HC Deb 26 February 1992 vol 204 cc972-1066
Mr. Speaker

I have selected the amendment in the name of the Leader of the Opposition. Although I do not propose to put a 10-minute limit on speeches, I hope that hon. Members who are called early in the debate will set a good example by speaking for not more than 10 minutes; then all hon. Members who wish to participate will be called.

3.53 pm
The Chief Secretary to the Treasury (Mr. David Mellor)

I beg to move, That this House congratulates the Government on its prudent economic policies, which have led to a substantial reduction in inflation; notes that the level of inflation in the United Kingdom has been half that under the previous Government, is now below the average for the European Community and close to the level in Germany; notes further that low inflation is essential to a sustained recovery in output and employment; and draws attention to the policies of Her Majesty's Opposition, which would inevitably lead to higher inflation, higher interest rates and higher unemployment. If anyone wants to know what a Labour Government would be like, the last 10 minutes were an entertaining trailer. It should have come with a Government health warning.

The control of inflation is the cornerstone of Government economic policy. It is not some dogmatic genuflection to an empty shrine, but absolutely central to the prosperity of our country. What is at stake when one debates inflation is fundamental. I cannot improve on the formulation of Sir Brian Corby, the president of the Confederation of British Industry in a speech towards the end of last year. Speaking about what is at stake, he said: We have a genuine prospect of a stable economic climate based on low inflation in the 1990s. We should not be complacent about it. Our success will hinge on squeezing out the pervasive inflationary psychology at all levels of the economy and society. In advocating the control of inflation, one is advocating a priority not for Government but for business, and a priority to which all business organisations subscribe. It is a sensible priority for the individual and for people on fixed incomes whose savings were ravaged by inflation in the 1970s. It is a priority for every family in the country, as one statistic drawn from the 1970s can prove. During the lifetime of the last Labour Government, money wages doubled, but the real take-home pay of the average family did not increase at all as a result of the pernicious combination of high inflation and high taxation. There is no reason to think that the combination would be any different under a future Labour Government.

Mr. Frank Haynes (Ashfield)

What about unemployment?

Mr. Speaker

Order. I am sure that the hon. Member for Ashfield (Mr. Haynes) will agree that Whips should give a lead in good behaviour.

Mr. Mellor

It is rather an honour to be barracked by the oldest hooligan in the business.

Mr. Dave Nellist (Coventry, South-East)

One of the classic definitions of the cause of inflation is that it occurs when too much money is chasing too few goods. Does the right hon. and learned Gentleman recognise that the danger for the 1990s is that the fall in production, especially in manufacturing, and the fall of almost 35 per cent. in two successive years in fixed capital formation, could mean that inflation could return, not because people are being paid too much but because his Government and their policies are destroying the productive side of the economy?

Mr. Mellor

Far from it. The very people who manufacture implore the Government and would implore a Labour Government, if there were to be one, to create a stable price environment in which they can compete. The record shows a 5 per cent. increase in exports to the European Community over the past 12 months. Even in 1991, a year of recession, our share of world trade in manufactures increased for the third year running. That shows what manufacturers can do in a stable environment.

I stress again that the argument for the control of inflation is fundamental to all that organised British business says when it speaks and makes representations to the Government. The cost to business of getting it wrong is enormous. In a speech a few months ago, Sir John Banham said: We must redouble our efforts to squeeze inflation out of our economy, which costs business some £5 billion for each percentage point every year. That is the cost to business of getting the decisions wrong.

It is a sign of success, a sign that we have the climate for recovery in this country, that inflation has fallen sharply to stand this month at 4.1 per cent., which is within a tenth of a percentage point of German rates. I am always keen to encourage the active participation of Opposition Members. Can any of them say at what time during the term of the last Labour Government inflation was within a tenth of a percentage point of German rates?

There can be no answer, because, in 1975, inflation in Britain was 24.2 per cent. and in Germany it was 5.9 per cent. In 1976, inflation in Britain was 16.5 per cent. and in Germany it was .3 per cent. The figures for 1977 are 15.8 per cent. in Britain and 3.8 per cent. in Germany. Even after the beneficial impact of the International Monetary Fund, the figures in 1978 were 8.3 per cent. in Britain and 2.6 per cent. in Germany.

Today this country has a competitive climate that did not exist and never looked like existing when Labour was in office. Our inflation rate is now almost 1 per cent. lbelow the European Community average. Producer prices on the best measure— that is, manufacturing output excluding food, drink and tobacco—are 3.1 per cent., the lowest for a quarter of a century. Indeed, the three-month on three-month rate of producer prices is down to an annual rate of 2.2 per cent.

In other words, an era of stable prices against which British industry can perform and out-perform the best in Europe and in the world is available to us. We have a low-strike economy in which people can have sensible wage increases and which can deliver low inflation and a real increase in living standards—rather than funny money chasing massively inflated prices, as happened in the 1970s. That is the difference between the record of this Government and the alternative offered by the Labour party.

Mr. David Winnick (Walsall, North)

If we are in the competitive state that the right hon. and learned Gentleman claims, why is it that Britain is now in the second major recession since the Government took office in 1979? Why have tens of thousands of small businesses in the west midlands and elsewhere collapsed in recent times? Why is there such an economic climate that the Government, understandably, have been reluctant to go to the country? When will the Government tell us when unemployment will fall—or will we have to wait until 9 April to elect a Government who will be determined to restore full employment?

Mr. Mellor

In what appears to be the hon. Gentleman's new conversion to the market economy, he must know that there are cycles. He also knows that the key question is who best provides the right climate for recovery. He knows that there are now many more businesses in Britain than there were in 1979. Before the hon. Gentleman, in his inimitable way, reduces this to the lowest common denominator of debate, can he tell us what he would be saying if he were a member of Congress?

Mr. Giles Radice (Durham, North)


Mr. Mellor

I note that the hon. Gentleman has been joined by the public school tendency. It is a pernicious combination that is beginning to make me fearful. What would an economic debate be without an intervention from the hon. Gentleman? It is Don Quixote without Sancho Panza.

Mr. Radice

If the battle against inflation is so important, why have we had to win it twice?

Mr. Mellor

If I were the hon. Gentleman's parent, I would be terribly worried about having spent all that money on his education simply to have him raise points like that. I never had that much spent on my education, but I can answer the hon. Gentleman.

Mr. Radice

Answer, then.

Mr. Mellor

I am about to do so.

The average level of inflation in Britain in the 1980s was 6.5 per cent., and in the 1970s it was 13.7 per cent. The increase in inflation to a peak of 10 per cent. two years ago was nothing compared with the record of 25 per cent. under the previous Labour Government, when the hon. Gentleman complacently sat on his bottom and supported them through thick and thin. If he wants to know about records, I am happy to compare them. To quote the 1970s actually flatters the Labour party, because its record of 13.7 per cent. degrades to 15.5 per cent. if only the Labour years are counted.

Let us return to the example of Germany—traditionally the strongest economy in Europe. In the 1970s, the average differential between our inflation rate and Germany's was 8.6 per cent. Under this Government, that has been cut to within one tenth of a percentage point. In the 1970s, our inflation rate was more than 4 percentage points worse that that of France, 3 percentage points worse than the European Community average and only 0.3 percentage points better than that of Italy. In the 1980s, we were 0.2 percentage points better than France, 0.3 percentage points better than the European average and 3.3 percentage points better than Italy.

If we are an exporting nation—surely we can agree with Opposition Members on that at least—it must be acknowledged that the climate for exports is enormously improved as a result of that reduction in inflation. The buoyancy of British exports to the European Community, which have increased sharply in volume and value even in the last three years, is a classic example of the improvements that have occurred.

Mr. A. J. Beith (Berwick-upon-Tweed)

Does not the Chief Secretary acknowledge that the greatest reduction in inflation has taken place at a time of deep recession? If recovery arrives, how does he expect that inflation will be controlled? Does the right hon. and learned Gentleman hope that, by that time, the United Kingdom will be a member of a single currency union—recovery may well take that long—and that it will then be controlled by an independent European central bank?

Mr. Mellor

There is no reason to believe that the policies that have brought a reduction in inflation to levels that could not have been countenanced in the 1970s will not continue to provide a stable basis for prices ahead. That is not just the Government's case but what others say. Professor MacWilliams of the Confederation of British Industry said in his new year message: An end to uncertainty about economic policy would come if the election gives a mandate for a free-market, low-inflation economy, which would help boost business and financial confidence and unblock delayed investment decisions in the second half of 1992. Clearly, though, a change in Government would prolong the uncertainty. Professor MacWilliams said also: Perhaps the best news for 1992 is the prospect of low inflation, which may hit 3 per cent. and stay close to that level. Pay settlements down to half the level of a year ago and productivity growth rising to 6 per cent. make this sustainable. That is the climate for recovery and low inflation. I do not know that that is on offer from either of the main Opposition parties.

Mr. Tim Smith (Beaconsfield)

Will my right hon. and learned Friend confirm that we must go back to the Macmillan Government of the 1950s to find a full year in which Britain last had stable prices? Given the good news about inflation that my right hon. and learned Friend gave the House this afternoon, does he agree that, if we stick within the disciplines of the exchange rate mechanism, stable prices could once again be within sight?

Mr. Mellor

I am sure that stable prices are more in sight now than they have been for a long time—and they will remain so, if there is adherence to the policies that brought them about.

