of which is a monitored ceasefire. We continue to pursue the early implementation of these proposals.
    Mr. Wallace: Can the Minister confirm that one of the provisions of the United Nations peace plan is such that a ceasefire cannot be implemented, nor can the external supply of arms be discontinued until a date is agreed for the implementation of the plan? A meeting to try to arrange a date seems to be becoming increasingly bogged down and is not happening. He must be aware of the public's great concern about the carnage that has taken place in Cambodia. Can the Government take any fresh initiative to hasten the day when a ceasefire will be possible and will not not necessarily be dependent upon the United Nations peace plan?
    Mr. Lennox-Boyd: We constantly urge a ceasefire. Our objective—with our friends and partners, notably the permanent members of the Security Council—is to work for a comprehensive political settlement which includes a

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    ceasefire. The consensus between the Permanent Five, the Paris conference co-chairmen and the United Nations on the draft settlement document must provide an opportunity for the Paris conference to reconvene one day and to adopt a settlement.
    Mr. Cryer: Are not people a little suspicious of the Government's intentions when the Government have been involved in training members of the Khmer Rouge, which includes the Pol Pot faction? Does not the United Nations settlement involve a ceasefire which disarms the Cambodian Government before the Khmer Rouge, including the Pol Pot faction? As the British Government are so concerned about containing aggression, why are they not doing more to aid the Cambodian Government, supported by Vietnam, to resist encroachments by the Pol Pot faction which, as the Minister will readily acknowledge, has one of the worst records in existence for battering human rights?
    Mr. Lennox-Boyd: We have repeatedly stated, and I shall state it again today, that there has never been and there is no Government involvement of any kind in training, equipping or co-operating with the Khmer Rouge. The hon. Gentleman should use his undoubted energies in the direction of encouraging a comprehensive peace settlement. In that way, we would create the conditions to enable the Cambodian people to elect a Government, free from fear of foreign invasion and civil war or Khmer Rouge atrocities.
    Mr. Lester: As regards getting a comprehensive settlement, which is what we all seek, will my hon. Friend consider ensuring that a member of our foreign service goes to talk to the Phnom Penh Government? There are difficulties with the interpretation of the United Nation plan and it would be helpful if we used our diplomatic skills to get over them. Also, will he consider the position of the camps in Thailand, where we are feeding people who are party to a civil war and not under United Nations control?
    Mr. Lennox-Boyd: We have no objection to talking to representatives of the Phnom Penh regime to urge them to co-operate in restoring peace to Cambodia on the basis of the Permanent Five's framework. It is certainly the case also that we support efforts to improve the lot of displaced people in camps along the Thai-Cambodian border.
    Mr. Allason: Given Mr. John Pilger's apparent success in perpetuating the myth that the SAS and other British units have been training the Pol Pot regime and its supporters, has the Foreign Office given any consideration to employing Mr. Pilger as a propagandist against the regime in Baghdad?
    Mr. Lennox-Boyd: The Foreign Office has made clear its fundamental disagreement with so many of Mr. Pilger's allegations.

    Intergovernmental Conferences
    Mr. Favell: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the intergovernmental conferences.
    The Secretary of State for Foreign and Commonwealth Affairs (Mr. Douglas Hurd): Both intergovernmental conferences were opened on 15 December, in Rome. The
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    conference on European monetary union met again on 28 January, attended by my right hon. Friend the Chancellor of the Exchequer. I attended a meeting of the political union conference on 4 February. Ministers' personal representatives are also meeting weekly. The United Kingdom is playing a full and constructive role in both conferences.
    Mr. Favell: The EC conferences are about the future control of our economic, foreign and defence policies—the hallmarks of an independent state. Does it not strike my right hon. Friend as odd that at a time when, quite rightly, our troops are in the Gulf to restore independence in Kuwait, we should talk about giving away our own independence?
    Mr. Hurd: I am not sure that the two situations are entirely comparable. So far as we are concerned, the two conferences are exercises to see whether we can co-operate more effectively with our partners in Europe. I am sure that my hon. Friend would not suppose that my right hon. Friend the Chancellor's plan for a hard ecu, or the ideas that I am quoting in the other conference for stimulating the role of national parliaments in controlling the Community and for more effective compliance by member states of European decisions that they have already accepted in theory, involve any sacrifice of independence on our part.
    Mr. Shore: The Foreign Secretary has given an unusually bland and uninformative reply. He surely recognises the great interest that there is in the progress of the talks on the intergovernmental conferences—particularly that on political union, for which the right hon. Gentleman is more directly responsible. Will the Foreign Secretary keep the House informed as to the substance of the talks at the meeting on 4 February? Will he also ensure that, in future, a separate statement is made whenever the right hon. Gentleman returns from Brussels, Luxembourg, or wherever it may be, so that the House will be kept fully informed?
    Mr. Hurd: I always try to ensure that the House is kept properly informed. On 4 February, we had a general discussion in the intergovernmental conference on the subject of foreign policy. I maintained the view that there is everything to be said for working together effectively, and in trying to agree a line and implementing it—but that would not be achieved by playing about with majority voting or procedures.
    Sir Geoffrey Finsberg: Does my right hon. Friend agree that it has become clear from events in the Gulf that the intergovernmental conference ought not to come to any conclusion that the defence of western Europe should be handed over to the Community? Will he use his best endeavours to strengthen the Western European Union, which is the right organisation, as the European pillar of NATO?
    Mr. Hurd: So far as we and most members of the Community are concerned, there is no question of trying to load on to the EC the responsibility for our defence that is shouldered by NATO. There is a question of how far we can build up the WEU, as my hon. Friend knows and approves, but the essence of our defence will continue to lie in the Atlantic alliance.
    Mr. Robertson: Why, even at this late stage, with the intergovernmental conferences now involving weekly meetings of officials, do we still not have the Government's promised paper on the agenda for the political union conference? When it comes to the economic and monetary union conference, we have not only the Government's agenda but an alternative draft treaty, whereas we know little of the Government's views or negotiating position in respect of the political union prospectus. When it comes to matters of major substance affecting the future of this country, the House of Commons and the people of this nation should have a right to participate, rather than everything being left to faceless officials meeting in Brussels.
    Mr. Hurd: I recall a debate in which I set out our proposals and ideas very clearly. I will refresh the hon. Gentleman's mind by sending him the relevant copy of Hansard.

    The Gulf
    Mr. Barry Field: To ask the Secretary of State for Foreign and Commonwealth Affairs how many countries have now played an active role in the military operations taking place in the Gulf.
    Mr. Steen: To ask the Secretary of State for Foreign and Commonwealth Affairs how many members of the United Nations are contributing financial or military aid to the allies in the Gulf war; and if he will list those countries which have not contributed.
    Mr. Hurd: More than 30 nations, including nine European Community members, are contributing equipment, material and personnel to the multinational force in the Gulf. A number have been involved in military operations already, and others will become involved as the allied campaign takes its course. Most recently, the Governments of Germany, Kuwait and the United Arab Emirates have offered generous financial support to Britain.
    Mr. Field: I thank my right hon. Friend for that detailed answer. Manfred Woerner, secretary-general of NATO, has called for a common defence and foreign policy within the EC. On 5 February, Mr. Jacques Poos said in The Times that if there had been a common foreign policy the result would have been speedier but the same. What is the point of speedier disunity? Does not taking NATO further into the EC risk uncoupling America's defence policy from the destiny of Europe?
    Mr. Hurd: As I have just said, I believe that the bedrock of our defences must continue to be NATO. It is perfectly clear to me, however, that the Americans expect NATO's European members to play a larger part in the defence of Europe; and that expectation will have been increased by what has happened in the Gulf.
    Mr. Galloway: On day two of the war, I described the aerial bombardment of cities as, by definition, mass murder. I was ridiculed by the Prime Minister and later by the Foreign Secretary.
    As the Foreign Secretary watched the television screen at lunchtime and saw the charred ribbons of women and children swept out of the air raid shelter in Baghdad, did it occur to him that some of the blood of those innocent
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    civilians was on his hands and the hands of those who are making this marvellous war against civilian targets in Baghdad and Basra? Will he stop bombing cities now?
    Mr. Hurd: I have no information about the event that the hon. Gentleman has described, beyond what he and I watched on television. He will know—and, I hope, accept —that the greatest possible care is being taken to avoid indiscriminate attack on civilian targets and that the targeting is as precise as has ever been achieved in the history of modern warfare.
    Let me tell the hon. Gentleman and the House that there is no doubt that war has its tragedies and those tragedies can sometimes be great, even when the greatest possible care and precision are exercised. That is why the responsibility lies so heavily on someone like Saddam Hussein who commits aggression and then refuses all peaceful invitations to reverse that aggression.
    Sir Peter Blaker: Do not the allied forces in the Gulf deserve immense credit for the trouble that they are taking to minimise civilian casualties, sometimes at risk to their own lives? Is it not quite possible that the casualties among Iraqi civilians caused by allied bombing are fewer than those caused by Saddam Hussein's terror squads?
    Mr. Hurd: That may well be so. The allied forces do all that they can to avoid civilian casualties; in that regard they are very different from President Saddam Hussein, whose Scud missiles are aimed indiscriminately at civilians, whether in Tel Aviv or in Riyadh.
    Mr. Winnick: Everyone must deplore the number of civilian casualties and I hope that what has happened causes great and genuine concern to every hon. Member. The allied military command should hear in mind both the human and the political costs of the raids and the casualties.
    Should we not also bear in mind, however, the atrocities that have been carried out in Kuwait since the invasion —the way in which so many people there have been terrorised and killed, and continue to be so? I have already said that I deplore the civilian casualties, but did not hundreds of thousands of Iraqis die in the useless, futile war waged by Saddam Hussein against Iran?
    Mr. Hurd: The hon. Gentleman puts his points well. I refer his hon. Friends who think otherwise to the Amnesty report on what has happened and is still happening in Kuwait.
    Mr. Churchill: Is my right hon. Friend aware that there is great concern at the fact that the suffering and plight of the civilian population of Kuwait go unreported because the dictator of Baghdad does not permit them to be reported, while the western media are making themselves the vehicle for Saddam Hussein's propaganda machine by playing up every civilian casualty? Very often, those casaulties may be caused by Iraqi surface-to-air missiles and they may often involve not civilian but military casualties.
    Mr. Hurd: It is very important that all those reporting on these matters do not lose sight of, and continue to search for, evidence of what is happening in Kuwait. When I was talking to the Kuwaitis in Taif a few days ago, I urged them to do everything that they could to make that material available. We are doing our best in that respect.
    Mr. Kaufman: I wish to express the dismay and horror of everyone in the House—certainly all Opposition Members—at the terrible event which took place in Baghdad this morning. I should be grateful if the Foreign Secretary could confirm that the air raid shelter in which those people died was not deliberately targeted. I should be grateful if he would ensure that the utmost efforts are made by the coalition forces to prevent the repetition of such a tragic mistake and that the avoidance of civilian casualties is given an even higher priority than it has been already. Does the right hon. Gentleman agree that the most effective way to avoid further appalling loss of innocent life is for Saddam Hussein to accept the United Nations resolutions, withdraw from Kuwait and end the war?
    Mr. Hurd: The aim of all the allied forces in action now is to weaken the military machine which is perpetuating the aggression in Kuwait and thus bring nearer the time when Kuwait can be liberated as the United Nations has asked. Therefore, it is part of the policy of all the allied forces to keep to a minimum the civilian casualties which may occur as military targets are attacked. I agree entirely with the right hon. Gentleman's last point.

    Soviet Union
    Mr. John Marshall: To ask the Secretary of State for Foreign and Commonwealth Affairs when he last met the Soviet Foreign Minister to discuss human rights in the Soviet Union.
    Mr. Douglas Hogg: My right hon. Friend last discussed human rights with the Soviet Foreign Minister during his visit to Moscow in September 1990.
    Mr. Marshall: Does my hon. and learned Friend agree that the continued enslavement of the Baltic states and the refusal of exit visas to a number of refuseniks is intolerable? Will he remind the Russian authorities that we judge them not by Mr. Gorbachev's speeches but by his deeds and that some of his recent actions are offensive to all decent-minded men and women?
    Mr. Hogg: On the first part of my hon. Friend's question, we believe that the peoples of the three Baltic republics have a right to self-determination and we hope that they and the Soviet Union will be able to negotiate the outcome that is wished by the people of those republics. On the second part of my hon. Friend's question, I agree entirely that the unfettered right to emigrate is one of the characteristics of an open and accountable society. There have been substantial improvements in that regard within the Soviet Union, but there is still further to go.
    Mr. Rowlands: Before the Secretary of State meets his opposite number in Moscow about human rights issues, will he make immediate inquiries of President Gorbachev as to whether the latter supports the views of his own Prime Minister that somehow there was an absurd plot to destabilise the rouble in recent weeks?
    Mr. Hogg: That allegation by the Soviet Prime Minister was manifestly dotty, and Mr. Gorbachev is not dotty.
    Mr. William Powell: In all the representations that my hon. and learned Friend and other members of the Government have made to the Soviet authorities about the disgraceful shootings in Vilnius and Riga in recent weeks,
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    have the Government received any satisfactory explanation from the Soviet authorities as to why they took place; and will my hon. and learned Friend continue to stress to the Soviet authorities that it would be very difficult for the western powers to be accommodating to the economic needs of the Soviet Union until a satisfactory explanation is given?
    Mr. Hogg: We have had a number of explanations from the Soviet authorities, some more persuasive than others. As for the second part of my hon. Friend's question, this is indeed extremely regrettable. The British Government, in concert with others, want to signal our disapproval and condemnation of what is happening by, for example, suspending the non-humanitarian aid element of the Rome declaration. So I support the latter part of my hon. Friend's suggestion.
    Mrs. Mahon: Will the Minister reconsider his letter to me about bringing up at the United Nations the repression and killing in the Baltic states? Will he, even now, acknowledge that it is not good enough to say, as he did in his letter, that he does not think
    "the United Nations Security Council is likely to solve the issue."
    Does not that show appalling double standards, given the Government's reliance on the United Nations for everything they say about the Gulf?
    Mr. Hogg: The hon. Lady does not fully comprehend the jurisdiction and competence of the Security Council. If we tried to raise this matter in the Security Council I am afraid that it would be frustrated by endless sterile procedural arguments. What we need to do and are doing is to take every other opportunity open to us—they are many—to make it plain to the Soviet Government not merely that we condemn what they have been doing in the Baltic republics but that they will have to pay a price in terms of lost co-operation with the west.

    China
    Mr. Simon Coombs: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on relations between the United Kingdom and the people's republic of China.
    Mr. Lennox-Boyd: We are working to achieve a full and constructive relationship with the People's Republic of China. The dialogue we are developing covers a wide range of issues, including human rights. We have a common commitment to the maintenance of the stability and prosperity of Hong Kong.
    Mr. Coombs: Does my hon. Friend agree that the People's Republic has made a substantial contribution to the international peace process in the United Nations, particularly over events in the Gulf? In that context, what progress has been made in recent weeks in discussions between the People's Republic, the United Kingdom Government and the Government of Hong Kong about the development of the port and airport scheme—especially the airport at Chek Lap Kok?
    Mr. Lennox-Boyd: I am happy to confirm that the People's Republic of China has made a constructive contribution to Security Council debates on the crisis in the Gulf.

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    The Government of China agree on the need for the airport. Premier Li Peng spoke to my hon. Friend the Member for Warwickshire, North (Mr. Maude)—then responsible for Foreign Office affairs on China—in July of last year and gave him that assurance. Experts are discussing the project on both sides and we hope that the Chinese will support it in due course.
    Mr. Cox: Is the Minister aware of the role that the British inter-parliamentary group is playing in building better relationships with the People's Republic of China, specifically in the areas of human rights and the rights of the people of Hong Kong? Will he acknowledge the role that the British IPU plays in this important matter?
    Mr. Lennox-Boyd: I am sure that the IPU has made its concern on human rights felt. We, too, express our concern about them on every possible occasion.
    Mr. Sims: Does my hon. Friend agree that it is as much in the interests of China as of Hong Kong that the territory should continue to enjoy stability and prosperity, to which he referred, and confidence in its future? Does he agree that the remarks attributed to Deng Xiaoping about British tricks and about sending in troops to put down rebellion do not contribute to confidence?
    Mr. Lennox-Boyd: I confirm that it is as much in the interests of the Chinese Government as of the Hong Kong Government that Hong Kong should prosper. My hon. Friend referred to a newspaper article quoting remarks by Deng Xiaoping. That statement was not an official one by the Chinese Government. The report to which my hon. Friend referred was of an earlier article in a Hong Kong magazine last month. It is not helpful to comment on speculation.
    Mr. Foulkes: Will the hon. Gentleman confirm that, with only two weeks to go to the deadline, fewer than 6,000 Hong Kong people have applied for the 50,000 available passports? Does not that shambles show that the Government would have been better occupied bringing full democracy to Hong Kong instead of having this flawed scheme? Does not the fact that Hong Kong people are still flooding to Canada, the United States and Australia show that the scheme is not anchoring people in the territory and that those people, like us, no longer have confidence in the United Kingdom Government?
    Mr. Lennox-Boyd: I should have thought that the hon. Gentleman would recall that Labour Members, perhaps including himself, suggested that this scheme would flood the United Kingdom with people from Hong Kong. Considerable interest has been shown in the scheme. A quarter of a million application forms have been distributed. Experience shows that there may be a rush of applications just before the deadline.

    Collective Security
    Mr. Conway: To ask the Secretary of State for Foreign and Commonwealth Affairs what importance he attaches to the strengthening of collective security arrangements.
    Mr. Hurd: NATO, including the presence of north American forces in Europe, remains the basis for our collective security. The alliance is adapting to the new circumstances in Europe and we have put forward
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    proposals for strengthening the European pillar within the alliance by building up the Western European Union. The WEU has shown that it can play a useful role in co-ordinating European military activities outside Europe.
    Mr. Conway: I am grateful to my right hon. Friend for his reply. Does he accept that defending Europe's interests as an entity must extend beyond physical boundaries to include its interests? If so, does he find less than edifying the response of some of our European and NATO allies to the crisis which we face in the Gulf, particularly nations such as Belgium which have been less than enthusiastic about the part that they could play in the conflict?
    Mr. Hurd: This was not a NATO responsibility, except in terms of the threat perceived to Turkey, a NATO member. Efforts to achieve a concerted military response have had patchy results. The Belgians have sent three warships and we are discussing further forms of help with them.
    Ms. Short: I am sure that the right hon. Gentleman agrees that the United Nations plays a part in collective security. Has he heard the suggestions in Germany that in future the Germans cannot be expected to pay without a say and that they should have some kind of representation in the United Nations, perhaps collective European representation, or, as Willie Brandt suggested, two alternating seats for Europe? Does the right hon. Gentleman have a statement to make about those two suggestions?
    Mr. Hurd: I am glad that the hon. Lady recognises the United Nations role in enforcing collective security. I hope that she will now back resolution 678—
    Ms. Short: I do.
    Hon. Members: Withdraw.
    Mr. Hurd: I withdraw that insinuation. I am glad that the hon. Lady shares my view of the importance of the United Nations to collective security. I hope that the German Government will persist in their plan to amend the German constitution, to enable Germany, with her allies and partners, to play a full part in collective security. Germany has not asked for a permanent seat on the Security Council and there is no such proposal on the table.
    Ms. Short: On a point of order. The Foreign Secretary misrepresented me—
    Mr. Speaker: Order. Hon. Members are frequently dissatisfied with the answers that they receive. I heard the Foreign Secretary withdraw that comment.
    Mr. Cyril D. Townsend: May I commend my right hon. Friend for his wise remarks at Blaby on future collective security in the Gulf? Is not it essential that the Gulf states themselves decide what they want, and with whom they co-operate? Does my right hon. Friend agree that, while the United Kingdom is prepared to play its part in underpinning peace in the region, there is no question of our having a large military presence east of Suez once again?
    Mr. Hurd: May I say, first, that I withdrew my suggestion about the hon. Member for Birmingham, Ladywood (Ms. Short) as soon as she began to show

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    indignation. Indeed, I withdrew it even before I had completed it. I am delighted that, with regard to the Gulf war, we are on the same side.
    I agree with the point that my hon. Friend has just made. It is very important that the countries of the region, particularly the Arab members of the coalition against Saddam Hussein's aggression, should begin to form their own ideas about security, especially in the Gulf, after the war. I am very glad that, tomorrow, eight of the states most closely concerned will meet in Cairo to make a start.

    The Gulf
    Mr. Sillars: To ask the Secretary of State for Foreign and Commonwealth Affairs what recent discussions he has had with Arab League states about further exploration of diplomatic solutions to the Gulf crisis.
    Mr. Strang: To ask the Secretary of State for Foreign and Commonwealth Affairs whether he has had dicussions with any of his counterparts who are members of the union of Arab Maghreb nations, since the commencement of military action against Iraq.
    Mr. Hurd: Discussions with members of the Union of Maghreb Nations and of the Arab League continue. We all agree on the need to end the conflict as early as possible, on the basis of the relevant Security Council resolutions. But a diplomatic solution can be possible only once Saddam Hussein is willing to comply with the Security Council resolutions.
    Mr. Sillars: Does the Secretary of State agree that, although Saddam Hussein bears the primary responsibility for the conflict in the Gulf, the events in Baghdad this morning, involving very substantial loss of human life, not only constitute a human tragedy but represent a political disaster for the coalition forces and, in particular, for those Arab leaders associated with the coalition, against the wishes of the mass of people in their countries? Does not this point to the need to rule in compromise as a possible solution before the land battle commences and further civilian casualties of the magnitude experienced today occur? Has the Secretary of State talked to the Kuwaiti Government and received from them any suggestion that they might agree with the United States ambassador to Baghdad that Saddam Hussein could perhaps retreat to the two islands and the oilfield and hold them as a compromise solution until international—
    Mr. Speaker: Order. That is far too long for a supplementary question.
    Mr. Hurd: I had discussions with the Kuwaiti Government four days ago, but I should not have thought it right, or in any way fruitful—their whole country having been invaded and virtually obliterated, and their people tortured and oppressed—to suggest to them that they should take the initiative or should accept from anybody else any initiative involving the dismembering of their country.
    Mr. Strang: What effect does the Secretary of State think the bombing of the air raid shelter today has had on the opinion of these nations and their leaders? Is it not clear that there is growing revulsion, not only among the Arab nations but throughout the world, at what is
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    happening in Iraq? Surely the Secretary of State must accept that thousands and thousands of Iraqi civilians have now been killed.
    Mr. Hurd: In Saudi Arabia and Egypt, and in discussions here with Syria's Foreign Minister, I have heard that in those three key Arab countries, which are members of the coalition against Saddam Hussein, the issue of civilian casualties has been considered fairly and accepted—accepted in the sense that those countries realise the nature of the operation, agree with its objective and intend to stay within the coalition. I do not believe that even tragedies of the kind reported this morning will alter that analysis or shake that determination.
    Sir Richard Luce: Is it not more constructive that my right hon. Friend has made it absolutely plain that the British Government stand ready, once Kuwait has been liberated, to respond to any request from middle east countries to play a prominent role in the economic and political reconstruction of the middle east?
    Mr. Hurd: Indeed, and it is because the Kuwaitis have begun to plan in detail the reconstruction of their country that a group of British business men came with me to talk to the Kuwaitis four days ago. I am glad that they did that. We have made two things clear—first, that it is not for us to impose a political, strategic or economic blueprint on the region. The good ideas have to come from the region itself and that is beginning to happen. Secondly, as my right hon. Friend says, we have made it clear that we are willing, within our means, to consider any suggestions for help from those countries once they have sorted out their own ideas.
    Sir Michael Marshall: Does my right hon. Friend accept that in pursuing a diplomatic solution that will see the withdrawal of Iraq from Kuwait, one of the key players at the present time is Iran? Will he take this opportunity to characterise the state of the dialogue with that country? Does he also accept that the continuing parliamentary links with Iran suggest that there is a much more favourable climate now in which to make progress?
    Mr. Hurd: We restored diplomatic relations with Iran in the autumn, as my hon. Friend is aware. I am in favour of the kind of parliamentary contacts to which he referred and I hope that they will bear fruit before long. The progress of our relations has not been as fast as I would have wished. I am very anxious to make progress on some of the bilateral points, which is diplomatic jargon for the British hostages held by pro-Iranian groups in Lebanon and also Mr. Cooper who is in prison in Tehran.
    Mr. Ernie Ross: When the Foreign Secretary next meets the Arab League states, as part of his attempt to find a diplomatic solution, will he assure them of his determination to strengthen the new Lebanese Government? As part of that determination, will he raise with the Israeli Government the need for them to stop their land, sea and air incursions into Lebanon? Will he also raise with them the need to help strengthen that Lebanese Government?
    Mr. Hurd: I welcome the move of the Lebanese Government into the south of their own country, but that is a slightly different point. Palestinian groups have been using force and rockets against settlements in the north of

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    Israel. While I accept the need for the whole tragedy of Lebanon to be discussed, the Palestinian part in the latest violent episodes cannot be brushed aside.
    Mr. Brandon-Bravo: Will my right hon. Friend contrasts the immediate comments of certain Opposition Members about the tragedy—and I stress the word "tragedy"—of the civilian loss of life about which we have heard today, with the absolute silence that greeted the destruction of thousands of homes in the state of Israel as the result of Scud attacks?
    Mr. Hurd: To be fair, the whole House has shown its revulsion against the indicriminate attacks made by the Iraqi Scud missiles whether against Israel or civilians in Riyadh. The sooner this whole crisis can be brought to an end by reversing the aggression and freeing Kuwait, the sooner we can get on with the task of trying to rebuild a more sensible middle east in which these tragedies d o not occur.
    Mr. Kaufman: I am grateful to the Foreign Secretary for repudiating the offensive and foolish remark made by the hon. Member for Nottingham, South (Mr. Brandon-Bravo). Does the Foreign Secretary agree that as Scud missiles continue to rain on Israel causing civilian casualties and destroying people's homes, the need for Israeli security through a peace settlement becomes more obvious, because it is clear that the occupation of the occupied territories does not provide Israel with that security, as Amos Oz so widely said in that superb interview that he gave on television on Sunday afternoon? Will he remind Mr. Shamir that a settlement is not possible unless he is ready to speak to representative Palestinians and that it is deplorable that he places in prison moderate Palestinians like Sari Nusseibeh?
    Mr. Hurd: I do not think that my hon. Friend the Member for Nottingham, South (Mr. Brandon-Bravo) and the right hon. Gentleman are differing in their reactions to the attacks on Israel or in their support for the restraint that the Israel Government have shown in response. However, the right hon. Gentleman's second point is soundly based, because after the war we will have to return to the search for a lasting settlement of the Arab-Israel dispute. That cannot be done simply by agreements between Israel and Syria on the one hand and Saudi Arabia and other Arab states on the other. It must include what is called the Palestinian question. It must be based on the United Nations Security Council resolution which defines as necessary the ending of the occupation by Israel of the occupied territories and the recognition and the securing of Israel's security behind safe borders.

    Prisoners of War
    Mr. David Evans: To ask the Secretary of State for Foreign and Commonwealth Affairs when he last met the Iraqi ambassador to make representations concerning the treatment of British and allied prisoners of war.
    Mr. Douglas Hogg: I summoned the Iraqi ambassador on 21 January to protest about Iraqi threats to use allied prisoners of war as human shields. I summoned him again on 29 January, following Iraqi news reports that prisoners of war had been wounded and that one perhaps had been killed. I told the ambassador that the Iraqi Government were in breach of their international obligations under
    848
    articles 19 and 23 of the third Geneva convention. I asked him to convey our views to the Iraqi Government at once and at the highest level.
    Mr. Evans: I thank my hon. and learned Friend for that reply. Was his meeting with the ambassador held in the Tower of London? If not, why not? When the ambassador returns to this country, will my hon. and learned Friend have further meetings with him in the Tower of London so that the ambassador can be close to the torture chamber and make himself familiar with what Saddam Hussein has done to prisoners of war and, in particular, our loved ones?
    Mr. Hogg: When I saw the ambassador I made it plain to him that we regarded the conduct of his Government as wholly disgraceful. After that meeting he was under no illusion whatsoever.
    Mr. Rees: Does the Minister recall that during the previous war, when it was reported to the House that RAF air crew had been badly treated and, indeed, shot, a promise was made to do something about it after the war? After the war, it was decided conveniently to forget it. I hope that the Minister's words—a correct condemnation —will not be the end of the matter. It must never be forgotten that, when prisoners of war on any side are badly treated, somebody must be brought to justice.
    Mr. Hogg: I made it plain to the ambassador that where there was a gross breach of international obligations, those responsible could be held personally liable.
    Mr. Onslow: What are the penalties for a reckless breach of the Geneva convention in these matters, and who is responsible for enforcing them?
    Mr. Hogg: There are a variety of ways in which individuals can be made accountable for their individual action. Of course, the consequences depend upon the precise nature of the breach alleged.

    Afghanistan
    Mr. Ron Brown: To ask the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement about relations with Afghanistan.
    Mr. Lennox-Boyd: We do not have substantive dealings with the Najibullah regime, which is not supported by the majority of Afghans. We would welcome its replacement by a Government truly acceptable to the Afghan people with whom normal relations would be possible.
    Mr. Brown: If the British Government are so chummy with Syria and Iran, for example, what is wrong with Afghanistan? To my knowledge, Dr. Najib's Government are not associated with terrorism—certainly, they are a revolutionary Government—but I wonder why there is not one British representative in Kabul. Could it just be that the Tory Government can never forget that the Afghan trade union movement backed the miners during the struggle—[Interruption.] That is true. The Afghan trade union movement backed the miners against the Thatcher regime. We can never forget that.
    Mr. Lennox-Boyd: No, it has nothing to do with the miners. We have not broken off diplomatic relations wit h Afghanistan but the Najibullah regime is only there with

    849
    the support of the Soviet Union. It remains unrepresentative and unacceptable to a majority of the Afghans and controls only some 20 per cent. of the territory.
    Mr. Atkinson: Can my hon. Friend confirm that a contingent of the Afghan mujaheddin is currently serving in Saudi Arabia? Is not that a welcome development? Can he say what their role is?
    Mr. Lennox-Boyd: I can confirm that a contingent of the Afghan mujaheddin is serving in Saudi Arabia.

    Yugoslavia
    Mr. Wareing: To ask the Secretary of State for Foreign and Commonwealth Affairs when he last met the ambassador of Yugoslavia to discuss that country's relationship with European institutions.
    The Minister of State, Foreign and Commonwealth Office (Mr. Tristan Garel-Jones): The Yugoslav ambassador last paid a formal call on my right hon. Friend in November 1989. On 30 January 1991 he called on my hon. and learned Friend the Member for Grantham (Mr. Hogg).
    Mr. Wareing: Although our minds are rightly concentrated on the Gulf, does the Minister agree that the possible break-up of Yugoslavia creates potential danger to peace in south-east Europe and that the nationalist tensions within that country could give rise to problems for Yugoslavia's neighbours? Is it not therefore in our interest to support the Yugoslav federation's application for membership of the Council of Europe and for a new association treaty with the European Community?
    Mr. Garel-Jones: The hon. Gentleman will be aware that Yugoslavia already is a guest member of the Council of Europe's parliamentary assembly. Yugoslavia has applied for full membership of the Council of Europe. That has been passed in the usual way to the parliamentary assembly. We now await the opinion of the assembly on the matter. No doubt it will bear in mind the points that the hon. Gentleman has just made.
    Mr. Aitken: Does my hon. Friend agree that Yugoslavia seems to be perilously close to civil war? Can he assure the House that he will do everything in his power, both through our diplomatic channels and through European institutions, to persuade the leaders of Croatia and Serbia to turn back from their tragic collision course towards bloodshed?
    Mr. Garel-Jones: The United Kingdom is obliged under the CSCE Final Act to continue to support the unity and integrity of Yugoslavia and also the right of individual
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    peoples to national self-determination. We would deplore the use or the threat of force against any democratically elected Government.

    The Gulf
    Mr. Simon Hughes: To ask the Secretary of State for Foreign and Commonwealth Affairs what have been his Department's responsibilities and activities in connection with the international response to environmental damage caused since the commencement of hostilities in the Gulf; and what consultations he has had with other Governments on the subject.
    Mr. Lennox-Boyd: The Foreign and Commonwealth Office is maintaining close touch through diplomatic channels with the Gulf states affected, who are leading the response to the environmental damage that Iraq is inflicting on the region. The FCO was pleased to be able to assist in making the arrangements for, and a financial contribution to, the visit of the RSPCA team to Saudi Arabia and Bahrain.
    Mr. Hughes: Does the Minister accept that there was widespread concern that at the time of the oil slick—caused, I accept, by the Iraqis and not in other ways—there had not been adequate preparation, given the many warnings of environmental risk to the Gulf as a result of hostilities? In view of the greater danger to human life and to the environment if the chemical cocktail of toxic substances in Kuwait, Iraq and Saudi Arabia were to be detonated or released by future conflict, what is being done now to ensure that the allied forces avoid such detonation, and what preventive measures are planned to mitigate any further much worse environmental damage to humans and to the middle east in general?
    Mr. Lennox-Boyd: The response to the emergency caused by the oil slick is clearly the responsibility of Saudi Arabia and the other sovereign Gulf states affected. However, I can confirm that a considerable amount of equipment—90 tonnes of anti-pollution equipment—from stocks held in Britain has been delivered to the region.
    Mr. Tredinnick: Does my hon. Friend agree that loss of human life is the worst form of environmental damage? Is it true that the Iraqis are setting up concentration camps in Kuwait for Kuwaiti civilians? Will he give an undertaking that, when the war is over, those responsible will be prosecuted under international law?
    Mr. Lennox-Boyd: My hon. Friend has raised a point that is not relevant to the environmental damage, but I can confirm that the worst possible environmental damage caused by Saddam Hussein involves the appalling atrocities that he has committed against people in Kuwait and that region.

B52 Bombers (Bristol Channel)
3.30 pm
Mr. Tony Speller(by private notice): To ask the Secretary of State for Defence whether he will make a statement about the announcement that B52s would dump bombs in the Bristol channel in an emergency.
The Minister of State for the Armed Forces (Mr. Archie Hamilton): I am grateful to my hon. Friend the Member for Devon, North (Mr. Speller) for raising this issue, and hope that I can allay his concern and that of hon. Members on both sides of the House.
The House will recall that we agreed last month that the United States could operate B52s from RAF Fairford as part of an allied effort in the Gulf conflict. The United States air force requested that an area should be provided for jettisoning bombs in the very unlikely event of an emergency occurring shortly after take-off.
Notices to airmen were issued on 8 and 9 February and to mariners on 12 February advising them of the establishment of an emergency jettison area for B52 aircraft off Hartland point, seaward of the Bristol channel. Thousands of notices to airmen are issued every year, covering a variety of planned and possible events. The emergency area selected is a permanently designated military danger area, covering 1,000 square miles, normally active during daylight hours from Monday to Friday, which is notified to all airmen and mariners. It covers an air gunnery range used daily by the RAF for activities including live firing. The purpose in issuing the recent notices to airmen and mariners was to activate the area full time. That would not prohibit the use of the area by shipping.
The likelihood of the area being used by B52s in emergency is extremely remote. In such an event the bombs being jettisoned would not be armed, and the B52 aircrew would use all means available—including visual checks and radar—to ensure that the area below them was clear of aircraft and shipping. In addition, as much notice as possible of any emergency would be given to all shipping through the normal international frequencies.
The issue of the notices to airmen and mariners is therefore a sensible precaution, designed to deal with a very remote contingency in the safest way possible.
Mr. Speller: I thank my hon. Friend for his comments and explanation, and propose to ask him four specific questions.
First, presumably by definition the aircraft will be in some distress, otherwise an emergency would not arise. Will my hon. Friend confirm that the bombs will not be armed, whether the planes are going to, or coming back from, the Gulf? Is my hon. Friend aware that the coastguard at Ilfracombe was not aware of the points that he has made today and the fishermen and those involved in coastal shipping ask how they are supposed to get out of the way if large chunks descend on them—[Laughter.] My constituents do not find this matter nearly as funny as hon. Members. How are fishermen supposed to be notified to get out of the way should a problem arise if they do not have a radio?
Mr. Hamilton: An aircraft is much more likely to be in distress shortly after take-off than when returning, when it
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is very unlikely. If that were the case, one would expect the aircraft to jettison bombs much further out to sea. I emphasise what I said in my opening remarks: we would rely on the B52s to use radar to make absolutely certain that no shipping was below them. I am told that that is reliable. They would not be flying at great altitudes and the radar would work effectively. In those circumstances, the danger to shipping below them would be minimal.
Mr. Alan Williams: Does the Minister accept that we all recognise that this is a remote possibility and that it is better that there are contingency plans than that there are not? Does he further recognise that the designated area is nearly 100 miles from the point of take-off of the aircraft, that along the flight path on either side of the channel live 1.5 million people, and that the aircraft weighs 220 tonnes and carries 30 tonnes of munitions? Will the Minister confirm that, in the event of an aircraft having to jettison its bombs, 108 500 lb bombs, which normally fall in a pattern one mile long and half a mile wide, would fall? What reassurance can he give the constituents of the many hon. Members who represent areas on both sides of the channel who are concerned about an aircraft which may be in trouble and even unable to reach the designated area?
Mr. Hamilton: I am glad that the right hon. Gentleman accepts that this is a remote possibility, as of course it is. We are drawing up a contingency measure for a remote possibility. I remind him that the bombs are not armed, so there is no question of them exploding. I cannot comment on the amount of armament that the B52 carries, but, as I have already emphasised, every precaution will be taken to ensure that there is no damage to the area.
Sir Gerrard Neale: Has my hon. Friend published any guidelines, and, if not, does he intend to do so, on damage which may be done to fishing tackle that could be hit by an undetonated bomb? Does he accept that, although many of my constituents recognise that it is an outside possibility that that would ever happen, there is anxiety? Will he make sure that there is clear guidance about a hotline to the Ministry of Defence, possibly via the local authority, to deal with any queries or anxieties that arise?
Mr. Hamilton: Yes, I am more than happy that we should answer any questions that arise. I have no doubt that my hon. Friend could give the number of my private office to anybody who wishes to ring, and we shall certainly deal with any question that may cause concern. It is important that we get this into perspective. We are talking about an outside possibility of an aircraft which has taken off from RAF Fairford being in trouble. That possibility is extremely remote. If any question of damage to fishing vessels or to nets or fishing gear arises, I remind my hon. Friend that we have always paid compensation in the past, and I am sure that we would do so in future.
Ms. Dawn Primarolo: Does the Minister accept that his explanation to the House is simply not good enough? Whether or not this is an outside chance, communities along the Bristol channel and shipping in it are in danger. Will he tell the House what measures he intends to take to ensure that coastguards are notified so that shipping is cleared from the area and, at all costs, that bombs are dropped not over the Bristol channel but only in the designated areas?
Mr. Hamilton: I do not understand what the hon. Lady is on about. By prescribing this designated area we are ensuring that any bombs will be dropped in that area. That is precisely what we are doing in this whole procedure. If we did not have a designated area, clearly the aircraft would drop the bombs wherever it was convenient to them and we would have no control whatever. It is part of the procedure to alert coastguards, and everything would be done in the time available to alert people in the area to what was happening. Messages would be put out on the radio into which fishermen are tuned.
Mr. Nicholas Ridley: As the Member in whose constituency is Fairford, may I thank my hon. Friend for arranging for me to visit the splendid airmen and their aircraft? May I say how appreciative the majority of the population are that the Americans have stationed their forces here in order to protect our troops who are at risk in the Gulf by bombing Iraqi military targets?
Mr. Hamilton: I am grateful to my right hon. Friend, who is right to say that the B52s are playing a critical role. It is a mark of the responsibility of the United States air force that it has asked us to make contingency plans to cover a very remote possibility.
Mr. Menzies Campbell: Have the arrangements that the Minister has just described ever been made in any circumstances before?
Mr. Hamilton: We have issued a number of other notifications, to both mariners and airmen. As I said, we issue thousands of them every year covering a whole mass of different contingencies and warnings to people in various areas. There has been a large number of other notifications, but I doubt whether there have been any for armed B52s.
Mr. Gwilym Jones: I appreciate that what my hon. Friend has described is absolutely necessary in the circumstances. I am sure that it comes as no surprise that such arrangements should be made at this time. Can my hon. Friend tell me the exact location of the designated area, and also its proximity to the capital city of Wales and the south Wales coast?
Mr. Hamilton: Yes. The centre of the danger area is some 20 miles off Hartland point. The boundary of the area lies not closer than five miles to Hartland point, and
854
it extends for some 30 miles from the Devon coast. The area is fan shaped, rotating from north of Hartland point towards the south-west.
Dr. Dafydd Elis Thomas: What consultation was there prior to the Minister's announcement with fishing and environmental interests along the Bristol channel? Will he carefully explain to the House what precise arrangements for consultation with shipping and with civilian populations on both sides of the Bristol channel would take place in an emergency?
Mr. Hamilton: Obviously, in an emergency, we would have very little time to consult anybody. On the question of consultation with the fishing industry, I can tell the hon. Gentleman that it is very well aware of that area, and has been for a long time. If the hon. Gentleman had listened to my opening remarks, he would have heard me say that the area is constantly used for live firing. All that we are doing is making it a 24-hour danger area. The notification is in addition to what already happens.
Mr. Jonathan Sayeed: Can my hon. Friend confirm that the B52s are flying in support of our troops and other allied troops who are trying to enforce United Nations resolutions? Is he aware that the people of Bristol would prefer B52s to drop their bombs in extremis in the Bristol channel rather than that, in years to come, Saddam Hussein should drop a nuclear bomb in Bristol?
Mr. Hamilton: I could not agree more with my hon. Friend. The B52s are playing a very valuable role in the Gulf conflict. It is nothing other than responsible and sensible for the USAF to make such contingency provision against the outside possibility that something might go wrong.
Mr. Allan Rogers: The Opposition welcome the Government's response. There has been a great deal of disquiet about the lack of information, and I am not sure whether the Minister's statement will allay that disquiet. Will he assure us that the decision will be constantly under review?
Mr. Hamilton: It is not a decision that should be under review because it is a sensible precaution against the outside possibility of something going wrong. The time for review will be when the B52s cease to operate out of RAF Fairford—when, presumably, the conflict will be over and therefore the contingency arrangement will no longer be necessary.

Points of Order
3.44 pm
Mr. Anthony Steen: On a point of order, Mr. Speaker. I wonder whether you would advise Government Departments that, when they group one question with another, they should advise the hon. Members concerned that they intend to do so. I was not advised until a quarter to three this afternoon that my question No. 13 would be grouped with question No. 4. Will you say something about that practice, Mr. Speaker?
The Minister of State, Foreign and Commonwealth Office (Mr. Douglas Hogg): Further to that point of order, Mr. Speaker. I apologise to my hon. Friend the Member for South Hams (Mr. Steen). A letter was put on the notice board, I understand at about 11 o'clock this morning. I am sorry that my hon. Friend did not receive it. It may have been the fault of my officials. I shall contemplate how we can improve communications because I well understand that it puts my hon. Friend and other hon. Members in an embarrassing position, and I would not want that to happen again.
Rev. Martin Smyth: On a point of order, Mr. Speaker. I do not expect that you saw "Newsnight" last night, but I know that many people throughout the nation share with the people of Northern Ireland their concern about the shameful treatment of members of the armed forces and the UDR. Will the Attorney-General be making a statement in the House tomorrow about an appeal?
Mr. Speaker: I did not have an opportunity to watch that programme, but I am sure that what the hon. Gentleman says will have been heard on the Front Bench.
Mr. John Marshall: On a point of order, Mr. Speaker. Questions that were allegedly tabled for answer on 26 February were in fact tabled for answer on 25 February.
Mr. Speaker: I shall look into that.

