HC Deb 28 November 1991 vol 199 cc1059-60
8. Mr. Bill Michie

To ask the Chancellor of the Exchequer what is the latest International Monetary Fund forecast for growth in United Kingdom business fixed investment in 1991.

Mr. Mellor

A fall of 12 per cent. from the historically high levels reached in 1989 and 1990 is forecast. In 1991 business investment will still be 37 per cent. higher in real terms than in 1979.

Mr. Michie

Is the Chief Secretary aware of the IMF prediction of a further 2 per cent. cut in investment next year? Is he unaware of the ever-deepening industrial crisis if such cuts were to take place next year? Is not it time that he built the economy in a constructive way rather than just waffling about it?

Mr. Mellor

As Gavyn Davies, who may be better known to some Opposition Members than he is to us, has said, the interesting thing is at how high a proportion of GDP investment has settled, notwithstanding the recession. It is 14.1 per cent. of GDP for the second half of 1991—that is a high level. If Labour Members wish regularly to employ international statistics on investment, they should bear in mind the fact that during the 1970s the average annual growth rate in business investment in the United Kingdom was 2.3 per cent., against an average of 3.1 per cent. for the Group of Seven. In the 1980s the average annual growth rate in business investment was 6.7 per cent. as against a Group of Seven average of 4.6 per cent. That is quite a transformation.

Mr. Batiste

Is not it clear that the excellent record of business investment in the United Kingdom reflects the fact that business men recognise the Government's commitment to containing inflation in the long term? After all, it is the cost of capital which determines business investment. Would not that be threatened only by the advent of a Labour Government, with their profligate spending plans?

Mr. Mellor

Yes. It also reflects the bold decision taken by my right hon. Friend the Member for Blaby (Mr. Lawson) to cut corporation tax and liberate a range of resources for investments which companies would choose for themselves rather than being pointed in a certain direction by the distorting effect of allowances. In the middle to late 1980s that led not only to an unprecedented increase in investment in terms of value, but to a sharp increase in the quality of that investment. That is evidenced by the unprecedented increase in the productivity of all manner of industries that has taken place since.

Mr. Robert Sheldon

Will the right hon. and learned Gentleman have a serious look at capital allowances, especially for plant and machinery, which should not have only a 25 per cent. capital allowance? That is not an incentive; it is a penal rate. Will the right hon. and learned Gentleman consult the Confederation of British Industry, which is coming round to the view that a 40 per cent. rate—which is not enough—would be appropriate?

Mr. Mellor

The real point that one needs to note is the increase in capital investment in plant and machinery under this Government—[Interruption.] It is no good hon. Members shaking their heads. Since I gave the figures to the House last time, they have not been contradicted. I will give them again and, if I am wrong, I shall have to be put right next week. Gross investment in plant and machinery in the last year in which the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) had stewardship of these matters, at constant 1985 prices, was just over £17 billion. In 1990, it was over £32 billion. That is comparing like with like and is a sign of the real difference in investment under this Government.

Mr. Ian Taylor

Does my right hon. and learned Friend remember that under the previous Labour Government, the International Monetary Fund came to the rescue? Is not a warning signal needed for Labour Front-Bench Members over the current draft proposal on economic and monetary union, because it contains a no bail-out clause? This country had better not be under a Labour Government.

Mr. Mellor

That is one of the subtleties of the European negotiations that should impinge on the consciousness of Opposition Members.

Mr. John Smith

As the Chief Secretary takes refuge in international comparisons, especially with the other countries of the Group of Seven, will he explain why the United Kingdom is not only at the bottom of the investment league of the G7, but at the bottom of the investment league of leading European nations?

Mr. Mellor

That is a very short-term statistic. It is clear that over the 1980s, our investment record has run well ahead of that of the rest of the Group of Seven. We shall return to that. The right hon. and learned Gentleman and I can swap statistics quite soon and I look forward to it.