The reaction of Labour Members has been to snipe and to sneer or to hold conversations among themselves when inflation is debated. For instance, I could not help tuning in the other evening, on 13 February, to "The World Tonight", on which it was put to the hon. Member for Dunfermline, East (Mr. Brown) that inflation had sharply improved. He replied: That's not true. Inflation has risen in the last two months, and it is something that this Government has failed to deal with adequately. The following day, inflation fell from 4.5 per cent. to 4.1 per cent.

It is astonishing that the hon. Member for Dunfermline, East and Labour as a whole believe that there is a point to be made about marginal variations in inflation of well under one percentage point, against Labour's record. That is a desperate attempt to discredit our achievements. They will be telling us next that low inflation poses a wicked and evil threat to those on index-linked pensions.

Mr. Paul Flynn (Newport, West)

We are always keen to give the Government credit for what they have done. Did the Chief Secretary see Sir Alan Walters's appearance on television about the same time? He was asked to give his reasons for the recession and to apportion blame. He said that it was due 30 per cent. to the world recession and 70 per cent. to the Government's irresponsible mismanagement of the economy. Does the right hon. and learned Gentleman agree?

Mr. Mellor

Is Professor Walters now an adviser to the Labour party? To what other views of his does Labour adhere? I will not join the ancient arguments between Professor Walters and one or two others with whom he disagrees. Chancellor Kohl, after three sucessive quarters in which Germany's gross domestic product has fallen, does not think that the recession was made in Downing street—and it was not much use to President Bush to suggest such a thing in the New Hampshire primary. We ought to be having a sensible debate about how Britain should move towards recovery.

It will not have escaped the hon. Gentleman's notice that the London business school recently forecast a growth of nearly 2 per cent. in the British economy this year, and I suspect that other forecasts will point clearly to a recovery this year. The question that Labour must answer, rather than making silly debating points, is what Labour policy would do to inhibit such a recovery from taking place.

Mr. Jimmy Wray (Glasgow, Provan)

Will the Chief Secretary give way?

Mr. Mellor

No, I am going to push on.

I am glad that the Leader of the Opposition is with us. Although I do not suppose that a greater torrent of words has ever been unleashed in the history of human civilisation than by the right hon. Gentleman, it is not easy to find much that he has had to say on the subject of inflation. I have had his conference speeches from 1983 analysed—I could not bear to read them all myself. Is it not interesting that, while everyone agrees that the fundamental issue for the British economy is inflation—[Interruption.] Labour Members become worried as soon as the Leader of the Opposition is mentioned.

Mr. Bruce Grocott (The Wrekin)

On a point of order, Mr. Speaker. I am sure that you agree that it would be a gross constitutional impropriety if the researches mentioned by the Chief Secretary were carried out by civil servants and paid for by the taxpayer. Will the Chief Secretary take this opportunity of confirming that all the studies were carried out by Conservative central office—paid for, presumably, by business men overseas, and not by the taxpayer?

Mr. Speaker

It is not a matter for me, but I did not hear the Chief Secretary say that.

Mr. Mellor

I assure the hon. Gentleman that that is the case. I trust that the use of photocopying facilities in the House by the Labour party is equally subject to his scrutiny, given that he is so censorious.

Let us come to the point. It is beyond denial that the most fundamentally important factor for the success of British industry is low inflation; yet, in his party conference speeches between 1983 and 1988, the Leader of the Opposition did not mention the word "inflation" once. Between 1989 and 1991, he mentioned it only in the context of cheap debating points about the Government's record. Nary a word—[Interruption.] I am glad that the Leader of the Opposition is in such a good mood. Perhaps he is in a good enough mood to remember the occasion when, in answer to a question about how Labour would tackle inflation, he told The Evening Standard—it was published on 26 May 1989— To cut a long story short, we don't know. I am sure that an offence against the Trade Descriptions Act has been committed here. When did the right hon. Gentleman ever cut a long story short?

The information that Labour has no policy on inflation, however, did not constitute a breach of the Official Secrets Act; that has been well known for some time. Lest Labour Members consider this a subject for amusement, and merely a Tory point, let me add that Labour's supporters have been equally nervous about its inability to come up with a sensible and comprehensive policy on inflation.

What about Mr. Ian Aitken, as Labour-inclined a journalist as can be found in this place? Everyone has heard of him. We usually hear hon. Members ask, "Who?" at this point, but no one has done so on this occasion, so I must be talking about someone who is well known to all Opposition Members. In December, Mr. Aitken referred to a comprehensive economic policy, capable of answering one very simple question—'what would you do about inflation?' There is, in short, a void at the heart of Labour's economic policy". What is the answer to that question—posed 15 months ago in The Guardian, which is read by most right hon. and hon. Members opposite?

When is the answer going to come? Does the Labour party seriously think that it will be able to get through the election without providing an answer? The Labour party has had years to think about it. There is going to be a frantic scramble to produce a document before the election. That is not in keeping with the Labour party's reputation as a solid group of citizens who are only too ready to show the public how much they have changed and how ready they are for the burdens of office.

It is perfectly obvious, when one looks at what Labour has said about inflation, that it does not understand it in the slightest degree. The Labour party thinks that the battle against inflation has been the cause of the nation's problems rather than the sine qua non of resolving them. It has opposed every measure that has brought inflation down, and it shows genuine resentment at the success of our policy to do so. It is apparent that the Leader of the Opposition was only too happy, in his days as a wild opponent of what the Government were doing, to stoke up rather than reverse the inflation of the 1970s. He was a particularly wild opponent of the International Monetary Fund and of the measures that were taken to bring control to the British economy.

Mr. Grocott

Will the Minister give way?

Mr. Mellor

No. The hon. Gentleman has blown it with a phoney point of order. I cannot believe that his IQ has increased markedly in the last 10 minutes.

Mr. Grocott

Will the right hon. and learned Member give way?

Mr. Mellor

No. I have already said that I do not intend to give way to the hon. Gentleman under any circumstances whatsoever.

Mr. Grocott


Mr. Speaker

Order. Does the Minister intend to give way?

Mr. Mellor


Mr. Speaker

If the Minister does not give way, the hon. Member for The Wrekin (Mr. Grocott) must resume his seat.

Mr. Mellor

The hon. Gentleman had his chance to exercise his larynx and he abused it, so as far as I am concerned that is it.

Mr. Haynes

Will the Minister give way? Mr. Mellor: Very well.

Mr. Haynes

Will the Minister now compare the unemployment figures of the 1990s with those of the 1970s and 1980s? Will he also compare the crime figures of the 1990s with those of the 1970s and 1980s? He was in the Home Office when they were rocketing. The right hon. and learned Gentleman made particular reference to inflation and to the comparisons that could be drawn. How about unemployment and crime that I am now asking him to compare?

Mr. Mellor


Mr. Haynes

Wait a minute; I have not finished yet. The Minister will be aware that I shall be leaving this Chamber —[HON. MEMBERS: "Oh!"]—to go upstairs to a Committee to do some work there. I am glad that the Minister has given way to me, but instead of me walking out he will be kicked out.

Mr. Mellor

I do not sense that Opposition Front-Bench Members think that the Labour party is going to make a gain in Putney. It has not done very well there for 13 years.

Mr. Grocott


Mr. Speaker


Mr. Grocott

The Minister is being selective in giving way.

Mr. Speaker

Order. The Minister may have been selective but he does not intend to give way. Let us get on quietly.

Mr. Mellor

I intend to deal with the point made by the hon. Member for Ashfield (Mr. Haynes).

Mr. Haynes

Two points.

Mr. Mellor

All right, two points. The first one is that, under the last Labour Government, unemployment doubled. [Laughter.] Oh, yes, it did, and it was not a laughing matter. The other point is that the only sensible comparisons are contemporary experience in other countries. Germany has the highest unemployment rate since the Weimar republic. Yesterday, General Motors declared 74,000 redundancies in the United States, and unemployment in France has consistently been higher than unemployment in the United Kingdom during the last five years.

Mr. Haynes

What about the crime figures? Will the Minister say something about them?

Mr. Mellor

No. I have left the Home Office, so I do not intend to deal with the crime figures—not that there is not an answer.

It is wrong to lay all the blame for Labour's inability to mount a coherent policy on inflation on the Leader of the Opposition. That is, after all, why he has a shadow Chancellor. If one looks back at the uncomfortable week—

Mr. John Smith (Monklands, East)

Will the Minister give way?

Mr. Mellor

If the right hon. and learned Gentleman can contain himself, I am about to come to him. [Interruption.] The Chancellor is working on the Budget. He has got something substantial to do, as one would expect. The privilege of listening to me is afforded to the right hon. and learned Gentleman. If he did so, I would sit down much more quickly. He did not have a very good week last week. We learned that some of the natives are getting restless with his supposed moderation, which is not delivering the goods. One minute he is the monarch of the glens; the next some of his colleagues are itching for Scottish devolution so that he can become an immigration officer on one of the less salubrious parts of Hadrian's wall.

The surprising thing is not that the right hon. and learned Gentleman was criticised last week, but how he has escaped criticism for so long, when one considers how long the Labour party has had to come to terms with inflation and how persistently difficult, irresponsible and wrong the right hon. and learned Gentleman has been about the issue. For instance, he always advocates taking the easy way out, the 1 per cent. reduction in interest rates whenever the subject comes up, or investment and training as the answer to everything.