National Audit Office (Extension of Powers)
3.45 pm
Mr. Robert G. Hughes: I beg to move,
That leave be given to bring in a Bill to extend the powers of the National Audit Office so as to permit the Office, on an application by a national political party, to cost that party's election commitments.
Last year my hon. Friend the Member for Pembroke (Mr. Bennett) introduced a similar Bill. It was, rather curiously, spoken against but not opposed by the hon. Member for Nottingham, North (Mr. Allen). However, he did us a service in that he reminded the House that the Opposition do not have available to them the advice necessary properly to cost their policies? I have listened to that plea, and that is why I am sure today that the Opposition will welcome the help that I am trying to bring to them through the Bill. Let me make it clear that the Bill is intended to help the Labour party.
The National Audit Office is described as Parliament's financial watchdog. It has an acknowledged political role and is not supposed to be impartial. The hon. Member for Birkenhead (Mr. Field) has said:
"To say that the NAO … should not get involved in politics is like saying the Church should not get involved in politics."
If the NAO is to be the parliamentary watchdog, why should we restrict its work to the Government's policies. I want it to be a full watchdog and to scrutinise the Opposition's policies as well. If it found that some Labour policies were unaffordable, ill thought out, out of date or just plain daft, I am sure that the Labour party would be grateful. But if it could not bring itself to be grateful, I am sure that the electorate would be.
The NAO might care to examine the proposed payroll tax that would cost so many jobs. It might seek to examine renationalisation plans, the harmful effects of a national minimum wage or the repeal of trade union legislation which would bring back intimidation, secondary strikes and flying pickets. But the main question that the NAO should consider is the cost of Labour's programme.
I recognise that it is difficult to estimate the cost of Labour's programme. The Labour party has been not so much coy on the subject as mute. It may be that this afternoon the right hon. and learned Member for Monklands, East (Mr. Smith) will turn Queen's evidence and tell us the cost of Labour's programme; or he may be waiting for this Bill to give him the help he needs in order to cost Labour's programme so that he can then tell the House and the country how much it will cost.
What evidence do we have about what a Labour Government would cost? The document "Looking to the Future" has 81 uncosted spending pledges. UBS Phillips and Drew calculate the cost of that to be £19·5 billion, including the promises made in "Meet the Challenge, Make the Change". Professors Patrick Minford and Paul Ashton of Liverpool university, whom the Labour party might not think are the most unbiased assessors of its policies, calculate a similar price of £21·5 billion. Midland Montagu has gone for the jackpot. It says that Labour's policies would cost a maximum of £50 billion.
The hon. Member for Derby, South (Mrs. Beckett) has being trying to restrain Labour party spokesmen, but she has been failing of late, and the promises keep on rolling.

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The last Labour party conference made spending commitments totalling £36·46 billion. I recall three further pledges that I heard made in this Chamber. The hon. Member for Peckham (Ms. Harman) referred to no-fault compensation as
"an idea whose time has come."—[Official Report, 1 February 1991; Vol. 184, c. 1274.]
The hon. Member for Blackburn (Mr. Straw) said:
"We will increase the science budget."—[Official Report, 6 February 1991; Vol. 185, c.346.]
When asked whether extra spending on training would be a priority, the hon. Member for Sedgefield (Mr. Blair) said:
"The answer is obviously yes."—[Official Report, 6 February 1991; Vol. 185, c. 295.]
Those three commitments were made in the space of one week, so how much more would Labour spend if it were given a few months?
One can add to such statements the off-the-cuff comments made to encourage Labour supporters, and the fact that no Labour Member of Parliament makes a speech without promising a massive council house building programme, a large increase in school budgets, or a substantial improvement in housing revenue support. One recalls that, last year, Labour described £3 billion of revenue support as peanuts. You name it, Mr. Speaker, and Labour has promised to spend more of the taxpayers' money on it.
The worst feature is that Labour promises to fund its programme without raising the general level of taxation. Regardless of whose costings one takes, Labour's programme would sting every family and every wage earner, young and old alike. If the National Audit Office could find a way of funding such expenditure without increasing the basic rate of taxation, I am sure that my right hon. Friend the Chancellor of the Exchequer would like to know about it.
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I would like to come clean, because it might be that I am being unfair to Labour, and that its calls for higher public expenditure are just hot air designed to win votes. I will quote from an article that I found in a photocopier:
"Far from getting something out of the next Labour Government, it looks as though we can expect cuts … All previous Labour Governments … introduced some reforms. Very soon afterwards, they started to attack those reforms—starving them of money, introducing cuts in the social services generally, and imposing wage restraint."
Those are not the minutes of the supper club, but come from an article in the Morning Star of 29 January. At least it knows what to expect from a Labour Government.
Either Labour's programme is a complete work of fiction, or by order a Labour Government would abolish the rules of arithmetic, or every family would pay a high price for Labour's rag-bag of dusted-off 1960s policies, topped up with Mussolini-style statism, and repackaged as being electorate-friendly and cheap to operate.
I know that Labour will welcome my Bill, and will look forward to the National Audit Office's recommendations. I am certain that the right hon. and learned Member for Monklands, East and the hon. Member for Derby, South will help me in drawing up the Bill's details. I look forward to working with them on a Bill that will do so much to help Labour and the electorate.
Question put and agreed to.
Bill ordered to be brought in by Mr. Robert G. Hughes, Mr. Andrew Mitchell, and Mr. Ian Taylor.

National Audit Office (Extension of Powers)
  NATIONAL AUDIT OFFICE (EXTENSION OF POWERS)
  Mr. Robert G. Hughes accordingly presented a Bill to extend the powers of the National Audit Office so as to permit the office, on an application by a national political party, to cost that party's election commitments: And the same was read the First time; and ordered to be read a Second time upon Friday 5 July and to be printed. [Bill 86.]

Autumn Statement
[Relevant documents: Chancellor of the Exchequer's Autumn Statement (Cm 1311) and the Statistical Supplement thereto (Cm 1520).
First Report from the Treasury and Civil Service Committee of Session 1990–91 on the 1990 Autumn Statement (House of Commons Paper No. 41) and its First Special Report containing the Government's response (House of Commons Paper No. 212).]
Mr. Speaker: I must announce to the House that I have selected the amendment in the name of the Leader of the Opposition. Because of the pressure to speak in the debate, I shall put a limit of 10 minutes on speeches between 6 o'clock and 8 o'clock. I hope that those hon. Members who are called before and after that time will also bear in mind the 10-minute limit.
3.54 pm
The Chancellor of the Exchequer (Mr. Norman Lamont): I beg to move,
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 8th November 1990; commends the Government on its determination to maintain downward pressure on inflation and to build on the great improvements in economic performance over the last eleven years; and welcomes the Government's continued tight control of public expenditure coupled with improved value for money and its provision of additional resources for key areas.
We are debating the autumn statement rather later this year than usual, chiefly because the Government wished to allow the new statistical supplement to the statement to be available to the House before the debate.
The House will understand that I cannot anticipate the Budget statement that I shall be making on 19 March. While this may restrict my remarks on the economy today, I am obviously keen to address the concerns that I know right hon. and hon. Members have.
We are aided in our debate today by a wide-ranging and thorough report on the autumn statement from the Treasury and Civil Service Select Committee chaired by my right hon. Friend the Member for Worthing (Mr. Higgins), and I congratulate my right hon. Friend on his skill in chairing the Committee.
The Government have responded to the Committee's conclusions and recommendations, and I am grateful to the Committee for publishing that response speedily, so that it is available to hon. Members this afternoon.
My right hon. Friend the Prime Minister presented his autumn statement to the House as Chancellor on 8 November last year. As a result of subsequent events, I found myself in the unusual—perhaps unique—position, less than four weeks later, of giving evidence to the Select Committee on the economy, as Chancellor, and on the outcome of the public expenditure round which I had conducted as Chief Secretary.
I want to say a little about public spending plans, but I will start with the economy. While I appreciate that hon. Members, and the country, are concerned about the present recession, and the level of interest rates, I must stress at the outset that the reduction of inflation remains the overriding objective of Government policy. There can be no letting up on that goal. Low inflation is the essential basis for all our success in the future, which is why it is worth striving for.
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Following the ravages of inflation in the 1970s, we made remarkable progress against it in the mid-1980s. For six years in a row, United Kingdom inflation was below the EC average—including 1986 when it fell as low as 3·4 per cent. The low inflation of those years was not merely valuable in itself, but brought in its wake steady growth, high productivity and strong profitability, which saw British business climb from the bottom towards the top of the European league tables. I am determined that in the 1990s Britain should again enjoy those benefits which we had in the 1980s.
I am confident that we can get inflation down again. While the slowdown in the economy is painful, it has none the less improved the prospects for inflation and the current account. Many outside forecasters now expect us to beat the autumn statement forecast for headline inflation of 5·5 per cent. by the end of the year. Their optimism is borne out by the CBI's most recent industrial trends survey, which said that output price expectations for the coming months were the weakest in a January for five years.
There are some who say that inflation is already beaten and that we can let up in the battle against it, but of course, it is often during the downturn that the seeds for the next bout of inflation are sown. While there has been some encouraging news recently on inflation, Monday's producer price figures bring home the risks and the need for a continued firm policy.
There is indeed a price for getting low inflation, but experience has shown that it is a price well worth paying, and we should have the courage to stick with the policies which will, in time, deliver European levels of inflation again. Lower inflation will also make it easier to lower interest rates. I appreciate the anxiety for further progress on interest rates but, from the point of view of industry, what matters most is sustainable interest rate cuts rather than premature cuts which subsequently have to be reversed. We do not want to repeat what happened in 1981 when interest rates were cut sharply and then had to be reversed—a point that seems to have escaped the notice of some learned professors who write letters to The Times.
Mr. William O'Brien: Is the Chancellor aware of the concern in the clothing and textile industry about the advice that economists are giving banks? The banks are being told to withdraw support from the industry because they are at risk. Will the right hon. Gentleman advise the banks to change their attitude to the industry? Otherwise, many companies will fall and many jobs will be lost. Will the Chancellor act to stop those firms going under?
Mr. Lamont: I am, of course, aware of the concern to which the hon. Gentleman refers. It is felt in a number of countries, but I think that it is felt more seriously in other countries than it is here. I do not think that we face the prospect of a credit crunch of the kind that is sometimes talked about in the United States. The Bank of England, however, monitors developments of the kind that the hon. Gentleman has in mind very carefully, and I shall take on board what he has said.
When the economy is in recession, it is always difficult to see where the upturn is coming from. Those who plan for the future often work on the assumption that the next six months will be just like the last; but we know that recession always come to an end, and that the present one

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will be no exception. Indeed, we can already begin to discern some of the forces that will lead to recovery. That is why the vast majority of independent forecasters are expecting a return to growth later this year.
It is important to remember that the recession comes after a sustained period of growth which has greatly strengthened companies and their finances. The current downturn follows a cumulative growth in output between 1981 and 1989 of 28 per cent. That is a lot of extra output to set against a fall currently predicted by some independent forecasters of around 1 per cent. or so. A reversal of that magnitude does not justify exaggerated and irresponsible talk of a depression; nor does the behaviour of the monetary aggregates. The growth of both broad and narrow money has fallen markedly in a way that is consistent with the reduction in inflation that we are expecting but does not suggest that the policy is excessively tight.
We are not alone. Three of the G7 countries are now in recession—the United States, Canada and ourselves. So are Australia and New Zealand. Although continental Europe is not in recession, it has not escaped the downturn. Industrial production has fallen in France, Italy, Belgium, Spain and Sweden—quite strongly in Sweden—within the past six months. Perhaps the right hon. and learned Member for Monklands, East (Mr. Smith), when he talks about the recession and blames it all on the Government, will give us his reasons for the fact that output is also falling in those other countries.
The truth is that much of what is happening is cyclical. The United Kingdom began its recovery from the last recession in 1982–83—sooner than the other countries—and our subsequent growth was particularly strong. It is not surprising, therefore, that we should also be the first to enter the period of downswing.
Other countries are at different stages of the cycle. For example—although we did not hear much about it from Opposition Members—four years ago the British economy was growing strongly and the French economy much less so; the German economy, in growth terms at least, was in the doldrums. Now, Britain is experiencing recession and output growth has recently slowed in France, while the German economy, buoyed up by reunification, is still enjoying strong growth.
Just how deep and how long the recession will be is difficult to predict at any time, but the present outlook is made more uncertain by the Gulf war. The world and United Kingdom economies were slowing down before the Gulf crisis began, but Iraq's invasion of Kuwait last August, and the consequent rise in oil prices, boosted fuel costs and inflation and dented business confidence. Many firms have responded by postponing spending decisions.
The uncertainties created by the Gulf crisis have added particularly to the problems of certain sectors of the economy. Airlines and the travel, hotel and entertainment businesses have lost valuable trade as tourists and other travellers have cancelled flights. The extent of the problem was shown this week, when British Airways announced several thousand redundancies.
Again, we must keep a sense of perspective. Over the past few years this country has seen a rise in employment—an increase by the third quarter of 1990 of 3·75 milion since 1983—greater than in any other EC country, and for
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44 months we saw unemployment falling sharply. That was a remarkable development, greeted in stony silence by the Opposition. Because unemployment is an indicator that lags behind changes in output, the first six months in which activity was weakening saw only a gradual rise in the numbers out of work. That trend has only begun to accelerate over the last quarter, and we can expect unemployment to continue to climb for some time even after the recovery in output has begun.
Although that recovery has not yet begun, experience shows that it will start when we have made and are seen to have made decisive progress against inflation. That is what happened in 1981, when our position was far more difficult than it is today. Then we had to cope with very high inflation—following the Opposition's disastrous policies in Government—and a sharp loss of competitiveness, partly due to the strength of sterling following the United Kingdom's emergence as a major oil producer. In recent months, the rise in inflation has been much less severe. Underlying inflation, at its peak in 1990, reached 8·4 per cent. compared with 20·7 per cent. in 1980.
A new problem that we have encountered this time round has been the adjustment of the economy to very high levels of private sector debt built up during the second half of the 1980s. Inevitably the strain is being felt by those individuals and companies who have taken on the highest levels of debt. For example, some service sector firms borrowed heavily in the 1980s and are therefore among those who have felt the effects of high interest rates most keenly.
The onset of recession started to make the headlines at about the time we joined the exchange rate mechanism and that has prompted many to blame the recession on our entry. But the ERM is not the source of the current recession: it is not a Pandora's box from which the downturn sprang. The downturn in the economy is the inevitable result of exessive demand and borrowing in 1987 and 1988, which it was necessary to curb. A period of weaker activity became essential to reduce inflationary pressures. If there was any mistake, it was that policy was not tight enough and that was far from the course urged upon us by the Opposition.
Mr. A. J. Beith: Who opened the Pandora's box? Was it not the right hon. Gentleman's ministerial colleague, in the team of which he was a member, when he simultaneously presided over the liberalisation of credit and tax cuts and changes in mortgage interest relief?
Mr. Lamont: I am sorry to hear that the hon. Gentleman has been against the liberalisation of the financial system. I believe that, in a modern society, people should have choices about how much they borrow. Although it has brought problems in economic management, it has also brought immense benefit to millions of people, and the deregulation of the financial sector has also created many hundreds of thousands of jobs and boosted international competitiveness.
Mr. Nicholas Budgen: Did the laxness of policy in 1987 and 1988 have anything to do with shadowing the deutschmark? If so, how does that differ in principle from being in the ERM?
Mr. Lamont: I do not believe that the relatively short period in which we shadowed the deutschmark was the

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cause of the subsequent inflation. We all know that the growth of demand in 1987 was distorted after the stock market crash, but it is also a fact that people and firms borrowed and made their decisions to borrow on a scale never before seen in this country or in the United States. The Opposition seem to imply that we should have had higher interest rates—a course that they have never urged on us.
It also requires a feat of memory to recall that only last summer some Opposition Front Bench spokesmen were claiming that, because retail sales were still buoyant, our policies were not working. Some others even suggested that the Budget last year was not tight enough. It is true that the effects of our tight policies have taken longer to work through than many people expected, but ERM entry alone can take neither the blame nor the credit for that—depending on one's point of view.
The ERM and Britain's position in it are central to the Government's overall strategy. The Government, under my right hon. Friend the Member for Finchley (Mrs. Thatcher), took a firm decision last October to join the mechanism and abide by its rules. That decision has been made. We made a commitment then and we will stick to it.
We joined the ERM because it had a good track record of helping to close the inflation gap between its members. We accept the discipline that membership requires. The overriding factor in setting interest rates now is the need to meet our obligations and to keep sterling inside its agreed bands. Our reward will be that, over time, the United Kingdom's inflation rate will converge on the best inflation performance in the ERM.
The right hon. and learned Member for Monklands, East claims that his party would adhere to the rules of the ERM. On BBC's "Newsnight" on 9 January, he said:
"we strongly believe that Britain should be in the ERM and we are willing to accept the disciplines that involves".
Those words appear crystal clear. The right hon. and learned Gentleman seems to accept that we must set interest rates at a level which will keep the pound within its ERM bands: what else could he mean by "disciplines"? Yet when the right hon. and learned Gentleman and his colleagues speak about interest rates in this House, they seem to do so without any regard for our obligations as members of the ERM.
There clearly is some ambiguity in the stance of the Opposition, but our position is clear. It would be irresponsible and misguided to think that interest rates could be cut regardless of sterling's position in the ERM or regardless of the disposition of the other currencies in the mechanism. It would be intolerable if the consequence of lower interest rates was a move outside our ERM band. That is and must remain the primary consideration.
Today's interest rate reduction—and future reductions when the time for them comes—can be made only when sterling's position in the ERM permits—that is, when we judge the reduction to be sustainable and safe. It would be wrong, however, to imagine that we are locked into high interest rates indefinitely. We have flexibility within the band, and it has been the experience of other ERM countries that interest rate differentials have narrowed along with inflation differentials—not necessarily immediately or rapidly, but that can happen. That means that our interest rates will eventually fall
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to reflect our progress in the fight against inflation—although when the further falls in interest rates will occur, I cannot say.
We joined the ERM at a central rate of DM2·95. That is a rate at which British industry can compete in Europe. It is close to the average over the past 25 years. Indeed, if anything, our real exchange rate is relatively low by comparison with the 1980s, a decade during much of which the United Kingdom held its share of world trade in manufactures and recorded stronger export growth than a number of its European competitors. Because of falling inflation in the United Kingdom, I expect any loss of competitiveness in the months ahead to be limited.
Sterling's rate against the dollar may be high, but, as the CBI has pointed out, that reflects the current weakness of the dollar against all the major currencies. A high exchange rate against the dollar is causing pain for all countries throughout Europe which sell to the United States.
Of course, when the economy encounters difficulty, there are always those who look for an easy way out and call for devaluation as though that would be a solution to our problems. It would not. It would be a ticket to renewed inflation and higher interest rates. Devaluation serves only to make us poorer by stoking up inflation and destroying jobs. Its benefits are illusory and its costs only too evident. The strongest economies in the world—the German and the Japanese—have been those with strong currencies.
For the British economy to be competitive, we must set ourselves free of the devaluation culture. Prosperity, competitiveness and lower interest rates all depend on getting inflation down to the level of our main competitors. Nothing else will do. We cannot allow ourselves to be blown off course now that a low inflation objective is firmly within our sights. [Interruption.] That may be described as "suicide", but I ask hon. Members to bear in mind what the CBI says. It has rather more courage than some hon. Members and all Opposition Members. The CBI has supported not just ERM entry but the policies necessary to keep us in it. It recognises that, more than anything, making ERM membership work is the secure route to sustainable interest rate cuts.
Of course I recognise the burdens that high interest rates place on industry, although the real burden is the amount by which interest rates exceed the rate at which companies can raise their prices. Judged by that yardstick, our real interest rates are lower than those in France, Germany and Italy.
Most companies are not powerless in the present situation. They have choices. If they are to prosper, they will control their unit costs and agree realistic, affordable wage settlements. Firms would gain two to three times more from cutting their wage settlements by 1 per cent. than they do from a 1 per cent. cut in interest rates. If costs are held down, the downturn will be shorter and less severe and the level at which unemployment will peak will be lower.
Control of costs will speed the redaction of inflation, but we are already making progress. In the past few months, headline inflation has fallen from its peak of 10·9

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per cent. in October to 9·3 per cent. Underlying inflation is also on its way down—falling from 8·4 per cent. to 7·7 per cent.—and it will fall further.
In the last recession, in 1980–81, the fall in inflation led to an upturn in activity because real incomes rose and because, as confidence came back, people saved less and spent more. That process will work again this time. That is why the vast majority of independent forecasters predict an upturn in the second half of the year. Other factors may work in the same direction.
The fall in the oil price will reduce business costs and lighten the uncertainty which is depressing activity. The rundown of stocks which has contributed to the fall in output is bound, by its nature, to come to a stop.
Mr. John Garrett: The right hon. Gentleman is making forecasts about the future course of inflation but is not yet making any forecast about the future course of unemployment. I hope that he will do so before the end of his speech. In December, the increase in unemployment was the highest for 10 years, which takes us back beyond the trough of the last Government-caused recession. Given that it is a lagging indicator, what is the right hon. Gentleman's forecast about unemployment for the next six to nine months?
Mr. Lamont: I shall present my forecasts at the time of the Budget. As the hon. Gentleman knows, no Government—whether Labour or Conservative—have presented unemployment forecasts. The Opposition seem to be interested in unemployment only when it rises—not in any of the 44 months when there was a remarkable growth in employment and when we created a situation in which unemployment in this country was below the European average. Not once did the Opposition give credit for that. Not once did they acknowledge the benefit that this country had.
Recovery, when it comes, will build on the eight remarkably good years that firms have behind them—years in which total investment in the economy grew by 67 per cent., manufacturing productivity rose by 51 per cent., and profitability reached its highest levels since the early 1970s. By 1990, firms had enjoyed a sustained period of high growth, high investment, improved productivity and healthy profits. That is why, in a recent survey of businesses, 80 per cent. of respondents indicated that they thought they were in better shape now to weather a recession than they had been 10 years ago. That is encouraging. Looking to the testing time that faces British business, I agree that it is in a much better position and in much better shape than it was a decade ago.
I now turn to the other half of the autumn statement—the Government's public expenditure plans. These show that the Government are keeping firm control of public expenditure, despite higher-than-expected inflation. The planning totals for 1991–92 and 1992–93 are lower, in real terms, than we planned a year ago, but within these constraints, we have made sure that the most vulnerable groups do not suffer from the inroads of higher inflation. We have substantially increased resources for health and other priority services. At the same time, we have continued to look for ways of improving the working of the economy.
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Allowing for the cost improvement programmes, spending on health next year will be more than £3 billion higher than in 1990–91—a real increase of over 5 per cent.
We plan to spend over £30 billion on the health service next year. That gives the lie to the Labour Party's constant carping that the Government are not committed to the future of the health service. We have added over 70 per cent. in real terms to the health service capital programme in England since 1978–79. As all my hon. Friends know well, under Labour, capital spending on health was cut by 16 per cent. in real terms. Under the last Labour Government, health spending, in terms of today's prices, was only £365 per head. Next year the comparable figure will be more than £500.
Let us compare Labour's record with the real increase, in 1991–92, of almost 50 per cent. that we have made in spending on the health service in England since taking office. Our spending on health over the last decade has meant treatment for 30 per cent. more acute in-patients each year—almost 7 million in total—employment for 53,000 more nurses and midwives, and the completion of almost 500 major capital schemes.
In this year's autumn statement, we also added nearly £3 billion to social security plans. The bulk of this reflects the benefit upratings which will take effect in April this year. We have fully honoured our commitments to uprate benefits for pensioners and the poor, and we have done this even when, as this year, the RPI is on a downward trend from the figure on which the uprating was based. Indeed, for the poorest pensioners, the income support premium has been uprated by more than that.
On education, the plans announced will finance a further significant increase in student numbers. One in five of the 18 to 19 age group are now in higher education, compared with only one in eight in 1979. We have increased the support available to higher education institutions by about 10 per cent. between this year and next, and provided extra resources for student grants, loans and access funds.
The Opposition always claim that the Government neglect higher education, but the dramatic increase in the numbers of young people in higher education belies this. What do the Opposition make of the fact that the number of qualifications in higher education gained by young people as a share of the relevant age group, is higher in the United Kingdom than in West Germany, France, Italy—indeed, almost any other European country?
Mr. Bob Cryer: Before the Chancellor leaves his claims about providing benefits for people on low incomes, will he tell us why the Government do not restore the link between pensions and employment, particularly in view of their claim that employment has been booming and that wages are high? Is that not a deliberate act by the Government to deny pensioners a share in what the Government claim is prosperity?
Mr. Lamont: Attractive though huge sums of extra public expenditure might be to the hon. Gentleman, we simply could not afford to index pensions to earnings. I think the hon. Gentleman meant earnings when he referred to employment.
Mr. Donald Thompson: Will my right hon. Friend the Chancellor and his colleagues on the Front Bench stop comparing our record with that of the Labour Government? In no way, incident or Department

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can the record of that Labour Government hold a candle to ours. After 11 years of Conservative government, the Opposition can only choose eccentric foreign comparisons.
Mr. Lamont: I apologise to my hon. Friend if I am guilty of tedious repetition. What happened under the Labour Government seems unbelievable and it seems to have happened so long ago, but the point about the comparisons is that the Labour party seems determined to repeat the mistakes made by the last Labour Government.
In the last two public spending rounds, the Government have agreed huge increases in spending on roads. This year our priority has been rail—[Interruption.] I am afraid that the bad weather is not part of the public spending round. However, public transport investment in the years covered by the autumn statement will be double that of the previous three years. That is an increase of more than 70 per cent. in real terms.
In areas to which the Opposition often refer, the Government have provided nearly £6 billion for spending on science and technology next year. We have added an extra £17 million to the science budget of the Department of Education and Science in 1991–92. That is up about 20 per cent. in real terms on its 1979 level.
My right hon. and learned Friend the Chief Secretary will refer in detail to the public expenditure effects of the Gulf. However, the costs of the Gulf are obviously substantial and uncertain. We are already committed this year and in later years to expenditure totalling £1.5 billion in addition to normal defence spending. We must expect eventual costs, allowing for a continuation of the air campaign and the likelihood of a land campaign, to be very much higher. It is impossible to be precise, but the figure of £3 billion that has been mentioned is probably not far from the mark.
There is, of course, no cash limit or predetermined budget. We have made it clear—I am happy to repeat the pledge today—that our forces will not be cash constrained in any way. I am therefore especially grateful for the assistance pledged by friends and allies around the world. Germany has promised about £275 million in addition to a previous package of assistance and Kuwait £660 million, as my right hon. Friend the Foreign Secretary has announced. The United Arab Emirates promised about £250 million, following the recent trip of my right hon. and learned Friend the Chief Secretary to the Treasury. Other countries, including Saudi Arabia, Japan, Hong Kong and other European and Commonwealth countries, have also made contributions, and we are grateful to them all.
In total, contributions already promised amount to some £1·4 billion and I hope that it will be possible to announce a higher figure before long as discussions with a number of countries come to fruition. Despite the extra costs of the war in the Gulf, public expenditure remains under firm control. That is a key element in our economic policy and has been since 1979 because it has allowed us to provide extra resources for priority services while at the same time achieving a transformation of public finances. We do not intend to change that approach now.
To sum up, I am well aware that the recession is hitting companies and individuals hard. However, inflation is falling and, as in the past, that will provide the basis for recovery in future. British industry faces a challenging and difficult period. However, it is today better managed and in better shape than it was 10 years ago. With a period of
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strong growth behind them and low inflation ahead, I am sure that firms in future will emerge from the recession able to compete and take advantage of the single market. I believe that the 1990s like the 1980s can be years of prosperity for Britain and for British business.
While the next few months will not be easy—indeed, they will be difficult—our position is plain. Unlike the Labour party, we know where we are going—I have not referred to the Labour party or its policies so far, but I will make one prediction about the speech of the right hon. and learned Member for Monklands, East. When he is interrupted by my hon. Friends and asked what his policies for dealing with inflation are, he will say, as he always has in the past, "I shall be coming to that point later in my speech"—but he never does, because he has no answers.
The right hon. and learned Gentleman likes to pretend that inflation can be curbed painlessly. He likes to pretend that inflation can be curbed without reducing demand. How one can actually curb inflation without reducing demand is a mystery known to no one but himself. There is no way in which demand can be curbed other than by using interest rates or taxes or by cutting public spending, and the right hon. and learned Gentleman professes to be against all those.
The right hon. and learned Gentleman has no policy. The Labour party is hollow. When we knock Labour Members, all that we ever get is an echo—an echo of the past. If Labour Members have anything to say on policy, all that we hear is a little bit more intervention, more spending, a few credit controls and, of course, a little more inflation. It was all well summed up in Marxism Today —[Interruption.]
Mr. Brian Sedgemore: It is a Tory paper. That is a damnable slur.
Mr. Lamont: The hon. Gentleman is quite right. Marxism Today is now a moderate paper, and far more realistic and worth reading than anything that comes from the Labour party. Marxism Today stated:
"In the '80s, far from being a major engagement with the modern world, Labour's transformation depended on an intellectual package designed for the '50s and '60s, together with a profoundly timid anti-Thatcherism. The Party has no project of its own: it lives in the shadow of others. As a result, it has feet of clay."
I could not put it better myself. We know what our policies are. We are confident about facing the future, and I commend to my right hon. and hon. Friends the Government's plans as set out in the autumn statement.
4.31 pm
Mr. John Smith: 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 continued mismanagement of the economy which has plunged all parts of the nation into severe economic recession causing an unprecedented and avoidable level of business failures and rapidly rising unemployment; condemns the failure of the Government to invest in the economic infrastructure and in vital public services; and calls upon the Government to adopt an economic strategy which lowers the interest rate burden on industry, commerce and millions of mortgage payers and which promotes the recovery of a wealth creating economy, particularly in the manufacturing sector, by encouraging sustained investment in new technology, in regional development, and in the skills of people.'.

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I suppose that the Chancellor was fortunate that, during his defensive and gloomy speech, which was brought to an end by a rather spluttering and incoherent attack on the Opposition, he was unable to look behind him and see Conservative Members' faces. There was not much joy about on the Conservative Benches, just a sense of gloom and a sense of sickening reality as their constituents remind them of the consequences of the Government's economic policies.
Of course, as usual, the right hon. Gentleman attacked the Opposition. I am accustomed, rightly, to having my speeches attacked after they have been made, but this is the first time that I have had one attacked before it has even been delivered. I certainly intend to criticise the Conservative Government and their economic policies. If that is regarded as tedious repetition, Conservative Members had better get used to it because they will hear quite a lot of it, and not just from Opposition Members but from people all over the country who are suffering the effects of their policies.
For the past 11 years, Conservative policies have been an exercise in roller-coaster economics. At the start of the 1980s, we had a deep and damaging recession that did lasting damage to our economy, particularly to manufacturing. Once again, as we enter the 1990s, we have to suffer yet another Conservative home-made recession which yet again threatens damage to our real economy. In between those two recessions we have had, in typical Tory style, an inflationary credit-led boom, all in the well-established post-war tradition of the Maudling dash for growth, the Barber boom and, most recently, the credit spree of the right hon. Member for Blaby (Mr. Lawson). Conservative economics is about stop-go and stop again—the economics of boom and bust.
The Chancellor's rather weary defence of the Government's economic policies showed no sign of appreciating that phenomenon. He made much of the Government's determination to conquer inflation. Of course, that is a constant refrain, but many in the House will recollect the claims made in the middle of the past decade that the battle against inflation had been won. Since there has been a Conservative Government in power all along, naturally we wonder how the problem recurred. Who were the authors of the misfortune? Who caused the inflation from which we are suffering? Surely it cannot have been the previous Labour Government, the trade unions or the nasty foreigners. The truth is beginning to dawn on some Conservative Members that it might just be the Government whom they support. That is the inevitable conclusion to which one is driven. That is why we must all measure with care protestations about their commitment to fight inflation.
I have little doubt that the inflation rate will fall in the months ahead. It is the inevitable consequence of pushing the economy into a deep and damaging recession. Inflation will come down, but by this method the price in the destruction of economic capacity and rising unemployment will be high, and our economic prospects for the 1990s will be undermined. To avoid that outcome the case for interest rate reduction is overwhelming. So even a 0·5 per cent. cut would be better than no cut, but there can be little doubt that it is too little, too late.
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Interest rates should have been cut before the end of last year and, in the absence of such action, by 1 per cent. today. The 0·5 per cent. cut will bring no relief to hard-pressed mortgage payers and it will be seen as inadequate by most of industry and commerce. I quote the chairman of the National Federation of Small Businesses, Mr. Tony Miller, who said today:
"It's a pity the Chancellor did not have the courage to have at least a full 1 per cent. cut. This really is playing at the edges with a serious problem."
Last week the Leader of the Opposition urged a cut in interest rates. The riposte by the Prime Minister was that that was a panic reaction. A week later we find that the Government have taken at least part of my right hon. Friend's advice. Might it possibly have something to do with the debate occurring today? It strains credulity for the Government to maintain that the cut in interest rates announced this morning has nothing to do with the debate this afternoon. It has all the hallmarks of the botched entry into the exchange rate mechanism and the previous reduction in interest rates timed to precede the Conservative party conference.
I learned only this morning that Downing street sources have been rebutting the charge of political timing by stressing that the Government made the decision last week to cut interest rates. If that be the case, what on earth was the Prime Minister doing accusing the Opposition of panic when he himself in that same week had decided to make the cut? Either he was being completely disingenuous, to put it at its mildest, or he himself is guilty of the panic that he identified with a cut in interest rates. Before selecting his next weapon, our Prime Minister should bear in mind the drawbacks of the boomerang.
The purpose of the debate is to discuss the autumn statement presented to the House as long ago as last November by the Chancellor's predecessor.
Mr. Nigel Forman: The right hon. and learned Gentleman was talking about credulity and credibility in connection with interest rates policy. Does he realise that everything that he and the right hon. Member for Islwyn (Mr. Kinnock) have said over the years would have carried much more credibility if it had not been the case that, whatever the level of interest rates, they always said that rates should be a point lower?
Mr. Smith: When we have been dealing with a Government committed to such high and sustained interest rates, it is not surprising that we should consistently want a cut in interest rates.
Mr. Norman Tebbit rose—
Mr. Smith: I shall give way to the right hon. Gentleman as soon as I have answered the first point. Surely he will allow me the courtesy of answering his hon. Friend. His seniority is not so advanced that he can interrupt in the middle of an answer.
The hon. Member for Carshalton and Wallington (Mr. Forman) should bear in mind that people have had to suffer high interest rates for a very long time, since 1988. That is why we constantly seek a reduction.
Mr. Tebbit: As the right hon. and learned Gentleman rightly says, I should not expect to interrupt him in the course of his answer—I am not optimistic about him ever

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giving an answer. The right hon. and learned Gentleman has just said that—[interruption.] The right hon. and learned Gentleman— [HON. MEMBERS: "Get on with it."]
Madam Deputy Speaker (Miss Betty Boothroyd): Order.
Mr. Tebbit: The right hon. and learned Gentleman has just said that, under this Government, interest rates have always been too high. Does he mean that interest rates were too high during what we now recognise as an excessive boom in 1988?
Mr. Smith: If the right hon. Gentleman had listened to the answer that I gave his hon. Friend the Member for Carshalton and Wallington, he would know that I stressed that I meant the period when high interest rates were not quite so high. I honestly do not know what point the right hon. Member for Chingford (Mr. Tebbit) was making. He seemed to become confused while making it.
The Chief Secretary to the Treasury (Mr. David Mellor): If the hon. and learned Gentleman is unsure of the point made by my right hon. Friend the Member for Chingford (Mr. Tebbit), let me repeat it. He was making the point that, when interest rates were 7·5 per cent. in 1988, the right hon. and learned Member for Monklands, East (Mr. Smith) was still calling for further reductions.
Hon. Members: Why?
Mr. Smith: Because at that time there was a danger, following the collapse in the world stock markets—[HON. MEMBERS: "Oh!"] Indeed there was, and that was the policy followed by the Government. There was then a problem. The Opposition will not be satisfied until interest rates in this country are roughly equivalent to interest rates in other competitor countries in the European Community. That should be the objective of any sensible Government.
I do not understand why satisfaction should be gained from the fact that there have been high levels of interest rates. The price of money is crucial to investment, which is the lifeblood of any economy. The most depressing prospect at present is the cutting off of investment.
Several Hon. Members rose—
Mr. Smith: I must get on with my speech about the autumn statement. I have done well in giving way to hon. Members.
Mr. Ian Taylor: Will the right hon. and learned Gentleman give way?
Mr. Smith: If the hon. Gentleman will forgive me, I shall not give way for the moment. I seem to have done nothing but give way to interventions for the past seven or eight minutes.
The autumn statement gave us a picture of the economy. In 1991, the gross domestic product was predicted to grow by 0·5 per cent., which was not encouraging. Manufacturing output was predicted to decline by 0·5 per cent. and fixed investment was said to be going to fall by 1·75 per cent. We were told, gloomily, that the balance of payments would remain in deficit by £11 billion. It was predicted that, by the end of the year, inflation would be down to 5·5 per cent. Those, in a nutshell, were the economic predictions, from none of which the Chancellor has departed in his speech today.
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Most commentators did not regard that picture of the economy in 1991 as much of a cause for celebration. In particular, the estimates for output, growth and investment gave signs of a year of problems for the economy. Although the then Chancellor, the present Prime Minister, persistently avoided the use of the word "recession", the figures buried at the back of the autumn statement showed a fall in output for four successive quarters up to the middle of 1991. As the accepted definition of a "recession"—and one accepted by the Chancellor—is a fall in output for two successive quarters, the Government clearly knew that we were in recession as their own statement was being issued, whatever they said.
Why, then, would the Chancellor not allow the dreaded word to pass his lips? Perhaps it was because he himself, in 1989, in evidence to the Treasury and Civil Service Select Committee, said that a recession would not occur, and he was expressly not forecasting such an outcome for the economy. He reinforced that prediction by telling the Association of British Chambers of Commerce on 5 December 1989:
"I do not believe myself that recession is likely or necessary."
When the present Chancellor gave evidence to the Select Committee a year later, he was reluctantly forced to admit that there was a recession. He said:
"There are reasons why one could believe that it will be relatively short-lived and relatively shallow."
We have a Prime Minister who told us that a recession would not happen and a Chancellor who told us that it would be shallow and short-lived. I am glad that the Select Committee did not buy that information and, in its report, made it clear that it thought we were heading for a much more serious recession than did Ministers. I congratulate it on that part of its conclusions, at least.
We are in the midst of a recession which was supposed not to happen and which we were told by the occupant of the top seat in the Treasury would be shallow and short-lived. There are some familiar techniques at work, including a complacent but bogus reassurance about the future. When the facts catch up and belie the assurance, the technique is not to admit that anything is wrong but to issue further reassurance saying, "Not to worry. It will not be too bad or last too long. "Subsequent Chancellors have clearly learnt something from the right hon. Member for Blaby—he of "temporary blip" fame.
In recent weeks, keen students of the art of bland but bogus reassurance will have noticed a new twist to the technique. As it cannot be denied that the recession exists, we are told—this formed part of the Chancellor's speech today—that it is part of a malign, worldwide experience, which is beyond our control and, from time to time, like some unfortunate turn of fate, affects even the best-ordered and managed of economies.
The Prime Minister was using that technique only last week at Prime Minister's Question Time when he claimed that unfair opposition in the form of my right hon. Friend the Member for Islwyn (Mr. Kinnock), the Leader of the Opposition, had overlooked the fact that there was also a recession in other countries. We heard that excuse at greater length from the Chancellor today. Before this particular bland but bogus reassurance takes hold of the Conservative party, it is time to look at the facts.
While it is true that the north American economies are in difficulties, not one member of the European Community, apart from the United Kingdom, is now in

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recession or even forecast to be so. The compelling point is that people in those countries live in the same world—indeed, in the same region of that world—and are linked to us by close economic and political ties. At the end of next year, they will unite with us in one single market. It is not merely that those countries are not in recession; they actually continue to invest. Above all, they are investing in preparation for the single market after 1992.
According to the latest report of the Organisation for Economic Co-operation and Development, on which the Government co-operate, as the Chancellor knows, the average increase in investment for 1991 in the European Community as a whole is 3 per cent., while the OECD forecasts a decline of 3·4 per cent. in the United Kingdom. Every Community country except the United Kingdom is avoiding a recession and increasing investment.
Even more worrying is the fact that, since the OECD published its report on 20 December last year, the United Kingdom's investment outlook has deteriorated even further. The official forecast of the Central Statistical Office for manufacturing investment for 1991 is a drop of 7 per cent. in the year. The Confederation of British Industry's recent industrial trends survey predicted an even more dramatic fall—the staggering and deeply depressing prediction of a fall in manufacturing investment of 16 per cent. Those and other facts show that a severe recession exists that is neither shallow nor short-lived. It is a recession built in Britain, and made in Downing street at Nos. 10 and 11.
The depressing facts of Britain's home-made recession are all around us. Business failures and mortgage repossessions are at record levels, and manufacturing output is falling—it is down by 5·6 per cent. since April of last year. Unemployment is rising inexorably. The last figures we have, for December, show an increase of 80,000 in one month. There are understandable fears about what the unemployment figures to be announced tomorrow will reveal. If this experience is shallow and short-lived, why are the results of the latest quarterly economic survey, published by the London chamber of commerce and industry, for London's economy the worst ever recorded since the survey started in 1978?
There has been a sharp acceleration in unemployment in London's service sector. One third of all firms reported that they had reduced their work force during the past three months. Unemployment in the capital grew at a rate of 14·7 per cent. in that one quarter. Only 24 per cent. of firms in manufacturing are working at full capacity, and 50 per cent. report a drop in domestic orders and deliveries. Against that background is it any wonder that, according to Dunn and Bradstreet, London and the south-east accounted for 45 per cent. of the bankruptcies in England and Wales last year.
Faced with that alarming situation, a Minister recently gave a revealing explanation of the Government's attitude to the problems in London and the south-east. In the Financial Times of 6 February, a Mr. Ralph Atkins canvassed the views of Tory Members on the economy. In the midst of much fascinating information and, to be fair, many protestations of confidence in the Government's handling of the economy, such as one would expect, the views of one unidentified Minister are reported as follows:
"One Minister was adamant that high interest rates remained the purgative needed to flush out the 'unreal, yuppie
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jobs in the South-East' created in the last part of the 1980s just as the recession early last decade had cleared out the 'unreal' jobs created by Labour."
I wonder whether that revealing view of the Government's concerns is being repeated in London and the south-east by Tory Members when they meet their constituents who have been thrown into unemployment by the severity of the recession.
Mr. James Arbuthnot: Will the right hon. and learned Gentleman give way?
Mr. Smith: Let me finish this point.
As The Times reminded us last week, unemployment is rising five times as fast in Conservative-held as in Labour-held constituencies, and the largest rise recorded is in the Conservative seats in the south-east, where unemployment has risen by 47·5 per cent. In those circumstances, I should give way to the hon. Gentleman.
Mr. Arbuthnot: My constituents in the south-east are particularly interested in Labour party policy on this. At this time last year the hon. Member for Derby, South (Mrs. Beckett) said:
"What we are promising is an increase for pensioners and an increase in child benefit. Everything else that is regarded as a desirable aim"—
[HON. MEMBERS: "Reading."] I am quoting—
"is also listed, quite clearly and specifically"—
Madam Deputy Speaker: Order. Is the hon. Gentleman making a comment or asking a question?
Mr. Arbuthnot: I am asking a question. The quote continues:
"Everything else is listed … as something that we hope to do as resources allow."—[Official Report, 13 February 1990; Vol. 167, c. 179.]
Will the right hon. and learned Gentleman confirm that that remains the position?
Mr. Smith: We have repeated our policy so often that it should have registered with the hon. Gentleman. We have made absolutely clear our commitment to old-age pensions and child benefit, and that our other commitments are contingent on the capabilities of the economy.
Mr. Phillip Oppenheim rose—
Mr. Smith: What is important is that, under a Labour Government, the results of growth will go to public services, where they are desperately needed. I am sure that, if the hon. Member for Wanstead and Woodford (Mr. Arbuthnot) has more such discussions with his constituents, he will find that they are most interested in Labour's policy. Their experience of Conservative policies, if nothing else, will have made them very interested in Labour's policy. They will be interested in how we can have an economy that revives in London and the south-cast. They will wonder why they are suffering as much as they are now, and they will want the better public services and the greater social justice which will come under a Labour Government.
Mr. Oppenheim: Will the right hon. and learned Gentleman give way?
Mr. Smith: No. I give way to the hon. Gentleman so often and he never asks me anything of any sense, so I shall not give way to him today.

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I wonder how many Tory Members tell their constituents not to worry, that the recession is short-lived and shallow and, in any event, that the jobs they lost were unreal. It was one thing for hon. Gentlemen to be cavalier about the jobs lost in the early 1980s in the manufacturing areas of the north which, for the most part, are represented by Labour Members. That was the last time we heard about unreal jobs. It is another thing—this surely explains the anonymity of the Minister whom I am quoting—to tell that to their own constituents in the south. I predict that their constituents' reply will be sharp and to the point. Their mortgages and poll tax payments are all too real and must continue to be met after the so-called unreal jobs have gone.
Let us bear in mind and not forget, as the Chancellor of the Exchequer tended to do, the burdens that come from high interest rates. There has been a huge increase in mortgage repayments throughout the country, but particularly in London, since the summer of 1988. In London, the average monthly payment for a first-time buyer increased from £555·53 on 1 August 1988 to £662·18 in January 1991—a total extra payment of £2,683·75. That is the mortgage misery inflicted by the Government's high interest rate policies. All over the nation, the same oppressive burden is being borne. In the west midlands, for example, the average payment for a first-time buyer in August 1988 was £253·48 and it is now £302·15—a total extra payment of £1,200·09.
With such dramatic increases in the financial burdens borne by ordinary people, is it any surprise that court actions for mortgage arrears have increased in the midlands by 72 per cent. and in London by a massive 121 per cent.? We know that, all over the nation, the number of borrowers falling into arrears and the number of houses repossessed in 1990 is nearly double the worst year on record.
Mr. Ian Taylor: Will the right hon. and learned Gentleman give way?
Mr. Smith: Let me finish.
Now the public understand the full meaning of the Prime Minister's celebrated justification for his policies —that "if it isn't hurting, it isn't working". They know from bitter experience that it is hurting severely, but where, they ask, is it working?
Mr. Taylor rose—
Ms. Diane Abbott: Will my right hon. and learned Friend give way?
Mr. Smith: I will give way to the hon. Gentleman and then to my hon. Friend.
Mr. Taylor: In reality, mortgage increases hurt. Given, by his own admission earlier in his speech, that the right hon. and learned Gentleman advocated that interest rates should fall further in 1988, the switch in eradicating inflation which his policies would have generated would have had to be even tougher and to take even longer. Is not the way of maintaining our stability within the exchange rate mechanism guaranteed only by this Government's policies, not by the cut-and-run policy which the right hon. and learned Gentleman is now advocating, which would lead to further devaluation and, ultimately, stoke inflationary fuel again?
Mr. Smith: To believe that the only way to tackle inflation is to subject the economy to the punishment of the high interest rate regime for as long as we have suffered from one is an admission of failure and dismay. Other countries in the European Community can achieve low levels of inflation without having to suffer.
Several Hon. Members rose—
Mr. Smith: No; I have given way a great deal.
Hon. Members: Give way.
The Financial Secretary to the Treasury (Mr. Francis Maude): The right hon. and learned Gentleman should give way.
Mr. Smith: The hon. Gentleman did not give way to me at all on the last occasion. Let me finish the point.
The Government's case is that the only way to tackle inflation is by high interest rates. I dispute that. It is not the experience of other countries in the European Community.
Ms. Abbott: The House will have heard Tory Members laughing when my right hon. and learned Friend mentioned mortgage arrears in London. He will be aware, as all London Members are aware, that property prices in London have meant that mortgage burdens are particularly crippling. If he speaks, as I speak day in and day out, to young couples who bought their house in the latter part of the 1980s on the crest of the enterprise and home-owning bubble and now face repossession, he will agree that mortgage arrears in London are no laughing matter.
Mr. Smith: It is important to give some attention in this debate to the problems facing people in difficult circumstances which flow directly from the Government's policies. I am sorry to say that the Chancellor of the Exchequer did not manage to find a word to say about them in his speech.
Mr. Mellor: Where is the pain-free alternative? What policy is the right hon. and learned Gentleman proposing?
Mr. Smith: I do not think that I have ever heard a question such as that from any Minister since I came to the House of Commons—[Interruption.] I accept that the Chief Secretary appeared to have a genuinely inquiring tone. He knows that his Government's policies are not working, so he says in despair. "Is there something better?" I give him one. If the right hon. and learned Gentleman were to rid his mind of some of its prejudices, he would carefully consider the use of credit controls to control demand rather than high interest rates. That would be a much better and a much less painful alternative. After all, it is what some European countries do, and they appear to get by without difficulty. I shall cherish the right hon. and learned Gentleman's intervention long after the memory of this debate has faded.
Several Hon. Members rose—
Mr. Smith: I have given way a number of times, and I shall not do so again.
Mr. Sedgemore: Have another go.
Mr. Smith: The Chief Secretary appears to be resisting my hon. Friend's blandishments. He is wise to do so. One

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thing that the right hon. and learned Gentleman—[HON. MEMBERS: "Answer the question."] I just gave the right hon. and learned Gentleman the answer.
The constituents of Conservative Members will be wary about relying on a Government forecast of the economy. Their estimate of the recession was wrong, so how can we believe their assertion that there will be a near-miraculous recovery in the second half of this year? That is, I understand, still their assertion.
When the former Chancellor, now the Prime Minister, presented his autumn statement, he told us that the British economy was coming back on track. A similar confident assurance was made by the present Chancellor in the Budget debate last year. He is fond of quoting others, so I shall remind him of what he said last year. Bearing in mind that there might be a question such as that just asked by the Chief Secretary, I shall quote the Chancellor exactly. When he was Chief Secretary, he said:
"Pain there may be, but gain there will also be. By this time next year, the prospects will be distinctly brighter."—[Official Report, 21 March 1990; Vol. 169, c. 1144.]
That was the Chancellor's promise in his Budget speech last March. Can any hon. Member honestly say that things are distinctly brighter because of the Government's policies? They may be brighter for some, but they are pretty dim for most of my constituents and for the constituents of most hon. Members.
A year later, we know all about the pain, but what about the gain? Is that put off for yet another year? Will we have the gain if we are patient, with everything coming right as the economic cycle reasserts itself and the country goes into economic recovery?—[Interruption.] The hon. Member for Birmingham, Northfield (Mr. King) should be concerned about what is happening to the industrial economy of the west midlands.
Mr. Roger King rose—
Mr. Smith: I suppose that I rather provoked the hon. Gentleman, so I shall give way to him.
Mr. King: A few months ago, the right hon. and learned Gentleman was asked to state Labour's alternative policy, and he came up with something he described as credit controls. Is he saying that nobody should be able to obtain a mortgage or buy anything in this country that he cannot afford? That would stop British industry in its tracks and ruin the housing market. It is no answer to the problem.
Mr. Smith: I gave way to the hon. Gentleman because I thought that he might be concerned about the industrial economy of the west midlands. I thought that he would deal with that in his intervention. I am sorry to say that I was disappointed. He should bear in mind what industrialists from his area are saying. I noticed an article in the Financial Times the other day, which said:
"Small and medium-sized manufacturing companies in the West Midlands are reducing investment and training programmes".
The Engineering Employers Federation is telling the Government that there is nothing but misery in the west midlands, yet what does one of that area's representative do in the House of Commons? He makes silly interventions. The hon. Gentleman would do better to speak for his constituents and for the companies that he should represent.
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There is supposed to be a dramatic recovery in the second half of this year, but the only basis for believing that it will occur is to take the Chancellor's word for it —or even the former Chancellor's word for it. I fear that, on the record of recent years, there is no basis upon which such a naive confidence could be based. To achieve a recovery from a recession, there must be a change of course—the very option that has been excluded both by the former and the present Chancellors. That is why we have no confidence in their ability to lead us out of the recession into which they have driven this country.
The Government should today have cut interest rates by 1 per cent. and they should be ready, as conditions permit, to make further reductions to bring our interest rates nearer to the levels prevailing in the remainder of the European Community. Further interest rate reductions will be necessary to avoid even more sharp falls in investment, output and employment, and to assist our country's prospects for economic success in the single market.
However, a cut in interest rates, even if extensive, is not enough on its own to ensure a recovery from recession. Above all, we must take steps to arrest the deadly decline in investment. There is simply no way in which we can either recover or begin the long process of catching up with the leading countries of the European Community unless investment is made and maintained in new plant and equipment, new technologies and new enterprises.
That is why the Opposition urge that fiscal incentives for investment in manufacturing industry should be introduced in the forthcoming Budget. Britain's position is now so critical that the Government should abandon their somewhat inconsistent adherence to so-called fiscal neutrality. Both the CBI and the TUC recommend such proposals, and the Government should heed them. However, it is not enough to encourage investment in plant and machinery. The tragedy is that we have a colossal skills crisis in the midst of a severe recession. How foolish can it be to organise a skills shortage in the midst of rapidly rising unemployment? Investment in the skills of our people is vital. If the Government want something to do, if they want a prescription for action—and the Chief Secretary is the best man to do it—the Government should immediately reverse the cuts in the training budgets, which are part of the autumn statement and which were highlighted in the debate on training last week.
Investment is also required—both public and private —to renew the crumbling infrastructure that a decade of Conservative neglect has caused. In almost all my discussions with industrial managers, I am reminded of their belief that the Government have failed in their responsibility to provide the necessary infrastructure for sound industrial development. That investment must, in large part, be made in the regions, which are now being as seriously affected by the recession as the south-east. As the recession bites deeper and deeper into the industrial regions, the north-south divide, which does so much harm to our economy and to our society, will deepen.
In our debates on the autumn statement and the public spending programme, we must remember that, although we need a strong economy—and, given that there is a recession, it is natural that we should concentrate on that —we must also aim for a fair society. The tragedy is that during the past decade the Conservative party has achieved neither.

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In a recent article on the latest edition of Social Trends, the Financial Times commented:
"Britain has entered the nineteen nineties with the image of a land where the rich get richer, the poor poorer, and the rest live on credit."
Social Trends shows that the proportion of income in the hands of the top 20 per cent. of households increased during the 1980s to reach 39 per cent. in 1987 compared with 34 per cent. in 1979. In sharp contrast, there has been a steady fall in the share going to the bottom 20 per cent., from 10·1 per cent. in 1979 to 8·9 per cent. in 1987.
Mr. Maude: They are better off.
Mr. Smith: They are not better off. The figures prove that the trickle-down theory does not work. Many people are worse off as a result of 11 years of Conservative government. Conservative Members should catch tip on their statistics. Indeed, the Government recently had to correct statistics that supported the contention of Conservative Members. The sad thing about these figures, which stop in 1987, bad though they are—statistics that the Government find uncomfortable seemed to stop two or three years ago—is that they exclude the malign effect of the 1988 Budget, with its tax rate cuts for the top tax payers, followed within a matter of weeks by slashing cuts in housing benefit and income support.
The Opposition deplore a Government whose policies fail to achieve economic strength and continually undermine the foundations of a fair society, and many people in Britain are coming to agree with us more and more. Like the people we represent, we look with dismay at the continuing decline in our vital public services. We look at a Government who have neither competence to recommend them nor good social purpose to stand in its place. We stand for a strong economy and a fair society. Britain needs a new start, and it is clear that to achieve it, it will need a new Government.
5.10 pm
Mr. Terence L. Higgins: It is now more than three months since the then Chancellor introduced his autumn statement. I suppose that it is true to say that both in terms of domestic political events and in terms of events in the middle east, there has rarely been a more extraordinary and difficult period at home and abroad.
As a result, economic affairs have tended to be put in the background. Meanwhile, the Select Committee on the Treasury and Civil Service has been taking evidence and has produced a report on the autumn statement. I am grateful for the remarks by both Front-Bench spokesmen on the work of that Committee which enables the House to debate matters in more depth than would otherwise be the case.
One point that has emerged clearly from the debate so far is that the original cause of the recession was in many respects the need to deal with the overheating of the economy which took place after the stock exchange crash in 1987, and that overheating would have been worse if the right hon. and learned Member for Monklands, East (Mr. Smith) had been in charge because he wished to lower interest rates even more than the Government.
I want first to comment on the Government's forecast with regard to the recession and inflation. The Treasury and Civil Service Select Committee went at some length
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into those issues and, taking all the factors into account, concluded that the recession is likely to be deeper and longer in duration than the Treasury forecasts.
That is an important conclusion. The Committee's report on last year's Budget came to the conclusion that the Treasury always underestimates turning points in the economy, whether a turn downwards or upwards, and that that error has become bigger on every successive cycle. We repeated that analysis in our report on the autumn statement. Therefore, I fear that we reached the conclusion, which is reflected in the report, that the recession will be longer and deeper than would otherwise have been expected.
On the other hand, the Committee, which over the years has brought to the attention of the House the way in which the Treasury's inflation forecasts have not been achieved, reaches the conclusion on this occasion that the rate of inflation which my right hon. Friend the Chancellor predicted of about 5·5 per cent. by the end of 1991 is likely to be achieved. That is crucial in determining whether the economy recovers in the way in which he suggests. We reached the conclusion that the inflation forecast is much more reliable than has been the case in the past.
There is no doubt that in comparison with 1980–81 there is a substantial difference in the pattern of the recession. The regional pattern is different. The recession has undoubtedly hit the south more than it did in 1980–81 nd there is a significant difference in the finances of the corporate and banking sectors. I was a little concerned about my right hon. Friend's comment on that, because in paragraph 23 the Select Committee points out:
"The financial deficit of industrial and commercial companies … is unprecedented both in its sheer size (especially for this stage of the economic cycle and because this is the third successive year of financial deficits."
It goes on to point out:
"the corporate sector is finding it increasingly difficult to arrange the necessary finance in the short term."
It also says that the banking system is
"cautious following a number of major corporate insolvencies"
and is
"far less accommodating than previously."
That is a worrying development, in marked contrast to the situation in 1980–81, when many banks went beyond their normal prudential limits in order to preserve companies which had a long-term future. Therefore, that particular aspect gives especial cause for concern.
Having said that, I ask the simple question—what should we do now? My right hon. Friend the Chancellor is right to say that inflation should be the top priority. If we weaken on the objective of reducing inflation, we may obtain some short-term relief, but we would undoubtedly greatly increase the problems in the medium and the longer term.
The right hon. and learned Member for Monklands, East advocated a 1 per cent. cut in interest rates today and, apparently, more later, but it was interesting that he did not say whether he would do that regardless of whether it meant that we had to have a realignment of exchange rates. He was remarkably coy on that point.
My right hon. Friend the Chancellor has made it clear in evidence to the Select Committee and in statements to the House that there is no question of a reduction in interest rates which is not fully justified by our position in the exchange rate mechanism. The cut this afternoon shows clearly that he has been prudent in making that

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change because the exchange rate appears to have responded favourably. I hope that we shall see further progress.
However, we do not know what will happen in the Budget, but the reaction of the market to the Budget will be important and it would be a mistake to reduce interest rates significantly before we know how the market reacts to what my right hon. Friend says in his Budget statement.
However, I am clear that to throw caution to the winds, to reduce interest rates substantially now and to have a devaluation and a realignment of the exchange rate would simply put us back on the old inflationary spiral. Suggestions that we may do that are likely to delay the time when we can prudently reduce interest rates. Therefore, my right hon. Friend's policy on that is right.
As recommended in the Select Committee's report, interest rates have been devoted to maintaining the position of sterling in the exchange rate mechanism within the limits which have been set, so they are no longer available to deal with the domestic situation. The Committee deals with that at considerable length, and it is a view that we have taken over the years. But it is more important in the context of membership of the ERM. The Committee reached the conclusion:
"We consider it to be unwise for the Chancellor to rule out the use of fiscal measures to affect the level of economic activity in all circumstances when the level of interest rates is determined by the commitment to maintain the parity of sterling in the ERM, particularly now when the depth and the duration of the current economic slow down is so uncertain."
I welcome the fact that the Chancellor, in contrast to the statement made by the previous Chancellor when he introduced the autumn statement, has said that he will allow the so-called automatic stabilisers to operate fully —that is to say, the natural increase in public sector borrowing or decline in surplus which would come about as a result of the recession; the fall in tax receipts on the one hand, and more unemployment benefits and so on on the other. It is tremendously important that that should not be inhibited. It is also important to get it over to markets in advance of the Budget that that would in no way mean a weakening of my right hon. Friend's determination to bring inflation under control. It is highly likely that the extent of the public surplus or deficit will change radically as a result.
The case for a more active fiscal policy—in terms not only of taxation but of public expenditure—is appropriate in the circumstances in which we now find ourselves, in endeavouring to reduce the duration and depth of the recession. As we cannot use the interest rate weapon, for the reasons that I have explained, fiscal changes are important.
I will give one example. It is absurd that the hospital building programme should grind to a halt because regional hospital chairmen will not sell land, believing that it will be worth more in two years' time, say. In such circumstances, it would be entirely appropriate to allow some relaxation of the Government's position on public expenditure, for they know that the money will come in later, and because at this stage in the cycle, the construction industry is seriously underutilised. The Committee makes an overwhelming case for the adoption of a more active policy, particularly now that we are in the ERM.
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My final point concerns an aspect that we have not debated for some time. I refer to pay policy. Over the years, the House has seen many forms of pay and incomes policy, and I myself have lived through everything from total laissez-faire to the most rigorous statutory prices and incomes policy that one could envisage. One neglects pay policy in the public sector and its repercussions for the private sector at one's peril.
Although the leader in The Times was unduly harsh on my right hon. Friend the Chancellor, recent settlements in the public sector have caused me concern. Pay in the private sector has been coming down more rapidly than the Confederation of British Industry's figures suggest. In fact, the CBI itself takes that view. That is good for the purpose of getting down the underlying rate of inflation, but public sector settlements should be subject to the kind of policy that we adopted many years ago, involving the so-called N minus 1 formula, which provided effective scrutiny.
In those days, it was a good rule of thumb that, whatever a Department told the Treasury was the increase in pay, the true figure was roughly double that, because of fringe benefits and so on. Unless public sector awards are scrutinised with the utmost vigour by the Treasury and by Ministers, the opportunity to reduce the underlying rate of inflation at a reasonable pace will be seriously jeopardised.
I am concerned also about the argument that pay awards are all right provided that they are staged. Public sector pay is governed by cash limits and running costs, but to store up problems next year by staging a pay agreement from one year to the next is not satisfactory. I am not suggesting that the public sector should be dealt with unfairly. If inflation continues, everyone suffers, but we must achieve a gradual decline. Despite all the Government's preoccupations with the Gulf war, the European Economic Community, and a single currency, they ought to give priority to that aspect.
My right hon. Friend's basic message this afternoon was that his policy, within the ERM, of bearing down on inflation will continue, and be brought to a successful conclusion—and that necessarily means that interest rates cannot be lowered until the market views that as a prudent action, and downward pressures are not exerted on the exchange rate.
I believe that the market grossly underestimates the extent to which there is already downward pressure within the economy. The recession figures themselves show that clearly. However, against the general background of my right hon. Friend's policy, the autumn statement naturally looks rather different from the way that it looked last November, and we await with interest the official forecasts that will be published when my right hon. Friend presents his Budget on 19 March—which will, I am sure, take into account the points that I thought it right to draw to the attention of the House.
5.24 pm
Mr. A. J. Beith: We are in a serious recession—more serious than the Government anticipated at the time of the autumn statement. That is the difference between how we view it now from how it appeared, at least to the Government's own supporters, on the day it was published. That point was also made by the Select Committee.

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The anxiety that is felt about the Government's policy response stems from the belief that continuing high interest rates will make the recession worse. I share that fear. Interest rates must come down, but in a way that does not serve to increase inflation and lead to the reappearance of the very problems that caused them to be so high in the first place.
The only alternatives offered so far are to reduce interest rates and hang the consequences, as advocated by the right hon. and learned Member for Monklands, East (Mr. Smith), or to reduce them in the knowledge of the consequences, which is the preferred option of some Conservative Members—the consequence in that case being devaluation of the pound and the abandonment of sterling's place in the exchange rate mechanism. That, too, would lead to continuing fears about inflation, and unremitting pressure to increase interest rates yet again. Commerce and industry need not just a reduction in interest rates but a sustainable reduction—and a pattern that more closely matches that of our competitors.
Earlier, there was an interesting exchange when the Chancellor rejected the devaluation option, saying that the strongest economies in the world have strong currencies. The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) added sotto voce—in so far as he ever utters anything sotto voce—"and low interest rates." One could also add the words, "and low inflation". The strongest economies manage to combine all three.
However, the Government did not give us low inflation, or price stability, but they are still promising that interest rates will remain higher than in our competitor countries. The Government forecast—to the extent that they ever forecast it—that underlying inflation, which is something on which Chancellors have always laid great stress, will not fall that much. The Chancellor referred to a fall, but he is not forecasting that it will be below 6 per cent. I will be really generous and suggest a figure of 5·5 per cent. One is referring to a rate of inflation from which mortgage interest is excluded—the rate by which Chancellors and other Treasury Ministers set so much store.
The rate will remain worryingly high even when the supposed effectiveness of the painful cure begins to show itself in the economy. The Government's credibility problem will not disappear, except to the extent that markets take the headline inflation figure as being the whole story. If they do that, the Government may be lucky, and their credibility may increase to the extent that greater interest rate reductions than now seem likely become possible.
Mr. John Smith: I recollect that, in debates last year, the hon. Gentleman opposed a cut in interest rates. Will he make it clear whether the Liberal Democrats are in favour of a 1 per cent. cut in interest rates?
Mr. Beith: My argument is that interest rates should be cut, but that, if they are to be reduced by any significant amount, other policy proposals must accompany that action.
The Chancellor reduced interest rates by half of 1 per cent. today. He decided on such a small reduction because he feared, understandably, that if he made a larger cut there would be dangerous inflationary consequences, arising from a loss of market credibility. I would have used the same reasoning, unless the measures that I am about to advocate were taken to ensure that the economy's
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credibility is enhanced, and that the Government are seen to oppose inflation. I want interest rates to come down, but I want them to stay down. If that is to be made possible, inflation must be defeated.
Mr. Budgen: How can the hon. Gentleman be sure that any policies that he advances to accompany a reduction in interest rates would be acceptable to speculators, as being likely to make the pound more attractive than the deutschmark? If everything is governed by the unpredictable relationship between the pound and the deutschmark, how can any of us be sure which particular factor acts on the minds of any one speculator, or on the minds of speculators generally? We keep hearing from the Chancellor and the Prime Minister that the pound will strengthen as inflation drops. It may—but no one can tell. It is like suggesting that the Prime Minister knows which horse will win the grand national.
Mr. Beith: It is a reasonable assumption that the greater strength of the deutschmark is related to the belief that it is stable and that prices are stable. It is not likely to be devalued and the worth of holding it is not likely to be reduced because it loses value in the economy of which it is a part. If we can change the perception of sterling so that it is viewed in a similar light, there will not be such a premium on the holding of sterling. Our present level of interest rates is the premium that we pay people who believe that this country is not as good at controlling inflation as Germany and other countries—that is manifestly the case.
We have to remove that premium, and the Government have totally failed to do so. The Government have been in power, committed to price stability and getting rid of inflation, for more than a decade, and they are still suffering from the problem that they came into power with. That is why the Government are unable to reduce interest rates by a greater amount.
I believe that we could achieve far greater interest rate cuts than this small half a per cent. cut, if it were accompanied by policies designed to ensure that people believe that we are serious about inflation. Why do I say that people are doubtful about our commitment to inflation? One reason is the way in which interest rates are reduced. Why did it happen today? The interest rate cut today was timed because of this debate, no matter how many days the Chancellor may have been thinking about cutting it. There is no doubt about it—the Chancellor is a politician to his fingertips. He knew that Government Back Benchers were uneasy and he wanted to provide some appeasement to that unease. I know that the hon. Member for Wolverhampton, South-West (Mr. Budgen), who nods, shares my view on this matter, because he is an accurate observer of the way that Governments behave.
There is clear precedent for that behaviour. When we entered the exchange rate mechanism there was a 1 per cent. cut in interest rates, which was timed for the opening of the Conservative party conference. We know, and it is on the public record, that the Governor of the Bank of England thought that that was an unwise moment at which to cut interest rates. He felt so strongly about it that he was not content merely to speak to the Chancellor, but wrote a letter to him about it, which is also on the public record. There was no way that he could express himself more strongly on the subject. He realised that it was a matter of political timing.

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Another opportunity for an interest cut of that type is coming up—on the eve of the general election. To a politician in government, that would seem the most opportune moment to remove some of the fears about high interest rates, and therefore it is quite likely. What is more, a great many other people believe that the Government may behave in that way. In a footnote to its report, the Treasury Select Committee points out that lowering interest rates at the time of ERM entry might have contributed to a loss of credibility.
Industry needs larger interest rate cuts than these, but cuts which can be sustained, and that will not be the case unless they are accompanied by evidence of an anti-inflation policy. One of the most proven ways to contribute to that—I have argued this before in the House and I now find that the right hon. Member for Blaby (Mr. Lawson) argued for that when he was in government—is to entrust an autonomous responsibility for price stability to the Bank of England.
The arguments against that are not economic but political. Those who argue against do not do so because they do not believe that it would have the effect that I describe, but because they want the freedom to put interest rates up or down in the light of considerations other than price stability. That is a dangerous power, which may occasionally be used beneficently but may often be used in circumstances which lead to further inflation later.
It would be desirable to keep sterling within the narrow bands of the exchange rate mechanism, and if that could be achieved, although it is a difficult process, clearly there will be more firmness in our commitment to our currency and its stability.
Mr. Anthony Beaumont-Dark: That is a most interesting argument. However, were we not told in Brussels to reduce wage inflation to 2 or 3 per cent? Some of us pointed out that that would mean 3 or 4 million unemployed, but the attitude there was, so what? The Bank of England, in its superb Georgian offices in Threadneedle street, with magnificent Louis Quinze furniture, could dictate any level of interest rate. Is the hon. Member for Berwick-upon-Tweed (Mr. Beith), who is a Liberal, willing to allow the Bank of England to make 3 or 4 million people unemployed so that it can achieve a virtuous financial circle? He would not win many seats with that policy.
Mr. Beith: The hon. Gentleman has not come to terms with the fact that the tendency to inflation within the British economy is the underlying problem, and the fact that our currency does not repose on price stability. As long as politicians continue to play around with the currency to suit their own short-term political ends, the currency will not do so. Germany's success by adopting another method of dealing with the problem—autonomous responsibility for price stability—is on the record as one of the achievements of post-war Germany.
I shall now mention some of the consequences of recession for other aspects of Government policy. Our present recession might not have been so severe in industry if the Government had taken a number of other steps that we have advocated for years, such as training measures; correcting the mistakes of the 1984 corporation tax reforms, which hit companies especially hard in times of
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high inflation; and legislation to counter late payment of bills, especially by large institutions, which has made the cash flow problems of small and medium-sized firms worse. I know that some Conservative Back Benchers have been sympathetic to the latter and that a Bill was brought in to deal with it.
Other steps would be to attack monopolies more vigorously to ensure that prices are driven as low as possible by competition, and to reduce the burden of employers' national insurance contributions, which would be a less inflationary type of tax cut than those that the Government have made in the past. As well as those steps, which might have helped industry, key investment decisions need to be taken. At the time of the autumn statement, the wrong decisions were taken—and they will not be changed now because of the curious practice that we operate in this country where we consider public expenditure at one end of the year and raising the money for it halfway through the year. Governments seem unable to relate the two.
Any Government could reasonably point out that the Gulf crisis has changed calculations and has to be taken into consideration, but it need not stop essential investment—indeed, it must not. The costs of the Gulf war, serious though they are, are containable, and other countries are contributing to them to a significant extent. The costs are not on a scale which ought to lead to the abandonment of other important spending. I was a little worried that the Chief Secretary, when he appeared before our Committee, gave some signs that savings would be sought in some areas to meet some of the increases that will arise because of the cost of the Gulf crisis.
Mr. George Walden: Will the hon. Gentleman give way?
Mr. Beith: I am a little concerned about the time that I have taken, and I want to keep close to Mr. Speaker's injunction.
Other key elements of investment need to be increased at this time if we are to get out of recession. Training is one area where the Government have made the greatest public spending mistakes of the autumn statement. The training budget has decreased every year since 1987–88 and continues to decrease. It has decreased in real terms year after year, and further cuts are planned during the next three years, supposedly on the ground that unemployment was decreasing, which is no longer the case. However, training is not about employment, but about having a more skilled work force, and we need more investment in training if we are to acquire the skills to get us out of recession.
The Department of Trade and Industry has gone down sharply and regularly. Regional aid to industry will have been cut by £65 million in the years up to 1994 and is virtually disappearing at a time when regions will start to feel the real impact of the recession. Funds for collaborative research have been cut by £38 million in 1991–92, a cut of about 35 per cent.
Essential investment in transport has been ignored, especially rail links to the channel tunnel. We have not tackled such links in the way that the French have, and there will be serious delays in linking the north of England by through freight and passenger trains to continental Europe.

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Wisely used, public spending is sensible in a recession, as it is a less inflationary way to provide stimulus to the economy. If it is targeted towards those areas of investment which can make industry more competitive, it is a sensible direction in which to travel.
The Government have had some remarkable opportunities. They have had more than 10 years in power; they have enjoyed substantial majorities in the House of Commons; they have had the revenues resulting from North sea oil and from privatisation. Yet they have riot got rid of inflation, they are presiding over a recession, and they are trapped in a high-interest-rate policy that is the result of their own past mistakes. What a record!
5.39 pm
Mr. Nigel Forman: In the characteristically witty speech of the right hon. and learned Member for Monklands, East (Mr. Smith), Conservative Members could see very clearly the extent to which Labour—throughout its long and distinguished history as a political party—has nourished a pious aspiration for cheap money. That aspiration is most commonly associated with Hugh Dalton, but it has been felt by many other Labour party figures. In office, however, Labour has always seen such aspirations end in tears—and often in devaluation. The right hon. and learned Gentleman's speech reminded me forcefully of that.
It is at times such as this that the supporters of Government economic policy need to stand up and be counted, as my right hon. Friend the Member for Worthing (Mr. Higgins) has already demonstrated. I strongly agree with my right hon. Friend the Prime Minister, who said in the House on his return from the European Council just before Christmas:
"the purpose of Government economic policy is to bring down the rate of inflation, not to replace inflation today with inflation tomorrow by a premature and unwise movement on interest rates."—[Official Report, 18 December 1990. Vol. 183, c. 166.]
That is the critical difference between Government and Opposition. Conservative Members do not believe in premature and risky reductions in interest rates, whereas I have a feeling that the right hon. and learned Gentleman, were he ever to become Chancellor, would run exactly that risk.
This is the second significant debate on the economy to be held in the House since my right hon. Friend the Chancellor took up his new post. It is still quite difficult for many of us—both in the House and outside, in the media and the markets—to come fully to terms with the new context of economic policy represented by our membership of the exchange rate mechanism. Although everyone professes to see in it either a panacea or a bogey, according to taste, I am not sure that everyone has fully understood the implications and, in particular, the constraints of that policy. Those constraints cannot be stressed too often or too strongly.
ERM entry has put this country firmly back on to an exchange rate standard of monetary policy, which obliges us first to control our costs—if we want to be competitive in the world economy—and secondly, to build sufficient confidence in the conduct of our monetary and fiscal policy, over a period of years, to reassure the financial markets of our determination to squeeze inflation out of the economy.
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We must provide that much more reassurance than some other Governments, because Britain's track record over far too many years—decades, indeed—is one of not being as serious about inflation as we should have been. A premium is built into our interest rates, at any level, unless and until we derive the real benefits that can flow from long-term ERM membership.
We have already begun to achieve some success in our anti-inflationary endeavours: 'headline inflation' has stopped rising, and now looks set to fall when the figures are published later this week. I suspect that will apply to subsequent figures as well. If we stick to our current prudent approach, which necessarily involves validating rather than seeking to lead market sentiment, it will be possible to reduce interest rates further, as and when there is clear evidence of falling inflation.
Evidence of the growth of market understanding seems already to have crept into the lower forward interest rates in the City, which were already on offer before today, and the slight strengthening of the pound against the deutschmark which followed today's interest rate decision. The Government are involved in, and must stick to, the patient building of market credibility for our monetary policy—and a new policy at that.
It took the French authorities several years to achieve the same result, and to arrive at an inflation rate as low as, or lower than, that of the Germans. It need not take us as long—provided that my hon. Friends do not clamour for premature interest rate cuts, provided that the Government do not follow Labour policy by cutting rates, putting up taxation and introducing credit controls, which we heard about today, and provided that industry and commerce, and all pay bargainers, get a grip on all their costs. That means principally labour = costs.
It is worth remembering that employers and unions can limit some of the pain of bankruptcies and rising unemployment by reducing their labour costs to what is required for purposes of international competitiveness. That is true even for industries that are not exposed to international competition. The French did precisely that in the middle and late 1980s, once they saw the light and understood the new framework, and we must do the same in the 1990s and beyond.
Ms. Abbott: I have listened to the hon. Gentleman repeating the formula that businesses can avoid bankruptcies by cutting their labour costs. Can he tell me how many firms in the south-east, at a time of skill shortages, can continue to attract the skilled labour they need, while cutting wages as he suggests?
Mr. Forman: There are two ways of attracting the necessary skilled workers. One is to buy them in; the other is to "grow" them within the business itself. Through the training enterprise councils and by other methods, we are trying to encourage employers to develop skills within their own firms and factories.
Mr. Eric Martlew: Will the hon. Gentleman give way?
Mr. Forman: No; I am sorry.
Even the suspicion that we might leave the exchange rate mechanism, or seek an early opportunity to devalue in the context of an overall realignment of the ERM

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currencies, would send all the wrong signals to the markets in the present conditions, and would set back the anti-inflationary progress that we have already made.
On one point—and one point only—I agree with what Professor Congdon and the others said in their notorious letter to The Times, published this morning. They said:
"Credibility would … be enhanced by … a sustainable monetary discipline".
I agree with that. What was wrong with their analysis—and one of the signatories, Professor Walters, has always been wrong, in my view—was the assumption that such anti-inflation credibility can be established by illusory monetary autonomy in a world of global capital markets. The days of national monetary autonomy are firmly over.
The important feature of the Government's present economic policy is the fact that they have recognised and acted on the economic realities of the modern world, and are working with the grain of market forces—whether in relation to short-term monetary policy, or in relation to the proposals for the hard ecu. We are already reaping considerable benefits from that responsible approach to our new economic policy within the ERM framework.
Let us consider the compelling evidence about inward investment, which comes to Britain only on two important basic assumptions—first, that we remain a core player in the European Community, and, secondly, that we pursue a credible monetary policy within the new ERM conditions. The figures are striking. According to an article in The Independent on Sunday, Britain is now enjoying some two fifths of inward and overseas investment by European Community nations in the Community. It is receiving two thirds of American investment in the Community, and two fifths of Japanese investment. Those are significant proportions, way beyond those achieved by our serious competitors; and that is happening only because of the confidence in Britain that has been instilled by the credibility of our new approach to monetary policy.
Mr. Peter Shore: The figures from The Independent on Sunday that the hon. Gentleman has quoted are absolutely correct. They were based on the OECD report, and showed that Britain was receiving a substantial part of both Japanese and American investment in Europe as a whole.
Is the hon. Gentleman aware, however, that the figures quoted in the OECD report relate entirely to the period before we joined the ERM, when it was national policy —as represented by the then Prime Minister—that we should not join, or, at least, should not do so at early date? What conclusion does the hon. Gentleman draw from that?
Mr. Forman: The conclusion that I draw is that people were investing in this country because they had confidence in the two premises that I have mentioned—first, that we would remain a core player within the Community, and, secondly, that we would pursue a responsible monetary policy. The ERM decision gives us a better chance of doing that for the reasons I have elaborated about generating market confidence and market credibility. So it is an additional reason rather than the sole reason why it is necessary for us to adhere to those disciplines.
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I shall cite two further pieces of evidence in support of my general argument. First, as my right hon. Friend the Chancellor said, a one point move in overall labour costs is perhaps two or three times as significant to British industry and commerce as a one point move in short-term interest rates and that applies in either direction. Secondly, the volume of mobile money being moved around the world today is probably about 20 times more significant than that which is used to finance world trade. Again, we have to take account of the new realities. No monetary institution, not even the federal reserve in the United States of America or the Bundesbank in Germany now has complete monetary autonomy in modern conditions, and that must inform our monetary policy.
Therefore, the Government are right to buttress their monetary policy with a cautious fiscal policy, which ought to be achieved at the present stage of the economic cycle more by overall public expenditure control than by tax increases, disguised or otherwise. I hope that that lesson is not lost on my right hon. Friend the Chancellor in his preparations for the Budget.
In the present circumstances, in spite of the cost of the Gulf war—in some ways we are almost in danger of making a profit, thanks to the strong and sensible efforts of my right hon. and learned Friend the Chief Secretary—the Government can afford to take the strain of any unavoidable public spending increases in a limited extra increase in public borrowing rather than an increase in taxation. Such an approach would be readily financeable in current market conditions and at current rates of interest and could become even easier for us, once the German rates have peaked, which I believe that they will shortly, and once Spanish interest rates come down giving us more leeway within the ERM.
The policy will work as intended, provided that my right hon. Friend the Chancellor is not tempted to go in for any fiscal fine tuning, which does not really work in current economic conditions, particularly in an economy of £600 billion within a huge global economy in which we represent only about 7 per cent. of world trade. It will work provided that my right hon. Friend sticks to his guns and steadily builds market credibility for his new policy. In that way we shall see headline inflation tumble later in the year—I am confident of that—and interest rates can then safely be reduced in the wake of better inflation figures. The balance of payments will continue to improve and we shall have laid a firm basis for continuing prosperity and success in the 1990s.
5.52 pm
Mr. Giles Radice: As a member of the Treasury Select Committee, I pay tribute to the right hon. Member for Worthing (Mr. Higgins) for his excellent chairmanship of that Committee. The quality of the Committee is matched only by its diversity and I hope that I will not be misunderstood if I say that it occasionally needs rather careful and skilful handling. The right hon. Member for Worthing has always provided the necessary leadership, and I salute him for it.
This year we have produced a particularly valuable report on the autumn statement. In fact, I think that in some ways it is rather more valuable than the autumn statement itself, since the problem with the autumn

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statement is that it was out of date by the time it was published. The main flaw was its gross under-estimation of the extent of the recession.
On 8 November, when the then Chancellor of the Exchequer—now the Prime Minister—introduced the autumn statement, he talked complacently about a period of what he called "weak activity". He chided my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) for his allegedly alarmist talk about a recession. However, as the Chancellor spoke, the economy, as my right hon. and learned Friend the Member for Monk lands, East told him at the time, was already in the grip of a fierce recession. Sadly, as we point out in our report and as the right hon. Member for Worthing mentioned, that recession is likely to be much deeper and longer than the Treasury forecast in the autumn statement.
We are now in the second most severe recession experienced by the country since the 1930s and it could turn out to be the most severe. The influential economic commentator, Gavyn Davies, director of Goldman Sachs and economic adviser to the Treasury Select Committee, has pointed out that most of the indicators in the latest Confederation of British Industry survey are worse than they were at the same stage of the 1980 recession. The CBI survey shows that manufacturing output is falling rapidly, investment is declining sharply and unemployment is likely to rise even faster than is predicted by the most pessimistic accounts.
Ms. Marjorie Mowlam: Does my hon. Friend agree that, if Conservative Members were interested in unemployment, those who have already spoken or intervened would have mentioned the increase in unemployment benefit claimants in their constituencies in the past nine months? The hon. Member for Esher (Mr. Taylor), who is still in his seat, would know that there has been a 72 per cent. increase in claimants in his constituency. The right hon. Member for Chingford (Mr. Tebbit) would know that there has been a 32 per cent. increase in his constituency. The Minister—
Madam Deputy Speaker: Order. The hon. Member for Redcar (Ms. Mowlam) is not making a speech; she is intervening in the speech of the hon. Member for Durham, North (Mr. Radice).
Ms. Mowlam: I accept that. However, the Minister should know that there has been a 32 per cent. increase in claimants in his constituency. Does my hon. Friend agree that it is appalling that Conservative Members have not mentioned that?
Mr. Radice: I agree with my hon. Friend. What is interesting about the recession is that, in contrast to 1980–81, when the recession began in the manufacturing sector, this recession began in the housing market and spread to the service sector in the high street. Now it is severely affecting the manufacturing sector as well. Also, in 1980–81 the recession began in the southern part of the country.
As my hon. Friend the Member for Redcar (Ms. Mowlam) pointed out, it is a cause for concern that Conservative Members have not mentioned the unemployment in their own constituencies, considering how fast it has been rising. My hon. Friend will know that the rash of recent bankruptcies suggests that, after a six-months time lag, the recession is now hitting the north with equal
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severity. As a northern Member of Parliament, I find it a tragedy that, after all that has been done in the north and all its efforts to adapt its economy, it should be suffering once again from recession. My hon. Friends who represent northern constituencies also recognise that.
The recession will be longer and deeper than the Government were telling us three months ago, and it is hitting every part of industry and every region. The responsibility for the recession lies fairly and squarely at the door of the Government. It is not caused by world recession. Although there is a slowdown on the north American continent, the two most successful economies in the world—Germany and Japan—are still growing steadily. Germany has a predicted growth rate of 5 per cent. in the coming year and Japan has a predicted growth rate of between 2·5 per cent. and 3 per cent. That is hardly a recession, so we cannot blame the rest of the world for ours.
Nor is it caused by the Gulf war. At a hearing on the cost and economic consequences of the Gulf war, the Chief Secretary rightly told the Treasury Select Committee that the Government were not
"seeking to hide behind the war as an excuse for any other difficulties we face."
It is a pity that the Chancellor of the Exchequer did not heed the Chief Secretary's wise words.
The truth is that we are in a recession because of the mess that the Government have made of the economy since 1987. As the Select Committee pointed out at the time, the Government, by a reckless policy of credit deregulation, tax cuts and monetary expansion, allowed the economy to get out of balance in the first half of 1988. They should have been in a position then to use credit controls, fiscal policy and exchange rate policy to bring the economy back under control. Instead, they stuck—in some ways they did not have many alternatives since they had already got rid of credit controls—to the one-club policy of high interest rates.
As I said in a speech in last year's Budget debate, relying on interest rates as a key lever is likely to be unpredictable and disruptive. I must quote at this point Professor Paish's classic description:
"It is like pulling a brick across a table top with a piece of elastic: nothing happens for ages, and then the brick hits you in the eye."
A long period of high interest rates imposed by the Government has given the British economy a massive black eye.
The question facing the House is what the Government should do to get the country out of the mire in which they have dropped us. A package of measures is required; the first is to reduce interest rates. Everyone welcomes the half per cent. reduction announced today, but that is only a modest beginning. There is no doubt that interest rates will need to come down—[Interruption.] If the Chief Secretary will listen for a moment, I have some good advice for him. Interest rates need to come down by at least 2 to 3 per cent. as soon as possible.
I recognise that ERM membership imposes a restriction on interest rate policy. That is the issue raised in The Times today, and it has been mentioned by the hon. Member for Wolverhampton, South-West (Mr. Budgen) in his stimulating series of speeches; it is also discussed fully in the Select Committee report. I advise those of my hon. Friends who have not read that report to have a look at it.