It is what one might call the policy of the parrot house—"One per cent. off, pretty polly, pretty polly"; or, "Investment and training, quack quack, quack quack." Where lies the substance behind the solutions that the right hon. and learned Gentleman suggests? When will we have from the Opposition a coherent policy on inflation? [Interruption.] I am under the illusion that I am in the Cabinet; certainly I have a strong conviction that Opposition Members will not be.

Mr. Grocott


Mr. Mellor

I am fed up with the hon. Gentleman. I am not giving way to him, come hell or high water. I have already made that clear.

Mr. Grocott


Mr. Mellor

He has had his chance, and it is becoming disruptive.

Mr. Grocott


Mr. Mellor

The hon. Gentleman made a bogus point of order and he is now trying to disrupt my speech. I have told him that I am not giving way. If he wishes to try to catch your eye later, Mr. Deputy Speaker, he may do so.

Sir Ian Stewart (Hertfordshire, North)

When my right hon. and learned Friend was suggesting that the right hon. and learned Member for Monklands, East (Mr. Smith), the shadow Chancellor, had had a bad week last week, had he noticed that the right hon. and learned Gentleman has not even been allowed to sign the Opposition amendment?

Mr. Mellor

In the Kremlin, that was usually a bad sign. I do not know what the position is in the Labour party. Perhaps we shall be told. Watch this space, literally and metaphorically.

Mr. Wray


Mr. Mellor

No, I am pushing on. However, I note the hon. Gentleman's application for the right hon. and learned Gentleman's job.

In 1987–88, when, as we now know, interest rates were almost certainly too low, both the Leader of the Opposition and the right hon. and learned Member for Monklands, East were calling in the most intemperate terms for interest rates to be further reduced. The fact is that the Labour party subscribed to a range of policies directly designed to put inflation up.

Let us take its minimum wage policy. It is guaranteed to put up inflation and costs. The other day, the Daily Express did a survey of 30 companies, only two of which thought that they could cope with the minimum wage without it sharply affecting their business, costs and prices. There is a problem with the Opposition. They become boring and predictable. I thought to myself that the very mention of the Daily Express would have the Opposition cackling and falling about.

The most prominent company mentioned in the Daily Express survey was Grand Metropolitan plc, a reputable, substantial British company, employing thousands and thousands of people, many of them constituents of Opposition Members. So I got in touch with Grand Met to see whether it had been traduced by the Daily Express. On only one example of its activities, the managed pub business, Grand Met has costed the combined impact of the minimum wage and atypical workers' directives at £15 million a year.

That is the reality of the impact of the minimum wage. [Interruption.] Ah, we have the derisive laugh now. One can always tell when Labour is getting desperate. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) starts laughing unconvincingly. It is not very funny. I dare say that some of those pubs are in his constituency, and that some of his constituents drink in them. They will find the price of their beer going up as a result of the Labour party's nonsense.

Mr. Grocott

The right hon. Member for Hertfordshire, North (Sir I. Stewart) was concerned about who signed the amendment in the absence of my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). Is it in order for the Chief Secretary to speak in support of the Government motion when he has not signed it?

Mr. Deputy Speaker (Sir Paul Dean)

If it were not in order, he would not have been called.

Mr. Mellor

I am still here, as active as I am capable of being.

The debate needs to be about whether the Labour party will be capable of sustaining stable prices within the United Kingdom economy, which we know to be a fundamental basis for the economic and commercial revival of Britain in the 1990s. We know that it cannot do so. We know that the Labour party's interest rate policy is confined to saying, "One per cent. off."

I hope that I can have the attention of the right hon. and learned Member for Monklands, East, at least for the next bit of my speech. If he were ever to achieve office, he would have to be preoccupied with this, and it might he helpful if he were aware of it now. The Labour party is the party of devaluation. The currency went down by 4 per cent. for every year of the last Labour Government. The right hon. and learned Gentleman has been alert to the need to make it clear that that would not happen under a Labour Government. He says, "We would not devalue." There is also his passionate attachment to the exchange rate mechanism, a policy which some of his hon. Friends find chafes a bit. Immediately, there is the prospect of trouble from Labour Back Benchers. During the debate on the economy last week, there were eight speakers from the Labour Back Benches. Four of them advocated devaluation or are exponents of it.

Unlike some of his hon. Friends, I am prepared to accept that the right hon. and learned Member for Monklands, East would not want to devalue the currency. So what premium would a Labour Government be prepared to pay to prove to the international markets that they would not devalue? [Interruption.] Despite all his Winchester erudition, the hon. Member for Durham, North (Mr. Radice) has missed a fundamental point. We have nothing to prove. Every other country in the ERM had to put up its interest rates over Christmas in the wake of an increase in German rates. We were the only country that did not have to do so.

If the hon. Member for Durham, North doubts that I am making a serious point, perhaps he will believe some of his old school chums from some of the firms in the City. Nature abhors a vacuum, so, because the Labour party will not tell us what premium it would be prepared to pay in order to show that it would defend the value of the currency, the City has been doing the work for it. I shall read out the list that we have obtained.

The DKB bank said that interest rates would be 2 per cent. higher, Nomura said that they would be 2 per cent. higher, Credit Lyonnais said that they could be up to 4 per cent. higher, Kleinwort Benson said 2 per cent. to 4 per cent. higher, the London business school said up to 3 per cent. higher, James Capel said 1 per cent. higher, UBS Phillips and Drew and Midland Montagu said that they would go up.

The Leader of the Opposition knows well Mr. Gavyn Davies of Goldman Sachs. I think that his wife is still employed by the Leader of the Opposition, and he was an adviser. Yet Goldman Sachs says that interest rates would go up. The Confederation of British Industry said that interest rates would go up, BZW said that they would be 1 per cent. higher, London Economics says that they would be 2.5 per cent. higher and the Halifax says that they would go up. That is the reality facing the British people, but the Labour party will not admit it. The price of a Labour Government would be an immediate hike in interest rates, with all the damage that that would cause. That is what the Labour party will have to answer.

The Labour party does not see the ERM as a serious policy commitment: it sees it as a further way of evading the responsibilities of government. The right hon. and learned Member for Monklands, East fails to understand that ERM membership is a commitment to pursue responsible fiscal and monetary policies, not a substitute for them.

There is no better example of sustained irresponsibility than the refusal of the right hon. and learned Gentleman and the Leader of the Opposition to appreciate the impact on foreign exchange markets and international confidence of calls for reduced interest rates. Labour has had it too easy. It certainly would not have it easy if it were in office, but nor would the rest of us.

The other point that the Labour party must come to terms with is the damage to its reputation done by its failure to control inflation. UBS Phillips and Drew said: Labour's image is still tarnished by the rampant inflation of the late 70s. Though memories fade, Labour must impress an electorate sceptical about its ability to manage the economy.

Mr. David Clelland (Tyne Bridge)

Will the Chief Secretary give way?

Mr. Mellor

No, I am pushing on now. I have given way a lot.

City analysts have been asking what would be the impact of a Labour Government on inflation. The right hon. and learned Member for Monklands, East is now engaged in conversation with the hon. Member for Derby, South (Mrs. Beckett). This is worth listening to, because it is not Tory propaganda but what the financial community, who would judge a Labour Government, think Labour is likely to do.

Nine forecasts were made recently. Economists normally do not agree on anything, but this is so clear-cut that they all said that inflation would be higher under a Labour Government. The average is 2.3 per cent. higher in year two, 3.4 per cent. higher in year three and 3.8 per cent. higher in year four. No wonder the Financial Times reports that 87 per cent. of fund managers thought that Labour would not be able to control inflation and only 3 per cent. thought that it would.

The Labour party seems to want to be wilfully blind to this. Returning to things in Putney, we received "Labour News"—"News from Labour in Putney"—I presume that it is pushed through many other doors—which quotes City analysts and says: Experts believe that Labour's policies for investment in research and training will make Britain stronger and more prosperous. Labour will build a world class economy. It does not say which part of the world it has in mind, of course

I should be interested to know what City analysts Labour relies on. It seems to recall that happy old American jibe that the only support that the Labour party is getting for its policies from City analysts is the support that the rope gives the hanged man.

Mr. Peter Hain (Neath)


Mr. Mellor

Here is an expert on Putney—he lost two elections there.

Mr. Hain

Indeed, but the Chief Secretary will lose to the author of that pamphlet at the next general election.

We have heard a typically juvenile speech from the right hon. and learned Gentleman. We have record mortgage repossessions, businesses and investment and output collapsing, and the economy going down the drain, but all that the right hon. and learned Gentleman can treat us to is a series of comic turns and cheap jibes. When will he give his policies for getting us out of the economic mess that he and his colleagues have created?

Mr. Mellor

It is a bit rich to be accused of juvenilia by the Peter Pan of student activists.

What has been revealed this afternoon is a formidable case for the Labour party to answer—a formidable case that says that Labour has no policies to control inflation, that it would be unable to control inflation, that inflation would increase to double its present level and that interest rates would have to rise as a consequence of a Labour Government.

People thought that Labour's tax plans were bad enough. When we learned about its tax plans, they thought that the cat had got out of the bag. This afternoon, we have provided the reason why the cat got out of Labour's bag—it did not like what was left in it, still waiting to come out. We are now beginning to know.

As such an array of talent is assembled on the Labour Front Bench, may I pose another question about some of the matters with which we have been dealing this year? We have shone a spotlight on Labour's tax and spending plans, and such is the chaos that the Labour party has had to burn the midnight oil to produce a document trying to reconcile them—the self-inflicted wound of proclaiming its new-found ability to manage the economy competently by having limited spending plans properly costed and carried into effect on the back of tax increases which are themselves properly thought through. We saw how long that lasted—about three minutes—but we now hear about the so-called recovery package whose authors are all in front of me.

The hon. Member for Derby, South says that the package will cost £1 billion, that it is part of Beckett's law and will be introduced straight away, as did the right hon. and learned Member for Monklands, East. However, they neglected to tell the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). In one of his more memorable recent interviews—one does not necessarily expect the right hon. Gentleman to be well briefed, but I do not think that one required a lot of briefing to see what nonsense this is—he said that the recovery package would be paid for out of the recovery that it was supposed to bring about. I assume that that is not Labour party policy, and we shall assume that it is to be introduced straight away.

Mr. Kenneth Hind (Lancashire, West)

Will my right hon. and learned Friend give way?

Mr. Mellor

No, I shall carry on, if I may.

We now find that the plot has thickened. We have had a thickened plot in two material respects, on which I shall conclude my remarks. First, the Leader of the Opposition said in an interview in the Financial Times—and it might nevertheless be so—that £800 million of the £1 billion package is to be spent on training. It has been put repeatedly to the right hon. and learned Member for Monklands, East that training is not a short-term measure and can certainly not be dignified with the title of a recovery package which will quickly turn the economy around. The right hon. and learned Gentleman can spare me rejecting that, because I had the privilege of turning on my television set at lunchtime to find him engaged in a sort of post-war altercation after last week's debate with my right hon. Friend the Secretary of State for the Environment who made this allegation. My right hon. Friend speaks very effectively, as the right hon. and learned Gentleman found to his cost last week.

Mr. John Smith

The Secretary of State's name is on the motion on the Order Paper, but the right hon. and learned Gentleman's is not.

Mr. Mellor

Now that the right hon. and learned Gentleman has got that off his chest, let him listen for a moment. I promise not to detain him for very long.

My right hon. Friend said that training was not a short-term measure, and the right hon. and learned Gentleman hopped up and down on television saying that indeed it was not.

I had great pleasure—and told the House about a great competition about Labour's priorities—in reading the document "Women Today", which turns out to be a Labour party brief. I hope that the hon. Member for Derby, South is concentrating, because I am about to quote her, or what somebody has ill advisedly put into her mouth. The hon. Lady features in the document under the bold headline "We'll put an end to the waste of money". She said: We have a very tight series of priorities … we need early investment in education, in training, in industry—the things that will take a long time to show results. What price the recovery package, the £1 billion bingo which will turn the British economy on straight away? It is inherently risible that a £1 billion package will turn on an economy of £600 billion. It is even more risible when four fifths of it is to be spent on training.

There is a second point on which I would welcome assistance from the Opposition. We want to know how the £800 million might be spent on training. I am aware of the fact that the Labour party has made a commitment which means—as usual, the Labour party has far more interest in trade unions than in some of those who might benefit from public expenditure—that every trainee must have a minimum wage. The cost—

Mrs. Margarat Beckett (Derby, South)

indicated dissent.

Mr. Mellor

I am glad that the hon. Lady is going to correct that, because if Labour's pledge to give a minimum wage to the unemployed persons who go into training or the pledge involving young people who do youth training is honoured, £630 million of the £800 million would go on paying extra money to existing trainees in order to top them up.

Mr. Neil Kinnock (Islwyn)


Mr. Mellor

I did not invent this recovery package, and I would rather have spent my time dealing with more intelligent matters. It is the Opposition who are parading the recovery package. I ask: when is a recovery package not a recovery package? Answer: when it is a piece of nonsense like this one.

I hope that today we will discover something more concrete and more persuasive about the Labour party's policy on inflation. At the moment, Labour's economic policy is a bit like a haggis—for most people it is okay only as long as they do not think too much about what has gone into it. [HON. MEMBERS: "Disgraceful."] As usual, Scottish tails are wagging Labour's English dog. They may not be alert to matters of economic policy, but they are alert to my last point. I would be interested to know not only about the contents of a haggis but about the persuasive contents of Labour's anti-inflation policy. I think that we should be told: I hope that we will be told.

4.40 pm
Mrs. Margaret Beckett (Derby, South)

I beg to move, to leave out from "House" to the end of the Question, and to add instead thereof: 'believes that inflation, though reduced from levels to which Government policy raised it, has not been conquered, but merely suppressed by high interest rates and the recession they have created, at a cost of rising business failures, mortgage repossessions, and soaring unemployment; and recognising that low inflation is a necessary, but not a sufficient, condition for recovery, calls upon the Government to introduce measures which include support for investment in manufacturing industry and in training, since without such measures inflationary pressures will simply re-emerge.'. There are two reasons why we are having today's debate in which the Government boast of today's inflation and interest rates, which are both certainly lower than they were a year ago. The first reason is clear: of what else could they boast—of soaring unemployment, soaring house repossessions, soaring bankruptcies, plummeting investment and negative growth? The Government would have some difficulty talking about any of those, so they do not.

The second reason for this debate is that the Government hope that if they talk enough about their concern for inflation the wish will be taken for the deed. They hope that we will all remember what they said about inflation—the history books are littered with stern words about it—and not what they actually did about it. The Government motion seeks to compare their record not only with that of the previous Labour Government but with that of the European Community, particularly Germany, claiming that inflation is now below the EC average and close to the rate in Germany.

For most of the Government's period in office the yearly average retail prices index has been above the EC average; the last time it fell below it, by a remarkable coincidence, was during and in the aftermath of the Government's first recession in the early 1980s. Only their second recession has again suppressed inflation to below the EC average, and only the strains of German reunification have brought German inflation to the level to which ours has been reduced by recession.

In any case it is only a few months since the Government were telling us that it was wrong to compare the retail prices index with EC inflation figures. We should, they said, use the underlying rate excluding mortgage costs. Of course, that rate does not show the same flattering picture.

The Government's main text, however, is undoubtedly the domestic record and circumstances of the last Labour Government and the record and circumstances of this Government. The Labour Government were elected in February 1974. They inherited the aftermath of the Barber boom—inflation at 13.1 per cent., a public sector borrowing requirement at 6 per cent. of GDP, and a quadrupling of oil prices, as well as rising world commodity prices and disadvantageous terms of trade.

The Labour Government tried to absorb the effects of the oil price rise without a major change of course. In consequence, as the right hon. and learned Member for Putney (Mr. Mellor) said in his speech, peak inflation rates of 26 per cent. were reached by 1975, together with an increase in the public sector borrowing requirement to a maximum of over 9 per cent. of GDP—but that, I repeat, was the maximum.

The major contributory factors to the peak inflation rate and the peak PSBR level were the levels of inherited inflation and inherited PSBR coupled with the oil price shock—

Mr. Tony Marlow (Northampton, North)

Will the hon. Gentleman give way?

Mrs. Beckett

No. This was at a time when Britain was a heavy net importer of oil.

By 1979 when Labour left office—[Interruption.]Conservative Members want to know about the record: let them listen to it then.

By 1979, when Labour left office, inflation was at 10.3 per cent.—

Mr. Alistair Burt (Bury, North)


Mrs. Beckett

In a moment. That was lower than the level that we had inherited. Unemployment, at more than one million, was falling. Interest rates were at 12 per cent. having averaged 10.7 per cent. It is not only our view that the peak levels of inflation to which I have referred were something to do with what we inherited from the Conservative party—

Mr. Burt


Mrs. Beckett

In a moment. I am sure that the hon. Gentleman is anxious to hear the following quotation from the right hon. and learned Member for Surrey, East (Sir G. Howe), who said on 12 May 1981: Monetary growth was allowed to accelerate rapidly in 1972 and 1973 under the impression that, now the fixed exchange rate discipline was gone, this was the way to increase output. By 1975, inflation, helped by the rise in the price of oil, had risen to 25 per cent. The right hon. and learned Gentleman fairly made the point that the Labour Government's inheritance contributed to that level of inflation—

Mr. Burt


Mr. Marlow


Mr. Phillip Oppenheim (Amber Valley)


Mrs. Beckett

Not for a few more moments. Between 1974 and 1979 the PSBR fell again to 5 per cent. of GDP, lower not only than the peak but than the inherited figure.

Tory Members always talk about the record of the last Labour Government, so I repeat that, when we left office, inflation was lower than the figure that we inherited from the Conservatives, as was the PSBR. That Labour Government not only lowered inflation and the PSBR but achieved average growth of 2.2 per cent., more than the average in these recent years, and laid the foundations for the flow of revenues from the North sea which would amount to more than £100 billion in today's prices—a sum that shielded this Government for so long from the disastrous effects of their incompetence. These were the circumstances and the record of the last Labour Government, and now I shall give way.

Mr. Burt

The hon. Lady skipped conveniently from 1975 to 1979. What do the letters IMF mean to her?

Mrs. Beckett

They mean the International Monetary Fund to me; I am not sure what they mean to the hon. Gentleman, or what they have to do with the fact that inflation was lowered by the Labour Government, as was the PSBR.

Mr. Burt


Hon. Members

Give way!