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I was a strong supporter of British entry of the ERM because it brings more stable exchange rates. Our experience outside it as compared with exchange rates inside it shows that clearly. In the medium term, the ERM can lead to a reduction in interest rates, and I note that interest rates are lower inside it than were ours outside it. It is also a useful counter-inflationary discipline: inflation is lower inside the ERM than was ours outside it.
It is not possible to blame the ERM for the current recession. Unemployment started to rise in April 1990 and we did not enter the ERM until October—
Mr. Shore: Since when, it has deepened.
Mr. Radice: My right hon. Friend will forgive me if I complete my argument. As I said at the time of our entry, we entered at the wrong time, for the wrong reason and at the wrong rate. We entered partly for political reasons, before the Tory party conference, just as today, as the hon. Member for Berwick-upon-Tweed (Mr. Beith) pointed out, we had an interest rate reduction shortly before this debate.
A problem has been created by the former Chancellor's handling of our entry. The weakness of sterling inside the ERM has made it more difficult to obtain the reductions in interest rates that are so vital for domestic reasons. The first answer to that is to manoeuvre such reductions and in a way that is precisely what the present Chancellor has already done. At least a 1 per cent. interest rate reduction has already been largely discounted by the markets, as shown by the fact that sterling strengthened against the deutschmark on the foreign markets today.
Secondly, given that we have joined the ERM, it would be wrong to devalue unilaterally—that would send all the wrong signals. However, there is a stronger case for a deutschmark revaluation within the ERM—[Laughter.] That has been advocated by the Bundesbank; indeed, it is being advocated by it at this very moment. That would create a space for a general realignment.
I make a prediction: within the coming year there will be a general realignment of exchange rates in the ERM, and it will be led by a revaluation of the deutschmark.
Mr. John Townend: May I offer the hon. Gentleman some advice? If he really believes that a significant cut in interest rates is vital for the British economy now, does he think that possible without a realignment? If it is not, will he swallow his pride and support a realignment?
Mr. Radice: I have just said that I think that there is a stronger case for a realignment inside the ERM, led by a deutschmark revaluation.
Thirdly, we must reintroduce some form of credit controls. The minimum reserve asset ratios that operate in France and Germany should operate here, too.
Lastly, there should be what the Treasury calls greater fiscal activism, as we argue in the Treasury and Civil Service Select Committee report. The Government's refusal since 1980 to use fiscal policy counter-cyclically has been bad for the British economy. I welcome the policy announced by the Government on automatic stabilisers, but there is room for sensible investment of public money in incentives for industry, as argued by my colleagues on
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the Front Bench, in employment creation—because we need measures against unemployment—and in training and regional policy.
Mr. Shore rose—
Mr. Radice: I have only four minutes, and to give way now would be unfair to myself. I have already given way twice.
The use of these instruments in the way that I have described would restore some measure of flexibility and credibility to economic management, which has had to rely exclusively on interest rates. The Government have saddled themselves with a policy of economic management which is followed by no other country in Europe. We do not need to do that; we need more flexible economic management policy.
It is essential to tackle the recession and to bring the economy back into balance, and short-term economic management has an important role in that. But we must also operate in the longer term on the supply side of the economy. That is not merely a matter, as Conservative Members seem to think, of liberalising markets; it is equally a question of investing in the factors of supply. We need to invest in skills. It is good that the Prime Minister has at last realised the importance of education and training, but it is a bit late—the dying gasp of a dying Government. Investment in technology, in infrastructure and in transport is also vital for the economy.
By bringing the economy back into balance and by investing in the supply side we should help to prepare the economy for the certain prospect of the single market, for which we are badly prepared, because we are going into it at the wrong time for our economy. It would also prepare us for the possibility of a single currency by the end of the century. I agree with my hon. Friends who are against the idea of a single currency that we must bring about a transformation of the economy if we are not to suffer as a consequence.
The charge against the Government is that, like the Tory Governments in the 1930s and 1950s, they have failed to prepare the country for the challenges that lie ahead. In the coming months, the Labour party will press that important charge in the House and in the country. I predict that the verdict of the voters will be that the Government are guilty as charged.
6.9 pm
Sir William Clark: We should all congratulate the right hon. and learned Member for Monklands, East (Mr. Smith) on being a master at avoiding answering questions. As my right hon. Friend the Member for Worthing (Mr. Higgins) pointed out, when the right hon. and learned Gentleman was tackled about interest rate reductions and about whether there should be a realignment, he did not answer the question.
There is far too much doom and gloom in reference to our economy. Comparisons are made between the 1930s and the 1980s, but one never hears the critics of our economic policy talk about the strength of our economy since 1979. The growth in output per worker in Britain is the highest in Europe—indeed, it is higher than in any other industrial country. Twenty-seven of the 50 top performing companies in the world originate in the United Kingdom. Almost 400,000 new businesses have been created.

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Although they may be profitable, many small businesses have cash flow problems. I urge my right hon. and learned Friend the Chief Secretary to make local authorities and departments pay their debts within 28 or 31 days, or whatever period is decided upon. Many small businesses go into receivership because they cannot get money. Serious thought should be given to providing for mandatory interest after there have been outstanding debts for a certain period. That would help the cash flow. I remind my right hon. and learned Friend that if one of us owes Customs and Excise money on VAT or owes income tax to the Inland Revenue, those departments are quick to start charging interest, whether or not there is a genuine excuse.
The Government must also review the draconian fines imposed on some VAT payers. I assure my right hon. and learned Friend the Chief Secretary that I in no way support or give succour to businesses that try to avoid paying VAT, but many small employers depend on someone else looking after the books. Genuine mistakes may be made. Customs and Excise and the VAT tribunals should have the discretion to decide that a business that has innocently not paid VAT should not suffer a draconian fine.
The other day, I heard about a company which had an addition error of £900,000 in its sales. That error would have been spotted under the company's normal checking procedure, but Customs and Excise not only took the tax on the £900,000 but imposed a fine of £272,000. That was a draconian action. I do not know whether Customs and Excise is as keen to pay interest to someone who overpays VAT.
Like other hon. Members, I welcome the 0·5 per cent. reduction in interest rates. After the stock market crash in 1987, the pundits, economists and all the political parties said, "We must reduce interest rates because there will be a world recession. The only way to avoid a recurrence of the 1930s recession is to reduce interest rates." Interest rates were reduced, but, with hindsight, that was a mistake. The former Chancellor, my right hon. Friend the Member for Blaby (Mr. Lawson), openly admitted that. At the time, however, everyone was clamouring for an interest rate reduction. The same scenario applies today —people, including the Opposition, are clamouring for a reduction. I am delighted that my right hon. Friend the Chancellor is taking things gently and being cautious.
The Government have always said that, as inflation comes down, interest rates will come down. A 0·5 per cent. reduction in interest rates is a step in the right direction. Although it will not make much practical difference in the immediate future, it shows that the Government: are standing by their pledge that when inflation comes down, interest rates will, too. Business men can take comfort from the fact that this is the first step towards reasonable interest rates.
The retail prices index will be published on Friday—apparently, the Government have the figures now. My right hon. Friends the Prime Minister and the Chancellor would not have reduced interest rates by 0·5 per cent., or by anything at all, if they thought that Friday's figures showed that inflation was worse than 9·3 per cent. I am sure that the figures will be satisfactory.
Ms. Mowlam: Will the right hon. Gentleman give way?
Sir William Clark: I am sorry, but I cannot give way in a 10-minute speech.
We must not jeopardise the future by reducing interest rates too quickly. We went down that road in 1987–88. Of course, events in the Gulf will put over public expenditure figures out, although not be a great deal because of the contributions from the Kuwaitis, Saudi Arabians and Germans. I am sure that the House is delighted at the close contact and co-operation between Chancellor Kohl of Germany and my right hon. Friend the Prime Minister. We can build on that co-operation. It was interesting to read that Chancellor Kohl gave a sympathetic hearing to the hard ecu suggestion made by my right hon. Friend the Prime Minister some time ago.
It would be a mistake to rush precipitately into the narrow bands of ERM. We must bring inflation well down before doing so. If we move too quickly, realignment may be forced upon us. That would bring inflationary pressures, because imports would cost more. We should stay on course. We will ride out the recession. The United Kingdom economy is in much better shape than it has been for many years—[HON. MEMBERS: "No."] The Opposition should be aware of the strength of the economy. Our national debt has been reduced by £26 billion over the past three years, which must be a good thing. The average family's standard of living has improved. Two thirds of people own the houses in which they live.
We are in a recession, but we are starting from a higher level of prosperity than in the past. We are not starting at the bottom. In the 1970s and the 1980s, we were at the bottom of the international league. Now we are near the top. I am sometimes astounded by Opposition Members. They seem to take delight in any economic difficulty that we have. They jump gleefully on any bad news and say that the Government's economic policy—
Mr. Speaker: Order.
6.20 pm
Ms. Diane Abbott: I listened with interest, as did my colleagues, as the Chancellor talked defensively, but still rather lightly, about the current recession. People call it "Mr. Major's recession", as he was at the Treasury for almost the entire period of its gestation—a major recession, courtesy of Mr. Major.
I noted how the Chancellor talked about the ballooning of public and private debt, as though it were simply a series of coincidental individual decisions, rather than, as was the case, a response to, and the result of, Government policies—notably, deregulation of financial services, changes in the arrangements for mortgage tax relief, and tax cuts. I must be one of hundreds of Members of the House with a very healthy bank overdraft, and in the past year not a day has gone past without an expensive leaflet urging me to borrow more coming through my door. That is the climate that the Government have created. The Thatcher boom was nothing more than a 20th-century south sea bubble.
I listened, perhaps most sadly of all, as the Chancellor said that the present recession was a price well worth paying. Right hon. and hon. Members on the Treasury Bench can say that this recession is a price well worth paying—they, in their personal lives and circumstances, are not paying it. But let them tell my constituents in Hackney that this recession is a price worth paying. Let

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them say the same thing to the new businesses in Hackney that were launched on the crest of the new enterprise bubble in the latter years of the 1980s.
Many of those businesses, launched by members of the minorities anxious to better themselves by doing what the Government had told them to do—get into the enterprise culture—are now in a very different position. Let the Government talk to people who are surrounded by the ruins of their business endeavours and strangled by high interest rates. Let them talk to old-established businesses in London—particularly businesses in the construction industry—and to people in professions related to the property market. Let them hear those people say that, unless interest rates come down perceptibly in the next six months, they face ruin.
Let the Government tell young people in Hackney who will leave school this summer, and who face a complete drying-up of clerical jobs in the City and in the west end, that this has all been a price worth paying. Let them tell mortgage payers, who face the crippling burden of some of the steepest payments in the country, and consequent repossession or enforced sale, that their misery is a price worth paying. Above all, let them look at the people who have suffered the personal misery and financial disaster of bankruptcies. Let them tell the victims of the rising level of bankruptcies in the past few months that the current recession is a price worth paying.
The Chancellor accused some people of blaming the EMS for the recession. In fact, no one does that—not even the more rabid anti-Europeans on his Benches. It is clear that joining the EMS at too high a level was a blow to industry. Like the new Chief Secretary, I am not an economist, but it is clear that membership of the EMS means that for external exchange rate purposes we have to maintain interest rates that are much too high for the internal domestic purpose of combating recession.
I say a few words about economic and monetary union. The Treasury and Civil Service Select Committee has just returned from Brussels, where it had a series of very interesting meetings with members of the Commission, —off the record, of course. To anyone who talks to members of the Commission it is quite clear that the Government are sidling towards economic and monetary union. For fear of upsetting some of their more excitable supporters, they will not admit it, but it is the fixed opinion of leading members of the European Commission that Europe will have a single currency by the year 2000. No one can have any doubt that economic and monetary union is a moving train and that we are on it.
Without wishing to intrude on private sorrow, I shall say a few words in passing about the hard ecu, of which we have heard so much. It is a tragic tale, but still the Chancellor clutches the hard ecu to his bosom like a mother trying to will a stillborn child to life. In Brussels we found that the hard ecu, despite the Chancellor's claim that it had been greeted with rapturous acclaim in the chancelleries of Europe, is dead in the water. Central bank governors have rejected it, and our European partners have rejected it. There is absolutely no support for a 13th currency.
Of course, the hard ecu was greeted respectfully as a step up from the "Up yours, Delors" style of diplomacy previously favoured by the British Government. Ministers
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have claimed that the Spanish proposal is very similar to the hard ecu, but in fact it is quite different. The hard ecu is acceptable only as a transitional arrangement—if it is acceptable at all. It is not, as Mr. Major has apparently persuaded his more gullible right-wingers, an alternative to the single currency. The hard ecu, as a practical alternative to the single currency, is dead. The problem is that the Government appear to be taking on all the difficulties of European monetary union but none of its benefits and opportunities.
The Government talk about lowering interest rates. They say that lower interest rates are unthinkable within the European system. The fact is that, when the French joined the EMS, they realigned within a very short period. There is no reason why we should not have a realignment. I put it to the Chief Secretary that businesses and the mortgage-paying public are crying out for it. Furthermore, within Europe, the Government, as part of their policy, are taking on the difficulties but are not grasping the opportunities. They are blocking the effective distribution of regional aid. They are preventing local authorities from getting money from Europe for small businesses. Above all, they are fighting the social charter.
Everyone in Europe, apart from the British Government, accepts that a single market will not have the support of ordinary people if it is seen just as a vehicle for increasing the market for big business. The Government have fought a national minimum wage, protection for part-time workers, parental leave and worker representation. Europe seems to want to burden the British Government with all the difficulties of European monetary union but to deny them all the positive aspects.
I return to Mr. Major's recession—
Mr. Speaker: Order. The Prime Minister.
Ms. Abbott: —the Prime Minister's recession. First, we were told that there were problems of definition. Then we were told that the recession would be short and shallow. Now, as all honest Members must admit, the economy is in free fall towards a slump.
I can do no better than quote the Treasury Select Committee's report on the autumn statement:
"Taking all factors into account, we conclude that the recession is likely to be deeper and longer in duration than the Treasury forecast."
That was true when we drafted the report; it is even more true now. The recession will be much deeper and much longer than the Government admit. Right hon. and hon. Members on the Treasury Bench will not pay the human cost of this slump, but we in the Opposition believe that, inexorably, between now and July 1992, they will pay the political price of the Government-manufactured recession.
6.28 pm
Mr. John Townend: I am pleased that, after considerable delay and pain, the Government's anti-inflation policy is now working. It has taken a long time to show through, but on an analysis of the past three months' inflation figures—I appreciate the danger of doing that in light of the experience of the right hon. Member for Leeds, East (Mr. Healey)—the figure amounts to only 1·9 per cent.
Today's cut in interest rates is welcome, but it is smaller than many hon. Members would have liked. To bring inflation down, the Government had to reduce the

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overheating in the economy—which, I hesitate to say, was grossly underestimated by the Treasury in 1987–88—through the use of high interest rates.
Interest rates have been high now for well over 18 months. It is certainly the longest period of high interest rates that I can remember. High interest rates have taken time to work, but they are working now with a vengeance —so much so that the Treasury's forecast of a shallow recession is, as the hon. Member for Hackney, North and Stoke Newington (Ms. Abbott) said, proving to be far too optimistic. If action is not taken soon, I foresee disaster on the horizon. There is a danger that the recession could turn into a real slump.
I was a strong supporter of the monetary policy of my right hon. Friend the Member for Blaby (Mr. Lawson) and it was a tragedy that he did not stick to it. From a monetarist point of view, all the indicators are screaming for an easing of monetary policy and a significant reduction in interest rates. If inflation comes down, but interest rates do not come clown as quickly, there will be a tightening of the monetary stance at the very time that it needs to be slackened.
Unemployment is rising and will soon be more than 2 million. The savings rate is once again rising and is most satisfactory. The froth has come out of the housing market and house prices are flat, or in many places are still falling. Retail trade is falling and company liquidity is under severe pressure. Industrial production is falling and in some industries demand is dropping through the floor. At long last, private sector wage settlements are coming down and it is a great pity that they are not following suit in the public sector.
Bankruptcies and closures are increasing by the week. The growth of money supply is falling; seasonally adjusted for the last quarter it was only 0.8 per cent. The balance of payments deficit is also coming down. Why are interest rates so high? The answer is the exchange rate mechanism.
On 12 Decembr, my right hon. Friend the Chancellor of the Exchequer said:
"There can be no question of a reduction in interest rates that is not fully justified by our position in the ERM. That will be the case however strong is the pressure for lower interest rates based on other indicators."—[Official Report, 12 December 1990; Vol. 182, c. 966.]
That is a chilling statement. The logic is that if to maintain our position in the ERM we needed to raise interest rates, the Chancellor would not flinch from doing that. I believe that that would be disastrous at this stage.
We are now paying the penalty for joining the exchange rate mechanism and for changing interest rates from being an instrument of monetary policy to being an instrument of exchange rate policy. If that policy continues unchanged, the price that we shall have to pay will be a recession that is deeper than the 1980–81 recession and one that will last longer. If that is allowed to happen, the damage to our economy and to the political fortunes of the Conservative party would be immense.
This recession will be worse than that in 1980–81 because at that time much of the unemployment was due to the removal of overmanning and restrictive practices. Many of the firms that went out of business then were inefficient, old-fashioned, badly managed and, in some cases, were driven into the ground by the trade unions. This time, the inefficient, slimmed-down firms with good union relations are going to the wall. On this occasion, the
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recession is not restricted to manufacturing industry. It has affected the south and also service industries—the industries that we have done so much to encourage.
There have been job losses and closures in advertising and public relations and even redundancies in the law, banking and estate agencies. Like other hon. Members, I see evidence of the recession in my area. In the past week, 612 jobs were lost in three firms in and around Hull. No doubt some of those firms faced the difficulty of selling into a $2-for-the-pound American market.
Today we have a combination of high interest rates, collapsing demand and the approximate $2 exchange rate. That is causing great difficulties for many companies. I am worried about the effect that that combination of factors is having on many small and medium-sized firms. No Government have done as much for the small business sector as this Government and no one has done more to recreate the enterprise culture than my right hon. Friend the Member for Finchley (Mrs. Thatcher), the former Prime Minister. However, many small and medium-sized businesses are struggling and going to the wall. Some have already gone out of business.
Mr. Mark Wolfson: Will my hon. Friend give way?
Mr. Townend: No, I only have 10 minutes in which 10 make my speech.
Unless we act now, more businesses will go to the wall and much of the enterprise culture that we have so painstakingly built up over the past 10 years will be lost, perhaps never to return. How right was our former Prime Minister to oppose entry into the ERM.
If we do not act now, at worst we might face a situation similar to when we joined the gold standard before the second world war. We need interest rates to come down quickly, not by 0·5 per cent., but by 2 or 3 per cent. I accept that that will be a difficult decision, but such action is clearly not possible if we maintain our position in the ERM. I should like us to leave the ERM as I believe in floating rates, but I accept that that may be politically impossible. Therefore, there must be a realignment within the ERM.
I challenge those who say that the market would lose confidence in Britain. The markets will lose confidence in Britain if we let a large section of our industry and business go into liquidation. I accept the argument that lower interest rates would reduce the rate at which inflation will decrease. However, the figures that I have quoted show that the rate of inflation is dropping so quickly that perhaps a slower rate might be better. We are now paying for the desire of my right hon. Friend the Member for Blaby to see sterling fixed to the deutschmark.
The current recession has been made worse by the Gulf war, which has had a significant effect on service industries, tourism, airlines, travel and hotels. It is now gathering speed so quickly that, even if interest rates were cut by 2 or 3 per cent. in the near future, the recession would continue to increase for some months before there was an upturn and businesses would continue to fold. There would not be an upturn before the end of the year.
I do not have time on my side, and as a country we do not have time on our side. Industries cannot afford to have the Government wait, and similarly the Conservative party cannot afford to have the Government make the ERM the overriding factor of economic policy. My right

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hon. Friend the Chancellor of the Exchequer is a sensitive man. He inherited our membership of the ERM. He appreciates, even though some of the Treasury mandarins do not, the depth of the recession. He appreciates the pain that small businesses in his constituency are suffering. I know that he wants to do the right thing and I beg him not to be deterred by what our European partners might think and either come out of the ERM or opt for realignment.
Having seen how membership of the ERM has placed our economy in a straitjacket, having seen how disunited Europe has been over the Gulf and how slow Europe has been to give adequate support to Great Britain and the United States, I believe that we certainly should not put our economy and industry at risk on the altar of being good Europeans.
6.38 pm
Mr. Elliot Morley: The Chancellor said earlier that the effects of the recession were exaggerated. Last Thursday, in my constituency, Sooner Foods shed 400 jobs. Last Friday, in Brigg, British Sugar announced that it was closing its factory, with the loss of more than 100 full-time jobs and more than 200 seasonal jobs. This morning, the major employer in my constituency, British Steel, announced that 850 jobs are to go. That amounts to more than 1,400 job losses in the area in less than a week. I do not think that that exaggerates the scale of the recession. It is a recession for which the Chancellor, the Prime Minister and the Government must take responsibility because of their economic mismanagement and their sledgehammer approach to the economy.
Each of those three firms was successful, had good management, and worked with the unions to try to minimise the human effects of those job losses. Nevertheless, the root of their problem is the fall in demand through recession, cripplingly high interest rates, and the exchange rate mechanism. The Government entered the ERM at the wrong time for the wrong reasons.
Ms. Abbott: And at the wrong rate.
Mr. Morley: It was certainly at the wrong rate. That has added to the detrimental effects on our manufacturing base.
It is amazing that the Government are more interested in giving tax cuts to the well-off than they are in building our training, investment and industrial base. It is amazing that the Government, who have had the benefit of North sea oil and the benefit of privatisation proceeds—although those assets were sold off on the cheap and below their real value—are in such an economic mess compared with our main industrial rivals. People in Glanford and Scunthorpe are paying the human cost of that neglect and mismanagement.
As has been pointed out, we need not only a cut in interest rates but a deep cut in interest rates, and not just one approach to controlling inflation but a much more sophisticated approach to controlling inflation. I fear that much of our economic base will never recover from the ravages that are being imposed on it by the Government's economic mismanagement.
6.41 pm
Mr. Nicholas Ridley: On 30 March 1981, 364 economists wrote to The Times and said:
"There is no basis in economic theory or supporting evidence for the Government's belief that by deflating demand they will bring inflation permanently under control and thereby induce an automatic recovery in output and employment."
On that occasion they were wrong. That statement was followed by seven years of low inflation and very high growth. This morning, six economists—many fewer—wrote to The Times and said that they feared that the depth of the recession would be deeper and longer than anybody expected and that an immediate cut in interest rates was required.
What is the difference between now and 10 years ago and the two circumstances in which the economists wrote to The Times? Both were periods in which inflation had to be killed, and I believe that both will successfully kill inflation. Both, of course, cause distress—for example, unemployment and bankruptcies—which is the miserable but necessary price of reducing inflation. The difference is that, in those days, my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) was allowing the pound to go where it would, whereas the pound is now constrained in the exchange rate mechanism.
That brings me to the central questions that I hope that my right hon. Friends on the Treasury Bench will think more deeply about, although they have already thought about them deeply. What is the objective of the squeeze? What do they seek to achieve by high interest rates? We cannot have two objectives, and we cannot have two priorities. There must be one top priority. As between the priorities—defeating inflation or maintaining a certain exchange rate—there must be a choice. I quote no less an expert authority or high priest of European monetarism than Karl Otto Pohl, who said:
"Interest rates should be set according to domestic monetary conditions, and the exchange rate should be left to go where it will."
More recently, he said:
"In my view it would therefore be desirable to embody in the statute of a European central bank a clause to the effect that domestic stability must have priority over exchange rate stability."
I say amen to that. He put his finger on the defect in the exchange rate mechanism, although he is the high priest of that very mechanism.
How can one be a member of the exchange rate mechanism and yet give priority not to the mechanism but to domestic stability? I expect that Mr. Pal was referring to the management of some future European currency as against the dollar or the yen. I am sure that he would say that those are different economies with different problems, different states of development and different rates of growth and that, of course, one must have an exchange rate between them, but that must not be the priority.
Of course, within the ERM there are different economies, different rates of growth and different levies of productivity. Just as our economy is different from Germany's, so we are faced with the choice of whether to keep entirely to the German rate of progress by our relationship with the deutschmark in the ERM or to look after domestic monetary conditions instead. That has the unfortunate consequence as well of putting us into the

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wrong parity against the dollar, which is not a member of the exchange rate mechanism; nevertheless, half our exports go to dollar countries.
Why is it that the people who criticised the Government in 1981 for their very tight monetary squeeze now support the exchange rate mechanism and the present maintenance of high interest rates, whereas nowadays those who supported the Government in 1981 are critical of the Government for their present severe squeeze? The answer is that those like myself who supported the Government in 1981 but are worried about the present situation put as our top priority the defeat of inflation and no more, whereas others of my right hon. and hon. Friends seem to put as their top objective the maintenance of some position in the ERM for primarily European foreign policy reasons and not for economic reasons. That shows how dangerous it can be to get one's priorities wrong.
The 0·5 per cent. cut in interest rates is welcome, but, as many have said, it is too little, too late. The Government have demonstrated that their objective is to do the least possible so as not to disturb the value of the pound in the ERM. As my right hon. Friend the Chancellor has said, his primary objective is to do that. His primary objective should be to kill inflation, but not to have over-kill. Six of the best economists wote to The Times and we had 0·5 per cent. off interest rates, in which case, I shall encourage those six economists to write again on another three days. Three or four more such letters should get us to where we should probably be.
It is not necessary to follow inflation down with successive cuts in interest rates. If the money supply is too restricted and MO is running at only 3 per cent., as I believe that it is, it is right to address the need to get the money supply right, not necessarily to tie it to some indicator such as the RPI, which is meaningless in this context. The RPI measures the inflation of the past 12 months, not the inflation of the hour or the day. Therefore, one is measuring something that is of no relevance to the current state of the economy. We should forget the idea of chasing inflation down with interest cuts. Inflation is coming down very fast indeed, although that will not show because we always have the baggage of the past 12 months within the index.
I urge the Government to use interest rates—if I may again quote Herr Pöhl—
"according to domestic monetary conditions".
I suspect that they never believed that the slump would be as bad as it is obviously going to be. The autumn statement itself said:
"GDP is expected to recover through 1991."
I do not think that GDP will recover through 1991 unless the Government are prepared to make that their main objective.
6.50 pm
Mr. Austin Mitchell: It was a fascinating spectacle at the beginning of the debate watching the Conservative Benches fill with Members who wanted a little hope and good cheer from the Chancellor; they had hope in their eyes and were quietly humming to themselves
"Lead, kindly Light, amid the encircling gloom"
until the Chancellor began to speak. What did he offer them? Absolutely nothing. The only definite prospect he
904
offered them in that long speech was that what goes down must come up, some time; we do not know where, we do not know when, we do not even know why.
That is the question. Why must what goes down conic back up eventually? Why is it not possible that, on the contrary, we are locked into a downward spiral of more bankruptcies, more unemployment deflating demand and therefore leading to more bankruptcies and more unemployment—a process which goes on until it reaches a credit crunch in which banks and building societies begin to demand the return of assets which cannot be sold at prices justified by the borrowing, so increasing the burden of debt?
Far from recovering from the depression, which will be hard, severe and long, it is possible that we are on the brink of worse. Confidence, which has been buoyed up by the Government's hopes and by the 0·5 per cent. cut in interest rates, is poised on a knife edge. The stock market is buoyed by hopes—but hopes of what? Asset prices are kept up because no one dare pull the plug, but we are precious near pulling the plug. The foreign exchange rate, which has been very low against the deutschmark, may go down further, forcing an increase in interest rates. That is the knife edge on which we are balanced.
It is no use the Government exuding hope and good cheer without telling us that something will be done. We are in a uniquely disastrous position. The economy is not well prepared to face it. Industry has over-borrowed; everybody has over-borrowed. We have had the biggest increase in the borrowings-to-earnings ratio of arty country in the advanced industrial world. The ratio is now among the highest, if not the highest. Therefore, we are perilously exposed to a credit crunch.
Our economic statistics are the worst of the Anglo-Saxon world which has been cited in defence of the proposition that the problem must have been caused externally. Although the United States is in difficulty, it is interesting that, because its exchange rate has come dow:n, its exports are doing very well, thus offsetting the decline in the domestic market. That is not happening here. There is no way out through that channel.
We are in a worse mess than the Government are admitting, with no sign or glimmer of a recovery, or even an indication from the Government that they will help the recovery. In those circumstances, we have to ask what the role of the ERM is. The Chancellor gave the easy answer that the ERM did not cause the depression. Nobody said that. What ERM membership does is lock us into the depression and screw down the lid, by removing our ability to use the weapons which we have always had in the past to get us out of the depression. In the past, we had the ability to reduce interest rates to stimulate the economy and to relieve the pressures of debt. All that has gone.
We have abandoned control to Brussels. It is always a mistake to make an externally determined exchange rate, particularly an exchange rate determined by competitors who have a vested interest in seeing it overvalued, a central instrument of management. It is like trying to improve the weather by nailing the needle on the barometer: it cannot be done. It is an even bigger mistake to do that at a time when the cycles are out of kilter. The Chancellor said that Germany was still growing. That is true, but the Germans want to dampen that growth. They want an increase in interest rates. We need a reduction in interest rates, because our economy is so depressed.

905
It is impossible to merge the economic policies of two countries which are at different stages of a cycle and make the stronger one dominant, as has happened with the deutschmark. That is a mere mistake, but the absolutely daft decision of the Government was to go into the exchange rate mechanism at a rate which was grossly overvalued. It was up about 20 per cent. in real terms on the exchange rate at the end of 1986. Even if industry cut wages, it could not overcome that burden and become competitive. It is double-talk and nonsense to expect industry to hold wage increases. If wage rates were cut, industry would still not be competitive on the exchange rate as it was at the end of 1986.
We are overvalued. We are grotesquely overvalued against the dollar. The result will be decimation of our exports on the American market. We have already seen our manufacturing trade with the United States turn from a £1 billion surplus in 1986 to a £3 billion deficit last year. That turnround was caused entirely by exchange rate variations. The position will get worse. We will lose that market. We depend more than any other country in the Common Market on exports to America.
The Government have managed to get the balance of payments deficit down by deflating the economy, but that means that permafrost will be the permanent state of the economy. If that is the only way to rectify the balance of payments deficit, the Government have to keep deflation and they have to keep wage demands down. Otherwise, everything will take off again, particularly the balance of payments problem. The Government are telling us that we have a limitless future of permafrost depression and deflation.
The only way to cure the problem is to have a competitive exchange rate. After all, the exchange rate is only a market clearing mechanism. If we had a competitive exchange rate, we could balance our trade, which we are not doing. That in itself indicates that we are not competitive. With a competitive exchange rate, we would have full employment and a high and sustainable rate of growth. That should be the central measure of economic strategy.
Inflation is irrelevant. As the right hon. Member for Blaby (Mr. Lawson) once pointed out, the only aim of economic policy is to make the country richer. That is what it is all about. It is not about making the country depressed, deflated, unemployed and bankrupt. That is not the measure of economic policy.
The only way to recovery is a competitive currency. We need that desperately. Exports as a share of GDP went down in the 1980s by about 3 per cent. Our industrial base has shrunk so far that it is barely viable. It must remain viable. The only way that we can recover from the balance of payments problem in the long term is to expand manufacturing industry. That means a competitive exchange rate and the ability to invest—both denied by the high interest rate policy. We are taking our front line troops—manufacturing industry—in the battle for survival against the rest of the advanced industrial world—it is a war we are engaged in—and shelling them, putting them out of work by high interest rates. That way lies disaster, a decline in which the country will be reduced to the poor periphery of a wealthier Europe. We will have a decline in tax revenues as corporation tax goes down,
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and a loss of capacity and jobs which will never come back. Our industrial base is already dangerously contracted. That way lies a graveyard.
The only way the Government will achieve lower inflation is by graveyard economics. That is what they are doing. They are putting people out of work, closing capacity and cutting investment. All that is happening now, just to keep us surviving. We shall end up with peace, the peace that passeth all understanding, the peace of the graveyard.
There are ways out. I do not have time to deal with them all, but we certainly need an expansionary Budget which borrows and spends on the essentials—on housing, on the shabby rundown public sector, on public transport and on all the things that need to be done. We need to control credit by requiring substantive reserve ratios from banks deposited with the Bank of England. We need—not now, but soon—an incomes policy. That is the only way we can expand and ensure that inflationary pressures do not choke off that expansion.
Above all, we need devaluation. What is wrong with letting the market decide the exchange rate? Why should we always think of devaluation as a moral crime? Why cannot the exchange rate be decided by the markets? On that basis, our exchange rate would be substantially—about 20 per cent.—lower. Why should sterling not be able to follow the dollar down as it would have done outside the exchange rate mechanism?
Now that we are within the exchange rate mechanism, why should we not be able to say that we are experiencing teething troubles and admit that we have made a mistake? Everyone else had a chance to make substantial adjustments to their exchange rates initially; why cannot we do so? Why should we adhere to the Government policy when all that they have said today is that at this stage in the economic war we need a futile gesture? They are giving us more closures, redundancies, unemployment and loss of capacity and are whittling down our ability to survive and pay our way in the world just to support their fanatic enthusiasm for deflationary economics and the exchange rate mechanism.
7 pm
Mr. Anthony Beaumont-Dark: I shall say only a few words, because many hon. Members want to speak in the debate and there is always a danger that we shall repeat each other.
The right hon. and learned Member for Monklands, East (Mr. Smith) should remember the well-known Scottish saying that fine words butter no parsnips. It is easy for those who are in Opposition or are Back-Bench Members of Parliament to give advice or consent, because they do not have to govern. It is with that genuine sense of humility that I shall give a few words about the problems facing manufacturing industry.
Various Chancellors during the past 11 years have said that I am a Brummie and talk only for the metal bashers, which is basically true. I come from a manufacturing district. My family has been in Birmingham for generations and, over the years, we have been through bad, bad, good, bad and good times. During my political life—30-odd years—in the city of Birmingham, I have come to realise that manufacturing industry does matter.
The right hon. Member for Blaby (Mr. Lawson) once said to me—it was not in private so I can repeat it in public

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—that he did not care how jobs were created, as long as they were created. He said that service industries were fine. Of course service industries are important, but he thought that I concentrated too much on manufacturing industry. I believe that manufacturing industry is the fibre that holds the cloth of a country together. We all use things when going about our lives, whether we are riding a bicycle, driving a car, opening a fridge door, putting something in the oven, sweeping the carpet or going to bed—and everything has to be manufactured.
I agree that I am preoccupied, and almost obsessed with manufacturing, but when I see the balance of payments deficit running into hundreds of millions of pounds, have to be preoccupied with manufacturing. It matters who manufactures the goods. As someone who is fanatical, I find myself buying too many foreign products. Why do I do so? Because often I can buy only foreign products. I am preoccupied with manufacturing industry and shall continue to be so, because if this country is to thrive, it must manufacture to survive.
The Governor of the Bank of England, who would be our master if we gave him entire freedom, as I said in an intervention during the speech of the hon. Member for Berwick-upon-Tweed (Mr. Beith). The German banking system has much to recommend it. The German banks do not merely lend money for a glad, happy, quick return, but invest in their industry. They might have done so accidentally in the 1930s, but now they do so gladly. This week, the Bank of England encouraged the original concept of converting some overdrafts into preference capital or any other capital. That policy has a lot to recommend it.
Mr. Wolfson: I support my hon. Friend's point. Does he agree that the fact that German banks involve themselves more directly in industry than our banks, also brings management skills from German bankers into the management of industry? That may well be one reason for their greater effectiveness.
Mr. Beaumont-Dark: I agree with my hon. Friend to the extent that the German system is important because it brings the management of banks into a much more realistic accord with the management of manufacturing industry. Too often, banks lend hundreds of millions of pounds for a glamorous property or financial settlement, because it will give a quick, glad return.
If this country is genuinely going to thrive, it is not just up to Governments. It is nonsense to suggest that my right hon. Friend the Chancellor or, God forbid, a future Labour Chancellor, can say to industry, "You are going to survive, thrive and be hugely successful." Governments are not the grit that makes the pearl, but rather the shell that too often clamps shut, preventing the grit—of those who have to work—from succeeding. If there is any money to give away in the Budget, we should encourage initial allowances and new businesses and help business to prosper through tax concessions. We should not use the money to subsidise jobs or industry, but to encourage the British will to survive and manufacture tp be more fruitful.
The second use for the money, which the Governor of the Bank of England is now taking up, is to encourage banks, not shut down manufacturing industries because they have short-term problems. As we have all seen in many of the Sunday papers that have concentrated on the issue, firms should not be shut down because of short-term
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cash flow problems. Some of the loans should be converted into genuine capital and the businesses should be given help, encouragement and support. I am not after lame dogs, but after helping the dog that has a temporary problem.
All hon. Members should realise that manufacturing industry is of huge importance. It matters how jobs are created in this land of ours. It matters that I, as a xenophobe who buys British if I can, often have to buy foreign goods. Let us reverse the tide of foreign goods, not by restrictions but by encouragement for those people, not just in Birmingham, but in the north and now the south, who want to manufacture and prosper. The day of the manufacturer should come. If it does not, the day of reckoning will come for this country.
7.8 pm
Mr. Eric Martlew: It is sad that this country's economic climate is far bleaker than the weather outside. Although we can look forward to a thaw in the icy weather conditions, all that we can look forward to from the Government is another economic blizzard, heavier unemployment, more bankruptcies and more house repossessions. Daily, throughout the country, in my constituency and—more important for the Government —in Conservative constituencies, there are 3,000 job losses. Every day, 100 businesses fold up and go bankrupt and 150 homes are repossessed by the building societies and banks.
Although the cold weather can be put down to an act of God, the economic climate can be attributed only to an act of criminal neglect by the Tory Government, particularly the right hon. Member for Blaby (Mr. Lawson), whose ghost seemed to haunt the Chamber this afternoon, especially among Conservative Members, who did not have a friendly word to say about him. It would be wrong to blame the right hon. Gentleman, because in 1988 the Chief Secretary to the Treasury was none other than the present Prime Minister. The sorcerer's apprentice is now in charge.
The 1988 Budget was a giveaway Budget to the super-rich. It sucked in a massive volume of imports and started the spiral of inflation. I am sorry to criticise the right hon. Gentleman when he is not in his place, but he is rarely in his place these days. He quickly swapped the leather of the Front Bench for the plush seating of a dozen boardrooms. Never has failure been so greatly rewarded as in his case. I understand that he has declared that he will not stand at the general election. I am sorry that he did not decide that before the previous election because it could have prevented the suffering of many of my constituents.
Let us return to the fact that the right hon. Gentleman's right hand man was the present Prime Minister. My constituents and the rest of the country are now at his tender mercies. I fear for them, because pain and misery being inflicted. In my constituency are, companies of various sizes are suffering badly. Ferguson Fabrics, for example, an old established, family firm of textile printers which has been going for 150 years, has been taken over. It survived the last Tory slump. I visited the factory about six months ago. It has modernised and invested in new plant and undertaken top-of-the-range printing, yet it has paid off 150 people and the rest are on short-time work. I hope that that company will survive to boom again, but it will find it difficult.

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Another company, Copy Consultants, which would be called a yuppie company down south, is in trouble. Its managing director drove a Porsche and sold his furniture and equipment, all of which were made in Japan. Nevertheless, the company employed 500 people. Only two years ago, the company approached me for help to get bigger premises. Today it is in the hands of the liquidator. If we are lucky, we shall salvage some jobs from it.
We may talk about companies, but we do not get to the heart of the problem—the personal tragedies of job losses and bankruptcies. Like any good constituency Member, I read my local newspaper. Over the past year it has seen a change. We used to have births and deaths, but now we have births, deaths and bankruptcies. I suspect that that is the case throughout the country. I hope that the Chancellor of the Exchequer will consider that.
An insolvency notice in a paper tells a great deal about human tragedy. There is one in this, the paper that I have here, but I shall not add to the individual's tragedy by naming him. The case is before the Cumbrian county court and the individual is now classed as unemployed. Those of us from the area know from his address that he is living on a council estate—there is nothing wrong with that—whereas it is clear from his former address that he used to live on a private estate. His tragedy is that he has lost not only his employment but his house.
The individual is a builder. I understand that 30 per cent. of bankruptcies involve building firms. They have been hit harder than any others. Last week my local paper also listed a grocer and a road haulier who had gone bankrupt. All those people believed in the enterprise culture, but they now face the bankruptcy court. At the bottom of the paper is the name of the official receiver —the official undertaker for that particular business.
Those are the results of high interest rates and reduced demand. It is not just a case of, "If it isn't hurting, it isn't working"; it is a tragedy. If ever a callous comment was made by a Prime Minister, that was it, and I suspect that it will be remembered long after all the other words of this short-lived Prime Minister. We must assist the economy.
It is a good job that we stopped locking up debtors, because if we had not, we would need a prison as big as Manchester. The real criminals are sitting on the Conservative Benches. The individual mentioned in the insolvency notice could have lost his job during the slump of the late 1970s and early 1980s—perhaps at a steel works on the west coast or in train manufacturing in my constituency. He was then beguiled into the business sector by those posh adverts put out by the Department of Trade and Industry, entreating people to be independent, to be entrepreneurs and to get £40 a week enterprise allowance. Those adverts said nothing about going bankrupt.
What do I say to that individual? I do not say, "Well, it's your fault." I do not think that it is. He has probably tried his best. He has not been a bad manager. He is the victim of macro-economics outside his control, and the bank has told him that his company is no longer viable. The irony is that probably many more companies are in a worse state than his, but they are so big that the banks cannot pull the plug on them. Earlier in the debate, complaints were made about big companies not paying bills. The fact is that many big companies are having
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difficulty paying wage bills, never mind suppliers' bills. We must tell that man that the Government are the problem. He is just another Major bankruptcy.
The man probably voted Conservative last time because he believed in the enterprise culture. He probably cannot understand why the Tory generals now tell him that he must be shot by his own side in order to win the war. The only war that interests Tory Members is the one for their re-election. That is what they are about. They have got the economy into a mess and they have decided that he must be a sacrifice. I hope that that gentleman recovers, starts in business again and votes Labour. I hope that he has more sense than to believe the fancy advertisements which the Tories have made with public money. The cost of the political propaganda which they have broadcast on television under the guise of the enterprise scheme runs into billions of pounds.
I also have a word for those on my Front Bench. When we win the general election—it cannot be far away now —we must quickly heal the wounds. We must get people back into work and back on the housing ladder. We must give those who are now in debt and bankrupt, but who have the ability to go back into business, a fresh start. If we do not, by next century Britain will be the poor man of Europe.
7.18 pm
Mr. David Howell: Like almost everyone else, I strongly welcome the 0·5 per cent. cut in short-term interest rates announced today. It is small, but I hope that it is the beginning of a long and sustainable downward step movement of interest rates, following the inflation rate down which will now descend fast to levels that may for once even exceed the Treasury's estimates to the good and be lower than the 5·25 per cent. projected for the last quarter of the year.
My other hope about the process is that it will be conducted at a pace dictated by sound monetary considerations and by the Government and policy makers, not by pressure from the Confederation of British Industry, the media or even Back-Bench Members. I hope that the Government will establish that they are moving at all stages in this reduction of short-term interest rates at a pace consistent with domestic monetary considerations. That is absolutely vital, because if there is to be any gain from the miserable pain about which we keep talking, it must be to establish, once and for all, and after years and years, that sterling is a serious and potentially hard currency. We must pursue the sort of policies that Ludwig Erhard pursued in the Federal Republic of Germany in the 1950s. We must establish the pound not as a long-sliding currency—the byword for devaluation and inflation above all other European and international currencies—but as a sound, tough and strong currency underpinned by firm domestic monetary conditions.
I must say—this will not endear me to all my colleagues—that it would be very much easier to establish that policy if it were not Ministers and the political wing of Government who were making the interest rate decisions at every point. I accept that some people will say that they are vital decisions, and that those who take them should be accountable to Parliament. That is true, but the fact remains that the extent to which they are taken by politicians, at funny times and whether justified or not by monetary policies—and inevitably surrounded by media