Mrs. Beckett

No, once is enough.

I come now to what the Conservative party really wants to hear about—the record of the Conservative Government. Conservative Members are delighted with that record so they must be anxious to hear what it is—

Mr. Marlow


Mrs. Beckett

No, I shall not give way. The hon. Gentleman seemed incapable a few moments ago of distinguishing my sex, so I feel disinclined to give way to him. Perhaps he needs glasses.

In May 1979, this Government came to power. In their June 1979 Budget the Government raised VAT from 8 to 15 per cent. That alone added four percentage points to the retail prices index. In their Budget of June 1979 they reduced subsidies for prices such as those for gas and electricity, which added another 2.5 per cent. to the retail prices index. Interest rates in that same Budget were raised by 2 per cent. and peaked at 17 per cent. in November 1979. There were other factors which affected the rate of inflation, but these were within the Government's discretion. Earlier, the Chief Secretary quoted Sir Brian Corby on the rooting out of inflationary psychology applying to all levels of society, including the Government.

The VAT rise especially was made to pay for the pre-election promise to cut taxes on incomes, and it was made in the belief—[Interruption.] I will explain in the fullness of time, if hon. Members will be patient—and listen, of course. It was made with a belief in the magical properties of controlling the money supply—a process that seemed to be believed, at least by some, to ensure no increase in inflation, no matter what other policy changes were made.

It was small wonder that by May 1980 inflation had reached 21.9 per cent.—more than double the rate that the Conservative Government inherited—with at least 6 per cent. to 7 per cent. of that increase being inflationary own goals inflicted by the Government to allow them to cut taxes.

Mr. Marlow

Will the hon. Lady give way?

Mrs. Beckett


The economy was forced into recession, unemployment soared to 3 million—a rate of 13.3 per cent., which was 7 per cent. higher than in 1979. We lost 20 per cent. of our manufacturing capacity. However, by 1983 and with the approach of a general election, those policies, a fall in the price of oil and other commodities, and the emergence of more favourable terms of trade all contributed to bringing inflation and interest rates down, although gross domestic product and manufacturing investment had been savaged and were both below the level inherited by this Government in 1979.

Mr. Quentin Davies (Stamford and Spalding)

How is increasing the tax burden on savings income supposed to increase investment?

Mrs. Beckett

The hon. Gentleman knows perfectly well that our proposal for a charge on investment income above—[HON. MEMBERS: "A tax."] A charge. When the Conservatives put up national insurance contributions from 6.5 per cent. to 9 per cent., was that a tax? Conservatives did not say that it was a tax. If a charge is a tax, so is that on national insurance contributions, which the Conservatives increased from 6.5 per cent. to 9 per cent. That was a tax increase.

I return to the question put by the hon. Member for Stamford and Spalding (Mr. Davies), as hon. Members clearly prefer me to deal with that point. We have made the point on many occasions in the House that the proposed charge will simply put people with investment incomes on individual investment holdings of probably well over £30,000 on the same basis as those who have similar sums of earned income. That seems to us to be fair and that is why we propose it.

Mr. Mellor


Mrs. Beckett

No, I shall not give way because I am in the middle of a point about inflation. I will come back to the right hon. and learned Gentleman.

In June 1983, the date of the general election, inflation was brought down by those methods to 3.7 per cent. and interest rates were 9.5 per cent. Within two years of the 1983 election, in June 1985—

Mr. Oppenheim

Will the hon. Lady give way?

Mrs. Beckett


Mr. Oppenheim

Why not?

Mrs. Beckett

Because every time I give way to the hon. Gentleman he asks the same silly question. I am bored with it.

Mr. Oppenheim

I have a new question.

Mrs. Beckett

I do not believe it.

Within two years of the election, in June 1985, interest rates were back at 12 per cent. and inflation had doubled to 7 per cent. Once again, the pattern was emerging of increases in rates and water charges—within the Government's purview—and those increases were well above the rate of inflation. Again, by the time of the election in 1987, interest rates were down again to 9 per cent. and inflation was at 4.2 per cent. The Government were making claims. The Prime Minister himself wrote in the election campaign that year in the Huntingdon Post: Inflation has gone. The economy is sound. Unemployment is falling. People voted on that basis.

In October 1987, after the stock market crash, the Government took the step of cutting interest rates, which they now claim is almost their sole mistake in all these years. In the 1988 Budget, they claimed an economic miracle and cut taxes afresh to their present level. Flushed with money and rhetoric, companies and individuals went on a credit spree and the Government went on feeding inflation.

The Government went on cutting money for public sector housing and forcing councils to increase rents. They went on cutting transport subsidies and forcing up fares. They insisted on price increases for gas, which were followed by increases for water and electricity to fatten those industries for privatisation. They also made hikes in prescription and other charges, and they pushed up interest rates to 15 per cent. and kept them there for a year. With that, they pushed up mortgages, mortgage debt and repossessions. They pushed up unemployment and business failures, yet still they went on with inflationary own goals.

Mr. Oppenheim

Will the hon. Lady give way?

Mrs. Beckett

I cannot resist finding out whether the hon. Gentleman really has thought of a new point. I give way.

Mr. Oppenheim

I thank the hon. Lady for her graciousness in giving way. As the hon. Lady is clearly wedded to the exchange rate mechanism, will she confirm that a future Labour Government, if such a Government should come to power, would raise interest rates to defend sterling within the ERM if necessary? Yes or no?

Mrs. Beckett

The hon. Gentleman knows perfectly well that we have long expressed the view that, if the exchange rate is properly managed, there is no need to take that step—[Interruption.] Let the hon. Gentleman put that question to his right hon. and learned Friend the Chief Secretary if he chooses.

Mr. Mellor

Is the hon. Lady aware that her answer is one of the most extraordinary cop-outs? She would not be able to hold office in the Treasury for 10 seconds unless she was prepared to improve on that.

Mrs. Beckett

The right hon. and learned Gentleman seems to have managed it.

The Government went on inflicting inflationary own goals.

Mr. Mellor

Will the hon. Lady give way?

Mrs. Beckett

No. Once is enough on that subject.

I have a cutting from the Financial Times of 12 May 1990 which makes the point admirably. The article says: Hardly ever, outside wartime, can a government have done so much to push up the inflation rate in a single month as this administration has achieved in the April calculation of the General Index of Retail Prices. The Government went on inflicting inflationary own goals and within two years of the 1987 general election interest rates were back at 15 per cent., inflation had doubled again to 8.3 per cent. on its way to its 10.9 per cent. peak and, once again, we were heading for recession with the then Chancellor, now the Prime Minister, saying only that if it was not hurting, it was not working.

In the Financial Times article an additional comment was made. Drawing on the inflationary own goals that the Government had inflicted in a short time, the writer points out that that contrasts oddly with the Budget speech by the then Chancellor, now the Prime Minister, in March when he set out the Government's economic policy objectives. The article says that the first objective is to bring inflation down again. The commentator then writes: But perhaps that aim should have been more explicitly stated: to reduce inflation just before the next General Election." This is a Jekyll and Hyde approach to inflation control. With the advent of an election and in the pre-election period, Dr. Jekyll takes over and everyone is very good about inflation. Once an election is safely over, within two years, Mr. Hyde is letting rip and we see the effects on inflation and on interest rates.

Conservative Members dislike that comparison so much because, sure enough, as today we approach yet another general election, interest rates are at 10.5 per cent. and we are waiting, yet again, for the Chancellor to decide when it will be politically beneficial to the Conservative party, rather than when it will be most advantageous to the economy, to cut them—and inflation is around 4 per cent. again. On 16 February, The Sunday Times said: Any fool can reduce inflation if he is prepared to lay the economy flat on its back. Of course, we know the fools who have.

Growth was down in 1991 by 2.5 per cent., the worst fall in a calendar year since the great depression of the 1930s. Unemployment is at 2.6 million and on its way, most people forecast, to 3 million.

Mr. James Arbuthnot (Wanstead and Woodford)

Will the hon. Lady give way?

Mrs. Beckett

No. I know that hon. Members do not want this on the record, but I am determined to put it there.

Three thousand jobs have been lost every day since the Prime Minister got his new job; 75,500 homes were repossessed last year, 72 per cent. up on the year before; perhaps a million people are said by the building societies to be in serious mortgage debt, that is, up to two months in arrears; and 47,800 businesses went bankrupt in 1990, the highest on record and a 65 per cent. increase on the year before. Manufacturing investment has fallen by 14 per cent. and is predicted by the CBI to fall again this year by perhaps 6 per cent. in this quarter. Today's Chancellor calls all that a price well worth paying to suppress inflation, without even a syllable of apology for the incompetence and mismanagement that pushed it up.

We believe that it is vital to keep inflation low. That is one of the reasons why we urged the Government to join the exchange rate mechanism of the European monetary system. But while low inflation may be a necessary condition for economic success, it is by no means sufficient. Too much money chasing too few goods is the classic definition of inflation. The Government have relied solely on one side of that equation—the supply of money. They have ignored the supply of goods and services, leaving it all to the market. If we allow our productive capacity to be further reduced—and as people begin again to want to purchase goods and services—inflation is bound to rise again. Even in recession we have inflationary bottlenecks and skill shortages. What is the Government's response? It is to go on cutting Government support for training, for industry and for the regions and to ignore falling levels of investment.

Professor Brian Reading pointed out some time ago in his evidence to the Treasury Select Committee that reducing demand through lower investment cuts inflation in the short run but increases inflation in the long run.

Mr. Beith

The hon. Lady has not yet made clear what a Labour Government's response would be if the circumstances that she has described were to take place. She has cast doubt on whether such a Government would even be prepared to take the steps necessary to defend Britain's position in the exchange rate mechanism. What would a Labour Government do if they were confronted with inflation rising at a time of recovery?

Mrs. Beckett

The hon. Gentleman is being ridiculous. He knows perfectly well that we have made it clear on the record and consistently that we would maintain the exchange rate. He aspires to be considered a senior commentator on Treasury matters. He should know better than to cast doubt on the wish of any prospective Government to maintain the exchange rate.

Mr. Mellor

Will the hon. Lady give way?

Mrs. Beckett


Mr. Mellor

I shall make the same point that I made earlier to the hon. Lady. The way in which currency levels are managed is by interest rates. That is the way it is done throughout the ERM. I am astonished that the hon. Lady is not prepared to give the commitment that the Chancellor has always given—one cannot have a commitment to the ERM unless one does.

Mrs. Beckett

We have given a commitment that we will maintain the exchange rate. We have given it consistently and the right hon. and learned Gentleman knows that perfectly well.

We must maintain low inflation and stable conditions so that business can plan ahead, address the supply side failures and, above all, avoid inflationary own goals. What about the Government's own policy? What are they going to do? What can we learn from the motion? Not very much, actually. In the motion is the claim that Labour will inevitably increase inflation. The Government have doubled it three times in 13 years. In the motion is the claim that Labour will push up interest rates. Interest rates and mortgage rates have been pushed up between elections in each of the Government's terms of office. Interest rates under them have averaged 12.4 per cent. as opposed to 10.7 per cent. under the previous Labour Government, and mortgage rates have reached the highest levels on record.

In the motion the Government claim that Labour will increase unemployment. Unemployment is double the rate that we left—and climbing—even though the Government have changed the way it is counted 30 times. They claim that our policies to promote investment, research and development, and on inflation and education and to improve the transport infrastructure, to create the wealth to enable us better to fund our public services will not work here when they are working in every successful economy in the world. They claim that we alone cannot make what is best practice in Europe common practice here.

Mr. Ian Taylor (Esher)

Will the hon. Lady give way?

Mrs. Beckett

I shall not give way. I am almost at the end of my speech.

What is the vision that the Conservative party offers to the people of Britain in the 1990s? "Look at our record over 13 years," they say. "Re-elect us," they say, "and we will do it all again." They say, "We will shove up interest rates again and double inflation again." To show that they really mean it, we have that felicitous statement from the Chancellor, "If we'd known how it would turn out, we wouldn't have done anything different." There could not be a better statement of their arrogance. Let it be their epitaph.

5.6 pm

Sir Ian Stewart (Hertfordshire, North)

The hon. Member for Derby, South (Mrs. Beckett) will live to regret the extraordinary performance that she has delivered to the House this afternoon. Instead of the clear commitment which she should give to the methods necessary to maintain sterling in the exchange rate mechanism, if there were a Labour Government, we have been answered by evasion and prevarication. When she was asked, by not only my right hon. and learned Friend the Chief Secretary to the Treasury but my hon. Friend the Member for Amber Valley (Mr. Oppenheim) and the hon. Member for Berwick-upon-Tweed (Mr. Beith), whether a Labour Government would defend sterling within the mechanism by the use of interest rates, she found every possible means of avoiding an answer. Unfortunately, that is not a casual lapse.

The Labour party's approach to inflation has been careful to avoid making any of the commitments necessary to justify its claim that it would maintain sterling within the permitted bands. That is one of the main reasons why all commentators and serious analysts who looked at the figures, policies, proposals and statements of the Labour party have concluded that inflation would be higher under a Labour Government. My right hon. and learned Friend the Chief Secretary quoted many commentators this afternoon. They may differ in the amount by which they think that inflation would increase or the amount by which they think interest rates would have to rise in order to gain control of inflation, but none of them disagrees with the basic proposition that inflation would be higher under a Labour Government. It is not difficult to see the reasons why.

It is the stated policy of the Labour party to increase public expenditure by an enormous amount, not just by £5 billion, £10 billion or £20 billion but by between £30 billion and £40 billion. I lose count because Labour Members frequently change their commitment and priorities, but the latest estimates are approaching £40 billion in annual terms. Of course, it is not possible for a party which is committed to those spending priorities to convince the markets or independent commentators and analysts that its approach to economic management and monetary policy is sound unless it is prepared to explain how it would finance it. On top of making public expenditure commitments, Labour Members have encouraged almost every inflationary wage claim that has been made by public sector employees; yet they expect to be able to hold down wage claims in the public sector—with all the consequences that such claims have on public expenditure —as soon as they come into office. It simply is not a credible approach.

Above all, the Labour party has not understood the practical implications of its extraordinary policy for a minimum wage. It does not seem to understand that a minimum wage would not only squeeze out jobs at the lower end of the scale and impose extra costs on employers who retain labour at higher wages but have a knock-on effect on differentials all the way up the scale.

If a person who earns 10 per cent. less than someone else receives a 10 per cent. wage increase under the minimum wage provisions, does the Labour party believe that other workers who previously had a 10 per cent. differential would calmly accept that without putting in a claim to maintain their differential? All economic analysis of the minimum wage proposal has concluded that a minimum wage would achieve an astounding double: it would put up inflation and unemployment simultaneously.

Mr. Derek Enright (Hemsworth)

Will the right hon. Gentleman explain why a high wage economy such as that of West Germany, as it was then, was so successful, had such low inflation and had proper manufacturing jobs instead of some of the cheap-jack jobs that we have here at present?

Sir Ian Stewart

I can give two answers to the hon. Gentleman. The first is that in Germany a responsible financial and monetary policy has been pursued for many years. That is something which the Labour party seems unable to recognise as necessary for sound economic management. Secondly, we are not talking about the continuation of a wage system, with or without minimum wages; we are talking about the effects of introducing a minimum wage system. The effect would be not only to put up the cost to employers in respect of existing employees and deny the labour market to some of those who in current circumstances are able to enter it but to create an upward pressure on the wages of many people who earn wages slightly above those affected by the minimum wage proposals. That is difficult to quantify exactly, but it is unavoidable that the consequence of a minimum wage would be an increase in wage costs which would work a long way up the scale.

The Labour party has not begun to understand the implications of its proposal. It is not surprising, therefore, that it does not realise why its policies are so incompatible with the commitment to which it says that it adheres—keeping sterling within the exchange rate mechanism. If ever there were any credibility in the Labour party's protestations on that subject, it was blown apart this afternoon by the extraordinarily evasive answers given by the shadow Chief Secretary to the Treasury. I am sorry that she felt it beyond her to respond to a Conservative Member, but she might at least have responded to the hon. Member for Berwick-upon-Tweed when he asked, perfectly reasonably, how she could justify her party's commitment to the ERM if she was not prepared to will the means as well as the ends.

Mr. Marlow

My right hon. Friend is setting out some of the grave disadvantages of a Labour Government, if elected. But is not the immediate price that we would have to pay the fact that, fairly or unfairly, reasonably or unreasonably, the financial markets would not trust a Labour Government, as they do not now? In any circumstances, there would have to be a higher rate of interest under a Labour Government than under a Conservative Government. What effect would that have on the recovery? What effect would it have on those people who are already having difficulty paying their mortgage? Would not it have a devastating effect within two weeks, six weeks or two months of the election of a Labour Government?

Sir Ian Stewart

The impact would be both early and severe, as my hon. Friend rightly points out. That is another reason why I suspect that the Labour party's commitment to maintaining membership of the ERM, with sterling at the present level, is not sincere.

I suggest that if the Labour party wants to be taken seriously, it must look again at its contradictory policies. It says that it has massive public expenditure priorities. It intends to introduce a minimum wage and take steps which would undoubtedly put upward pressure on inflation. At the same time it constantly avoids admitting that it would take any other steps necessary to deal with inflation or, indeed, to protect the exchange rate of sterling.

I suggest that the Labour party does one of two things: either it should scale down its public spending commitments to a credible level and drop its proposal for a minimum wage or it should admit that it is not committed to the ERM. So long as it continues to try to have it both ways, it will not be believed on either of those commitments. The reason why the Labour party is not believed on its commitment to the ERM is simply that the rest of its economic policies are clearly incompatible with that commitment. So it should clear up the mess.

I do not know whether the hon. Member for Derby, South let out of the bag a kitten or a cat this afternoon, but I am afraid that in her carefully evasive replies she showed that the Labour party has no underlying commitment to maintain the ERM parities for sterling.

I came here this afternoon hoping that the hon. Member for Derby, South would give us a more coherent exposition of the Labour party's economic policies. As inflation was the subject of the debate, I hoped that she would speak about the Labour party's approach to inflation and how it would control it and continue to bear down on it. I suppose that I was over-optimistic. Of course, we have been disappointed again. But one or two chinks of light have been seen on the Labour party's real approach to economic policy. Many people have pointed out that there is a yawning gap at the centre of the Labour party's economic policies because it has not reconciled its expenditure commitments with either its plans for taxation or its approach to borrowing and interest rates.

I suspect that at the heart of the Labour party's policy is the policy that dare not speak its name—printing money. That is the only way out that the Labour party has left.