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comment—means that their effectiveness in international currency markets is weakened. The credibility of monetary policy in the United Kingdom is permanently lamed and hobbled by the style and method with which we conduct it.
I feel quite sorry for my right hon. Friend the Chancellor and for previous Chancellors, when out of their mouths must come the statement, "I have decided to cut interest rates," or, "I have decided not to cut interest rates." It is a hopeless message for international currency markets. It immediately tells them that decisions are being taken by a Minister, perhaps for reasons—I do not know, and we might be judging him unfairly—other than domestic monetary conditions.
I look back over the past 10 years to the time when I was in the Cabinet, and I have a sinking feeling as I remember hearing the confident forecasts of Chancellors in the early 1980s that they knew how to manage monetary policy. There was all that talk about the medium-term financial strategy: they knew how to do it; it was just a matter of following a sound monetary policy. However, they did not know; they could not establish, in the way that a separate monetary authority could, the full confidence of world financial markets in the monetary policy of this country. Chancellors in the Governments in which I served were wrong. The Treasury was persistently wrong, and has been wrong throughout the 1980s.
Even the distinguished economists who wrote a letter published in The Times today—many of them are personal friends whom I admire—have been spectacularly wrong. In their letter they say that they do not like the exchange rate mechanism but that everything would be right if we followed sound monetary policies. They, too, have not been able to define exactly how we can achieve that sound monetary policy.
Indeed, one of the most prominent signatories to the letter, Sir Alan Walters, only a few weeks ago said loudly and clearly that the problem with the ERM was that we could not raise interest rates but would have to lower them to keep within the bracket. Yet a few weeks later the cry is that we should lower them, but will have to raise them to keep within the bracket. I do not especially criticise Sir Alan; I am merely showing that the confident cries of Chancellors, economists and Treasury mandarins that they can deliver sound monetary policies by themselves turn out to be sadly wrong.
That is why I believe—I am glad that my right hon. Friend the Member for Blaby (Mr. Lawson) reached this conclusion in his resignation speech, and others are beginning to reach it in increasing numbers—that we need, if not an independent monetary authority, a very powerful monetary authority that is seen by international currency markets to be setting the pace in monetary policy decisions. That would make it much more effective when we came to cutting or raising short-term interest rates. I want movement in that direction, but until there is, Britain will be at a disadvantage in the management of our short-term interest rate policy.
The argument in this debate, and in the letter in The Times, is less about that—because people will assume, quite wrongly, that they can deliver a sound monetary policy if only they are allowed to do so—and more about whether the ERM is a terrible constraint on the pursuit of sound monetary policy or a reinforcement of such a policy. I come down on the side of those who believe that being in the ERM, within the present wide band, is a reinforcement. To put it the other way round, if we were
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not in the ERM, huge speculative forces would be building up against the pound, as they have done before, and vast walls of money would be ready to move in in an attempt to shorten the pound. Inflation and devaluation would he forced upon this country at a far faster pace than ever before.
In a sense, I regard the ERM as far from the prison bars that prevent us from following some track towards lower interest rates—which invariably lead towards more inflation and devaluation, which is what the policy amounts to in the end—and as something that, in the eyes of the international financial markets, restrains us within a wide band. I do not believe that the ERM is anywhere near as important as hon. Members crack it up to be. We are driven by forces governing our monetary policy that exist anyway, and would exist whether or not we had the ERM support. At the margins, the ERM provides additional support to our efforts to establish sterling as a serious currency and to maintain the value of our currency internally.
The only respectable escape route would be, as hon. Members have rightly said, if the Germans decided to revalue and there was a general realignment, with the pound and the franc going one way, and perhaps the lire, the peseta and the deutschmark being revalued. That is still a risk, and anyone who thinks that it is not is blind to the fact that Germany has become a large borrower. The bill for East Germany is rising by the day—another DM10 billion, according to today's newspapers. I have no doubt that the Bundesbank officials will be considering whether they need to raise interest rates again, or even to go for an outright realignment. We cannot change, order or persuade that if it happens, and it is a strong possibility.
The question is what will be done to bring Britain out of the recession, and how deep that recession will he. Unlike my right hon. Friend the Member for Worthing (Mr. Higgins)—the Chairman of the Select Committee on the Treasury and Civil Service—I believe that there are counter-cyclical forces at work which, despite present trends, may make the recession a little less grim than some fear. First, there is the German boom, which continues with vast investment and virtual overheating in the German economy. Secondly, there is the prospect that the Gulf war will end on time and according to script, as I believe that it will—after which there will be a natural psychological boost to all sorts of investment projects that have been frozen around the world.
Thirdly, the Iraqis will have 1·5 million to 2 million barrels of oil a day that they will not be able to refine because they will not have any refineries left, so they will have to dump that oil on the world markets. That will mean a substantial fall in oil prices, which may hit our budget, but internationally will be stimulating and counter-recessionary. Fourthly, there will be vast reconstruction throughout Kuwait and the middle east, and the order has already been placed for that. Fifthly, there will be continual huge growth of foreign investment into this island, which is an amazing feature. All those things will mean that the recessionary forces may not be that severe.
I see the light winking at me, Mr. Deputy Speaker, so I shall simply repeat that the Government must accept domestic monetary conditions as its own master, and not be pushed by others. If they do, we will come out of the recession a little faster than the gloomy forecasts made in this debate have suggested.
7.28 pm
Ms. Dawn Primarolo: It is apparent from today's debate that the Government's so-called economic policy is driving the British economy into a deep recession. If my constituents were asked for their verdict on the Government's handling of the economy, they would say that the Government had lost control of the economy and were inflicting pain on the working people of Britain for the sake of it.
The Bristol Evening Post recently reported that last year the number of companies in the south-west going into receivership increased by more than 200 per cent. That is the biggest year-on-year rise in the country. According to Peat Marwick McLintock, throughout the United Kingdom receiverships have more than doubled to nearly 2,634. Since 1979, my constituents have seen the industries in which they have worked destroyed and decimated and they have been thrown on to the unemployment register.
In Bristol, South, between March and December 1990, there was a 21 per cent. increase in the number of people claiming unemployment benefit. Our unemployment rate, ignoring the Government's 50 fiddles, runs at 14·5 per cent. My constituents are being denied work by the Government's economic strategy.
The autumn statement contained a proposal to cut training through the employment training schemes from 520 million to 370 million. The cut presumed a fivefold increase in private sector contributions to training. But businesses in the south-west are making savings on training in an attempt to survive the recession in which they now find themselves. Privately sponsored training schemes have only reached 10 per cent. of the Government's target. In Avon, that has meant a reduction in the training budget from £5·7 million to £4·3 million.
Yesterday and today training managers have been told that training schemes will be closed from 31 March with no alternative. Community Service Volunteers, North Bristol ITEC, Youth and Training, Kingswood Training Services, New Careers Employment Training, Gordeno Training, South-West Training and Age Concern have more than 200 trainees each on placements and they are to close. The number of training weeks that can now be funded in Avon has been cut by more than half, from 15,000 to 7,000. The number of training places currently in Avon is 2,500 and that is to be cut by 1,600 because of the Government's proposals. Yesterday, training managers were given their redundancy notices and told to close 11 schemes. That is in an area with high long-term unemployment.
Those trainees, many of them my constituents, who were in the middle of obtaining City and Guilds qualifications, were told that the training schemes were being scrapped; it was the end of the road. When my constituents asked what the alternative was, they were told it was the training and enterprise councils. But contracts have not yet been issued to the managers who will run the training schemes through the TECs. Moreover, it is not known how many places will be available and it has not been decided what training packages will be required. Therefore, training courses are being terminated with no prospect of any other scheme, and the trainees now have no chance of completing their qualifications in order to re-enter the employment market.
It gets worse. One trainee was told that he could have a training credit. That is a Government idea whereby training completed under one scheme will be recognised by
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another. But the Government have approved only 12 pilot schemes for transfer credits, and Avon does not have one of them.
Trainees who have suffered unemployment under the Government have the meagre training arrangements that they have been granted terminated and their only alternative is to return to the dole queue, look at the vacancies in jobcentres and join the job clubs. They have no right to a job or to training. If that has happened in Avon, the massive 28 per cent. reduction in the money available nationally must amount to a training scandal which shows administrative incompetence on an enormous scale.
My constituents will have an opportunity to read the report of my speech, so will the Minister tell them what emergency steps the Government will be taking to secure the training places of those 2,500 people on training courses in Avon, 1,600 of whom are to lose their places? We do not know what is to be done next year. We do not want to be told that the Government know that it is hurting. We want to know what the Government will do now to fulfil those training promises.
7.36 pm
Mr. Ian Taylor: Those hon. Members who spend a considerable time speaking to business audiences around the country are only too well aware that there is great concern within the business community about the problems facing it. That concern is usually evidenced by reference to the high interest rates, but when one begins to analyse the problems, one finds that they are not solely attributable to high interest rates. Many other factors cause businesses difficulties. For example, in many cases they have made internal misjudgments on their market over and above any general decline in the market, or they may have decided to alter their wage rates perhaps a little imprudently.
However, all those factors show that business must be better understood by Government, but not necessarily told what to do by Government. It is a mistake constantly to tell businesses that they should not pay such and such to their workers. That is not productive from the Government's point of view or necessarily well received by industry. There is always the danger that ultimately we get our come-uppance from the public sector. The Government's responsibility is to set the framework in which business can exist and try to be profitable and obtain a proper return on capital.
The banking sector has some responsibility to assist industry during a trough, which we are undoubtedly in at the moment. I was delighted to hear my hon. Friends this evening say that banks have seriously considered substituting their current loans for equity capital. Debt for equity swaps seems to be a constructive role for British banks to play. If they did that to a considerable extent, it would have two major impacts.
First, it would clearly reduce the marginal costs of business in terms of substituting equity for interest-bearing debt. Secondly, it would integrate our banking system much more into our industrial sector, and that, as we have seen in Germany, would mean that the banks would be proactive rather than just dispassionate and rather cold-heartedly accentuating a trough rather than trying to minimise it.

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It is the Government's job to provide the framework, and it must be as stable as possible. We cannot continue to have an economy that leaps from low inflation to high inflation, from low interest rates to high interest rates—which is why I welcome the Government's current approach. They accept the necessity for discipline in monetary policy, not just domestically but in relation to our principal trading partners. That discipline is the European monetary system.
We could argue all night as to whether DM2·95 was the right level at which to enter the system. There are plenty of academics to argue both ways—some of them at the same time. The reality is that we went in at DM2·95, and it is in our interest to stop questioning that central rate to accept it as the one to which the Government will hold. If that is done, industry can adjust its internal situation to accommodate that reality. More importantly, foreign holders of sterling will know that, contrary to historical evidence, sterling no longer has an inherent tendency to depreciate against other currencies. That will bring a remarkable change in the demands that they make in respect of interest rates if they are to continue to hold sterling, because the historical tendency for sterling to devalue has meant a premium for anyone holding it.
The Opposition completely failed to address the importance of monetary policy in respect of interest rates and currency. It is no use quibbling about whether the central rate is right, or bemoaning the fact that interest rates are too high. We want to know the Opposition's plans for a long-term framework for their policy. We know that the Government's policy is to hold the central rate within the ERM, and to ensure that that imposes its own monetary discipline so that our own inflation increasingly converges with that of our major partners in the Community.
We do not know either whether the Opposition believe that interest rates should he cut regardless of the impact that that action would have on exchange rates, and without knowing whether it would have an inflationary effect through devaluation. I suspect that it would, and the Opposition's policies would come to a sudden stop when they realised that sterling's falling value was having the effect of pumping inflation back into the economy. The Opposition would quickly have to excuse themselves, and to advocate instead a hike in interest rates. That is why the Government's policy of allowing any change in monetary policy or interest rates to be within the disciplines of the ERM is the right one and that most likely to lead to a sustained drop in interest rates as inflation falls.
The failure to observe that caution is the major flaw in the letter that was published in The Times today—although perhaps it is a compliment to the Government that it was signed by only six economists, not 364. Incidentally, they include Sir Alan Walters, whose role as an adviser to the Government was about as reliable as that of Rasputin in his time. The letter argues that depreciation "would not be inflationary." That is an unsubstantiated claim, and I strongly doubt that it could ever be substantiated. We must set a firm discipline, and industry must know what we are doing. The ERM is the right instrument.
I look forward to the Government clarifying their stance in respect of the increased public borrowing that is now inevitable. The demand has grown because of the Gulf war, and that is wholly justified, and cannot be seen just as a one-year item. It must be viewed over a longer
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term. Nevertheless, the general trend must lead us to expect some pressure on total borrowings, unless there is a balancing factor of savings and capital formation in industry. When my right hon. Friend devises his Budget, I am sure that, while acknowledging the public borrowing requirement, he will not panic. It is easily funded, and public sector debt will still remain at a much lower percentage than was the case in the early 1980s.
We might look to the Treasury team to apply some ingenuity to that end, given that monetary policy is largely dictated by the criteria of the exchange rate mechanism. I noted the admirable words of my right hon. Friend the Member for Guildford (Mr. Howell), and if our proposal for a European monetary fund is adopted in stage 2 of the move towards economic and monetary union, it will effectively determine monetary policy—probably using the hard ecu as the benchmark. If that is done, as is suggested in the Government's paper to the intergovernmental conference, monetary policy will increasingly be arrived at on a Community basis, which will allow the Treasury to exercise some ingenuity in respect of fiscal policy and the task of bearing down on the public sector borrowing requirement, year in, year out.
We have had a good few years of debt repayment, which puts us in a strong position to withstand this year's substantial borrowing requirement. We should not panic over that but should consider the longer term, and identify ways in which fiscal ingenuity will allow better management of the economy within a more stable monetary environment.
7.46 pm
Mr. John Battle: Many will regard today's cut of 0·5 per cent. in interest rates as amounting to a half-measure. It is a half-hearted gesture, and it serves to remind us of other half-hearted gestures announced by the Prime Minister. I refer to the Government's half-hearted gestures towards haemophilia HIV victims and in respect of cold weather payments. They are concessions extracted from a Government under pressure and aimed at creating the illusion of action, rather than designed to tackle the root structural problems of society.
The Government are being panicked into doing the least they can get away with. It is a style of gesture politics that attempts to present an image of competence. The economy may grind to a halt, the manufacturing sector may go to the wall, and vital services may dry up—but the Government hope that, if they can maintain that image of competence, they can cling on.
There is universal consensus that the illusion is rapidly being shattered. Today, the Chancellor blithely announced that the price will be worth paying. Who will have to pay that price? Who will suffer that pain, because pain is not always evenly distributed? Often, it is the poor, low-paid and unemployed who must pay the highest price.
On 17 January, I tabled a question to the Secretary of State for Social Security on the subject of poverty. He replied that the Government
"have pursued policies aimed at creating a competitive and thriving economy—because we believe that is the best way of helping all the people of this country.—[Official Report, 17 January 1991; Vol. 183, c. 591.]
The Government's policies have manifestly failed to achieve those aims. We are left with the Government's burnt-out belief in the trickle-down theory. The Government's own figures, which were squeezed out of

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them in a written answer published last July, show that, in respect of households of below-average incomes, the poorest 10 per cent. saw an increase in their incomes of 0·1 per cent. between 1979 and 1987, compared with an average increase of 23 per cent.
The number of people living on less than half the average income has risen from 4·93 million in 1979 to 10·5 million now, according to Government figures. The reality is a growing gap between rich and poor which demonstrates who is paying the price for the Government's economic failure. The poor have been punished by the Government's economic strategy, which is not an economic policy at all, but is proving to be an economic strategy for hardly anyone.
Even the World bank suggested at its January meeting that tackling poverty should be a top priority and proposed that loans should be offered for labour-intensive projects and investment in human capital, especially in agriculture, manufacturing and improvements to infrastructure. That international strategy is certainly not shared by the Conservative Government. Instead, the Government are deliberately allowing unemployment to rise. Roger Bootle, the chief economist at Greenwell Montagu, recently predicted that unemployment will rise to 2·7 million by the end of the year, and to more than 3 million by the end of 1992, according to the Government's lowest possible figures approach.
The Association of British Chambers of Commerce expects one in five manufacturing jobs to go. In my area, Leeds Chamber of Commerce, in its most recent survey, showed that a quarter of all firms surveyed expected their work forces to decrease within the next three months. At the February meeting of the World Economic Forum, Britain was singled out as the only major economy where recession was likely to be deep and protracted.
There is a significant difference in this recession because it is not merely manufacturing which is paying the price. The service sector is contracting—the Oxford economic forecasting unit suggested in a report that it will contract by 2 per cent. this year. In practice, that means that even the Midland bank branch in my constituency is closing. If the truth is that inflation will be hauled down, it will be because unemployment is driven up by Government strategy to bring inflation down.
Unemployment is again emerging as the instrument of economic strategy which the Government will use against inflation. In my area, it has risen to 7·8 per cent., according to Government figures, but in reality, according to the unemployment unit figures, it is somewhere in the region of 12·2 per cent. It is worth reminding the Government that, every time unemployment rises, there is a cost to the Treasury. For every 100,000 unemployed, it gets a bill of £300 million in social security costs. If unemployment rose to 2·9 million, the extra cost to the Government would be about £2,700 million.
Rather than going round the country shutting job centres, which is what is happening in my area at present, the Government should do more. We should nail the myth that people are pricing themselves out of work, because it rings hollow in Yorkshire—the region where wages are the second lowest in Britain. Recently, one company there negotiated a wage cut with its staff before it tragically went
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into liquidation. There was bargaining for a reduction in wages, so it is certainly not wage levels that are pricing people out of work.
The truth is that it is not a question of, "If it's not hurting, it's not working." That has been a throwaway slogan, and it reveals not that it is Government policy to stop the recession, but that Government policy is the recession. The effects are being felt hard on the ground.
The Sunday Times carried an article over Christmas entitled, "Top Business Men Desert the Party". It cited the fact that prominent business men were refusing to give money to the Conservative party because they blamed Government policy for the recession. The chairman of one company, Anglia Secure Homes—the country's second largest provider of old people's homes—replied to Lady Beaverbrook's invitation to the February ball at Grosvenor house in the following words:
"After a decade of hard work and commitment to free market ideology, I find in financial terms I am back where we started, to a future almost entirely reliant on a group of politicians deciding when to drop interest rates."
That sums it up.
When the Prime Minister tells us, as he did recently, that the pain is "regrettable but necessary," he is really saying that the economy is not in an inevitable crisis, and that this is not an act of God or fate, but that our problems are caused by Government-steered policy. It is a little late in the day for the Government to cry that the Gulf crisis has caused the underlying factors. The crisis in the economy and the recession are based on deliberate Government actions, for which they must be held responsible because they are directly responsible.
The Government have increased the uniform business rate and that is why factory and producer prices are up. The recession has been induced by the Government because inflation has been built into the structure with the poll tax, the uniform business rate, the 1988 Budget, which gave away £6 billion in tax cuts to the rich, and the property boom which was engineered by liberalising the banking system.
The Government have lost control over economic management. That is why, as soon as the Prime Minister dares to go to the country, the people of Britain will return a Labour Government and will prove that that illusion of competence is gone for ever.
7.55 pm
Mr. Ralph Howell: I fully support my right hon. Friend the Chancellor in his insistence that we must tackle inflation as a top priority. Like everyone else, I welcome the modest cut in interest rates today.
I support the Government's cautious approach, which is much more sensible than that suggested by the six economists in The Times today. In that respect, I think that the Government are on course.
Nevertheless, we must ask ourselves why we are in this position and why inflation has gone so high. In the past 11 years, the Conservative Administration have done a wonderful job in the private sector. Very few businesses in the private sector are inefficient or overmanned, as that was shaken out long ago and it brought about the successful period that we enjoyed. However, we have dismally failed in the public sector, where there is enormous overmanning in all areas, and we must apply our minds to reducing it. At every turn there is waste. The health service has no decent management and never will

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have until it is put on to a totally different basis. The worst offenders are local government, which employs 1 million more people now than in 1960.
What upsets me most about the autumn statement is that we are pouring more money into trying to make the unworkable poll tax work. We shall never succeed, and the sooner we recognise that the better. The community charge was a major mistake—an albatross around our necks—and we must get rid of it. I suggest that we get rid of this awful system before 1 April 1991 by a simple repealing Act—a one-clause Bill. We could then increase VAT in the Budget by 7 per cent. Everyone would pay and would pay according to their means, and the horror of the poll tax would be out of the way. It would be a major mistake to have another full year of the tax because it will have to rise considerably, especially as so many people have not paid.
I also draw attention to some of the extravagances that we tolerate in the public sector. Although it is commonplace to criticise bureaucracy and to say that we have too many administrators, we should ask a few other questions, for example, about teachers. We have 70,000 more teachers than we had in 1970—although I do not think that the education results are any better—and 735,000 fewer pupils. Any firm that operated on such a basis would soon be in dire trouble.
Then there is the health service. It is not only the administrators who are causing the problem. We are always boasting that 54,000 more nurses have been employed since we came to power, but we also have 90,000 fewer bed patients. Every time we engage an extra nurse, we lose one and a half beds. That needs urgent investigation: it is high time that the health service was put under proper management.
The Treasury forecasts are abysmal. No wonder: there are no real accounts anywhere in the public sector. The time has come for normal commercial and capital accountancy to be exercised in every sector of Government. We are deceiving ourselves at present; we are, as it were, flying blind.
It is obvious to hon. Members on both sides of the House, if they are honest, that we cannot get inflation down without a rise in unemployment. That is the simple truth. It is therefore not surprising that unemployment is now rising; we have been hiding it for several years by creating all sorts of strange training courses, which have not been very successful. I believe that potential employees can be trained only by the firms that are going to employ them. This training business has been a very expensive racket.
We must think again about how to deal with unemployment. For some reason, the Government have set their mind against the workfare scheme that the Americans have adopted extensively. Unemployment in Britain is set to rise, and shaking out the overmanning in the public sector would cause it to rise still further. We, too, should introduce workfare, instead of allowing millions of people to be paid to do nothing. So much work needs to be done that we cannot afford to continue in this way.
8.3 pm
Mr. Peter Shore: I had not planned to speak, but, as I listened to the various clichés and half-remedies advocated by hon. Members on both sides of the House, I found myself irresistibly tempted to do so.
I have come to the conclusion that we are talking about two different subjects. One is the continuing—although, in my view, declining—problem of inflation. Some of today's speeches have suggested that inflation is the outstanding problem of the time; the right hon. Member for Guildford (Mr. Howell) and the hon. Member for Berwick-upon-Tweed (Mr. Beith) were both so concerned about it that they suggested that we invent a new way of ordering our affairs, enabling an independently reconstructed Bank of England to make all the necessary decisions on our behalf.
Even if I accepted that inflation was the outstanding problem of today, I should find that suggestion rather naive. When all is said and done, the Bank of England is not a computer; it consists of men and women who advise the Governor on monetary policy and interest rates. There is no reason to believe that Bank of England governors and their staff will handle things any better than the Chancellor of the Exchequer and his Treasury officials. I accept that they have a natural bias towards sound money and deflation, but beyond that I would not trust them at all. I see no reason to pay such a compliment to the governors of central banks, either here or abroad.
In this debate, concentrating on inflation really means concentrating on last year's or yesterday's problem. As was made plain by many speeches from hon. Members on both sides of the House—very eloquent speeches from Opposition Members—the main problem now is that of recession turning into slump. No one who has seen the various indicators relating to monetary growth, unemployment trends, short-time working and bankruptcy can doubt that we are in for a severe recession—possibly the nastiest since the 1930s. That should be the focus of today's debate, along with this question: what must we do to halt or reverse the slide, and what instruments should we use, now that we have joined the exchange rate mechanism and are no longer free to use interest-rate or exchange-rate policy to combat the slump, unemployment and the major problem of falling output in manufacturing industry?
It has been interesting to observe the way in which various hon. Members have tried to deal with that question without facing it directly. What must we do in the new, vastly changed economic environment in which we so foolishly placed ourselves last October? The Chancellor's speech came shortly after the announcement of a half per cent. cut in interest rates. I am sure that he knows as well as any hon. Member that that is a pathetic amount in view of the internal needs of the British economy—the needs of British industry and the British public, especially mortgage holders. Why, then, does he not do more? The answer is obvious: if he does more, he can reasonably expect us to drop through the floor of the limit—6 per cent. from DM2·95 to the pound—to which he is entitled under the rules of the exchange rate mechanism.
The same problem produced some remarkable innovations in the thinking of some of the Chancellor's right hon. Friends. The right hon. Member for Worthing (Mr. Higgins) is always well worth listening to, and, as we all know, is a very serious man. He suggested that the only

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option, now that we have lost control of interest rates, was an increase in public expenditure and something resembling an incomes policy—certainly in the public sector, if not in the private sector as well. That surely reflects the change that has taken place in our economic environment since we renounced the right to use the great weapons of economic management, interest rates and exchange rate.
My right hon. and hon. Friends have problems here too, because they advocate a greater reduction in interest rates than 0·5 per cent. They face the problem of what to do if a 1 per cent. or 1·5 per cent. cut takes us through the floor of the ERM, below the 6 per cent. margin against DM2·95. My hon. Friend the Member for Durham, North (Mr. Radice) tried to deal with the problem. He obviously felt unhappy about it. His remedy was that the Germans should revalue and put the deutschmark up. He believed that, if the Germans put the deutschmark up against the rest of the currencies in the ERM, the problem would be solved and we could achieve the changed relationship between our currencies with minimum damage to ourselves.
Those approaches are unsatisfactory, because they do not deal with the dilemma of being in the ERM. I can come clean with the House and say that I am not in favour of membership of the ERM. Therefore, I am not constrained by the fear of dropping through the floor of the ERM by cutting interest rates, nor am I the least bit concerned about the change in relationship between the pound sterling and the deutschmark that would follow. On the contrary, I would welcome that. I am far from being in a minority in the country in terms of serious opinion about what our needs are.
Everyone has referred to the letter in The Times today. It is right about going into the ERM in October at that exchange rate. I have plucked out an editorial from The Times of 14 December. It says:
"The highly political decision to enter the European exchange rate mechanism last October and at an exchange rate of DM2·95 to the pound looked like a mistake at the time. Today this can no longer be doubted after the juxtaposition of yesterday's unemployment figures with the previous day's blustering about interest rates by Norman Lamont in his first Commons performance as Chancellor".
I have great sympathy with the Chancellor. What can a Chancellor do except bluster when we have entered an exchange rate mechanism at the wrong rate? We cannot expect him to come here and confess because that would be folly. The first casualty of entering an exchange rate system is that one can no longer tell the truth. We all know that. That was the great problem that dogged us through the 1960s until we floated in the early 1970s.
William Rees Mogg—no softie on inflation, he—said in The Independent on 11 February:
"The recession will be deeper and investment will be lower because of the destabilising effects of entering the ERM at the wrong rate, and at the wrong phase of the British—and, indeed, of the German—trade cycle."
That is pretty clear and I do not think that the opinions that I have quoted are anything other than representative of the majority of economists of all points of view, whether left or right—if one can say that about economists—and of a large number of British business men, not to mention those in the construction industry, and others.
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I am concerned about the problems of recession and the possible slump that we are now in. I am desperately anxious to avoid the damage to our economy and people that a further bout of deflation and unemployment will bring. I do not think that our problems will be solved by simply lowering interest rates or by waiting for the effects of those admirable medium-term measures of training and education that my right hon. and hon. Friends so frequently urge upon us. Something has to be done in the short term. Interest rates alone, even if they are cut, will not be sufficiently effective to deal with the problem of reviving our manufacturing industry and making a major contribution to closing the vast and unmanageable deficit on our current account trading and our balance of payments. We cannot go on running a current account deficit of over £11 billion or £12 billion a year. If it goes on for another two or three years, we will soon find ourselves a net debtor overall in terms of our national assets.
We are not getting a switch of resources. A deflation sometimes, provided that we are competitive at home, will drive resources into exports and import substitutions to the benefit of our current account balance. That is not happening on the scale that is needed. The output of our manufacturing and other industries, which is no longer being bought by domestic consumers, cannot be switched effectively into export markets because the price is wrong. We know that the only way of dealing with the problem of over-valuation is to change the basic exchange rate of the pound against the deutschmark. That is the one way open to us, just as it is the one way open to the United States to change the dollar in its relationship to the yen and the mark in order to close its vast current account deficit.
We are not competitive now, and we must become so. The problem has arisen for us in the exchange rate mechanism. As I have said, one cannot be a member of the ERM and still have a policy of running one's own exchange rate or interest rates. However, one can temporarily agree to freeze those policies if one is in a mechanism within which one can change from time to time. In other words, it is possible to correct an overvalued exchange rate in the ERM because there is still a mechanism—it is not easy to operate—that allows currencies to realign against each other.
Anyone who is contemplating further steps towards economic and monetary union where there is to be a permanently locked exchange rate and a single currency had better look carefully at what is happening in Britain today. They had better look carefully at what happened in 1980, 1981 and 1982, and they had better have a jolly good look at what happened when Winston Churchill put us on the gold standard. They should look at the agony that overtook the Government of that day—I believe that it was a Labour Government—as they attempted to escape from the appalling problems.
I strongly urge the Chancellor to think hard about the decision taken by his predecessor, now the Prime Minister, and I hope that he will be courageous in his conversations with him and bring about the change in the basic rate of the pound against the deutschmark that lies at the centre of our affairs.
8.18 pm
Mr. Quentin Davies: I congratulate my right hon. Friend the Chancellor on his announcement today and on his strong nerves. One needs

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strong nerves if one is to fight inflation effectively, because one has to stand up to a great many pressures, some of which have manifested themselves in the debate. My right hon. Friend the Chancellor has been right all along to say that interest rates must not come down further and faster than is consistent with our counter-inflationary strategy. He has been especially brave to say that the arbiter of whether interest rates can come down further with safety should be the market. He has accepted the discipline of the market bravely.
The fact that the market responded positively today—
Mr. Budgen: Does my hon. Friend know how much intervention there was today?
Mr. Davies: I should be a very rich man if I knew how much intervention had taken place in the foreign exchange markets on any given day.
The fact that sterling did not depreciate against the deutschmark two weeks ago when the Germans increased their Lombard rate, and that the market responded so positively today to the reduction of half of 1 per cent. in base rates, is a considerable tribute to the success of the policies adopted by my right hon. Friend. I hope that he continues in the same vein and that if he believes that additional expansion is necessary he will look as much or more to fiscal measures as to monetary measures in the weeks and months ahead.
I agree with my right hon. Friend the Member for Worthing (Mr. Higgins) about the desirability of trying to advance certain types of capital expenditure in these circumstances. If we are to increase public expenditure to generate some expansion of demand, it is sensible to target it on the construction and infrastructural sectors, for which the employment multiplier of any additional spending is high and for which the import multiplier tends to be low. If we know that we shall have to undertake expenditure on certain capital projects—my right hon. Friend the Member for Worthing mentioned hospitals and I might add projects such as converting the A1 to a motorway or building a fast rail link between the channel tunnel and London—it must make sense to attempt to undertake them now, when capacity utilisation rates are so low, and not to wait for the next boom.
The most remarkable aspect of this afternoon's debate has been the sense of gratification and enjoyment that some Labour Members seem to derive from the fact that we are in a recession. It is foolish of them to adopt that attitude, representing as it does the worst sort of political short-termism—
Mrs. Margaret Beckett: The hon. Gentleman cannot get away with that. Opposition Members resent the recession bitterly because it was caused by the policies that the hon. Gentleman supports and because our constituents suffer most from it.
Mr. Davies: The trouble with that is that the hon. Lady's colleagues—we have not yet heard her speech—have tended to imply that, had they been in charge, things would have been better. But the evidence that has emerged from today's debate confirms the impression, widespread outside the House, that, had the Labour party been in charge, things would have been a great deal worse.
I offer a few examples of that. We have already considered interest rates. It has been pointed out that in
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1988, when, arguably, the economy was overheating, far from demanding an increase in interest rates, the right hon. and learned Member for Monklands, East (Mr. Smith) demanded nothing of the kind. Indeed, around that time he demanded a further reduction in them.
It is a great deal worse than that. As long as I have been in this House, and no doubt for many years before that, no Opposition Front-Bench spokesman has ever done anything but demand reductions in interest rates or resist increases in them—irrespective of the state of the economic cycle, of the monetary aggregates or of any other indicator. The Opposition have placed themselves in the position of a man who purports to know how to drive a car and believes, irrespective of the direction the road takes, that the steering wheel must always be turned in the same direction. Such a person is not someone to whom the country would want to hand over the direction of its affairs.
It is foolish to derive political pleasure or gratification from a recession. Trade and business cycles have always been with us and always will be with us. I do not believe that the hon. Member for Derby, South (Mrs. Beckett) or the right hon. and learned Member for Monklands, East seriously wish to imply—I hope that they will never be drawn into the temptation of implying—that should the electorate impose a Labour Government on us after the next election—which God forbid—we shall somehow enter a qualitatively new phase of economic history, and that the trade cycle will no longer press upon the brow of mankind. If they imply that, they will destroy whatever reputation they still may have for economic judgment. I notice that the hon. Member for Derby, South is not going to contradict me.
I should have thought that the Labour party would use an occasion such as this debate to try to demonstrate to the country that the economic management of the nation would be better in its hands in all the ups and downs that we shall face in the future, just as we have always faced them in the past—but on that score the Opposition have done themselves a disservice. It is clear that their judgment has been consistently wrong on interest rates, so they have no serious standing from which to tell us how we should manage monetary policy, as at every juncture they have adopted the same automatic, mindless, knee-jerk reaction of claiming that interest rates are too high and should come down. That is not the way to manage a sophisticated economy—or, indeed, any economy.
It does not stop there. The Labour party has plans for public expenditure. Again, at every juncture and regardless of the state of the business cycle, the Opposition clamour for more public expenditure for every imaginable good cause—and even for a number of causes that not all of us would regard as good. Of course they want more public expenditure on the NHS and on education and training —the list grows longer as Parliament proceeds.
This afternoon, we have been told of two areas on which the Opposition would spend more public money irrespective of whether the economy could afford it: pensions and child benefit. Worthy as those objectives might be, it is extraordinary to say that we should have more public expenditure regardless of whether the economy can afford it. What do we think of a man or woman who says that he or she is planning further expenditure, irrespective of whether they can afford it? The answer is that such people appear in the bankruptcy courts every week.

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This afternoon, Opposition Members repeatedly said that we need higher taxation. The Labour party offers the country a prospectus of higher income tax and higher marginal rates—up to 59 per cent. in the latest proposal. Have the Opposition seriously considered the economic damage that would be done by re-establishing this country as the most highly taxed nation on the European continent? We should be higher taxed even than Sweden, since the Swedes have learnt the lesson and have recently reduced their taxes. In case the hon. Member for Derby, South has any doubts about that, I repeat that 59 per cent. would establish this country as having the highest marginal rate of tax on the European continent. All sorts of individuals—inevitably, by definition, those who would add the greatest value to the economy—would be tempted to pursue their activities elsewhere.
I take it that the Labour party does not wish capital gains tax to fall behind—it would hardly wish to favour capital gains over income. No doubt the higher marginal rate of capital gains tax would also be increased to 59 per cent., or even more. Has the Labour party even begun to think through its proposals and to consider the enormous economic damage that would be caused by increasing the capital gains tax? For example, a venture capitalist who was investing in his business or someone else's and who was faced with an increase of perhaps 50 per cent. in capital gains tax rate would require—depending on the pay-back period—a 200 or 300 per cent. higher pre-tax return to ensure that there was an equivalent post-tax return. Few investment projects would meet that threshold, investment would not be undertaken and the economy would be damaged.
It does not stop there. The Labour party has what it calls an employment policy to establish a statutory minimum national wage. Remarkably, Labour Members also tell us—apparently with great sincerity—that they would like more rather than less employment. Those two statements can be reconciled in only one way: on the assumption that the Labour party has not learnt an elementary principle of economic science—if the price of a commodity is increased, demand for it is reduced. Clearly, if the price of labour is increased, demand is reduced, resulting in less employment.
I hope that this interesting debate has been closely followed by the electors. If it has, they can draw only one conclusion about the party to which they should entrust the management of the economy, with its inevitable ups and downs. We need a pair of hands that are reliable and we have shown that, over the past 10 years, in all circumstances, the Conservative party has come up with the best record for economic management in the European Community.
8.32 pm
Mr. Peter L. Pike: I disagreed with almost everything that the hon. Member for Stamford and Spalding (Mr. Davies) said. He made a poor contribution and got the basic position totally wrong. The Government's motion shows that they do not live in the real world and do not understand what is going on. When Conservative Members speak as the hon. Member for
926
Stamford and Spalding spoke, I understand exactly why the Government tabled the motion. They have failed to recognise the problems facing the country.
I should like to take up some specific items in the speech of the hon. Member for Stamford and Spalding. He referred to the Labour party's policy on a national minimum wage—a policy which I strongly support and which the Labour party should have supported many years ago and implemented when in government. I represent and live in a part of the country where low wages are traditional. I should like Conservative Members to say, for a change, that they believe in fair wages. We should be trying to achieve that. Many people live on totally unacceptable wages. Some people in my constituency who are married and have children work a 40-hour week for £50, and some work for even less. That is an outrage. I accept that they can get family credit but it is deplorable that such wages should be paid in 1991.
The hon. Member for Stamford and Spalding argued that low wages would save jobs. If one asked people who live in areas with traditionally low wages whether those wages have saved jobs, they would say no. The population in the area covered by the former county borough of Burnley, which has been amalgamated into the bigger new borough of Burnley, is just over half what it was in 1921, because people have been leaving the area. We have changed the type of employment provided in Burnley, but many factories that replaced the cotton and coal industries have gone out of existence. We have moved into service industries, but the people involved are under pressure and are losing their jobs.
The former Prime Minister, the right hon. Member for Finchley (Mrs. Thatcher), often said that low pay was better than no pay. It is time that we started to talk to everyone who works for a living and to ensure that they get fair remuneration for their work. That is an essential ingredient in the Labour party's policy of a national minimum wage.
The hon. Member for Stamford and Spalding warmly welcomed the 0·5 per cent. reduction in interest rates, as we all do. However, there will be no leaping for joy tonight in my constituency. The industrialists will not feel any great benefit from a mere 0·5 per cent. reduction, and mortgage payers will not get any immediate advantage. The Government must do much more.
The hon. Member for Norfolk, North (Mr. Howell) called the poll tax an albatross around the Government's neck. He said that it should be abolished as soon as possible. I agree, although I do not agree with its formula or with its alleged simplicity. The Government must recognise that the poll tax is basically flawed because of its total unfairness. The quicker it is scrapped the better.
A few weeks ago, the Government announced that there would be additional assistance for people who would lose more than £2 a week because of the poll tax compared to their last year of paying rates and that there would be a different basis for the calculations. Although the Government's measures will be a tremendous benefit to many of my constituents, I believe that they were introduced in the short-term interest of electoral advantage. The Government have introduced an arbitrary method and many people are worried that it will be a temporary measure for this year. There are no assurances about what will happen next year.
My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said that it was increasingly

927
evident that, when figures start to give the wrong answers, from the Government's point of view, the information is no longer available. I want to give a couple of examples to prove that what he said was absolutely true.
On several occasions I have asked for information about the change in output in the north-west between 1979 and the time for which the latest figures are available, and I have put similar questions about investment and employment in manufacturing industry in the area. In the case of jobs, there was a reduction of 38 per cent.; in the case of investment, the reduction, in constant terms, was over 30 per cent. For a period, the Government managed to get the national figure for investment above the 1979 figure, but in many key manufacturing areas, even on the basis of the best figures, they had not reached the levels of 1979. In the north-west, the figures for investment and for output were both down by more than 30 per cent. That underlines the problem that the Government still fail to recognise. Such questions can no longer be asked.
There is another matter about which I want to question the Government. It is one in respect of which they no longer produce figures because the answers that would be forthcoming are not answers of the type that the Government would wish to give. Just over 18 months ago, I went to Reading with the Environment Select Committee. As we were passing through the town, I happened to notice the wages that were being offered in the jobcentre. When I found out the wages for comparable jobs advertised in jobcentres in my constituency and in other parts of Lancashire, I found out that they were a fraction of those that I had noticed. I recently tabled a question on this matter, but the answer that one now gets to such questions, is "This information is no longer collected centrally." As soon as information that is being collected ceases to suit their purposes, the Government stop producing it.
I turn now to my reasons for thinking that the Government's record over the past 12 years has been one of failure. I do not welcome the current recession. It is a great tragedy, but it is the Government's fault; they must accept full responsibility for it. The tragedy is that they have failed to learn the lessons of the recession of the early 1980s. They have failed to recognise the need for investment in industry and for investment in training and education with a view to the provision of a skilled work force. [Interruption.] Let me say to the hon. Gentleman who intervenes from a sedentary position that, sadly, this country's record of investment in its greatest asset—its people—is appalling by comparison with those of the countries with which we compete. It is time the Government did something to get it right.
When I refer to a skilled work force, I include skilled management. At certain levels of management there is still a lack of skill—a lack of people who are able to motivate and make sure that we can compete successfully. It is extremely important that we tackle that problem.
There is something else that the Government have failed to recognise. When industries are in danger of closing down—and industries do close down—there is no point in talking about switching to the export market goods that are not required on the home market, or of switching to the home market goods that are not needed on the export market. Once industries have gone, they are gone, and their products no longer exist either to sell on the home market or to export or for import substitution. Industries have been allowed to disappear.
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The hon. Member for Macclesfield (Mr. Winterton), in putting a question to the Prime Minister the other week, I believe put his finger on the difficulties of manufacturing industries. We have gone into the ERM with our currency tied to the German mark. The Government alone failed to recognise that the level was too high. All those from the industrial and commercial sectors that one meets say continually that it is too high. The only people who defend it are the Prime Minister and his friends in the Government. If we have got the rate wrong—if it makes imports cheap and exports dear—we shall continue to fail.
For far too long, the Government have failed to recognise that manufacturing is this country's bread and butter, and that the regions need far more investment. In saying that, I am in no way dismissing the importance of the service industries or tourism to the national economy. But this is a manufacturing nation, and its future depends on the ability of manufacturers to compete and to export more. Until we get that right, the economy will continue to decline. Interest rates are a major factor in preventing investment, together with the exchange rate problems that industry faces. The Government will have to face up to these problems.
My hon. Friend the Member for Carlisle (Mr. Martlew) referred to repeated newspaper reports of bankruptcies and other such problems. In my local newspaper, I see, week after week, reports of redundancies. Firms affected include British Aerospace in Preston, which employs workers from Ribble Valley, Philips, Main Gas, Skipper's garage, Compound Engineering and Endsleigh Insurance. I could spend the rest of the time allowed for this debate listing firms that have closed down and firms that have had to make people redundant. Let me give the unemployment increases in neighbouring constituencies: Pendle 16·9 per cent., Hyndburn 10·3 per cent., Burnley 10·1 per cent., Rossendale and Darwen 14·8 per cent., Calder Valley 23·4 per cent., and Ribble Valley 6·9 per cent. Those increases all took place between March 1990 and December 1990. That is the Government's record.
During the next few days, I shall spend quite a bit of time in Ribble Valley. I know what problems are being faced by people there who can no longer afford their mortgages. I know also of the pressure on industrialists in that constituency. I am thinking of firms such as Ribble Cement, which depend on the construction industry, which is under great pressure. I know of the pressure on farmers, who, in cash terms, are getting lower prices for livestock than they were getting two years ago. In real terms, the situation is even worse. Farmers who have borrowed to buy livestock or premises are being squeezed very hard by interest rates. They know that the Government have failed. They know that the Government, even with a change of leadership, have no answers to the problems.
The Government have failed to tackle the problems, and they will continue to fail. When the general election comes, they will fail yet again. The people will elect a Labour Government to deal with the problems and to restore Britain to prosperity.
8.48 pm
Mr. Mark Wolfson: As other hon. Members wish to speak, I shall be brief.
I shall pay particular attention to a point made by the right hon. Member for Bethnal Green and Stepney (Mr.

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Shore), who brought us back to the nub of the question that has arisen throughout the debate—that we are now in a new position because of our membership of the ERM and that new thinking must be brought to bear now that there is an additional constraint with regard to interest rates and the use of them. This debate has made it clear that economics is an art rather than a science.
Another point that comes over to me time and again in debates on the economy is that, for more than 40 years, Britain has struggled continually with the problem of how to handle sterling, both as an internal currency and as an international currency. That problem will not go away. There is now an additional constraint, and we have to take action within that.
Many hon. Members have referred to the fact that inflation is falling quickly, and I support that view. It is essential that it does so because British exports of goods or services cannot otherwise be competitive. Therefore, I fully support the Government's attempt permanently to control and squeeze out inflation.
I represent a southern constituency in which there is not a great deal of manufacturing activity. However, my constituency contains a number of small businesses and I should bring home to my right hon. and hon. Friends on the Government Front Bench the reality of the recession and its effect on jobs even on the most buoyant side of our economy. It is essential that we bring down interest rates as rapidly as is prudent with sensible rectitude. Today's move is welcome, but it is a small move. I hope that we shall see a continuation of such movement in a very short time.
Many of us still wonder whether we entered the ERM with an overvalued pound. The discipline of operating within the ERM and the limits that that places on us can be healthy in the long term, but it must not be a form of slavery. We still have some room for movement if that should prove to be absolutely essential. My right hon. and hon. Friends must keep a close eye on that point and not be over-obsessed with the idea that moving outside the present band would be a disaster. Our exports are under great restraint at the moment.
For many years, I have been concerned about the fact that Britain has a tendency—both among individuals and businesses—to spend highly. I have not been happy with our somewhat purist view that credit control should necessarily be anathema to the Conservative party. It might be heresy to air such a view on the Conservative Benches, but I believe that Conservative policies are not "never for never". Within the new constraints that the ERM places on what we can use interest rates for, it may be necessary to consider instruments that we have previously put aside. Interest rates are a blunt instrument. I am not happy that, 10 years after the last recession, we have had to return to a very hard regime in order to squeeze inflation down once more. We must learn from this second experience and perhaps introduce new thinking in the future.
If we accept that business cycles will occur in the future, we cannot remove the tendency to inflate even if a Conservative Government continues in power. I have no confidence that we would not proceed to very high
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inflation under a Labour Government. Inflation will still cause problems, and we need all the possible instruments at our command to control it.
We could argue, as my right hon. Friend the Member for Blaby (Mr. Lawson) did in the past, that borrowing in a freer money market like the one we have established over the past 10 years, requires education, and that people must learn the hard way not to borrow unreasonably. That is a rather over-optimistic view of human nature, particularly in view of the huge barrage of advertisements for bank lending. Indeed, I received a letter today offering a loan of £10,000, apparently at the end of a telephone call. We cannot simply argue that individuals must resist such advertisements.
I hope that greater consideration will be given in the Budget to ways in which we can encourage saving. We must turn Britain from a spending society into a society in which saving is more heavily emphasised. The TESSA plan is a step in the right direction, but I should like to see more radical approaches and greater encouragement in terms of tax incentives to encourage saving.
We need new thinking in a new environment. I support the necessary, but very hard, measures that the Government have taken so far. Inflation is falling and it will continue to fall rapidly. We must now stimulate the economy as quickly as possible to stop the recession turning into a dangerous slump.
8.55 pm
Mr. Keith Vaz: I want to bring the Chief Secretary to the Treasury back to reality, which my right hon. and hon. Friends have done in their contributions. I want to bring to the attention of the House the progress of a firm in my constituency called Bridgeport Manufacturing, which is in Forest road, in Leicester. In 1986, it received the Queen's award for industry.
Bridgeport Manufacturing is the largest machine tool manufacturer in the country. Only a few months ago, the then Minister for Industry visited the firm to congratulate it on its great achievements in exports and its contribution to the British economy. In the past few weeks, the managing director of that company has had to announce more than 100 redundancies. That is the biggest set of redundancies that the company has ever had to make.
I visited the factory two weeks ago last Friday to witness the effects of the Government's policy on that firm. No one was working in Bridgeport Manufacturing on the day that I visited, because there was no work for the workers. The managing director is a great Conservative party supporter and he told me that he could not imagine a worse time than the present for his company and the rest of industry in the east midlands.
The Confederation of British Industry in the east midlands today published a survey which shows that more companies have gone bust in the area than at any time in the region's history. That is a direct result of the Government's policies.
Nothing that the Chancellor has said will do anything to reassure the management of Bridgeport and the management of other firms in Leicestershire. They report a record fall in expenditure on their products. Spending on their products was down by about 40 per cent. in the past year. They have informed me of their fears about what will happen as the year goes on.

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Of course we welcome the 0·5 per cent. reduction in interest rates, but that is precisely the line that was argued by my right hon. Friend the Leader of the Opposition when he faced the Prime Minister on Tuesday. He categorically said that the level of interest rates was so high that it was crippling British industry and making the recession even more damaging than it has been of late. Clearly, 0·5 per cent. is not enough. It is not enough to save the textile and footwear industries in the east midlands, and especially in Leicester. One third of jobs in the textile industry and a quarter of jobs in the footwear industry are based in the east midlands. In 1979, 371,400 people were employed in the textile industry, but, by 1990, that figure had dropped to 206,000. In 1979, 68,000 people were employed in the footwear industry, but that figure dropped to 44,800, a reduction of about 43 per cent., in the past 10 years. Therefore, 188,000 jobs have gone for ever.
It is impossible for the Government to legislate or to bring forward any policies that will result in any success for those two industries. Time and again, manufacturers have told me and to my colleagues that there must be a dramatic cut in interest rates. They suggest 2 per cent., but it must be even more than that if the Government are to save those two industries. Eight jobs in those industries are being lost every hour.
Nothing in the Chancellor's speech would give any comfort to national health service consumers in Leicester. We are still relying on a jumble sale health service, with people having to launch appeals for even the most basic necessary equipment for our two biggest hospitals, the Royal infirmary, and the Leicester general hospital. Nothing in the Chancellor's statement will ease the concerns of staff in the national health service or those who happen to use it.
We have record homelessness and home repossessions in Leicester. The Alliance and Leicester building society, one of the largest in the country, announced only yesterday that 49 families' homes were repossessed last year, compared with three families' homes being repossessed the year before, and it estimates that matters will get even worse.
The Government simply do not care. The Chancellor and the Treasury team have grand titles—for example, Chief Secretary to the Treasury, Financial Secretary, and Economic Secretary—but they do not create jobs. They do not provide resources that would help the economy of Leicester or of the east midlands. All they do is create misery. This is a time of great violence throughout: the world, but we forget about the Government's violence when old people's homes are without heat in the winter, when schools are without books and are literally decaying before our eyes because of insufficient resources, and when the health service is in deep crisis. Nothing is being provided by the Government to help the people who live in Leicester, East, and nothing is being done to provide any more resources.
When my party is in government, as it surely will be this year—that is my estimate of the date of the next election —no Government in the history of the country will have faced the economic mess that we shall inherit. Conservative Members do not need to hear that from me. When the Chief Secretary returns to his constituency this weekend, there will be no garlands welcoming him in Putney high street. Those who once lived in prosperous Putney will tell him exactly the same story as the people of Leicester have told me and other constituents have told my
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hon. Friends: the Government are a disaster, they have provided no help for people, and the quicker they go the better.
9.4 pm
Mrs. Teresa Gorman: I wish to express my concern for the plight of many young people who are finding it difficult to meet their mortgage payments, of small businesses which are having terrible trouble with overdrafts and of large businesses which are struggling to meet their payroll. Those are serious problems. I sometimes think that, in this sheltered world, we forget the misery that our economic policies inflict on ordinary people. It is good to let them know that some of us feel guilty and upset on their behalf mostly because, as Back-Benchers, we can do little about it. I want to make some practical suggestions; I hope that the Chancellor will be here in time to listen to them.
Early in the debate, when the Front-Bench spokesmen were at each other's throats and everyone was at their throats, there was much banter. The right hon. and learned Member for Monklands, East (Mr. Smith) was asked for his solution and his alternatives. No one has come up with alternatives, and we still have the dilemma of high interest rates, recession and inflation.
Other countries—our competitors·are successful, with low interest rates and low inflation; America, Japan, Germany, Austria and Switzerland all have something in, common—the minimum of political interference in the banking structure and the maximum opportunity for their currencies to respond to what are colloquially known as market forces.
Politics messes up economies. It does not matter which political party is manipulating the scene, it is politicians who make a muck of things. If we really wanted to control inflation and the recurring cyclical problems, we would move away from artificial political control, including the ERM and the nonsense of a gigantic central European bank, back to an independent banking structure. We had that in Britain. There was a time when interest rates bobbed along at 2 per cent. to 4 per cent. Before the turn of the century the Government nationalised the banks and the Bank of England came into existence.
Mr. Budgen: In 1945.
Mrs. Gorman: I take my hon. Friend's point.
We once had a much more liberal banking structure and a much freer economy. As a result, we had much lower interest rates. Of course it will be difficult to move from where we are now, as many hon. Members have said, to where we should be if we truly want an economy with low interest rates and steady growth. In the long term, there is no alternative. Hitching our bandwagon to an outside organisation—be it the Bundesbank or any other—to do for us what we could not do for ourselves and control our economy, is nonsense.
The German economy will go through bumpy times in the attempt to amalgamate the country and bring the east German money in from the cold. Germany will have many problems, the last of which we have not seen. As its problems increase, they will reflect on our economy. We have no idea what the effect will be on our domestic position.
Not everything is gloom and doom. Although we all deplore the number of people becoming unemployed, we

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have to remember that the great majority of our citizens are still in jobs. Not every aspect of the economy is in decline. In my constituency, 5,000 new jobs have just been created in a big new marketing centre. The docks at Tilbury, on the border of my constituency, having been liberated from the dock labour scheme, are doing very well, with new businesses and lots of new jobs coming on stream. So there are spots in the economy which are doing well.
When we come out of the difficult patch, our economy will recover much more quickly than some people think. The British economy relies to a larger extent than many hon. Members realise on the financial, banking and international money markets, which recover much more quickly than manufacturing industry. They are an important part of our economy, and are not normally taken into account when considering our position.
We can give people facing personal problems some practical suggestions and help. Young people with a large mortgage who do not know how to keep up the payments could easily take in one or two lodgers. I made that proposal the other day, in a speech on a 10-minute Bill. In the Budget, the Chancellor could allow people to earn up to about £100 a week without the bother of the tax man and all the regulations, which would help them to meet their mortgage payments. That is a good, practical suggestion.
There are many young wives and young women with children who could go out to work and help with the family budget. There are still part-time jobs that they could take if the Chancellor would help women with child care, which would solve another practical problem. It would be sensible for the Chancellor to encourage more savings by announcing in the Budget that interest will not be charged on them. That would give people a greater incentive to save. Although times are hard, they could be made better by good, common-sense, practical suggestions.
I know that the Chancellor has to go along the path that he has set himself, and that we have to go through this period of tears in order to come out into the sunshine on the other side, but, in the short term, the Chancellor could do the country and himself much good by taking account of the practical realities of what people are going through, and giving them an opportunity to help themselves out of their difficulties.
9.12 pm
Mrs. Margaret Beckett: It is three months since the former Chancellor rose to present the autumn statement to the House. When I returned to the text of the statement and its accompanying documents, it was almost like stepping back into another world—a strange, closed world, occupied by the Government, in which a recession might lie hidden in the figures and tables in the back of the document. In that world, the recession must not only be excluded from the text, but be denied any credence or recognition.
I do not know whether you, Mr. Deputy Speaker, are familiar with the concept of a retreat. It is a sort of withdrawal from the world for a period of peace and meditation during which one concentrates the mind on higher things. As I read not only the autumn statement but
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the words with which it was introduced by the then Chancellor, I increasingly got the feeling that the Government had, at that point, gone into retreat. That would tie in with their approach to the problems besetting our economy, as far as the Government admit the existence of such problems. They behave as though the recession were due to an act of God, a well-known get-out clause in insurance policies.
The Government either deny with well-simulated indignation that our problems are as real or as great as we suggest, or they look around in surprise as though searching for a culprit. There is certainly no visible sign of the Government taking any responsibility for their actions, with one outstanding exception, to which the right hon. Member for Worthing (Mr. Higgins) referred. The exception was that little mistake that the Government admitted making in 1987, when they cut interest rates. That step was then being advocated by the Opposition as well as the Government, and was taken at that time in all the major economies.
However, in no other economy has that step led to a recession on the size or scale of ours. We have never been able to get the Government to come to terms with how it was that, if they made only one little mistake and have done nothing else wrong since, that step did not have as disastrous an effect elsewhere as it did here. Whatever difficulties countries such as Japan, Germany and France and Italy have, the statistics show that none of them has difficulties on the same scale as ours.
I shall remind the House how reluctant the Government have been even to admit that problems exist. When the then Chancellor, now the Prime Minister, introduced the autumn statement, he became very huffy with my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) when he used the word "recession". He said that my right hon. and learned Friend
"used the word in the way most calculated to alarm".
The then Chancellor continued:
"The right hon. and learned Gentleman's use of the word recession conjured up an image quite different from the reality of what is happening or is expected to happen in future."— [Official Report, 8 November 1990; Vol. 180, c. 125.]
Let us consider what is happening or is expected to happen. From every quarter of the land comes the cry not just of recession, but of severe recession from every type of business—large and small, manufacturing and services. The Government undoubtedly have a quality all of their own. In their first recession in the early 1980s, they destroyed about 20 per cent. of our manufacturing base. This time, affecting south as well as north, services and financial industries as well as manufacturing, they are going, as a cynic in the City said to me the other day, for the "double whammy". They are picking up what they missed first time round. The reality of what is happening presses in on the House, if not on the Government, from every side.
The CBI survey made its terrifying forecast of an investment fall of 16 per cent. The British Chamber of Commerce, using figures from the Department of Trade and Industry, showed that last year was the worst ever for insolvency. Trade Indemnity, the credit insurance company, predicted a further 25 per cent. rise in business failures this year, following a 77 per cent. increase last year. On top of that predicted fall in investment, there is growing evidence of other problems. In industries such as construction, for example, companies are cutting training.

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That is damaging not only in itself, but will make it harder for them to meet the demand which will surface when the recovery comes. Apart from being damaging in themselves, skills shortages feed inflation. Those shortages were evident not only in construction, but elsewhere even before the full impact of the recession, as a Manpower survey in the middle of last year made clear, showing that 44 per cent. of companies were then facing skills shortages.
That is just one of many signs that either nothing is being done to tackle our problems or that what is being done, such as cutting investment and expenditure on training, will make matters worse. When, against the stark reality of what is happening to British business, we turn back to the autumn statement, it seems almost an irrelevance. Its forecasts are wildly optimistic. Such information as can with difficulty be distilled from its pages shows that the prescription it offers by way of a public spending programme suggests that the Government have learnt nothing from the folly of the 1980s.
I look for a moment at the background against which this statement is set—the state of our economy and public services, and the incompetence and waste over which the Government have presided for over a decade. At the weekend, the Prime Minister said:
"Education is at the top of my agenda."
Many people in education, particularly teachers, must wonder where he has been for the past few years. We know: he has been in the Treasury, where he has had a hand in no fewer than four autumn statements. What evidence do we find for the condition of education, which is so close to his heart? There are more than 6,000 teacher vacancies in our schools, and 20,000 teachers leave the profession every year. Capital spending is down by a third in real terms since 1982 and there is a backlog of repairs, depending on who one heeds, of between £3 billion and £4 billion in our schools. Because of the Government's dogmatic pursuit of opting out, we find continuing waste calculated at up to £600 million because opting out means that schools will be kept in existence, when the economics suggests that they should be closed.
What is the remedy offered in the autumn statement? It shows that central Government plan an increase of £77 million in real terms to set against that enormous capital backlog for all our schools. For city technology colleges, another of the Government's pet projects, there is an almost comparable increase of £50 million. The autumn statement shows that the Government plan to cut expenditure in real terms between 1990–91 and 1991–92 and to transfer the burden to local authorities. I am not sure how that fits with the plans of the Secretary of State for the Environment for the poll tax. Perhaps that is why there has been a slight hiccup. In real terms, the Government intend to spend £198 million less than they planned in the 1989 autumn statement—yet education is the issue at the top of the Prime Minister's personal agenda.
It would pay us to look a little more deeply into the record of the 1980s, during which—whatever the results over the whole period—the Government claim periods of great economic success; indeed, an economic miracle. Let us consider transport. At the end of the 1980s, every class of road is in a worse condition than at the beginning of the decade. The Hidden report following the Clapham rail crash called for £1 billion to be spent on safety measures. The Government promised the money for those safety measures, but took it back from the public sector
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obligations—with effects that have become increasingly clear, and about which the House has been complaining for the past few days.
Public sector housing starts at 14,000 are down 65,000 on the beginning of the decade, and the number of housing association starts has also fallen. Meanwhile, homeless households numbered more than 132,000 by 1989— [Interruption.] I can hear the Economic Secretary muttering. I remind him that it costs more to keep homeless people in bed-and-breakfast accommodation than it does to rehouse them. That is waste, incompetence and mismanagement by the Government, not additional spending. There is a £15 billion outstanding bill for repairs to public housing, but the number and the value of grants available for those repairs have been reduced.
The Chancellor referred to the Government's record on the national health service—something with which the country is all too familiar. Waiting lists are heading towards 1 million. Every time we debate these issues, the Government trot out rolling figures. However, when we look at the small print and consider the implications and the impact of inflation, in fact there is very much less, and often very little, for patient care. That ties in with everybody's experience of the health service—those of us who use it, anyway.
There has been a tremendous shift in resources over the economy as a whole, and in the social security budget in particular, from the less well-off to the better off. I shall pick out one example from that budget of what I consider to be an absolutely scandalous waste—the expenditure on the 2 per cent. incentive to persuade people to gamble with their retirement pensions. It is what the Government like to call the incentive for people to take out personal pensions. The costs of that now run at £600 million to £700 million a year, and by 1993 the total is likely to be £2·4 billion. That is not the knock-on cost or the effect of what happens to the national insurance fund because of the contributions that now come out of it; it is merely the additional incentive to persuade people to gamble with their retirement income. That £2·4 billion is either a waste of money because it is a good buy, or it is a scandalous exploitation of the public if it is not. As the Audit Commission said, there is a net overall cost of £6 billion.
I have lost track of how much we are pouring into the black hole of the poll tax. Is it £3 billion or £4 billion? It goes up by about £1 billion every time the Secretary of State for the Environment turns round. It is a colossal waste of money. I can tell the Government that, even if they put £15 billion into the poll tax, they will not make it popular and they will not help their electoral chances.
All those are examples of how the Government have wasted their time and our money during the 1980s, with a cumulative damage that the autumn statement fails to address. Of course, there is another matter related to their record of investment in the national interest during those years. We must consider Government spending without asset sales, because that is the best way to consider it. Even under this Government, there must come a point where there is nothing left to sell. In real terms, general Government expenditure since 1984 has been almost constant at about £200 billion at 1989–90 prices.
Let me put that another way. It means that the level of investment that the Government have been prepared to provide from the nation's earnings has not risen even during the most prosperous years to which the Government lay claim. Even during the boom years, the

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money that they were prepared to make available from the nation's ordinary earnings, as opposed to what might be considered the windfall gains of privatisation—certainly not to be repeated—has not risen.
Now we are told that, under the new regime, the Government want to improve not only the quality but the quantity of public services. But if that is their record in the boom years, how can we possibly believe that, in the years which lie ahead, in which nobody predicts an imminent boom, the Government will repair the neglect to which those previous policies during the boom years have led and which we can so clearly identify?
Before we leave the autumn statement, let us look again at the area of spending most directly related to the recession—spending on training and industry. The plan for 1991–92 shows a cash cut of £116 million on what was spent on the outturn on training for last year. In real terms, that is a cut of £300 million in the provision that the Government are prepared to make for training.
Nor is that a one-off. Between 1989–90 and 1993–94, looking at the pattern of the Government's plan, they plan to cut £1 billion in real terms from the employment budget—26 per cent. of that budget. That is despite the fact that 62 per cent. of our industrial work force are unskilled, compared with 38 per cent. in Germany, 21 per cent. in Italy and only 20 per cent. in France.
The Government justified the cuts in last year's autumn statement by saying that it was all right to cut spending on employment and training, because unemployment was falling. We pointed out that they were cutting spending per head, but nevertheless they said that it did not matter; it was all right because unemployment was falling.
One of the few clear things to emerge from the Chancellor's speech is that even the Government do not expect unemployment to continue falling. So how come they are still cutting expenditure on the employment budget and on training? They have come up with a new reason. They now say that it is not because unemployment is falling that they are cutting expenditure; it is because they do not think that training is a good idea for the unemployed; it would be better if they had jobs. That is not quite how they put it—they use more civil service-ese. They say that training is not the most appropriate solution to the problems that the long-term unemployed face in getting back to work.
There is nothing that any of the long-term unemployed would like better than jobs. Sometimes, of course, good training might be their best option, but even then, I suspect that, if most of them were offered the option of good training or jobs, their faith has been so sapped by the Government's years of cheap exploitative training that they would probably pick the jobs.
The fact is that that option is not remotely on offer. On the most simple basis, there is about one vacancy for every 10 people unemployed, and that is before tomorrow's figures come out. Recent surveys conducted by some of my hon. Friends in the south-east suggest that there is one vacancy for every 30 people who are unemployed.
It is, to say the least, disingenuous of the Government to claim that they can cut the employment budget because the unemployed do not need training. Certainly it is a total
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neglect of the nation's interest. Again, that comes over from the Select Committee's remarks. Its adviser, Christopher Johnson, says:
"Now that unemployment is rising, it is surprising that training is still being cut back … in view of the inability of the private sector to increase training expenditures at a time of financial pressure."
Alongside those cuts in the training budget are cuts in the budget of the Department of Trade and Industry. They amount to £250 million between 1990–91 and 1991–92 in real terms. Those cuts in training and in the budget of the Department of Trade and Industry should be restored at the earliest opportunity, and certainly within the period covered by the autumn statement. That could be done by abolishing the wasteful and damaging Government subsidy of a 2 per cent. bribe in respect of personal pensions. That would not only pay for the changes that we propose but would leave the Government with a small profit.
The Government still refuse to acknowledge the scale or the nature of the country's problems. After 12 years, they are still looking for someone else to blame. They fail to accept that, without a steady build-up in manufacturing, training, and research and development—of which there is a total lack of evidence in the autumn statement —the country will fall further and further behind its competitors.
Today is Ash Wednesday, but there is no sign of the Government wearing sackcloth and ashes. They are being worn by people throughout the country, who will find little hope in the autumn statement or in the Government's economic forecasts. The Select Committee, referring to the current account balance, remarked that an improvement will be seen as a result of a downturn in the economy, but that it may not prove sustainable when the economy recovers. The OECD report, to which the Government contributed, noted that the trade balance improvement is likely to slow and that the current external deficit may start to rise again in 1992.
We have pointed out time and again that the Government are doing nothing to tackle the economy's underlying structural problems. There is little hope for the Government in the Chancellor's remark that the recession will soon begin to ebb, so that the spending process can begin again. That is what we are all afraid of.
There is little comfort to be taken, too, from the emollient and encouraging words of the Prime Minister, who I am pleased to see in his place. Words are what he is good at, rather more so than actions. That was illustrated in respect of cold weather payments. Last week, the Chancellor announced ex-gratia payments—first for one week, then for two. However, once public attention moves on, the legislation will remain unchanged and as harsh as ever.
That is the underlying message of the autumn statement and of the debate. The same disastrous pattern as we have seen before is likely to produce the same disastrous results. The answer lies not in any change of style, but in a change of Government.
9.32 pm
The Chief Secretary to the Treasury (Mr. David Mellor): I am grateful for this chance to reply to the debate, which gives me my first major opportunity to speak since moving

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to the Treasury. I listened with great care to almost all of today's speeches. I was sorry to miss one or two as a result of unavoidable calls away from the Chamber.
Today's debate has given right hon. and hon. Members an opportunity to discuss wider economic matters than public expenditure, which is right and proper, and to consider the valuable report of the Treasury and Civil Service Select Committee. I am glad that a large number of its members, led by my right hon. Friend the Member for Worthing (Mr. Higgins), are among those who have spoken. The Government's detailed response to the Select Committee's report has not featured much in today's debate, but I am sure that it was both valuable and welcomed. I was glad of the opportunity to appear before the Select Committee myself last week, in connection with burden-sharing in the Gulf, which was a most valuable hearing.
My right hon. Friend the Chancellor dealt in his opening speech with a number of the principal preoccupations of those who spoke today. He has talked about the slowdown in the economy and has described our public expenditure plans, which combine prudence with significantly increased resources in key areas. He has also talked about the cost of the Gulf conflict and our success in covering these costs.
I welcome a number of the speeches made during the debate, which were supportive of what my right hon. Friend the Chancellor was saying. I have already mentioned my right hon. Friend the Member for Worthing and I must also mention my right hon. Friends the Members for Guildford (Mr. Howell) and for Croydon, South (Sir W. Clark), and my hon. Friends the Members for Esher (Mr. Taylor) for Stamford and Spalding (Mr. Davies) and others too numerous to list.
I commend the substantive point made by my right hon. Friend the Member for Croydon, South. He said that, troubling though the present recession may be, it comes after a series of good years for the United Kingdom. They were years in which the Government carried through a series of fundamental reforms to the supply side of the economy: reforms to the tax regime; a major programme of deregulation; and a thorough overhaul of trade union legislation. These reforms produced a modern flexible economy, much better able to resist external shocks than it used to he, and they have greatly improved the long-term sustainable growth rate in that economy. That is a real and lasting achievement, which is not wiped away by the present recession.
Between 1981 and 1989, there were eight successive years of growth, averaging more than 3 per cent. Our economy, which during the Labour years was at the bottom of most of the leagues that we would rather have been top of, and top of most of the leagues that we would rather have been bottom of, has grown faster than that of Germany, France or Italy. Business investment grew faster than in any major industrial nation except Japan—by 43 per cent. in the three years to 1989. That surge leaves the United Kingdom better equipped to compete in world markets.
It is clear that the supply-side reforms which the Government have introduced have also led to a major improvement in labour market performance. In particular, earnings growth rose far less during the recent economic upswing than would have been expected on the basis of previous experience. I shall quote some figures to illustrate that. While unemployment fell by 1·5 million between the
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summer of 1986 and the spring of 1990, real earnings rose at an average rate of only 1·75 per cent., which compares with real earnings growth of 3·25 per cent. between the end of 1977 and the end of 1979, when unemployment fell by only 150,000. That is a sign of how much better the economy has been performing, and those achievements will last.
What my hon. Friend the Member for Carshalton and Wallington (Mr. Forman) said was enormously valuable. He pointed out that not merely are the Government confident about the United Kingdom economy, but so are other countries. In 1988 and 1989, Britain accounted for 39 per cent. of total inward investment in the European Community by OECD countries. France was next best, with only 14·4 per cent. Those are significant figures, showing a level of inward investment equivalent to about £25 billion a year. That is a vote of confidence. It is not merely cross-border investment within the Community, as, of the 49 per cent. of all United States direct investment overseas which went to the European Community in 1988–89, almost two thirds came to Britain. Japan has put one fifth of its overseas investment into the European Community, and we took more than 40 per cent. of that. Surely that is a vote of confidence in the United Kingdom, and it is good that other countries show confidence in us, despite the fact that the Opposition constantly talk Britain down.
The debate has provided us with the opportunity to consider the Government's plans and to have another look at the extent to which the Labour party is prepared to lift the veil on their proposals.
The right hon. and learned Member for Monklands, East (Mr. Smith) seems somewhat resentful, when not embarrassed, about being called to account for Labour party policies. [Interruption.] I am glad that the right hon. and learned Gentleman, who looked somewhat torpid during the speech of his hon. Friend the Member for Derby, South (Mrs. Beckett), has now come to life to intervene noisily in mine. I hope that he will use his ears as well as his mouth; I am sure that that would be to his advantage.
It might help the right hon. and learned Gentleman to bear in mind the fact that not only Conservatives are interested in what the Labour party proposes; people who are broadly in sympathy with Labour are becoming curious about the nature of its economic policy—witness Ian Aitken in The Guardian the other day. Mr. Aitken— not the most obvious Conservative, and not writing in the most obviously Conservative newspaper—wrote:
"the basic weakness in Labour's case against the Government … is … the essential thinness of Labour's own prescription for dealing with the crisis … Labour has no painless solution, and depends on showing British industry's supply-side problems as the most effective … means of ending inflation.
Well, I for one don't believe it. And what's more, I don't think the British people will believe it either."
Writing in the same paper just two days ago, Mr. Will Hutton—[Interruption.] I know that this is embarrassing for Labour Front Benchers; their farmyard noises are even more profound than usual. Mr. Hutton wrote:
"As for the parliamentary opposition parties, their call for interest rate cuts with no accompanying recognition of the economic realities is politically opportunistic and economically naive. And if you cannot come up with something now, what ideas do you have for good government?"

941
That was the challenge that was thrown out to the right hon. and learned Member for Monklands, East, and I do not think that he would have received many pass marks for his response.
On interest rates, we had propounded to us Monklands' law, which may be stated thus: whatever the level of interest rates at any given time, ask for them to be 1 per cent. lower. To the surprise of some of those present, that proved on examination to be true—even at the point when, in 1988, interest rates were down to 7·5 per cent. With a candour to which he, with his lawyer's obfuscation, is not often given, the right hon. and learned Gentleman was ready to admit that he thought that the rates should have been even lower then.
Mr. John Smith: Is the Chief Secretary not a lawyer as well?
Mr. Mellor: It takes one to know one, and we know them very well. I could tell when the right hon. and learned Gentleman was falling back on quarter sessions badinage to avoid having to face up to a difficult point.
Mr. Smith: The Chief Secretary is doing the same.
Mr. Mellor: No; I am trying to set myself higher standards. The right hon. and learned Gentleman must be patient with me.
Monklands' law is suspended only when the Government actually do what the right hon. and learned Gentleman asks: thus, today's reduction of 0·5 per cent. is greeted as being too little, too late. As for the full 1 per cent. reduction that was made in October, although the right hon. and learned Gentleman had called for it in September, by January he was terming it inept.
There is a serious point here. What does Monklands' law tell us about the sincerity of the right hon. and learned Gentleman's commitment to the exchange rate mechanism? On 9 January, he was extremely forthright. Speaking on "Newsnight," he said:
"We strongly believe that Britain should be in the ERM, and we are willing to accept the disciplines that involves."
His use of the word "disciplines" must mean that the right hon. and learned Gentleman accepts the requirement to keep interest rates within the bounds of the ERM. What is the point of a commitment to the ERM if it does not mean that?
Interestingly—the right hon. and learned Gentleman will correct me if I am wrong—although there has been the expected criticism from the Labour Back Benches of the level at which we chose to enter the ERM, it did not find its place in the right hon. and learned Gentleman's speech. He did not say that it was too high a rate. I can do no better than quote the right hon. Member for Berwick-upon-Tweed (Mr. Beith) who called for high interest rates, oblivious or uncaring of the effect that they would have on Labour's commitment to membership of the ERM, suggesting that Labour's commitment to the ERM was simply an opportunistic debating device to get the party out of a difficult argument on inflation and did not amount to any realistic comment.
High interest rates are needed to curb demand and bear down on inflation. Although regrettable, they will remain high for as long as necessary, but, as my right hon. Friend the Chancellor has made clear, for no longer than that. There is proof today of our sincerity on that.
Mr. Ridley: My right hon. and learned Friend said that interest rates will be kept up as long as is necessary. Does that mean as long as is necessary to get inflation right down or as long as is necessary to maintain the value of the pound in the ERM?
Mr. Mellor: I enjoyed my right hon. Friend's contribution to the debate, but I do not see those two as alternatives. Our position within the ERM permits us to bear down on inflation and permits convergence with lower European rates of inflation. It is a means to an end. That is the basis on which the Government proceed.
Mr. Budgen: If the purpose is to get rid of inflation as quickly as possible, why have interest rates not risen to 20 per cent.? That would do the trick, would it not?
Mr. Mellor: Because, as my hon. Friend will know and welcome, we are making progress on inflation, so it is not necessary to do so. [Interruption.] I thought that that was a direct and clear statement, but perhaps I am biased.
If my hon. Friends will allow me, I should like to return to the policies of the right hon. and learned Member for Monklands, East. He took exception to what my right hon. Friend the Prime Minister said when he told us: "If it isn't hurting, it isn't working." That led me to ask the right hon. and learned Gentleman, bearing in mind the helpful observations of Mr. Ian Aitken, where we can find the pain-free solutions. The right hon. and learned Gentleman thought that that was a huge joke and spoke even more as if he were at the assizes. He delighted some of his less critical hon. Friends by suggesting, huff puff, that that was the most naive question that any Minister had asked him in 10 years and, huff puff, "How could anyone ask such a foolish thing?".
Many people read and are influenced by The Guardian. Labour-voting journalists on The Guardian are saying, "We know about the bull but where's the beef?". They are saying, "Where are the pain-free solutions and what are the answers to the questions?". The right hon. and learned Member for Monklands, East may be able to avoid answering today, but, as the general election approaches, he will not be able to do so. We will keep asking, and he will have to answer.
I shall ask the right hon. and learned Gentleman three questions that bear on this matter in case they cause as much hilarity to him as the earlier intervention. How can inflation be reduced without cutting demand? How can demand be reduced without measures to raise savings and reduce borrowing, and how can the level of borrowing be controlled without influencing its price? Those are all questions to which we are striving to find an answer.
The right hon. and learned Gentleman has no answer except—this was astonishing—dragging on the trail of the deadest of dead cats: credit controls. Well may the right hon. and learned Gentleman look back nostalgically to the days of the corset and all those other restrictions, but that does not deal with the fundamental point, which is that demand cannot be restricted by restricting the availability of money—all that does is push up the price of the money that is available. It is utterly naive to expect any pain-free answers to the problems of the inflation rate and excessive demand in imposing credit controls that will move in exactly the opposite direction.
Are we to look back nostalgically to the days of the 1970s, when people were queuing up for mortgages as a result of credit controls? [Interruption.] The right hon. and

943
learned Member for Monklands, East is busy changing the subject and avoiding all eye contact with me, but I shall try to keep up with him. His position on credit controls is not particularly funny, because he thinks that they are a way of dealing with demand—I do not believe they are—and he says that he does not want to go back to the 1970s, when mortgages were limited: he wants to exempt them altogether. But how can credit controls bear down on private borrowing, when 85 per cent. of private borrowing is done in the form of mortgages? So the dead cat is a dead parrot, and it will not work. [HON. MEMBERS: "Answer that."] My right hon. and hon. Friends must be patient; the right hon. and learned Gentleman will have a chance to answer on other occasions.
The right hon. and learned Gentleman might point to the Opposition's supply side measures, which involve increased spending on training, research and development and regional policy, all commitments which trip lightly off the tongue of the hon. Member for Derby, South, who also claims that Labour has only two pledges. What the Opposition propose is not a supply side policy: it is a programme of industrial intervention, regulation and higher public spending dressed up in new rhetorical clothes. All the policies that failed in the 1970s have been dragged out to be given an opportunity, which I suspect the public will deny them, to be allowed to fail again
Mr. John Smith: What about some eye contact with my hon. Friend the Member for Derby, South (Mrs. Beckett)?
Mr. Mellor: I confess that that would be a much more pleasurable experience. I shall look the hon. Lady in the eye when I come to Beckett's law, promulgated on 13 February 1990:
"What we are promising is an increase for pensions and … child benefit. Everything else that is regarded as a desirable aim is also listed, quite clearly and specifically, as something that we hope to do as resources allow."—[Official Report, 13 February 1990; Vol. 167, c. 179.]
Some laws last for generations, even for hundreds of years. Beckett's law is looking a little sorry for itself after less than one year. Opposition spokesmen, led by the Leader of the Opposition, as we might expect, have been queueing up to say that, far from there being only two priorities, everything is a priority. The Leader of the Opposition said about health only in December:
"In this country now there is a strong mandate for using available public resources for the public good, and in their order of priorities the British people give top place to the need to invest in the health services. We shall honour their mandate."
How does Beckett's law look in the light of that? Health was not one of her priorities.
Next, the hon. Member for Copeland (Dr. Cunningham) said:
"Education is our first priority."
No, said the hon. Member for Cynon Valley (Mrs. Clwyd), shadow Secretary of State, drawing herself up to her full height. She wanted
"to see Britain reach the UN aid target of 0·7 per cent. of GNP as top priority."
The hon. Member for Sedgefield (Mr. Blair) said:
"They"—
the Conservatives—
"say: we cannot train until the economy succeeds. Wrong. The opposite is true. The economy cannot succeed until we train."
Appreciating that Beckett's law needed fresh life breathed into it, it was restated today by the right hon. And
944
learned Member for Monklands, East, but within three or four minutes he had broken the law himself by saying that Labour would make training a priority—
Mr. John Smith indicated dissent.
Mr. Mellor: Oh yes he did—Hansard will make that clear. All my hon. Friends heard the right hon. and learned Gentleman say that.
We are left with a return to the policies of yesterday, yet the Labour party brings before us an amendment that severely criticises the Government's record and states that the Government should find policies that promote
"the recovery of a wealth creating economy".
We all know where people were in terms of wealth creation after five years of the last Labour Government—living standards did not rise at all.
It may be worth recalling a few telling statistics to show the validity of what the Labour party says in its amendment. A man on average earnings with a non-income-earning wife is £58 a week better off in real terms after 10 years of Conservative Government; he was lucky if he was £1 a week better off after five years of Labour Government. Share ownership has increased threefold since 1979, and one in four of the British public own shares. Between 1979 and 1988, the real wealth of all groups in society increased by, on average, 60 per cent. Interestingly and most tellingly on wealth, taking £5,000 at constant 1988 prices, in 1988 some 7·5 million more people than in 1979 had assets of more than £5,000, yet the Labour party purports to believe that a Labour Government could create wealth better than we can.
Let us look at national wealth, at the state of our overseas assets. At the end of 1979, after five years of Labour government, our net overseas assets totalled just £12·4 billion, or 5·5 per cent. of gross domestic product. However, at the end of 1989, they had grown to £112·5 billion, or 21 per cent. of GDP. With the greatest respect to the Labour party, I am not sure how many lessons on wealth creation we need from it.
Labour's amendment
"condemns the failure of the Government to invest in the economic infrastructure and in vital public services".
Nothing could be further from the truth. For example, the new plans for the coming year show that capital spending on motorways and trunk roads is more than double, in real terms, what it was in 1979–80. Under the last Labour Government, it fell by 40 per cent. In 1989–90, investment on British Rail was 32 per cent. higher in real terms than in 1979.
Labour Members referred to safety, rightly. The sum of about £750 million is to be spent on safety by BR and London Transport over the next three years. Between 1978–79 and 1989–90, health authorities' gross capital spending increased by 46 per cent. in real terms and the new plans provide for the Government's contribution to increase by £180 million, or 8 per cent. in real terms, on top of existing plans for a gross programme of more than £1·75 billion of capital investment in the national health service.
Once again, what the Labour party has asked of us parts company with reality. Everywhere one looks, one finds criticisms that are ill-directed and wide of the mark. There are criticisms of our record on training, yet we are spending 2·5 times as much on training as the Labour Government did. Unemployment doubled under the Labour Government, but the unemployed then did not have access to employment training, restart programmes

945
or job clubs and had no specialist advice on how to get back to work. All that has come about under a Conservative Government.
We were even criticised by the hon. Member for Bristol, South (Ms. Primarolo) for our cuts in employment training. The 1988 Labour conference voted against employment training and called on Labour councils not to co-operate with it.
Wherever one looks, what one sees in the economy today are public finances that are stronger than ever before and the real achievement of the 1980s on which we can build, with a difficult short-term situation that the Government will be capable of dealing with. The Opposition have no policies whatsoever.
Question put, That the amendment be made:—
The House divided: Ayes 216, Noes 321.

Division No. 64]

[9.59 pm

AYES

Abbott, Ms Diane

Dobson, Frank

Adams, Mrs. Irene (Paisley, N.)

Doran, Frank

Alton, David

Douglas, Dick

Archer, Rt Hon Peter

Dunnachie, Jimmy

Armstrong, Hilary

Dunwoody, Hon Mrs Gwyneth

Ashdown, Rt Hon Paddy

Eastham, Ken

Ashley, Rt Hon Jack

Evans, John (St Helens N)

Ashton, Joe

Ewing, Harry (Falkirk E)

Banks, Tony (Newham NW)

Ewing, Mrs Margaret (Moray)

Barnes, Harry (Derbyshire NE)

Fatchett, Derek

Barnes, Mrs Rosie (Greenwich)

Faulds, Andrew

Battle, John

Fearn, Ronald

Beckett, Margaret

Field, Frank (Birkenhead)

Beith, A. J.

Fields, Terry (L'pool B G'n)

Bell, Stuart

Fisher, Mark

Bellotti, David

Flynn, Paul

Benn, Rt Hon Tony

Foot, Rt Hon Michael

Bennett, A. F. (D'nt'n & R'dish)

Foster, Derek

Benton, Joseph

Foulkes, George

Bermingham, Gerald

Fraser, John

Bidwell, Sydney

Fyfe, Maria

Blair, Tony

Galloway, George

Blunkett, David

Garrett, John (Norwich South)

Boateng, Paul

Garrett, Ted (Wallsend)

Boyes, Roland

Gilbert, Rt Hon Dr John

Bradley, Keith

Golding, Mrs Llin

Brown, Gordon (D'mline E)

Gordon, Mildred

Brown, Nicholas (Newcastle E)

Gould, Bryan

Brown, Ron (Edinburgh Leith)

Graham, Thomas

Bruce, Malcolm (Gordon)

Grant, Bernie (Tottenham)

Caborn, Richard

Griffiths, Nigel (Edinburgh S)

Callaghan, Jim

Grocott, Bruce

Campbell, Menzies (Fife NE)

Hardy, Peter

Campbell, Ron (Blyth Valley)

Harman, Ms Harriet

Canavan, Dennis

Hattersley, Rt Hon Roy

Cartwright, John

Heal, Mrs Sylvia

Clarke, Tom (Monklands W)

Henderson, Doug

Clelland, David

Hinchliffe, David

Clwyd, Mrs Ann

Hoey, Ms Kate (Vauxhall)

Cohen, Harry

Home Robertson, John

Cook, Robin (Livingston)

Howarth, George (Knowsley N)

Corbett, Robin

Howell, Rt Hon D. (S'heath)

Corbyn, Jeremy

Howells, Geraint

Cousins, Jim

Howells, Dr. Kim (Pontypridd)

Cox, Tom

Hoyle, Doug

Crowther, Stan

Hughes, John (Coventry NE)

Cryer, Bob

Hughes, Robert (Aberdeen N)

Cummings, John

Hughes, Roy (Newport E)

Cunliffe, Lawrence

Hughes, Simon (Southwark)

Darling, Alistair

Illsley, Eric

Davies, Rt Hon Denzil (Llanelli)

Ingram, Adam

Davies, Ron (Caerphilly)

Janner, Greville

Davis, Terry (B'ham Hodge H'I)

Johnston, Sir Russell

Dewar, Donald

Jones, Barry (Alyn & Deeside)

Dixon, Don

Jones, Martyn (Clwyd S W)

946

Kaufman, Rt Hon Gerald

Powell, Ray (Ogmore)

Kennedy, Charles

Prescott, John

Kinnock, Rt Hon Neil

Primarolo, Dawn

Lambie, David

Quin, Ms Joyce

Leadbitter, Ted

Radice, Giles

Lestor, Joan (Eccles)

Randall, Stuart

Lewis, Terry

Rees, Rt Hon Merlyn

Litherland, Robert

Reid, Dr John

Livingstone, Ken

Richardson, Jo

Livsey, Richard

Robertson, George

Lofthouse, Geoffrey

Robinson, Geoffrey

Loyden, Eddie

Rogers, Allan

McAllion, John

Rooker, Jeff

McAvoy, Thomas

Rooney, Terence

McCartney, Ian

Ross, Ernie (Dundee W)

McCrea, Rev William

Rowlands, Ted

Macdonald, Calum A.

Ruddock, Joan

McFall, John

Salmond, Alex

McKelvey, William

Sedgemore, Brian

McLeish, Henry

Sheerman, Barry

Maclennan, Robert

Shore, Rt Hon Peter

McMaster, Gordon

Short, Clare

McNamara, Kevin

Sillars, Jim

McWilliam, John

Skinner, Dennis

Madden, Max

Smith, Andrew (Oxford E)

Mahon, Mrs Alice

Smith, C. (Isl'ton & F'bury)

Marek, Dr John

Smith, Rt Hon J. (Monk'ds E)

Marshall, David (Shettleston)

Snape, Peter

Marshall, Jim (Leicester S)

Soley, Clive

Martin, Michael J. (Springburn)

Spearing, Nigel

Martlew, Eric

Steinberg, Gerry

Maxton, John

Stott, Roger

Meacher, Michael

Strang, Gavin

Meale, Alan

Straw, Jack

Michie, Bill (Sheffield Heeley)

Taylor, Matthew (Truro)

Michie, Mrs Ray (Arg'l & Bute)

Thompson, Jack (Wansbeck)

Mitchell, Austin (G't Grimsby)

Turner, Dennis

Moonie, Dr Lewis

Vaz, Keith

Morgan, Rhodri

Wallace, James

Morley, Elliot

Walley, Joan

Morris, Rt Hon A. (W'shawe)

Wardell, Gareth (Gower)

Morris, Rt Hon J. (Aberavon)

Wareing, Robert N.

Mowlam, Marjorie

Watson, Mike (Glasgow, C)

Mullin, Chris

Welsh, Andrew (Angus E)

Murphy, Paul

Williams, Rt Hon Alan

Nellist, Dave

Williams, Alan W. (Carm'then)

Oakes, Rt Hon Gordon

Wilson, Brian

O'Brien, William

Wise, Mrs Audrey

O'Hara, Edward

Worthington, Tony

O'Neill, Martin

Wray, Jimmy

Orme, Rt Hon Stanley

Young, David (Bolton SE)

Parry, Robert

Patchett, Terry

Tellers for the Ayes:

Pendry, Tom

Mr. Frank Haynes and

Pike, Peter L.

Mr. Allen McKay.

NOES

Adley, Robert

Bevan, David Gilroy

Aitken, Jonathan

Biffen, Rt Hon John

Alexander, Richard

Blackburn, Dr John G.

Alison, Rt Hon Michael

Blaker, Rt Hon Sir Peter

Allason, Rupert

Body, Sir Richard

Amery, Rt Hon Julian

Bonsor, Sir Nicholas

Amess, David

Boscawen, Hon Robert

Arbuthnot, James

Boswell, Tim

Arnold, Jacques (Gravesham)

Bottomley, Peter

Arnold, Sir Thomas

Bowden, A (Brighton K'pto'n)

Ashby, David

Bowden, Gerald (Dulwich)

Aspinwall, Jack

Bowis, John

Atkins, Robert

Boyson, Rt Hon Dr Sir Rhodes

Atkinson, David

Braine, Rt Hon Sir Bernard

Baker, Rt Hon K. (Mole Valley)

Brandon-Bravo, Martin

Baker, Nicholas (Dorset N)

Brazier, Julian

Baldry, Tony

Bright, Graham

Batiste, Spencer

Brooke, Rt Hon Peter

Beaumont-Dark, Anthony

Brown, Michael (Brigg & Cl't's)

Bellingham, Henry

Bruce, Ian (Dorset South)

Bendall, Vivian

Buchanan-Smith, Rt Hon Alick

Bennett, Nicholas (Pembroke)

Budgen, Nicholas

Benyon, W.