Mr. Radice

I am interested to hear what the right hon. Gentleman has to say, but will he comment on the fact that the public sector borrowing requirement is likely to be well over £20 billion under a Government who are apparently committed to balancing the budget?

Sir Ian Stewart

I will do so but only briefly because it is not the subject of my speech. I did not hear the hon. Gentleman complain when the public sector debt repayment figure was large. That is something which his party never achieved. Of course, at certain points in the economic cycle there will be a surplus and at others a deficit. I believe that an acceptable deficit at this point in the economic cycle is the correct policy. I hope that my right hon. Friends will follow that. We have never raised the public sector borrowing requirement to anything like the percentage of gross domestic product to which the Labour party raised it when it was in office.

The Labour party says that it will not increase taxes other than those to which it has already committed itself. It says that it will make public expenditure increases within the amount that it can afford. The figures do not add up. The Labour party must accept that, unless it is prepared to explain how its policies will be implemented, its commitments and expressions of adherence to the exchange rate discipline of the ERM will not be believed. Unless it is prepared to sort that out before or during the election, it will not be able to argue that it has a coherent or responsible policy for economic management and, therefore, that it is credible and could be trusted with the government of Britain.

Mr. Stuart Randall (Kingston upon Hull, West)

Will the right hon. Gentleman give way?

Sir Ian Stewart

Yes, but I am under pressure of time.

Mr. Randall

I have listened carefully to the right hon. Gentleman. His speech so far has been based on the completely false assumption that the Labour party will go ahead with a spending programme based on a Tory propaganda figure—£35 billion, £50 billion or whatever. That is an utterly false assumption, so the validity of everything that he is saying is out of court. I wish that the Conservative party would stop peddling its propaganda in that way because it results in worthless debating time.

Sir Ian Stewart

The hon. Gentleman is a decent chap, and I do not want to pin the blame on him, but if he wants his party to be taken seriously he has to persuade the leadership of the Labour party to stop its spokesmen saying in every debate and at meetings throughout the country on health, education, transport and everything else that they have massive spending priorities for an incoming Labour Government. If the Labour party is prepared to scrap all that, to rip it out of its policy documents, and not to mention it in manifestos, Labour would attract greater credibility. Until it does so, one can only take the Labour party at face value.

If Labour Members spell things out in such detail and if their spokesmen go to such great lengths to explain what they want to do, it is not surprising that people will believe them. Labour has undermined its credibility by having internally inconsistent policy objectives, and I am trying to point that out. I am trying to be helpful to Labour because its policies would be more credible if the party faced up to that central problem.

I have been too generous in giving way to comply with the request of the Chair that we should not speak at great length. As we approach the Budget, the question is: would it be inflationary to have some reduction in taxation? My view is that it would not. At this stage of the economic cycle it is clear that the savings ratio is high. Consumers, for many reasons—not excluding the fact that they live in fear of the Labour party's tax policies—are reluctant to commit themselves to expenditure of the kind that would assist in bringing about further economic recovery.

If my right hon. Friend the Chancellor concludes that it would be possible to reduce personal taxation in this Budget, he would be right to do so on economic grounds. That is the right economic response to the present position.

Mr. Radice

It is deathbed Keynesianism.

Sir Ian Stewart

One problem with the policies advocated by Lord Keynes was that they were always applied in one part of a cycle but not in the other part. Lord Keynes never said that one had to stimulate the economy with extra borrowing and public expenditure not only when it needed to be given a stimulus but also once it was growing at a satisfactory rate. That is why the so-called Keynesian approach to economics fell down.

The correct time for adjustments in personal taxation is not only when they can be afforded because of the fiscal position but when it is the right moment in the economic cycle. I can only recommend reductions in personal taxation if they are accompanied by a commitment to keep firm control on public expenditure as the economy recovers, so that the public sector borrowing requirement reduces as the recovery takes place. Without such a commitment I would not make that recommendation, but with it I have no doubt that it would assist in the approach to consumer confidence which is a necessary part of the platform for economic recovery that the Government are putting in place.

In those circumstances, I regret that, in an economic debate, the Labour party has once again failed to tackle any of the central issues in a way that would inspire confidence in its proposals and lead to economic recovery. Labour has dodged the issue of how it would tackle inflation and has added to the confusion about its monetary and exchange rate policy. This afternoon the Labour party has demonstrated that it is even more unfit to come into government than I thought before the debate and the debate will certainly have helped to ensure that it does not.

5.24 pm
Mr. Michael Foot (Blaenau Gwent)

I hope that the first speaker from the Government Front Bench will be kind enough to return to the House. In years gone by, we had an old custom that the main speakers in a debate used to stay to listen to replies to their questions, but perhaps that has changed. Possibly the Chief Secretary will return.

I shall try to discover why this debate has taken place. It is certainly something of a mystery. However, it would be rude of me if I did not also comment on the speech of the right hon. Member for Hertfordshire, North (Sir. I. Stewart). I understand that he has been a great defender of the Government's monetarist policies in the past decade. Five or 10 years ago, during debates on this subject, Government spokesmen made great speeches—I dare say that the Chief Secretary to the Treasury, or whatever he calls himself, who has just left us, made many speeches on the same topic—but how different was their allegiance and the economic policies which they followed.

We are witnessing the biggest somersault of the monetarists in history. The next Budget will be produced on full-blooded Keynesian lines, although it is rough on Keynes that his name should be used in such disreputable circumstances. Even so, they are using good Keynesian arguments now. Those of us who were brought up on Keynes think that the application of his doctrines should be more carefully considered, and I hope that the Government will do that before they proceed along those lines.

I heard every word in the speech of the right hon. Member for Hertfordshire, North. He said that he was convinced by the Government's case, but that he was not at all convinced by the case which my hon. Friend the Member for Derby, South (Mrs. Beckett) put so well. Well, he must be a hopeless case. He is beyond all recovery.

Mr. Marlow


Mr. Foot

I shall give way to the hon. Gentleman in a moment if he is so anxious to interrupt.

I should have thought that any normal person listening to the two speeches by the Chief Secretary and the right hon. Member for Hertfordshire, North would have been insulted. I thought that the House was insulted by the speech from the Treasury Bench but, as is the custom, the speech by my hon. Friend the Member for Derby, South was different. Never in the history of Oppositions has there been such a settled, deliberate and determined case—she presented the figures to the nation so that people could balance the different sides of the equation. This Opposition and my hon. Friend have done that more skilfully than any other Opposition. She has put the case on behalf of the entire official Opposition. That is one of the reasons why the Labour party will win the next election.

Mr. Marlow

I am grateful for the right hon. Gentleman's courtesy. He says that he is impressed by the case put forward by his hon. Friend the Member for Derby, South (Mrs. Beckett). Could he tell what that case was, because I do not think that any of us heard her put a case? Could he tell us how she would maintain the parity of sterling within the ERM? What would she do with interest rates in those circumstances—would she use them?

Mr. Foot

I recommend that the hon. Gentleman reads the case put by my hon. Friend—[HON. MEMBERS: "He cannot."] If he could not hear her, I hope that his eyes will be able to rectify the position and that he will study exactly what she said. Anyone comparing the two cases put by the Front Benches could see the difference, and could see that my hon. Friend's was a first-class case.

I have discovered the reason for the Chief Secretary's difficulties. I may be the only Member of Parliament who has discovered the origin of this debate. The secret was out in a newspaper report which I read the other day. It said that the Prime Minister had set up a special committee to advise him on election tactics. The names in the report made an interesting list. Such an auspicious committee should have a fitting name; perhaps it could be called the "flagship committee", because that has a good auld lang syne ring about it. All its members are strong supporters of the poll tax, and no doubt that is one of the qualifications for membership.

The flagship committee has serious problems to solve. For example, what will be done with the right hon. Member for Finchley (Mrs. Thatcher) during the election? Is there still a helicopter to take her to Southend without running the risk of a forced landing in Old Bexley and Sidcup on the way back? For such an old-fashioned debate the chief cook and bottle washer of the Conservative party, the Chancellor of the Duchy of Lancaster, the right hon. Member for Bath (Mr. Patten), should be here. We all remember his wonderful speech in defence of the poll tax when the right hon. Member for Finchley sat beside him. He spoke for one and a quarter hours without a single note, without hesitation and without a single principle. No doubt he is fully qualified to sit on the flagship committee.

Some people used to think that the Secretary of State for Education and Science, who represents a Nottinghamshire constituency, was not sufficiently ardent in his Thatcherism. He goes to committee meetings waving his emblem. No doubt he waves his wallet and they know that he is a proper Thatcherite at heart.

It is customary for Chancellors of the Exchequer to sit on such committees, and apparently the present Chancellor has been invited. However, the Prime Minister could have been forgiven for thinking that there was a case for saying that it would not be too heavy a cost to bear if the Chancellor were not on the committee. It would be a price worth paying, shall we say? Perhaps the Prime Minister considered it on those counts. The people of the committee are a remarkable lot.

The Chief Secretary to the Treasury was not even invited. He was sent along here but, having listened to his speech, I wish that the exchange had been the other way round. The Secretary of State for the Environment spoke a few days ago, and I thought that we would get him again today. He was in tremendous form; I thought that at any moment he would make off again with the Mace. Oliver Cromwell did that only once but I thought that the right hon. Gentleman was about to do it for the second time.