Burns, Simon

947

Butler, Chris

Harris, David

Butterfill, John

Haselhurst, Alan

Carlisle, John, (Luton N)

Hawkins, Christopher

Carlisle, Kenneth (Lincoln)

Hayes, Jerry

Carrington, Matthew

Hayhoe, Rt Hon Sir Barney

Carttiss, Michael

Hayward, Robert

Cash, William

Heathcoat-Amory, David

Chapman, Sydney

Hicks, Robert (Cornwall SE)

Chope, Christopher

Higgins, Rt Hon Terence L.

Clark, Rt Hon Alan (Plymouth)

Hill, James

Clark, Dr Michael (Rochford)

Hind, Kenneth

Clark, Rt Hon Sir William

Hogg, Hon Douglas (Gr'th'm)

Clarke, Rt Hon K. (Rushcliffe)

Holt, Richard

Colvin, Michael

Hordern, Sir Peter

Conway, Derek

Howard, Rt Hon Michael

Coombs, Anthony (Wyre F'rest)

Howarth, G. (Cannock & B'wd)

Coombs, Simon (Swindon)

Howe, Rt Hon Sir Geoffrey

Cope, Rt Hon John

Howell, Rt Hon David (G'dford)

Cormack, Patrick

Howell, Ralph (North Norfolk)

Couchman, James

Hughes, Robert G. (Harrow W)

Cran, James

Hunt, Sir John (Ravensbourne)

Critchley, Julian

Hunter, Andrew

Currie, Mrs Edwina

Hurd, Rt Hon Douglas

Curry, David

Irvine, Michael

Davies, Q. (Stamf'd & Spald'g)

Irving, Sir Charles

Davis, David (Boothferry)

Jack, Michael

Day, Stephen

Jackson, Robert

Devlin, Tim

Janman, Tim

Dicks, Terry

Jessel, Toby

Dorrell, Stephen

Jones, Gwilym (Cardiff N)

Douglas-Hamilton, Lord James

Jones, Robert B (Herts W)

Dover, Den

Jopling, Rt Hon Michael

Dunn, Bob

Kellett-Bowman, Dame Elaine

Durant, Sir Anthony

Key, Robert

Dykes, Hugh

Kilfedder, James

Evans, David (Welwyn Hatf'd)

King, Roger (B'ham N'thfield)

Evennett, David

King, Rt Hon Tom (Bridgwater)

Fairbairn, Sir Nicholas

Kirkhope, Timothy

Fallon, Michael

Knapman, Roger

Field, Barry (Isle of Wight)

Knight, Greg (Derby North)

Finsberg, Sir Geoffrey

Knight, Dame Jill (Edgbaston)

Fishburn, John Dudley

Knowles, Michael

Fookes, Dame Janet

Knox, David

Forman, Nigel

Lamont, Rt Hon Norman

Forsyth, Michael (Stirling)

Lang, Rt Hon Ian

Forth, Eric

Latham, Michael

Fowler, Rt Hon Sir Norman

Lawrence, Ivan

Fox, Sir Marcus

Lawson, Rt Hon Nigel

Franks, Cecil

Leigh, Edward (Gainsbor'gh)

Freeman, Roger

Lester, Jim (Broxtowe)

French, Douglas

Lilley, Peter

Fry, Peter

Lloyd, Sir Ian (Havant)

Gale, Roger

Lloyd, Peter (Fareham)

Gardiner, Sir George

Lord, Michael

Garel-Jones, Tristan

Luce, Rt Hon Sir Richard

Gill, Christopher

Lyell, Rt Hon Sir Nicholas

Gilmour, Rt Hon Sir Ian

McCrindle, Sir Robert

Glyn, Dr Sir Alan

Macfarlane, Sir Neil

Goodlad, Alastair

MacGregor, Rt Hon John

Gorman, Mrs Teresa

MacKay, Andrew (E Berkshire)

Gorst, John

Maclean, David

Grant, Sir Anthony (CambsSW)

McLoughlin, Patrick

Greenway, Harry (Ealing N)

McNair-Wilson, Sir Michael

Greenway, John (Ryedale)

McNair-Wilson, Sir Patrick

Gregory, Conal

Madel, David

Griffiths, Sir Eldon (Bury St E')

Major, Rt Hon John

Griffiths, Peter (Portsmouth N)

Malins, Humfrey

Grist, Ian

Mans, keith

Ground, Patrick

Maples, John

Grylls, Michael

Marland, Paul

Hague, William

Marlow, Tony

Hamilton, Neil (Tatton)

Marshall, John (Hendon S)

Hampson, Dr Keith

Marshall, Sir Michael (Arundel)

Hanley, Jeremy

Martin, David (Portsmouth S)

Hannam, John

Maude, Hon Francis

Hargreaves, A. (B'ham H'll Gr')

Mawhinney, Dr Brian

Hargreaves, Ken (Hyndburn)

Maxwell-Hyslop, Robin

948

Mellor, Rt Hon David

Soames, Hon Nicholas

Meyer, Sir Anthony

Speed, Keith

Miller, Sir Hal

Speller, Tony

Miscampbell, Norman

Spicer, Sir Jim (Dorset W)

Mitchell, Andrew (Gedling)

Spicer, Michael (S Worcs)

Mitchell, Sir David

Squire, Robin

Moate, Roger

Stanbrook, Ivor

Monro, Sir Hector

Stanley, Rt Hon Sir John

Montgomery, Sir Fergus

Steen, Anthony

Morrison, Sir Charles

Stevens, Lewis

Moss, Malcolm

Stewart, Allan (Eastwood)

Moynihan, Hon Colin

Stewart, Andy (Sherwood)

Neale, Sir Gerrard

Stewart, Rt Hon Ian (Herts N)

Needham, Richard

Stokes, Sir John

Nelson, Anthony

Sumberg, David

Neubert, Sir Michael

Summerson, Hugo

Newton, Rt Hon Tony

Tapsell, Sir Peter

Nicholls, Patrick

Taylor, Ian (Esher)

Nicholson, David (Taunton)

Taylor, Teddy (S'end E)

Nicholson, Emma (Devon West)

Tebbit, Rt Hon Norman

Norris, Steve

Temple-Morris, Peter

Onslow, Rt Hon Cranley

Thatcher, Rt Hon Margaret

Oppenheim, Phillip

Thompson, D. (Calder Valley)

Page, Richard

Thompson, Patrick (Norwich N)

Paice, James

Thorne, Neil

Patnick, Irvine

Thornton, Malcolm

Patten, Rt Hon Chris (Bath)

Townend, John (Bridlington)

Patten, Rt Hon John

Townsend, Cyril D. (B'heath)

Pawsey, James

Tracey, Richard

Peacock, Mrs Elizabeth

Tredinnick, David

Porter, Barry (Wirral S)

Trippier, David

Porter, David (Waveney)

Twinn, Dr Ian

Portillo, Michael

Vaughan, Sir Gerard

Powell, William (Corby)

Viggers, Peter

Price, Sir David

Wakeham, Rt Hon John

Raison, Rt Hon Sir Timothy

Waldegrave, Rt Hon William

Rathbone, Tim

Walden, George

Redwood, John

Walker, Bill (T'side North)

Renton, Rt Hon Tim

Waller, Gary

Rhodes James, Robert

Walters, Sir Dennis

Riddick, Graham

Ward, John

Ridley, Rt Hon Nicholas

Wardle, Charles (Bexhill)

Ridsdale, Sir Julian

Warren, Kenneth

Rifkind, Rt Hon Malcolm

Watts, John

Roberts, Sir Wyn (Conwy)

Wells, Bowen

Roe, Mrs Marion

Wheeler, Sir John

Rossi, Sir Hugh

Whitney, Ray

Rost, Peter

Widdecombe, Ann

Rowe, Andrew

Wilkinson, John

Rumbold, Rt Hon Mrs Angela

Wilshire, David

Ryder, Rt Hon Richard

Winterton, Mrs Ann

Sayeed, Jonathan

Winterton, Nicholas

Scott, Rt Hon Nicholas

Wolfson, Mark

Shaw, David (Dover)

Wood, Timothy

Shaw, Sir Giles (Pudsey)

Woodcock, Dr. Mike

Shaw, Sir Michael (Scarb')

Yeo, Tim

Shelton, Sir William

Young, Sir George (Acton)

Shephard, Mrs G. (Norfolk SW)

Younger, Rt Hon George

Shepherd, Colin (Hereford)

Shepherd, Richard (Aldridge)

Tellers for the Noes:

Sims, Roger

Mr. John M. Taylor and

Skeet, Sir Trevor

Mr. Tom Sackville.

Smith, Sir Dudley (Warwick)

Question accordingly negatived.
Main Question put and agreed to.
Resolved,
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 8th November 1990; commends the Government on its determination to maintain downward pressure on inflation and to build on the great improvements in economic performance over the last eleven years; and welcomes the Government's continued tight control of public expenditure coupled with improved value for money and its provision of additional resources for key areas.

Revenue Support Grant (Scotland)
Mr. Speaker: I understand that there will be four Front-Bench spokesmen. May I ask them to be brief so that more Back Benchers may have an opportunity to participate in the debate? May I also ask Back Benchers to limit their speeches to five minutes so that as many as possible may be called?
10.15 pm
The Parliamentary Under-Secretary of State for Scotland (Mr. Allan Stewart): I beg to move,
That the Revenue Support Grant (Scotland) Order 1991, dated 28th January 1991, a copy of which was laid before this House on 30th January, be approved.
I had hoped that it would be possible to deal also with the second revenue support grant order to distribute an extra £16·5 million grant to certain authorities which suffered a shortfall of non-domestic rate income in 1989–90. However, because of complications that have been discussed with the hon. Members for Cunninghame, South (Mr. Lambie) and Cunninghame, North (Mr. Wilson), in the light of representations from that district council, it will not be possible to lay and debate that order until next month. I hope that the arrangements which we propose, including the details of that order, will have the consent of the Convention of Scottish Local Authorities, with which we are consulting.
Mr. David Lambie: On behalf of my hon. Friend the Member for Cunninghame, North (Mr. Wilson) and myself, may I thank the Minister for his statement and for listening to the representations which we made to him? I am sure that the poll tax payers in Cunninghame will be happy with the announcement.
Mr. Stewart: I am grateful to the hon. Gentleman for his generous comments. No doubt the mood of amity that he has set will continue throughout the debate.
The order before the House marks the final stage of the local government settlement for 1991–92, details of which were first announced to the House by my right hon. and learned Friend the Member for Edinburgh, Pentlands (Mr. Rifkind) on 25 July. My right hon. and learned Friend indicated at that stage that aggregate external finance for 1991–92 had been set at £4,338 million, an increase of £410 million, or 10·4 per cent. over the corresponding figure for 1990–91. He also confirmed, as hon. Members will recall, that an additional £15 million would be provided to those local authorities which, since 1989–90, had benefited from the RSG safety net, thus making the total of Government-determined support for local authorities for next year £4,353 million.
It may be helpful to the House if I explain that the figure of £4,353 million has three components. The first is non-domestic rate income. On the basis of the rate poundages which my right hon. Friend announced on 23 January, and which are prescribed in the Non-Domestic Rate (Scotland) (No. 2) Regulations 1991, we estimate that the total level of non-domestic rate income in 1991–92 will be £1,347 million. This figure takes into account the reduction of £100 million which my right hon. Friend announced on 17 January as the second stage of our policy of harmonising rate poundages north and south of the border.
The second component of aggregate external finance is the provision for specific grants which will be paid in
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1991–92. This is estimated at £313 million. The third component is revenue support grant which, for 1991–92, totals £2,692·6 million, including the £15 million for safety netting.
The purpose of the order is to specify how that total amount of revenue support grant is allocated among local authorities. A full explanation of how those resources have been distributed to authorities is contained in the report to the order, the details of which are fairly complex. However, broadly, there are two stages in the process. First, an amount is distributed among authorities in order to equalise differences in their grant-aided expenditure, which is determined by the client group assessment methodology which, as hon. Members know, is kept under constant review, in consultation with COSLA. The rest of the available support, with the exception of the £15 million safety netting, is distributed on a per capita basis. The safety netting has been distributed to—
Mr. Malcolm Bruce: The Minister said that the allocations were agreed in consultation with COSLA. I do not wish to detract from the good services that COSLA produces, but is it not correct to say that the Government have a direct relationship with each local authority in Scotland and not exclusively with COSLA? Will the Minister acknowledge that the Government sometimes seem prepared to hide behind agreements with COSLA, rather than enter into negotiations with individual authorities, that are not always as happy as COSLA is with the allocations? That is true not least of Grampian regional council, which feels victimised because much late debt has recently been calculated and the COSLA formula does not meet its requirements.
Mr. Stewart: The hon. Gentleman is, in a sense, right. It is always possible that individual authorities will take a different view of a particular formula. However, successive Governments have accepted that it is right to consult COSLA collectively, through the distribution committee, which is the basis of the system. That is not to say that the Government will not take heed of individual representations made to them by hon. Members on behalf of specific authorities. However, the technical formulas are discussed between the professional advisers of COSLA and the Department.
Mr. Tom Clarke: Will the Minister give way?
Mr. Stewart: In the light of what Mr. Speaker said, I do not want to give way too often However, I shall give way to the hon. Member for Monklands, West (Mr. Clarke), as he is a past president of COSLA.
Mr. Clarke: Will the Minister clarify a doubt in my mind? Did he say that consultations are being held with COSLA that have not yet been completed or has COSLA agreed to the formula that he is presenting?
Mr. Stewart: There have been technical consultations between the distribution committee, which involves COSLA, and my Department. Those are on-going and, as the hon. Gentleman will know, there are constant representations from individual authorities which are taken into account in the continuing work of the distribution committee. With regard to the other order to which I referred, consultations are continuing with COSLA and have not yet been completed. The main

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beneficiaries of the safety net remain Strathclyde region and Glasgow district, which will receive an additional £8·5 million and £5·2 million respectively.
The one component for which the settlement specifically does not provide is to cover any shortfall of income that local authorities may face because of non-collection of the community charge.
Mr. Alistair Darling: Will the Minister give way?
Mr. Stewart: I have already given way three times. I shall give way for the last time to the hon. Gentleman.
Mr. Darling: When dealing with the allocation of grant, the Minister said that a complicated formula was involved. Why does Lothian, which spends less than the Scottish average per head, receive £799 per head in grant, whereas Strathclyde receives £919 and Tayside £915? Is it not the case that, in terms of the grant it receives per head, Lothian was discriminated against under the old rates system and is now being discriminated against under the poll tax system? Are not the Government hiding behind a formula and discriminating against Edinburgh and Lothian to manipulate matters for their own political advantage?
Mr. Stewart: I refer the hon. Gentleman to the figures. He will see that the aggregate external finance for Lothian for the forthcoming year is increased by 12·88 per cent. That is substantially more than the Scottish average.
Last summer, and again in its briefing notes for this debate, COSLA argued that the settlement should take account of the non-collection factor. I emphasise that, when my right hon.and learned Friend the Member for Edinburgh, Pentlands (Mr. Rifkind) met the convention in July, he wholly rejected its argument. He made it clear that, as a matter of principle, the Government were not prepared to take non-collection into account in establishing the level of Government support for local authorities. To do so would mean that national taxpayers would be asked to subsidise those who were refusing to pay their community charge. That would be resented, and rightly so, by taxpayers and would simply encourage non-collection.
I emphasise that collection is the responsibility of the authorities. It is clear that they could and should have made more effective and speedier use of the recovery procedures available to them. That is not simply the Government's opinion. Another recent report on the first year of the operation of the community charge in Scotland, that of the Accounts Commission—which is a wholly independent body—supports that view. In its report the commission referred to
"The apparent unwillingness on the part of certain collecting authorities to make full and timeous use of the recovery procedures available to them under statute."
The commission also stated:
"Some authorities have inhibited the effectiveness of sheriff officers' procedures through the manner in which community charge payers were informed of the possibility or imminence of recovery action."
It is disconcerting that certain authorities have seemed reluctant to provide the authority for sheriff officers to conduct their normal recovery procedures in appropriate cases.
Let the House be clear that much more can and should be done by authorities to reduce non-collection levels. To give credit where it is due, I welcome the decisions by Grampian region to proceed with warrant sales. No doubt
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the hon. Member for Glasgow, Garscadden (Mr. Dewar) will welcome the U-turn by certain Labour councillors in Grampian which has enabled that to happen, as reported in today's press.
Mr. Donald Dewar: Will the Minister give way?
Mr. Stewart: I have already given way four times.
Mr. Dewar: There is a great deal of interest in attitudes towards dealing with non-payment. The Minister was a vehement advocate of the removal of all services from those in arrears. Is that still his position?
Mr. Stewart: That was never my position.
I welcome the decision by Strathclyde regional council to arrest the wages and salaries of its staff who are non-payers. Those steps are long overdue, but nevertheless welcome.
Mr. Harry Ewing: On a point of order, Mr. Deputy Speaker. The Minister is misleading the House. He may not be doing so deliberately, but he was the very person who advocated that all services and the right to vote should be withdrawn from those who either could not or would not pay their poll tax. Yet he has just denied that. He is misleading the House and should correct that statement.
Mr. Stewart: If the hon. Gentleman checks the press on that specific point, he will discover that Mr. Phil Gallie made the suggestion.
Mr. Brian Wilson: The Minister made the suggestion. Mr. Gallie is a disciple.
Mr. Stewart: It was made clear that neither I nor the Scottish Office generally agreed with that at all.
Law-abiding charge payers rightly resent those who on the one hand are only to happy to accept employment, wages and salaries from local authorities, while on the other they are not prepared too contribute to the cost of local services. It certainly does not help the non-collection problems to have the president of COSLA call for the speedy abolition of the community charge. Such a statement is the height of irresponsibility. COSLA knows full well that, whatever the outcome of the community charge review, authorities will have a statutory duty to continue to collect the charge. Those remarks will simply encourage non-payment. I must make it clear that, whatever happens, there will be no amnesty for non-payers. The Government certainly will not bail out local authorities because of their failure to collect the community charge.
When we announced the settlement last July, my right hon. and learned Friend described it as fair. As my right hon. Friend the Member for Kincardine and Deeside (Mr. Buchanan-Smith) said, it was very close to the bid made by COSLA. In view of the reduction in the rate of inflation during recent months, and the likelihood of the rate falling significantly this year, I think that it is not unreasonable now to describe the settlement as extremely fair. I certainly reject any suggestion by local authorities that the quite outrageous community charge increases—which represent a high degree of political cynicism—many of them made are due to underfunding by the Government. That is not the case.
I commend the order to the House.
10.31 pm
Mr. Donald Dewar: There is no doubt that we are facing a crisis of credibility in local government finance. The poll tax for 1991–92 will be seen by many people as a crushing burden and it will be resented. A couple living on an ordinary working wage, but who are outwith the rebate net, will be between £800 and £1,100 worse off, depending on geography. That is a substantial imposition.
This year the average increase in poll tax bills was 9 per cent.; in the coming year it is likely to be a thumping 28 or 29 per cent. on average across Scotland. I know that many people will ask, fairly, what has gone wrong and what is to be done about it. I have to say to the Minister that I believe that the fault lies with the system itself and that I have little sympathy with his expressions of outrage. He was well warned by COSLA and everyone in the local authority world, months and months ago, that settlements would be of that order. I know that the immediate reaction of Conservative Ministers is to talk about profligate councillors, overspending and fiscal irresponsibility. That does not stand up as an explanation of what has happened.
I recommend to the Minister the results of a survey published in the current issue of the Municipal Journal. It shows that the average increase in budgets in cash terms for local authorities in Scotland for the coming year is 8·4 per cent. So the budgets are being cut in real terms, yet there is a substantial increase in the poll tax. It is not the result of wildly escalating budgets; in fact, local authorities have often painfully done their bit. The trouble is the inheritance from the past mismanagement of the local government finance system and the present settlement. The Minister's indignation simply does not carry conviction.
The hopes expressed by Ministers for this year's settlement have always been optimistic. The aggregate external finance has risen by about 10 per cent., but that was never likely to stabilise the position, and Ministers knew that. Indeed, on the settlement figures that the Government have used, the difference between expenditure as anticipated by Government and loan charges, less the aggregate external finance, leaves a gap to be filled by the poll tax of £1·094 billion. That is a substantial increase of 16·3 per cent. on the gap that had to be filled in the previous year. To put it another way, even on the Government's own figures, leaving aside all the difficulties that they nodded through and did not comment on or take into account, the hard-pressed poll tax payer has to find another £154 million, or £45 per individual payer.
Mr. Allan Stewart: The hon. Gentleman is quoting from the COSLA brief, but COSLA has simply got it wrong. The 16·3 per cent. is based on the assumption that levels of the community charge in 1991 were based on grant-aided expenditure, but they were not. They were based on budgeted expenditure which, on average, was 7 per cent. below the GAE for 1991–92. To spend to the 1991–92 figure, an increase of 7 per cent. in support would have been required. If that had been all that had been given by the Government and no other influences had played a part, community charge increases would simply have been at the level of inflation.
Mr. Dewar: I would want to study that arithmetical sleight of hand. All that I have done is to take the current expenditure—I make no apology for the fact that I have
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relied on COSLA's figures here; that is perfectly legitimate —and the loan charges, totalled them and removed the aggregate external finance. That leaves us with the gap to which I referred of £1·094 billion. That is a perfectly fair representation.
I return to the general point, which the Minister has not answered. Why, if average budgets have risen by less than the rate of inflation, has the poll tax risen by such an enormous sum? Does that not have a great deal to do with the unsatisfactory nature of the system, where the gearing effect means that any increased expenditure will be put on a narrow tax base, with the result that the poll tax payer will be victimised again and again?
For example, if one takes a legitimate increase, such as the almost £1 million that a large region has spent on school boards, or the £1 million that it has managed to gather together to do something to maintain the momentum of community care—presumably the Minister does not contend that all expenditure is wicked—that, put on the narrow base of the poll tax, is contributing to quite unreasonable increases.
It is a side effect of the fact that councils control only 20 per cent. of their income and 80 per cent. of it is now controlled by the Government, which is built into the system, that, every time the Government lay a new duty, whether it be the litter laws or some educational provision, or every time there is a drift in wage settlements, which may be outwith the control of local government, the poll tax will inevitably be forced up unreasonably, because it will increase the gap between the non-domestic rate income and the revenue support grant income, which is entirely controlled by Government. That is one reason why we are in such trouble.
Of course, there are other complications. There are the interest charges that were underestimated this year and the rises that could not be anticipated. There are such matters as the use of surpluses last year, which I understand were about £105 million, but those have now been exhausted. The Minister looks as though that was the fault of local government, but it did its best to protect the poll tax payer, and what is wrong with that? If he showed the same wish to protect the poll tax payer and maintain a decent level of services, we would all be in a much better position.
But there is also the problem that we cannot duck, of non-payment and the cost of collection. I take an example which, from my point of view, is a difficult one because of the size of the poll tax that has been levied. Lothian region's poll tax this year is £420, plus £26 for water rates —an increase of almost 35 per cent. It sounds like a case study which the Government should welcome, because it would illustrate, presumably, the particular and peculiar irresponsibility of that local authority.
In fact, as we all know, it has cut £20 million from its budget by increasing charges for home helps and school meals and by making staff reductions, which are painful and difficult. We know also that much of the net expenditure, the new expenditure, that has been included is for things such as school boards and care in the community. At the end of the day, it is faced with a budget increase that is just about the rate of inflation, but with an overall increase of 35 per cent.
One reason is the cost of collecting the poll tax, which will be £18 million next year. Even allowing for inflation, that is three times as much as the cost of collection under the rating system. In 1989–90, there was 13 per cent. non-payment, and in 1990–91 that figure will increase to

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38 per cent. I have no doubt that that percentage will sharply decrease, but it is one problem with which the authority has to wrestle. That has led to the Lothian authority taking some unpopular decisions, but I have no doubt that they have been taken with the approval of the Secretary of State. Even now, £48 of the £109 increase is the result of non-payment.
Every authority, irrespective of political complexion, is faced with the problem of non-payment. The regions that are not under the control of the Labour party are confronted by it because of the difficulties that are built into the system. As my hon. Friend the Member for Edinburgh, Central (Mr. Darling) said, Lothian spends less per head on services than the average in Scotland, but despite that it levies a high poll tax. That is because its grant per head is so much less than the Scottish average. Indeed, it is less than that of every other region. Lothian has a shortfall by inheritance, and that is the main reason for its problems. It is shamelessly ducking the issue to talk about 12·55 per cent. this year, given what has happened in previous years. I believe that the Minister knows that. He did himself no credit by avoiding the issue when challenged in an intervention.
I am sure that none of my hon. Friends is unaware of or doubts the difficulties of local authorities, including that of non-collection. There has been feverish speculation about non-collection, and it is my clear recollection—if I am wrong about this, I shall apologise—that, only a few months ago, the Minister, as a Conservative Back-Bencher, was reported in the Glasgow Herald as calling with vehemence for acceptance of the principle that those who did not pay should have services withdrawn. I have no doubt that I am right about that. I shall check and then write to the Minister. I think that he knows that I am right, and I think that he owes the House an apology.
I recognise, of course, the difficulties that the hon. Gentleman faces. He is a Minister now, and he must forswear many of his personal opinions. Given what he has said in the recent past as a Conservative Back-Bench Member, however, he should make it clear that he is putting his irresponsible views behind him in recognition of the discipline of office. That would be some help. It would be useful also if he were to repudiate the views of the demonstrators on the Mound—perhaps it was more of a photo-opportunity than a demonstration—who suggested that Conservatives should not pay the full poll tax but should reduce their payments by what they understood to be the so-called surcharge for non-payment.
I note that a gentleman called the Rev. Roderick D. M. Campbell—
Mr. Allan Stewart: If the hon. Gentleman undertakes a perusal of a front-page article in the Glasgow Herald, he will find that my right hon. Friend the Secretary of State and I made it clear at a Conservative party conference —a public occasion—that in no circumstances would we condone or encourage any person to break the law of the land.
Mr. Dewar: I accept that. I am glad to have the assurance that the Rev. Roderick Campbell is being repudiated. I hope that he will not bring the same irresponsibility to his newly confirmed appointment as a member of the Greater Glasgow health board. I can think only that that is some sort of reward for his honest efforts
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on behalf of the Conservative party. It is important that we are clear where the Minister stands, and I hope that we shall have some correspondence on the matter.
Perhaps we shall also have an opportunity, when the hon. Member for Dunfermline, West (Mr. Douglas) speaks, to clear up the position of the Scottish National party. I see in the Glasgow Herald today that its immediate ex-leader, Mr. Gordon Wilson, is saying that the party should restrict its non-payment campaign to year one of the tax.
Mr. Dick Douglas: It was in yesterday's Glasgow Herald.
Mr. Dewar: Yesterday—I am grateful to the hon. Member. There have been a series of ambiguous statements from the hon. Member for Banff and Buchan (Mr. Salmond), but there is no doubt that the public are very fed up with the policy of the Scottish National party, and I look forward to finding out what the exact position is today, in the hope that it may still be the same tomorrow, and then we may learn exactly where they stand.
I do not think that the hon. Member for Banff and Buchan has been reduced to a position of great dignity, if he can hope only that the Secretary of State for the Environment will do just about enough to get him off the hook on which he has been impaled.
I shall finish by saying that of course we are all victims of the system. Councils are certainly the victims of the system, as are the people whom they represent. Above all, so are the public, in the form of the poll tax payers. We are in the unfortunate position that, if the Government's attitude does not change, the cry remains, "Not a penny more", and if the non-payment campaign is rashly and irresponsibly maintained, despite the effects on jobs and services, people will be in the impossible position of seeing their poll tax rise out of control, or facing the most vicious and fundamental attack on the level of services that we have ever witnessed. That is a dilemma which I do not wish any elected Member of Parliament to have to face, and from which I do not wish the public to suffer.
I am sure that the Minister recognises that, even in Eastwood, there are people who depend on services. There are people who depend entirely on home helps and on a whole range of education and social work services provided by local government who will suffer greatly if the sort of cuts implied by Government rhetoric are made. The system has been discredited and the harsh realism of the figures—a very substantial increase, well above the local authority budgets this year—underlines that point.
The Secretary of State, who has chosen to sit out this debate, has proclaimed that the poll tax system is working well and is a remarkable success story. He is the Minister who has talked of minor changes and of a tax which, in essence, is here to stay. I find that deeply depressing, when I consider the damage that has been done. I have no doubt that Ministers will say little enough today, and probably for quite some time, about their plans for the future. What about the suggestions that expenditure on education should be moved to the Treasury, or that there should be a return to some sort of property-based system? They may find favour with the right hon. Member for Henley (Mr. Heseltine). We shall have to wait and see where his intellectual journey will end, but I repeat my warning to

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Ministers that Scotland will not accept an ingenious but dishonest compromise that merely repackages the unacceptable in a vain effort to save political face.
10.48 pm
Mr. Bill Walker: The hon. Member for Glasgow, Garscadden (Mr. Dewar) probably spoke for the whole House when he asked, "What has gone wrong?" There is no question that something has gone desperately wrong. However, he seemed to ignore the contribution that has been made by his party and by the Scottish National party in Scotland to non-collection of the tax. Anyone who believes that any taxation, or local authority charges, that Members of Parliament and councillors have told people not to pay, will not run into administrative difficulties, is not living in the real world.
The hon. Member for Garscadden has to bear in mind that his party and people sitting beside him on the Front Bench, campaigned not to pay. [HON. MEMBERS: "Who? Point to them". Memories appear to be very short. They campaigned not to register and not to pay—[HON. MEMBERS: "No."] If the memory of the hon. Member for Cunninghame, North (Mr. Wilson) is really so short, let me remind him that he was the leader of the campaign. It seems that his memory is indeed short: he does not want to remember.
Mr. Wilson rose—
Mr. Walker: If the hon. Gentleman will be patient, I will happily give way to him in a moment.
The hon. Member for Garscadden chastised my hon. Friend the Parliamentary Under-Secretary, suggesting that, because he now sat on the Front Bench, he was somehow dissociating himself from views that he had expressed earlier. Let me remind the hon. Gentleman that his hon. Friend the Member for Cunninghame, North, who is sitting beside him on the Opposition Front Bench, has made some fascinating comments both as a Back Bencher and as a Front Bencher. Now I will give way to the hon. Gentleman.
Mr. Wilson: There is always the danger of dignifying the hon. Gentleman's remarks by responding to them, but, as he has mentioned me, let me put the record straight.
I have consistently opposed non-payment for political reasons, and I certainly did not urge people not to register: I urged them, while registering, to make plain their opposition to the poll tax. I have urged people to register, to claim their rebates and to pay at every level. If the hon. Gentleman has an argument, let him put it, but why he has to base it on mendacity is beyond me.
Mr. Walker: I shall resort to the tactics and methods of the hon. Member for Garscadden—
Mr. Dewar: What?
Mr. Walker: If I am wrong, I shall apologise.
Mr. Wilson: Is that the end of it?
Mr. Walker: I am giving as much evidence as the hon. Member for Garscadden gave. In such a short debate, I cannot be expected to do other than emulate the hon. Gentleman. [Interruption.] Opposition Front Benchers do not like it. They want to retain the delightful amnesia that
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enables them to forget not only their own position, but that of their hon. Friends who still sit on the Benches behind them. They paid up only recently, because they were told they must; until that time, they had campaigned consistently against doing so. Even now, some claim that they have somehow destroyed the system.
I agree with the Accounts Commission, which says that recovery procedures have not been adopted either properly or effectively. I do not find that surprising. In Angus district, in my constituency, the Scottish National party is the collector on behalf of Tayside region. Councillors there are telling people that they should not pay. In the circumstances, it would be astonishing if some did not listen to and act on that advice—and, of course, the advice given by parliamentary members of the same party.
These are the people who claim that they want to be the voice of Scotland, and, at some future date, the Government of Scotland. How can they possibly aspire to govern when they are not prepared to accept the taxes and charges levied as a result of statutes passed by a democratically elected Parliament?
When we consider the average increase represented by the community charge, and the 10·4 per cent. increase mentioned in the order, we see only too well that something is very wrong. The hon. Member for Garscadden may be right in one respect: I believe that whatever levy local authorities place on individuals should be one that those individuals consider reasonable. I have written my paper and stand by it and I believe that much more should be collected by central Government. There will be arguments and debates about what methods should be used and how it is done, but more should be collected centrally and less collected locally.
The local collection should be pitched at a level at which people recognise that they are making a contribution, but not so large that it becomes a penal burden. That is why we have to look at the matter in depth, and I welcome the review taking place now.
Mr. James Wallace: If those additional burdens were taken by central Government, what would be the effect on national taxation?
Mr. Walker: I hope that I was making, clear that, if the burden is transferred from local level to national level, it still has to be paid for. If the hon. Member for Orkney and Shetland (Mr. Wallace) has read any of the papers that I have produced, he will realise that I wish to transfer that to value added tax, which is a central tax.
Whatever comes out of this debate, I hope that it will be one of the last such debates, if not the last, that we shall have.
Mr. John Maxton: Is the hon. Gentleman saying that the poll tax will be gone?
Mr. Walker: No. I believe in the community charge, but local authorities should be able to fix it at a level necessary to meet the needs of the services in their area. The hon. Member for Garscadden put his finger on an important point when he said that, if one has to add figures to a small percentage, it must increase the cost substantially in a small area.
Mr. Maxton: Some of us pointed that out to the hon. Gentleman and his colleagues during the Committee stage of the 1987 Bill. He did not learn the lesson then. I am

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grateful for the fact that he seems to have learnt the lesson now, but it would have been better if he had voted against it then.
Mr. Walker: Like that of the hon. Member for Cunninghame, North, the memory of the hon. Member for Glasgow,. Cathcart (Mr. Maxton) is very selective. I have always taken the view that local collection must be at a level that makes people recognise and accept that they are making their contribution to local government expenditure, but it must be a realistic level that people will accept. Bills approaching £450 or £500 are far too high and something must be done.
Mr. Jimmy Wray rose—
Mr. Walker: I have given way enough.
The problem faced by Opposition Members is that they are living with the results of two separate campaigns. One campaign was the legal campaign by the Scottish nationalists. At one end of my constituency, even the Perth and Kinross district SNP provost did not support that, whereas it was supported at the other end of my constituency. [Interruption.] The Labour party has to answer to the people of Scotland for the 29 per cent. increase in the community charge.
Mr. Harry Ewing: On a point of order, Mr. Deputy Speaker. Could you use the powers of the Chair to stop these electrifying speeches?
Mr. Deputy Speaker (Sir Paul Dean): We had better get on with the debate.
10.59 pm
Mr. Malcolm Bruce: The speech of the hon. Member for Tayside, North (Mr. Walker) came to a suitably abrupt end, and not before time.
Many of us have been through these debates before. It is sometimes difficult to find something new to say, but the hon. Member for Tayside, North gave us a brilliant idea to which we can perhaps look forward. He said that he hoped that this was the last debate of this kind that we should ever have in the House. It seemed to imply that there should be no revenue support grant at all in the future. Perhaps that was a revelation of the way in which Tory party thinking is moving.
The Minister said that this was a reasonably generous settlement and that there was no reason for a dramatic increase in the poll tax, because local authorities were getting a settlement broadly in line with inflation. If I am not mistaken, the hon. Member for Glasgow, Garscadden (Mr. Dewar) did not fundamentally dispute that; the point that he disputed concerned the way in which the burden falls on the poll tax payer; because of its fixed element, it is the only area of taxation that is flexible for local authorities. It does not need much intellectual power to understand that, when an authority has a shortfall in expenditure or faces unexpected extra costs, it has a disproportionate effect on poll tax payers because all the money must be recovered from that one component of revenue, although it accounts for only one quarter of the total tax base of local authorities.
I ask the Minister to consider the pleas that I have received from local authorities about the timing of this settlement. Timing is a problem every year, but it seems to have become more acute. It is extremely difficult for local authorities to fix budgets in which a major component is
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not determined until—if they are lucky—the day before the budget must be presented, and often not until a day or two after the budget has been fixed.
I can confirm that I received a fax this morning from Gordon district council pointing out that it determined its budget on the basis of information about what it expected the revenue support grant to be; but the information was wrong to the tune of £21,000, which the council had to draw from surpluses. The Minister seems to deplore the idea of maintaining balances, but this is a good example of why they are a necessary and perfectly legitimate component of local authorities' budgets—to ensure that they have the flexibility to cope with unexpected fluctuations in the demands made on them.
Am I right in deducing that this is a case of the tail, in the shape of the Department of the Environment, wagging the Scottish Office dog? The settlement in England comes two months later than that in Scotland. The new leadership of the Tory party gave a clear sign that more money would be available, so local authorities in Scotland had to determine their poll taxes against that background, and they had much less time to play with.
I understand that the Secretary of State had to consider whether re-billing would have been necessary for Scottish authorities in circumstances in which it would not have been necessary for English authorities. I ask the Minister to bring forward the timing of the allocation of the grants, so as to enable local authorities to plan their budgets in good time.
Earlier, the Minister outlined his concerns about the relationship between the Government and the Convention of Scottish Local Authorities. I am not attacking COSLA; it does an essential job well. I appreciate its value, but it often has to adopt a consensus position in which the interests of all local authority members are not necessarily represented. Authorities in COSLA that are in a minority, politically or geographically, tend to lose out to the majority view. They have a right, however, to expect to make direct approaches to the Scottish Office and to have their anxieties dealt with, and not to expect that the COSLA formula is the be-all and end-all of the settlement.
This is not the first time that I have made this plea. I have had to point out several times to the House how local authorities in my area and in other parts of Scotland have been adversely affected. The Scottish Office has not been willing to find a solution to accommodate those authorities. It should try harder to do so in the future.
We are moving into an era of change. The Government know my view that the poll tax is not reformable and that the sooner it is abolished the better. I hope that they will take to heart my belief that the sooner they are able to say categorically that the poll tax will go and that a new, fairer system will be introduced, the quicker we will be able to resolve the outstanding anomalies faced by local authorities under the present regime.
The hon. Member for Tayside, North (Mr. Walker) castigated members of the Labour and Scottish National parties for their militant non-payment stance. I am getting letters from my constituents telling me that they wholly endorse the position of the Scottish Conservative party in encouraging them to withhold payment of the part of this year's increased poll tax that is caused by non-payment. I represent the only party that has not encouraged people not to pay the poll tax. Ministers should be a little careful.
Mr. Allan Stewart: I made the position of my right hon. Friend the Secretary of State and the Government crystal clear—in no circumstances do the Government condone or encourage anyone in Scotland to break the law.
Mr. Bruce: I accept that point, but I am sure that the hon. Gentleman would not deny that active members of his party do that. They do not appear to be disciplined or to be called to account in any way—
Mr. Wilson: They are appointed to Greater Glasgow health board.
Mr. Bruce: They are promoted by the junior Scottish Office Minister.
Mr. George Foulkes: I agree with the hon. Member. A properly endorsed, prospective parliamentary candidate in Edinburgh, South, Councillor Struan Stevenson, is one of the leaders of the campaign to encourage people not to pay the additional part of the poll tax. Surely Ministers should renounced him and he should be deselected.
Mr. Bruce: The Minister heard that comment and can respond later.
This tax is proving to be an extremely difficult constraint on local authorities, preventing them from providing the services that they are required to provide and, in most cases, are striving honourably to provide. It is administratively difficult to collect the tax. It is difficult to budget when the Government continually impose extra responsibilities on local authorities without always providing the necessary money and when the settlement on which local authority budgets must be based is sometimes made after those budgets have been set. We are legitimately entitled to ask the Government to address those issues.
The Government must recognise that Scottish local authorities need an annual settlement that is reasonably predictable and accept that local authorities have a job that they are elected to do and statutorily required to do and that no other organisation could do. There should not be constant attacks implying that local authorities are irresponsible but central Government are responsible. The opposite is also true. Democratically elected local authorities with clearly defined powers, financed by a properly accountable system, should be allowed to get on with the job. They should be allowed to budget properly, collect the tax because it is administratively simple to collect and deliver the services that people expect them to provide.
11.8 pm
Mr. Gavin Strang: The House can be in no doubt about the importance of these issues to our constituents. In my constituency, poll tax payers will be expected to pay £584 next year, which, as has been pointed out, is a high amount. A substantial number of my constituents cannot afford to pay it. I am grateful to my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar), who knows that that figure was arrived at with great difficulty and was the result of hard decisions by the Labour Administration to hold the increase down. That is a measure of how unworkable the tax is.
We should not lose sight of some of the fundamental flaws of the tax. In Edinburgh, and no doubt in other large cities, hundreds, if not thousands, of people have
962
disappeared from the electoral register and the poll tax register. The most fundamental case against the poll tax is that it is a disincentive to people to vote. No one approves of that, but surely we should judge our democracy by the degree of the participation of communities in the system. It is wholly unsatisfactory that we should have a system of local government taxation that has resulted in the disappearance of thousands of people from the electoral process.
Secondly, I repeat that we have seen a most massive transfer of the burden from the better-off areas of Edinburgh to the less well-off areas of the city. The same applies elsewhere. The amount of money being extracted from working people in my constituency is an absolute disgrace. At every constituency surgery, I come across the tragic cases of people who simply cannot afford to pay and, as a result, are in arrears and have actually had additional charges imposed on them. I am sure that many of my hon. Friends have had the same experience. The people to whom I refer are willing to pay, but they are simply unable to do so.
The third, and final, point that I want to make in relation to the poll tax is perhaps demonstrated more clearly in Lothian than anywhere else. It is that the system is totally unworkable. For the third year of the poll tax —1991–92—the Lothian regional council is budgeting for a 10 per cent. loss on yield. What a state of affairs that is. Whatever controversy surrounds the Lothian collection procedures, no one—certainly not any Minister—can reasonably say that Lothian regional council has not taken steps to secure the poll tax. In fact, the case of every person whose poll tax for 1989–90 is due is in the hands of the sheriff officers, and every effort is being made to collect the amounts due for 1990–91. Not £1 of debt has yet been written off. The reality is that the authorities there have had to face up to the fact that the tax is unworkable. They have had to budget for a 10 per cent. loss on yield. What sort of tax is this if only 90 per cent. of potential yield can be collected? And that takes no account of the people who have disappeared altogether and are not on the register.
Next year, the cost of collecting the tax will be £18·2 million, compared with the £7.4 million that it took to collect the rates in 1988–89—the last year of the rates. These figures are based on prices at September 1990. Surely, a tax that is unworkable, imposes a huge burden on our people and costs the Lothian regional council so much to collect is the ultimate folly.
11.13 pm
Mr. Harry Ewing: It is appropriate, though tragic, that we should be debating this order on the eve of the day when we shall see figures that show a massive increase in unemployment throughout the United Kingdom—and Scotland will bear its full share of that massive increase. It is almost as though Ministers ignore the fact that flowing from that massive increase in unemployment is the responsibility on local authorities to care for the families who are the victims of Government economic policy which has resulted in breadwinners losing their jobs.
I regret to say—for I have never before seen it in politics—that the present Government's attitude is that they could not care less what happens to family life. The poll tax, the revenue support grant and the services that are provided by local authorities are all aspects of family life. If the

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Government turn their back on what is happening to families—I am thinking of people's ability or inability to pay the poll tax, of the suffering that is caused by unemployment and of the effect of almost every other aspect of the Government's economic policy—they will sow the seeds of serious discontent.
As the hon. Member for Gordon (Mr. Bruce) said, the Government, and in particular the Minister who opened the debate, are generating a feeling that local government should be shunned or despised. The Minister's former colleague, Michael Ancram, even built a career on living off the back of local government. Since the Government came to office in 1979, the people of Scotland have every reason to be thankful to local government for the protection that councillors have provided the people whom they represent.
The Minister took pleasure in deriding local authorities in Scotland. However, he should think carefully about his constituents and the protection afforded to them by the councillors and the local authority in his constituency. They offer greater protection than does the Minister. The councillors offer protection that his constituents will welcome, cherish and appreciate because of the impact of the Government's policies on the people of Scotland.
I noticed that, when I rose to speak, the Minister of State, the hon. Member for Stirling (Mr. Forsyth), left the Chamber. I would not hold that against anyone and I do not blame him for doing that. However, it is noticeable that the Under-Secretary of State took every opportunity to criticise local authorities that increase their poll taxes. He did not take the opportunity tonight to praise Stirling district council for holding its poll tax level.
Local authorities cannot win even when they hold the poll tax at last year's level. The Stirling Observer is full of letters from supporters of the Minister of State criticising Labour councillors in Stirling for opportunism because they have held the poll tax at last year's level. If they had raised it, the paper would have been full of letters from the Minister of State's supporters criticising councillors for increasing the poll tax. Councillors in Scotland are doing an excellent job and they deserve the Government's support, not their criticism.
A new phenomenon is developing on the industrial scene in Scotland, involving large industrial conurbations comprising petrochemical industries that are highly capital-intensive, but low in terms of labour involvement. Indeed, BP has just announced that it is about to pay off another 100 people. The rate income to Central region, from those industries is high, but the job content is low. That has a social impact particularly on Central region and I hope that the Minister will consider the problem.
The Minister's main problem tonight is that he has been here before. He was a Minister, then he was a Back Bencher—
Mr. Thomas Graham: A never-ending story.
Mr. Ewing: The Minister is a retread. The Government seem to have more retreads than Kwik-fit.
The Minister has a past to live down. In this debate he has been unable to defend that past, and he has no future. In less than a year, we look forward to my hon. Friend the Member for Glasgow, Garscadden (Mr. Dewar) and his colleagues occupying the Government Front Bench.
Mr. Ian Bruce: On a point of order, Mr. Deputy Speaker. I do not know whether you or your colleagues have any control over the annunciators, but it was rather surprising, while working in the Library about 10 minutes ago, to see that I was speaking in the Chamber. Is there some form of misrepresentation in this place? I had to rush in to find out what I was saying. Can that matter be reported to the authorities?
Mr. Deputy Speaker: I hope that the hon. Gentleman does not feel too embarrassed about being in two places at once.
11.19 pm
Sir Nicholas Fairbairn rose—
Mr. Foulkes: If the hon. and learned Gentleman rushes out, he will see his name on the annunciator.
Sir Nicholas Fairbain: I hope that I do not see the name of the hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) on the annunciator because I should not wish to be confused with him.
The hon. Member for Falkirk, East (Mr. Ewing) made the important point that the Minister has a past to live down. It is important that the House should know that the hon. Member for Falkirk, East has no past to live down, nor has he a future. It is remarkable, as the hon. Member for Falkirk, East demonstrated, that there is great praise for central Government. All government is bad and should be small. The great benefit of Scotland and the reason why the Scots are so popular worldwide is that we are the only recognisable race on earth that has the benefit of not having a Government. That is why the Scottish assembly and all that nonsense shall never come to pass.
It is extraordinary that the proposed tax to be raised by local government, which Opposition Members so greatly praise, should rise by a third. I should have thought that it was a considerable criticism of their capability and their efforts that local authorities should be increasing taxes on pensioners, on the retired, on the sick, and on everybody else by one third. I do not know whether Opposition Members think that that is a good idea—they never stop whingeing about hardship. That tax is a formidable hardship for every person in Scotland, and let us not forget it. Who is praising those who are increasing the burden by a third? Opposition Members are praising them. There are those who say that local authorities are wonderful. Nevertheless, whatever services they give, local authorities are a burden on the back of every citizen. [HON. MEMBERS: "Nonsense."] I notice that those who said "nonsense" have all been members of local authorities—
Mr. Graham: And proud of it.
Sir Nicholas Fairbairn:—and proud of it, and no doubt proud that they are increasing the burden on the backs of the citizens this year by a third.
Mr. Ron Brown: The hon. and learned Gentleman knows that, for the past 10 or 11 years, the clawback from his Government has meant that Scotland has lost in excess of £10 billion of taxpayers' money which should have gone back to local authorities. It was our money. There is an element of dishonesty in the hon. and learned Gentleman's argument, because most of the funding comes from central Government. Local authorities—Tory, Labour or whatever—have a job to do

965
as subcontractors to central Government, but they have to be paid. If they are not paid, who is at fault? It is central Government, his Government. It is not a question of the poll tax. He is being dishonest by trying to kid people that it has something to do with the poll tax. It is about reality. The hon. and learned Gentleman should face up to that.
Sir Nicholas Fairbairn: Once or twice in my life, I have faced up to reality—[HON. MEMBERS: "When?"]—and I will do so now. When I was defending people against the death penalty perhaps I faced up to reality, so let it not be mocked.
Let us be clear about this. I do not know where the hon. Member for Edinburgh, Leith (Mr. Brown) gets his fantasies from about what he cares to call "clawback". In Scotland, we enjoy 30 per cent. per head more of all services than anybody in the rest of the kingdom. If he is looking for clawback, that will be the first thing to be affected if there is a Scottish assembly, whatever form it may take. There will never be another Labour Government, but if the hon. Gentleman cares to fantasise, he will lose 30 per cent. of what is spent on everybody who lives in Scotland. That will make whatever he fantasises about clawback look like major destruction. So let us have no nonsense about that.
The Government have obtained for the people of Scotland a level of life—
Mr. Jimmy Dunnachie: Poverty, unemployment, bad housing.
Sir Nicholas Fairbairn: No. Who said poverty? Let us be clear: when the Government came to office, Scotland had the lowest industrial wage in Europe; now it has the highest. We have obtained a quality of life for the people of Scotland which is denied to the rest of the people of the United Kingdom. It is perhaps something about which we should keep quiet lest we lose it. If we had an assembly, we would lose it.
Let us understand that there is nothing good about government, central or local, spending the money of those from whom they have to obtain it. I do not take pride in the concept that the people of Scotland may have to pay a third more next year because the people who will benefit from that are not those who pay it but those who spend it. I regard that as a Caledonian shame.
11.29 pm
Mr. Dick Douglas: Time is short, but I shall try to respond courteously to the hon. Member for Glasgow, Garscadden (Mr. Dewar), who asked a particular question. I can do no better than respond in a similar manner to that of his hon. Friend the Member for Falkirk, West (Mr. Canavan) who, the other day, when introducing his 10-minute Bill, said, as I would, that as soon as it is indelibly clear that the poll tax is abolished, he would pay all that he owed since that tax was introduced. That is as fair as we can put it.
The hon. Member for Garscadden knows, as does the hon. Member for Edinburgh, East (Mr. Strang) and the hon. Member for Glasgow, Cathcart (Mr. Maxton)—representing the districts they do—that the majority of people who are not paying the poll tax, cannot pay it. It is not sufficient to ask people who are in such a desperate plight to wait until there is a Labour Government. We
966
must analyse the cruelties of the tax by asking the Government whether they are going to persist with their view that the tax is collectable, when every authority gives signs that it is not.
The Parliamentary Under-Secretary for Scotland paraded the support grant order as though it were Government money that was being dispensed. We know well, as it has often been repeated to us, that Governments do not have any money— merely taxpayers' money in one form or another, that is redistributed. A balance has to be struck, and we are discussing the centralising forces of Government, depicted by the revenue support grant, versus local autonomy.
If we have any doubt about the nature of services asked for by central Government and called into being by the House, we should refer to appendix B of the report, which states:
"The following table shows the breakdown of current expenditure for 1991–92 as proposed by the Secretary of State".
The total valuation in terms of grant-aided expenditure is about £4·79 billion, which is what the Secretary of State decrees should be provided locally. Those are services that we in the House demand, and we ask that they be provided locally.
One service that I call, in shorthand, education, although its correct title is education, libraries and museums, receives £2·5 billion. We have the audacity to say that local authorities are profligate, when we know full well that they have to provide such services. We are discussing how to finance them.
The Parliamentary Under-Secretary spoke of the three elements of finance: the revenue support grant, the non-domestic rates and the specific grant. The balance is provided by the poll tax. How can it be right to gather tax from virtually all the population on the basis of taxes that are related to income and ability to pay, but when it comes to squeezing local authorities and trying to make them an example, the tax is totally unrelated to ability to pay?
According to the COSLA figures, 80 per cent. of expenditure by local authorities is determined by and comes from central Government. Local authorities are responsible for only 20 per cent., which now has to be collected by the most draconian measures, and the Government choose to ignore that percentage. They do so at their peril.
The law is being brought into disrepute. Civil liberties are being threatened. Labour Front-Bench Members paraded with me behind banners which declared, "No warrant sales". No doubt they will do so again in a month's time while simultaneously, to avoid breaching the Data Protection Act 1984, going through the list of local authority employees at great cost to embarrass those employees. Some of them may be making a political protest, but others may be lowly paid and cannot pay. I believe Jean McFadden, the leader of COSLA and an honoured member of Glasgow district council, who says that local government finance is in a state of crisis. The Government should make it plain that they will abolish the poll tax.
Yesterday we met the two Secretaries of State. There may well be deficiencies in our proposals for a local income tax, but they do not involve a tax which is unrelated to the ability to pay; they relate strictly to the ability to pay. We may disagree about the particular poundage, but what is not in dispute is that the poll tax is wholly unrelated to the

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ability to pay and should be opposed and brought to an end as soon as possible, in the interests of social cohesion and justice.
11.36 pm
Mr. Allan Stewart: We have had a wide-ranging debate and several detailed points have been raised, particularly by the hon. Member for Gordon (Mr. Bruce). I shall try to deal with them, but if I cannot, perhaps we can meet or exchange correspondence about them.
The hon. Member for Falkirk, East (Mr. Ewing) made some personal remarks about me. I speak as someone who has been a local government councillor.
Mr. Harry Ewing: Down here.
Mr. Stewart: Indeed, in London.
Mr. Ewing: In Westminster.
Mr. Stewart: Not in Westminster.
I am happy to take the opportunity to pay tribute to Eastwood district council, which serves the people extremely well, and to the Labour district councillors and the regional councillor who represent the Barrhead and Neilston wards in my constituency. I may disagree with their policies, but they try to do their best for the communities which they represent.
My hon. and learned Friend the Member for Perth and Kinross (Sir N. Fairbairn) and my hon. Friend the Member for Tayside, North (Mr. Walker) referred to the crucial point about the total level of public expenditure by local authorities. A fact which is not in dispute is that Scottish local authorities spend 30 per cent. more per adult than do local authorities in England or Wales. That figure needs more explanation than it has ever had. There is no obvious explanation for such a major disparity.
Both the hon. Member for Dunfermline, West (Mr. Douglas) and my hon. and learned Friend referred to the level of Government support to local government north and south of the border. In 1990–91, aggregate external finance in England represents 64·5 per cent. of the total. This year, the community charge payer in England pays 35·5 per cent. The comparable figures for Scotland—they may be of interest to some of my colleagues from south of the border who are listening to this debate—are that the aggregate external finance, the Government's contribution—
Mr. Douglas: Not the Government's.
Mr. Stewart: I stand corrected. I should have referred to the taxpayers' contribution—
Mr. Wray rose—
Mr. Stewart: I shall not give way. The hon. Gentleman is a constituent of mine, but in view of the time I cannot give way to him.
Mr. Wray rose—
Mr. Stewart: In case the hon. Gentleman threatens not to vote for me, I shall give way to him.
Mr. Wray: The Minister has mentioned many facts and figures, but he did not mention the magnitude of the uncollected poll tax. Does he realise that he has left untold the 14·9 per cent. uncollected poll tax in 1989–90 in Scotland, 17·4 per cent. of which was in Strathclyde
968
region? That meant a shortfall of £47 million. The latest figures provided by the statistical authorities in the House show that in late December 59·2 per cent. of the poll tax had not been collected. Some 63 per cent. of that was in Strathclyde. That makes a total of £623 million, with £289 still uncollected. How many warrant sales will that mean in Strathclyde?
Mr. Stewart: I am not sure that I shall always give way to my constituent, but I am happy to deal with his point about non-payment. The point was also made by my hon. Friend the Member for Tayside, North and by other hon. Members on both sides of the House.
Hon. Members should look at the precise figures. If it is so difficult to collect the poll tax, why has Borders collected 99 per cent. of its budgeted income for 1989, and is still receiving payments? It expects to collect in excess of its budgeted income this year. That shows that the system is adequate. It is an important fact that community charge income makes up only a little more than 20 per cent. of Scottish local authorities' total income.
The hon. Member for Glasgow, Garscadden (Mr. Dewar) made a number of points, but he failed to recall his forecast of what would happen this year. I shall remind him of that. He asked my right hon. and learned Friend whether he accepted
"that on a standstill budget with no expansion of service, the average payment is likely to rise by about £30 a year?"—[Official Report, 25 July 1990; Vol. 177, c. 490.]
If the hon. Gentleman's forecast had been proved correct, community charge payers in Scotland would be a great deal better off and much happier.
The hon. Gentleman referred to balances. The authorities have run down their balances in this financial year—
Mr. Harry Ewing: Which year?
Mr. Stewart: The current financial year, 1990–91, not the year to which the debate refers. Their reason for doing so is not unconnected with the fact that that was the year of the regional elections. First, the authorities have increased expenditure; secondly, they have run down their balances; and, thirdly, they have piled two years of non-payment on to the community charge payer for the next financial year. That is undoubtedly an exercise in political cynicism.
We have heard a lot from hon. Members about local authorities cutting their expenditure. We heard that particularly from the hon. Members for Glasgow, Garscadden (Mr. Dewar) and for Edinburgh, East (Mr. Strang) in relation to Lothian. But, as I understand it, Lothian is proposing to increase its expenditure by some 11·4 per cent. It has cut planned increases in expenditure, but that is not a cut in expenditure.
This is a perfectly fair settlement, and I commend it to the House.
Question put:—
The House divided: Ayes 292, Noes 193.

Division No. 65]

[11.45 pm

AYES

Adley, Robert

Arnold, Jacques (Gravesham)

Aitken, Jonathan

Arnold, Sir Thomas

Alexander, Richard

Ashby, David

Alison, Rt Hon Michael

Aspinwall, Jack

Allason, Rupert

Atkins, Robert

Amess, David

Atkinson, David

Arbuthnot, James

Baker, Nicholas (Dorset N)

969

Baldry. Tony

Gill, Christopher

Batiste, Spencer

Gilmour, Rt Hon Sir Ian

Beaumont-Dark, Anthony

Glyn, Dr Sir Alan

Bellingham, Henry

Goodlad, Alastair

Bendall, Vivian

Gorman, Mrs Teresa

Bennett, Nicholas (Pembroke)

Gorst, John

Bevan, David Gilroy

Grant, Sir Anthony (CambsSW)

Biffen, Rt Hon John

Greenway, Harry (Ealing N)

Blackburn, Dr John G.

Greenway, John (Ryedale)

Blaker, Rt Hon Sir Peter

Gregory, Conal

Bonsor, Sir Nicholas

Griffiths, Sir Eldon (Bury St E')

Boscawen, Hon Robert

Griffiths, Peter (Portsmouth N)

Boswell, Tim

Grist, Ian

Bottomley, Peter

Hague, William

Bottomley, Mrs Virginia

Hamilton, Hon Archie (Epsom)

Bowden, A (Brighton K'pto'n)

Hamilton, Neil (Tatton)

Bowis, John

Hampson, Dr Keith

Boyson, Rt Hon Dr Sir Rhodes

Hanley, Jeremy

Brandon-Bravo, Martin

Hannam, John

Brazier, Julian

Hargreaves, A. (B'ham H'll Gr')

Bright, Graham

Hargreaves, Ken (Hyndburn)

Brooke, Rt Hon Peter

Harris, David

Brown, Michael (Brigg & Cl't's)

Haselhurst, Alan

Bruce, Ian (Dorset South)

Hawkins, Christopher

Buchanan-Smith, Rt Hon Alick

Hayes, Jerry

Burns, Simon

Hayward, Robert

Butler, Chris

Heathcoat-Amory, David

Butterfill, John

Hicks, Robert (Cornwall SE)

Carlisle, John, (Luton N)

Higgins, Rt Hon Terence L.

Carlisle, Kenneth (Lincoln)

Hill, James

Carrington, Matthew

Hind, Kenneth

Cash, William

Hogg, Hon Douglas (Gr'th'm)

Chapman, Sydney

Howard, Rt Hon Michael

Chope, Christopher

Howarth, G. (Cannock & B'wd)

Clark, Rt Hon Alan (Plymouth)

Howell, Rt Hon David (G'dford)

Clark, Dr Michael (Rochford)

Howell, Ralph (North Norfolk)

Clark, Rt Hon Sir William

Hughes, Robert G. (Harrow W)

Clarke, Rt Hon K. (Ftushcliffe)

Hunt, Sir John (Ravensbourne)

Colvin, Michael

Hunter, Andrew

Conway, Derek

Hurd, Rt Hon Douglas

Coombs, Anthony (Wyre F'rest)

Irvine, Michael

Coombs, Simon (Swindon)

Jack, Michael

Cope, Rt Hon John

Jackson, Robert

Couchman, James

Janman, Tim

Cran, James

Jessel, Toby

Critchley, Julian

Jones, Gwilym (Cardiff N)

Currie, Mrs Edwina

Jones, Robert B (Herts W)

Curry, David

Jopling, Rt Hon Michael

Davies, Q. (Stamf'd & Spald'g)

Kellett-Bowman, Dame Elaine

Davis, David (Boothferry)

King, Roger (B'ham N'thfield)

Day, Stephen

Kirkhope, Timothy

Devlin, Tim

Knapman, Roger

Dicks, Terry

Knight, Greg (Derby North)

Dorrell, Stephen

Knowles, Michael

Douglas-Hamilton, Lord James

Knox, David

Dover, Den

Lamont, Rt Hon Norman

Dunn, Bob

Lang, Rt Hon Ian

Durant, Sir Anthony

Latham, Michael

Dykes, Hugh

Lawrence, Ivan

Eggar, Tim

Leigh, Edward (Galnsbor'gh)

Evans, David (Welwyn Hatf'd)

Lennox-Boyd, Hon Mark

Evennett, David

Lester, Jim (Broxtowe)

Fairbairn, Sir Nicholas

Lilley, Peter

Fallon, Michael

Lloyd, Sir Ian (Havant)

Field, Barry (Isle of Wight)

Lloyd, Peter (Fareham)

Finsberg, Sir Geoffrey

Lord, Michael

Fishburn, John Dudley

Luce, Rt Hon Sir Richard

Fookes, Dame Janet

Lyell, Rt Hon Sir Nicholas

Forman, Nigel

MacGregor, Rt Hon John

Forsyth, Michael (Stirling)

MacKay, Andrew (E Berkshire)

Forth, Eric

Maclean, David

Fowler, Rt Hon Sir Norman

McLoughlin, Patrick

Fox, Sir Marcus

McNair-Wilson, Sir Patrick

Franks, Cecil

Madel, David

Freeman, Roger

Major, Rt Hon John

French, Douglas

Malins, Humfrey

Fry, Peter

Mans, Keith

Gale, Roger

Maples, John

Gardiner, Sir George

Marshall, John (Hendon S)

Garel-Jones, Tristan

Marshall, Sir Michael (Arundel)

970

Martin, David (Portsmouth S)

Smith, Sir Dudley (Warwick)

Mates, Michael

Soames, Hon Nicholas

Maude, Hon Francis

Speed, Keith

Mawhinney, Dr Brian

Speller, Tony

Meyer, Sir Anthony

Spicer, Sir Jim (Dorset W)

Miller, Sir Hal

Spicer, Michael (S Worcs)

Miscampbell, Norman

Squire, Robin

Mitchell, Andrew (Gedling)

Stanbrook, Ivor

Mitchell, Sir David

Stanley, Rt Hon Sir John

Moate, Roger

Steen, Anthony

Monro, Sir Hector

Stevens, Lewis

Montgomery, Sir Fergus

Stewart, Allan (Eastwood)

Morrison, Sir Charles

Stewart, Andy (Sherwood)

Moss, Malcolm

Stewart, Rt Hon Ian (Herts N)

Moynihan, Hon Colin

Stokes, Sir John

Neale, Sir Gerrard

Sumberg, David

Needham, Richard

Summerson, Hugo

Nelson, Anthony

Tapsell, Sir Peter

Neubert, Sir Michael

Taylor, Ian (Esher)

Newton, Rt Hon Tony

Taylor, Teddy (S'end E)

Nicholls, Patrick

Tebbit, Rt Hon Norman

Nicholson, David (Taunton)

Temple-Morris, Peter

Nicholson, Emma (Devon West)

Thompson, D. (Calder Valley)

Norris, Steve

Thompson, Patrick (Norwich N)

Onslow, Rt Hon Cranley

Thorne, Neil

Oppenheim, Phillip

Thornton, Malcolm

Page, Richard

Thurnham, Peter

Paice, James

Townend, John (Bridlington)

Patnick, Irvine

Townsend, Cyril D. (B'heath)

Patten, Rt Hon Chris (Bath)

Tracey, Richard

Patten, Rt Hon John

Tredinnick, David

Pawsey, James

Twinn, Dr Ian

Peacock, Mrs Elizabeth

Vaughan, Sir Gerard

Porter, Barry (Wirral S)

Viggers, Peter

Porter, David (Waveney)

Wakeham, Rt Hon John

Portillo, Michael

Waldegrave, Rt Hon William

Powell, William (Corby)

Walden, George

Price, Sir David

Walker, Bill (T'side North)

Rathbone, Tim

Waller, Gary

Redwood, John

Ward, John

Renton, Rt Hon Tim

Wardle, Charles (Bexhill)

Riddick, Graham

Warren, Kenneth

Ridley, Rt Hon Nicholas

Watts, John

Ridsdale, Sir Julian

Wells, Bowen

Rifkind, Rt Hon Malcolm

Wheeler, Sir John

Roberts, Sir Wyn (Conwy)

Whitney, Ray

Roe, Mrs Marion

Widdecombe, Ann

Rossi, Sir Hugh

Wilkinson, John

Rowe, Andrew

Wilshire, David

Rumbold, Rt Hon Mrs Angela

Winterton, Mrs Ann

Ryder, Rt Hon Richard

Winterton, Nicholas

Sayeed, Jonathan

Wolfson, Mark

Shaw, David (Dover)

Wood, Timothy

Shaw, Sir Giles (Pudsey)

Woodcock, Dr. Mike

Shaw, Sir Michael (Scarb')

Yeo, Tim

Shelton, Sir William

Young, Sir George (Acton)

Shephard, Mrs G. (Norfolk SW)

Younger, Rt Hon George

Shepherd, Colin (Hereford)

Shepherd, Richard (Aldridge)

Tellers for the Ayes:

Sims, Roger

Mr. John M. Taylor and

Skeet, Sir Trevor

Mr. Tom Sackville.

NOES

Abbott, Ms Diane

Blair, Tony

Adams, Mrs. Irene (Paisley, N.)

Blunkett, David

Alton, David

Boateng, Paul

Archer, Rt Hon Peter

Boyes, Roland

Armstrong, Hilary

Bradley, Keith

Ashton, Joe

Brown, Nicholas (Newcastle E)

Banks, Tony (Newham NW)

Brown, Ron (Edinburgh Leith)

Barnes, Harry (Derbyshire NE)

Bruce, Malcolm (Gordon)

Battle, John

Caborn, Richard

Beckett, Margaret

Callaghan, Jim

Beith, A. J.

Campbell, Menzies (Fife NE)

Bell, Stuart

Canavan, Dennis

Benn, Rt Hon Tony

Carlile, Alex (Mont'g)

Bennett, A. F. (D'nt'n & R'dish)

Clarke, Tom (Monklands W)

Benton, Joseph

Clelland, David

Bermingham, Gerald

Clwyd, Mrs Ann

Bidwell, Sydney

Cohen, Harry

971

Cook, Robin (Livingston)

Heal, Mrs Sylvia

Corbett, Robin

Henderson, Doug

Corbyn, Jeremy

Hinchliffe, David

Cousins, Jim

Hoey, Ms Kate (Vauxhall)

Cox, Tom

Home Robertson, John

Cryer, Bob

Howarth, George (Knowsley N)

Cunliffe, Lawrence

Ho wells, Geraint

Darling, Alistair

Howells, Dr. Kim (Pontypridd)

Davies, Ron (Caerphilly)

Hoyle, Doug

Davis, Terry (B'ham Hodge H'I)

Hughes, John (Coventry NE)

Dewar, Donald

Hughes, Robert (Aberdeen N)

Dixon, Don

Hughes, Roy (Newport E)

Dobson, Frank

Hughes, Simon (Southwark)

Doran, Frank

Illsley, Eric

Douglas, Dick

Ingram, Adam

Dunnachie, Jimmy

Janner, Greville

Dunwoody, Hon Mrs Gwyneth

Johnston, Sir Russell

Eastham, Ken

Jones, Barry (Alyn & Deeside)

Evans, John (St Helens N)

Jones, Martyn (Clwyd S W)

Ewing, Harry (Falkirk E)

Kaufman, Rt Hon Gerald

Ewing, Mrs Margaret (Moray)

Kennedy, Charles

Fatchett, Derek

Lambie, David

Faulds, Andrew

Leadbitter, Ted

Field, Frank (Birkenhead)

Lestor, Joan (Eccles)

Fields, Terry (L'pool B G'n)

Lewis, Terry

Flynn, Paul

Litherland, Robert

Foot, Rt Hon Michael

Livingstone, Ken

Foster, Derek

Lofthouse, Geoffrey

Foulkes, George

Loyden, Eddie

Fraser, John

McAllion, John

Fyfe, Maria

McCartney, Ian

Galloway, George

Macdonald, Calum A.

Garrett, John (Norwich South)

McFall, John

Gilbert, Rt Hon Dr John

McKay, Allen (Barnsley West)

Golding, Mrs Llin

McKelvey, William

Gordon, Mildred

McLeish, Henry

Gould, Bryan

Maclennan, Robert

Graham, Thomas

McMaster, Gordon

Grant, Bernie (Tottenham)

McNamara, Kevin

Griffiths, Nigel (Edinburgh S)

McWilliam, John

Grocott, Bruce

Madden, Max

Hardy, Peter

Mahon, Mrs Alice

Harman, Ms Harriet

Marek, Dr John

Haynes, Frank

Marshall, David (Shettleston)

972

Marshall, Jim (Leicester S)

Rooney, Terence

Martin, Michael J. (Springburn)

Ross, Ernie (Dundee W)

Martlew, Eric

Rowlands, Ted

Maxton, John

Salmond, Alex

Meacher, Michael

Shore, Rt Hon Peter

Meale, Alan

Short, Clare

Michie, Bill (Sheffield Heeley)

Sillars, Jim

Michie, Mrs Ray (Arg'l & Bute)

Skinner, Dennis

Mitchell, Austin (G't Grtmsby)

Smith, Andrew (Oxford E)

Moonie, Dr Lewis

Smith, C. (Isl'ton & F'bury)

Morgan, Rhodri

Snape, Peter

Morley, Elliot

Soley, Clive

Morris, Rt Hon J. (Aberavon)

Spearing, Nigel

Mowlam, Marjorie

Steinberg, Gerry

Mullin, Chris

Stott, Roger

Murphy, Paul

Strang, Gavin

Nellist, Dave

Straw, Jack

Oakes, Rt Hon Gordon

Taylor, Mrs Ann (Dewsbury)

O'Brien, William

Turner, Dennis

O'Hara, Edward

Vaz, Keith

O'Neill, Martin

Wallace, James

Parry, Robert

Walley, Joan

Patchett, Terry

Warden, Gareth (Gower)

Pendry, Tom

Wareing, Robert N.

Pike, Peter L.

Watson, Mike (Glasgow, C)

Powell, Ray (Ogmore)

Welsh, Andrew (Angus E)

Primarolo, Dawn

Williams, Rt Hon Alan

Quin, Ms Joyce

Williams, Alan W. (Carm'then)

Radice, Giles

Wilson, Brian

Randall, Stuart

Wise, Mrs Audrey

Rees, Rt Hon Merlyn

Worthington, Tony

Reid, Dr John

Wray, Jimmy

Richardson, Jo

Young, David (Bolton SE)

Robertson, George

Robinson, Geoffrey

Tellers for the Noes:

Rogers, Allan

Mr. Thomas McAvoy and

Rooker, Jeff

Mr. Jack Thompson.

Question accordingly agreed to.
Resolved,
That the Revenue Support Grant (Scotland) Order 1991, dated 28th January 1991, a copy of which was laid before this House on 30th January, be approved.

Water Metering (Isle of Wight)
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Boswell.]
11.57 pm
Mr. Barry Field: I thank you, Mr. Speaker, for granting me this debate on water metering. The Isle of Wight faces many challenges in a changing world. We have a corrugated, stainless steel-clad low energy hospital that has not yet opened, a highly controversial, waste-derived fuel plant, which looks as though it will be joined by an equally controversial pellet and coal-fired mini power station, and to date 48,000 domestic water meters.
I had the first Adjournment debate on water metering on 14 June 1989, and tonight is the culmination of our experience thus far, although the trial is to continue until 1993. The purpose of the debate is, I hope, to have some effect on national decisions on water metering, using the benefits of experience on the Isle of Wight, as well as encouraging Ministers to follow up and tidy up a few loose ends.
Mr. Ian Byatt, Director General of the Office of Water Services, visited the island in December last year, and the opportunity for the public and interested bodies to put their views to him on paying for water ends on 31 March this year. Mr. Byatt held his first public meeting on water charging on the island at Sandown, and I must put on record my personal thanks for his courtesy, kindness and refreshingly open approach to both myself and my constituents.
I hope to tackle in this debate first the national and then the local issues. Our experiences tell us that a higher standing charge, with a fixed block tariff, would be preferable to the very low standing charge and the rising block tariff that we have. That is because the Isle of Wight is a holiday destination with a massive seasonal fluctuation and a high proportion of second homes. The consumers involved are not paying an effective price for the infrastructure costs of water supply and sewage disposal, while those of us who are resident all the year round are effectively subsidising the absentee property owners. I hope that my hon. Friend the Minister will give me an assurance that the position will be adjusted as soon as comparative data on the existing tariff structure have served their purpose, remembering that the trial continues until 1993.
The Council for the Protection of Rural England has said that water meters are the right answer to the environmental problems created by ever-increasing consumption of water nationally. The Isle of Wight escaped a hosepipe ban last summer, although we have to import large quantities of water to meet the peak demand in summer.
In my original Adjournment debate, I mentioned that the Liberal Democrats had called for the island to be metered, but had attempted to distance themselves from that position once the project was under way. It is a sad commentary on their political creed that a minority of their number have since sought to create fear and panic in the local population by suggesting that water metering has led to a rise in the number of cases of gastro-enteritis—a claim immediately dismissed as irresponsible and ill founded by the island's public health consultant, a doctor.
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We have only to think of Italy, Spain and France, which have exceptionally hot summers and water meters, to realise how idiotic such claims are.
The waste water charges have led to some concern, particularly among keen gardeners who resent being charged for a percentage of the water consumed on the basis of its being returned to the sewer: in their case, it usually goes on their begonias. The position is difficult to explain logically; some thought will have to be given simplifying that aspect of metering nationally.
I appreciate, however, that in many areas the company supplying the water is not the one responsible for disposing of the sewage. The current freeze-up has highlighted the need yet again to reassure metered property owners that their bills will be adjusted to take account of leaks that are reported and repaired within a reasonable period. Lest anyone should suggest that the cost of water lost through frozen pipes should not be shared by the water company, let me point out that the water companies themselves have wasted many thousands of gallons through burst water mains during the severe weather, through no fault of their own.
The Parliamentary Under-Secretary of State for the Environment, my hon. Friend the Member for Wells (Mr. Heathcoat-Amory), wrote to me on 13 November following my meeting with my right hon. Friend the Member for Finchley (Mrs. Thatcher), who was then Prime Minister. I was concerned at the size of bills facing large familes with young children, and constituents with severe medical problems. I urged my right hon. Friend to consider a survey of all the meter trial areas to analyse the problem.
My hon. Friend the Under-Secretary wrote to me as follows:
"I agree that some further investigation is necessary and we are proposing to carry out a small study of all the trial areas to see if a problem exists. As a first step, the water companies involved in the trials will be asked to identify from their records those customers where the change to metering has resulted in substantial additional cost. Linking this information to data obtained during meter installation surveys about the type of property and the number of occupants should provide a basis for deciding if there are grounds for conducting a small social survey along the lines you suggest.
As you know, Ian Byatt has published a consultation paper on methods of charging for water. That exercise will also provide an opportunity to throw further light on this particular subject and we shall look to see what is said about it in the responses to the consultation paper."
Mr. David Evans: Is my hon. Friend aware that water metering trials were carried out in Welywn Hatfield in the Brookmans Park area and that, after tremendous representation to me, the local media, the Government and the local water authority, the meters—over 500—were found to be faulty? The huge bills, such as those my hon. Friend has mentioned in the Isle of Wight, were found to be far too high. The meters did not work and the whole scheme has been abandoned, much to the delight of the people of Brookmans Park. We are now waiting for the local water authority and the Government to come up with a much more satisfactory scheme that will not cause inconvenience to my constituents. I entirely agree with my hon. Friend the Member for Isle of Wight that it is a ludicrous and unnecessary factor of our life today to introduce water meters that do not work and are against the public interest.
Mr. Field: From his experience of just 500 meters, my hon. Friend might consider how busy I have been with 48,000 of them.
I hope that my hon. Friend the Under-Secretary will agree that it should not be necessary for me to keep troubling the Prime Minister about this. Since my hon. Friend the Member for Wells wrote to me, I have been to see the chairman of the Social Security Advisory Committee, who has drawn attention to the need for some additional adjustment to social security benefits to assist low-income families with their bills. I hope that my hon. Friend the Under-Secretary will tell me where his officials have got to with the study. I urge him to consider recommending a local adjustment to the housing benefit structure to meet the problem if the study shows that it is warranted.
There appears to be an on-going concern with the non-domestic metering of church property and village halls. Such properties used to receive water at a reduced rate, and the transfer to the full non-domestic tariff has been quite a problem for their already stretched finances. That needs serious consideration. I have been unable to obtain any conclusive help from Ministers or the water companies on this point. For my constituents and the various church authorities, it is still very much a live issue.
I should like to use this Adjournment debate to draw the attention of my hon. Friend the Under-Secretary to an anomaly in the law. There is no ability to reduce or waive the infrastructure charges. That is particularly unhelpful for first-time sewage schemes. There is no method available to require households to connect to new sewage schemes, yet those who do not are often the first people to complain about pollution of streams and rivers. That anomaly must be addressed, and I believe that I have the support of the National Rivers Authority in saying that. I make that point in the hope that my hon. Friend the Under-Secretary will take it up and ensure that his Department addresses it in due course when it is considering environmental legislation.
I can tell my hon. Friend the Under-Secretary of one domestic property that has since decided to disconnect from the first-time sewage scheme in order to save the charges. That is irresponsible. The ability not to connect, or even to disconnect, runs contrary to the excellent environmental programme in which the Government are engaged to clean up our beaches and estuaries. It is quite wrong that this should still be a voluntary matter, especially when the borough and district councils and the water company have invested so much in new sewage schemes.
Last week, Southern Water announced that it would not fit any more meters on the island, and that it is drawing the line at 48,000 out of a total of 53,000 homes. At the beginning of the trial, I had an avalanche of correspondence from constituents who did not want their property to be metered. Now I regularly receive letters urging me to obtain meters for my constituents.
I have two secretaries on the island, one with a metered property and the other with an unmetered property. The latter pays £125 a year for her water, based on a rateable value of £180. The former pays £108 for her metered water supply and her house had a rateable value of £240. Those figures show why an increasing number of my constituents want to know why they cannot have meters fitted.
I urge my hon. Friend to find a modest sum to enable the water company to offer meters to customers, allowing
976
an element of customer choice to the remaining 5,000 dwellings. I appreciate that these dwellings are largely the uneconomic properties and that it is uneconomical to meter subdivided flats in large buildings, but I hope that the Minister will agree that 5,000 homes are too many to be left unmetered. I realise that it would never be possible to cover 100 per cent. of the properties on the island, but given our strong island community spirit—we are all in the same boat—the number not yet fitted with meters should be significantly reduced. I believe that we need another 1,000 to 1,500 meters.
My only other plea tonight is that the review of the community charge and the abolition of rateable values should not impede the installation of water meters in the parts of the United Kingdom where water is often in short supply. This method of charging for water puts a precious resource in its proper perspective, and we must make progress with it for the sake of future generations of people and wildlife. I hope to hear that my hon. Friend the Minister for the Environment and Countryside will shortly accede to my request to visit the island to see the scheme for himself.
12.13 am
The Parliamentary Under-Secretary of State for the Environment (Mr. Tony Baldry): I congratulate my hon. Friend the Member for Isle of Wight (Mr. Field) on securing time for a further debate about water metering trials, which are being conducted throughout the whole of his constituency. He has made a number of points with care, and I shall do my best to respond to them in detail. If time prevents me from dealing with all of them, I shall write to him with more details.
This trial, the largest of the 12 metering trials taking place around the country, has been the focus of much attention both within and outside the water industry. My hon. Friend has spared no effort in pursuing a number of important issues that have arisen as a result of the trial with Ministers, senior officials and Southern Water, and he has been steadfast in the pursuit of his constituents' best interests.
As the House will be aware, the water industry has used rateable values as the basis of charging for its services for many years. That basis provides only a rough and ready link with consumption and, like the old system of domestic general rates, it has resulted in anomalies and unfairness, particularly for pensioners and other small households living in houses and flats with high rateable values.
With the abolition of domestic rates last year and the ban on the use of rateable values as a basis of charging for water and sewerage from the year 2000, there is a need for the water industry to move towards new methods of charging for its services. Metering, a flat rate charge per property and banding of property with a flat rate charge for each band are the main options being considered. The House will be aware that the debate on various charging options is being carried forward in a consultation paper that the Director General of Water Services issued last year.
Each water company must make its own choice of future charging method in the light of all the circumstances in its operating area. Although, with normal rainfall, we are not yet near the limit of supplies, even in dry areas, it is an obvious fact that the supply of water is finite. One of

977
the most effective ways of reinforcing the prudent use of water, by discouraging indiscriminate use and waste, is to relate charges to the amount of water used.
I believe that metering is potentially the fairest option, as it extends the normal principle that customers pay for what they use. It is, of course, the method used in relation to other utilities, such as gas and electrictity. My hon. Friend will be aware that a recent survey by the Consumers Association of its members on the Isle of Wight confirms my belief; 66 per cent. or so of those responding expressed a preference for water charges on the basis of a metered supply. My hon. Friend made it clear that some of those on the island who are still unmetered see the benefit of having meters fixed.
The number of domestic properties that have a metered water supply is growing all the time. In addition to the 61,000 properties in the metering trials, many households have opted to have a meter installed on a voluntary basis, and many water companies now require new properties to be fitted with a meter as a condition of connecting a water supply.
The metering trials were set up in 1988 to provide information on the costs and problems of implementing a general system of metering and to determine the impact of charging by volume on consumption. The main aim of the Isle of Wight trial is to establish the practicality and costs of metering on a large scale. It is also designed to investigate the advantages and disadvantages of internal and external metering. It is the only large-scale trial in the programme, involving around 52,000 properties. The installation phase is almost complete, and about 94 per cent. of the properties on the island have been metered.
It is, of course, inevitable that a fundamental change in the basis of charging for water, from rateable values to charges based on the volume of water used, means a shift in the incidence of payment between households. My hon. Friend will be aware that, in the small-scale trials, about two thirds of customers on average are paying the same as, or less than, they would under the rateable value system of charging. Similar information is not yet available from the Isle of Wight because not all customers have been charged on the basis of metered use for a full year, and those that have may not be a representative sample.
Nevertheless, an analysis of some 7,750 annual metered charges for 1989–90 on the island has shown that only about 10 per cent. are paying £50 or more per year more than they would have done under the rateable value basis of charging. This compares with about 11 per cent. of customers in the small scale trial areas. I accept that the Isle of Wight sample may not be representative of the whole, but at this stage I have no reason to believe that, in general, the effect of metering on the Isle of Wight is any different from that in the other trial areas.
My hon. Friend is aware that the charges scheme for the Isle of Wight provided a number of safeguards designed to protect the interests of customers. These included a limit on the amount by which charges can be increased, and provision for the tariff to be reduced if income from the trial exceeds what would have been received from charges based on rateable values for the island as a whole, provided that the increased income did not arise from increased consumption caused by abnormally dry weather conditions.
978
I know that the question of income from the trial has raised particular concern. Monitoring this safeguard poses some difficulty, because not all properties were metered during the first year of the trial, and during this period customers would have been billed variously on rateable value, on part rateable value and part metered consumption, or wholly on metered consumption. This has made it difficult for a proper comparison to be made. In addition, certain information about a water company's operations is commercially sensitive, and it would be improper to make it public.
However, my hon. Friend will be aware that, in order to achieve the same level of income as would have been received under the rateable value charging basis, the trial tariff was determined on the basis of the average consumption per household on the island. He will also be aware that the average consumption is running well below the level assumed when the original tariff was agreed. There is no reason, therefore, to doubt the assurance that my Department has received from Southern Water that its income has not exceeded the level that would have been recovered from rateable value-based charges.
I am aware of speculation that Southern Water might increase the charges to compensate for any loss of income. There is no provision in the charges scheme for an increase in the tariff on that account. A proposal to do so would require an amendment to the charges scheme, which can be made only with the approval of my right hon. Friend the Secretary of State, following consultation with all customers. I understand that the proposed increase in the trial tariff for 1991–92 falls within the limits on increases provided for in the present charges scheme, and that Southern Water is not proposing to seek approval for a further increase.
My hon. Friend has expressed concern over the effect of the rising block tariff on those people who have a need to use large amounts of water. I should explain to the House that the particular tariff used in the Isle of Wight trial is designed to encourage the use of water for essential purposes but, at the same time, to limit non-essential usage. All customers pay a standing charge. The first 90 cu m of water used each year is charged at a preferential rate, and all usage in excess of this amount is charged at a higher rate.
The amount of water charged at the preferential rate was calculated to cover the essential water requirements for a household of three people. This was to the benefit of most customers, since the average household size on the island is less than three people. I accept, however, that this tariff places a relatively higher burden on large families and those who have a need to use larger amounts of water than normal because of a disability or medical condition.
Concerns about the rising block tariff were raised at the public meeting that my hon. Friend arranged in conjunction with Southern Water last December. I understand that Southern Water has taken note of what was said at that meeting and is prepared to adjust the tariff so that the allowable increase in charges for 1991–92 will not bear so heavily on large users. It is proposing to increase only the standing charge and the preferential rate, leaving the higher rate at its present level.
The effect of this is that, at the average level of consumption on the island, the overall increase in water and sewerage charges will be 14·7 per cent.—which is in line with the average increase in regional charges generally. The increase for larger users will be less. For example, at

979
200 cu m, the increase will be only 10·4 per cent. It is inevitable, of course, that low users will pay proportionately more. Households using 80 cu m, for example, will face an increase of 16·7 per cent. But even at this level, the increase works out, on average, at less than 5p per day, and, in general, it is the smaller households that have gained most benefit from the change to metered charging.
I am sure that my hon. Friend will welcome this move towards reducing the differential between the preferential and higher-rate charges. I appreciate, however, that it does not fully allay his concern about the level of charges faced by large low-income families and those people who have a need to use larger than normal amounts of water because of a disability or medical conditon. He is aware that my Department has collected information from the trial areas about the number of households facing substantial increases in bills as a result of metering together with information on the number of people in those households, and whether they are in arrears with payment, in an effort to gauge the possible extent of the problem and to see whether a small social survey was justified.
I have to say that there have been considerable difficulties in making any meaningful assessment of the information from the Isle of Wight trial. That is mainly due to the fact that few customers provided Southern Water with information on the size of household when the properties were surveyed prior to installation of meters. However, based on such information as is available from a relatively small sample, it has been estimated that about 1·5 per cent. of households on the island consist of families with three or more children who are paying £50 or more than they would have done under the old system of charges based on rateable value. It has, however, not been possible to put a reliable figure on the number of households in arrears with payment.
980
My hon. Friend referred to a commitment given by my hon. Friend the Member for Lewisham, East (Mr. Moynihan), when he was Under-Secretary for the Environment, to pursue the question of including increases in water charges in the uprating of income support. I can assure him that this matter has been discussed extensively between my Department and the Department of Social Security. I am aware that the Social Security Advisory Committee has recommended an increase in income support rates by an amount greater than would otherwise be the case in recognition of the fact that water charges are increasing faster than the rate of inflation. I am sympathetic to that recommendation, and we are pursuing it with the Department of Social Security. However, my hon. Friend will of course appreciate that that is one of many demands on public expenditure and will have to be considered alongside those demands.
My hon. Friend raised a number of other points about which I promise to write to him in detail. Those points ranged from the position concerning church halls to hygiene. However, I hope that he will have been reassured by my comments, by the fact that we continue to give attention to his concerns and that my hon. Friend the Minister for the Environment and Countryside has accepted an invitation to visit the island on 30 April.
I congratulate my hon. Friend on bringing the metering trials once more to the attention of the House. As he has said, they will continue well into 1993. A great deal of information has already been collected and published about the cost and problems of installing meters. We are anxious as far as possible to resolve any outstanding difficulties that may still remain.
Question put and agreed to.
Adjourned accordingly at twenty-seven minutes past Twelve o'clock.