I do not hold the Mace episode against the right hon. Gentleman, and I have often thought that it was the best thing he ever did. It was certainly the most dangerous military action in which he was engaged after he was in the Ministry of Defence. Some of us recall the right hon. Gentleman coming to the House with the mud and blood of battle on his tunic from Greenham Common. He thought that he had managed a wonderful victory and that that should have made him Prime Minister. It is certainly a better reason than the others that he seems to be advancing.

If the flagship committee is not as successful as it should be, I hope that some others will be invited to help. We do not see him often in his place, but what about the right hon. Member for Plymouth, Devonport (Dr. Owen)? He seems to be at a loose end at the moment. He could be invited to come along, and I am sure that he would not charge anything, although he might insist on one of Lord Young's sweeteners being arranged after the election. Perhaps that bargain has already been sealed. If the right hon. Member for Devonport appears on a Conservative platform, or even the Prime Minister's platform, during the election campaign, we can conclude that such a bargain has been made, and we shall all watch to see whether it will be kept.

The Prime Minister himself is on the flagship committee. At the weekend, he spoke feelingly about his passion for maintaining the unity of the United Kingdom. Not all of us have been able to see whether he has a heart, but when he went to Scotland he expressed his passionate support for maintaining the unity of the United Kingdom. Was his passion still burning, or had it burnt out after discussions in previous flagship committees about whether the poll tax should be applied to Scotland?

It would have been an apposite moment to bring up the matter if someone had said, "Hold on a moment. Do you think that it is a good thing for the unity of the United Kingdom to go ahead with this horrific tax and impose it on the Scots even before it has been worked out for England?" If the Prime Minister is such an eager supporter of the unity of the United Kingdom, it might have occurred to him three or four years ago when the matter was being discussed by the flagship committee of those times.

Another of the Chief Secretary's qualifications for being on the committee is that he has been a strong supporter of the poll tax and has voted for every poll tax measure that has been guillotined. I do not say that he was one of its inventors, although he would have claimed he was if he had thought that it would do him any good at the time. He disowned those matters easily thereafter.

The whole exhibition of the flagship committee is due chiefly to the poll tax, but it is also connected with all the Government's other misdemeanours, disasters and economic catastrophes. It has been one of the most disgraceful episodes of our political history. It is not easy to find words to describe it properly. The best words to describe the conduct of the flagship committees and their past, present and attempted future were written by Alexander Pope: As hags hold sabbaths, less from joy than spite, So these their merry, miserable night… Still round and round the ghosts of beauty glide, And haunt the places where their honour died. That is a fitting epitaph for the Government.

We have seen, especially during the past few years but even before that, the prostitution of Parliament to serve the narrow interest of the Conservative party. That has happened before in our history, and when prostitution has taken place on that scale, as it did in the 1930s, the threat to our country has been severe. I do not say that the present Administration have the same evil quality as the Conservative Government of the 1930s, but they are the nearest rival in our history, and we should take account of that.

I say that not only because of the Government's antics and the way that they have pressed through legislation, or because of their performance in this debate, but because of their performance over the whole poll tax Parliament. We are approaching the end of it, and as soon as the flagship committee has the courage to go to the country, the people will pronounce on this perverted, prostituted Parliament the judgment that they pronounced in 1945. The liberation that the British people sought then they will seek again, and nothing will stop them achieving it.

5.40 pm
Sir Gerrard Neale (Cornwall, North)

It is always a pleasure to be in the Chamber to listen to the right hon. Member for Blaenau Gwent (Mr. Foot). His best speeches have a number of consistent points—they show great parliamentary debating skill and great humour, but his very best ones rarely deal with the point of the debate. It was interesting to note that, even in response to an intervention, he found it impossible to clarify the Opposition's stance on the exchange rate mechanism.

My right hon. and learned Friend the Chief Secretary and the Treasury team have every cause to be congratulated on their achievements on the rate of inflation. It is no surprise to me—although it appears to be one to Labour Members —that we are having a debate on inflation. When right hon. Friend the Prime Minister took office, he made it plain that low inflation was a fundamental part of his policy. He was joined in that by our right hon. Friend the Chancellor of the Exchequer, who made it similarly plain.

I am glad to see my hon. Friend the Member for Cornwall, South-East (Mr. Hicks) in his place and no doubt hoping to catch your eye, Mr. Speaker. We view the position with a clear perspective—that high inflation is bad news for the economy of the west country in general and of Cornwall in particular. I am surprised that the Opposition do not appear to have grasped the fundamental importance of inflation to our economy. Several industries in Cornwall have been hit by high inflation. Tourism suffers dramatically if prices rise quickly; our farming industry is hit heavily if food prices rise quickly; and our economy depends on competitive pricing and firm monetary policies. Without them, we would have fearfully high levels of unemployment and transport costs, which would make it impossible for us to get our products and services into the economy of the remainder of the United Kingdom.

I want to make a few comments on behalf of small business. Some 85 per cent. of businesses in Britain employ fewer than six people, and 95 per cent. fewer than 20. They are fearful of what would happen if the Labour party took office—although I agree with my right hon. Friend the Member for Hertfordshire, North (Sir I. Stewart) that that is very much less likely after the speeches that we have heard today from Labour Members. Small business men have a fear of high interest rates. Labour Mambers may chuckle, but my right hon. and learned Friend the Chief Secretary let them off lightly today. He quoted a number of reports from different economic institutions on the calculations of any increase in interest rates. He referred to the Nomura report, but what he did not say—and what the Opposition should remind themselves of—is that the report envisages that, with the advent of a Labour Government, interest rates could rise not by 2 per cent., but by 21 per cent. If we need proof of where that has happened before, we need look only at what happened when a socialist President was elected in France and short-term rates rose to 31 per cent.

I know that it is unpalatable, but Labour Members must accept that unless they are much clearer about their economic policy, especially in relation to the exchange rate mechanism, on the night of the election the institutions handling funds will be ready to remove money from this country at the very moment that they think there is any threat of a Labour Government. It is not something that any of us can do anything about. Those people handle funds on behalf of investors. If they think that there is a risk of a Labour Government, with the sort of wishy-washy approach that they would take, the institutions will move money out of this country at such a rate that the rate of inflation will have to rocket if the Labour party is to hold firm to the ERM. If any Labour Member disbelieves me, he should look at the Nomura report.

My right hon. and learned Friend the Chief Secretary and my right hon. Friend the Member for Hertfordshire, North referred to the minimum wage. I say again to Labour Members that if they came to my constituency, which is heavily dominated by small businesses—as many rural constituencies are—they would appreciate that those employed in such businesses on low wages help to keep the books and to collect the money. There is little money in many of those businesses because they are small. Everybody is a Man Friday of some description or another. They know the facts of life for their businesses.

Of course, everybody would like to have more money per week. The bosses of those small businesses would like to have more money per week. There is hardly anyone in this country who would not like to have more money per week. However, the people in those small businesses know that the money simply is not there. If a minimum wage were imposed, such businesses would disappear. To survive, many of them need the same number of people that they have helping them; they could not get by with fewer people. If the basic wage is pushed up, those businesses would become unviable.

My right hon. Friend the Member for Hertfordshire, North pointed out the way in which a minimum wage could affect differentials. In the west country, like any other area, those in small businesses—which are trading in considerable difficulty, not only because of the market place but because of their size—understand that the minimum wage would kill many jobs as quickly as a snap of the fingers.

Another matter relating to small business is especially important and I have spoken to Treasury Ministers about it. The Government have been extremely supportive of small companies by helping them to expand and by allowing them to keep more in their pockets by lowering the level of taxation.

Mr. Enright

And by helping them to go bankrupt.

Sir Gerrard Neale

The hon. Gentleman should think about how many small businesses there are now compared with 1979. He should remember that there are now relatively more people in employment in this country than all other Europan countries bar one.

The Government deserve congratulation for supporting small companies. Undistributed profits are now taxed at a rate of only 25 per cent. up to a limit of £250,000, and beyond that there is a graded scale up to 37 per cent. That has enormously helped small companies. There remains an inconsistency, however, in respect of unincorporated firms. Once the profit level reaches £23,700, if there is a single proprietor—and whether or not the profit is drawn—the tax level rises from 25 per cent. to 40 per cent. If there are two partners and the profit level is double that I mentioned, the same situation arises.

That disadvantage was clearly identified by the National Federation of Self Employed and Small Businesses, and it could be overcome if undistributed profits made by small unincorporated firms were taxed on the same basis as that applying to incorporated companies. Over a 12-month period, an unincorporated firm would gain enormously, as incorporated businesses do. The money saved could be invested in new equipment, such as computers, or creating new jobs.

I dispute the argument that such an arrangement would be impracticable because there is no set accounting procedure for small, unincorporated businesses. Every such firm keeps accounts, not least for the purposes of calculating value added tax. The Inland Revenue informs me that there are 2.8 million unincorporated businesses, and it estimates that 470,000 of them pay tax at the 40 per cent. rate.

The Government have proved conclusively how welcome have been their successful actions in respect of incorporated businesses, and I ask my hon. Friend the Economic Secretary to consider the case of the small unincorporated business sector in future. The Government's policies have secured the great achievement of an inflation rate currently of only 4.1 per cent., and they show every sign of reducing it further.

The Government made it perfectly plain that the process would be extremely painful for many sectors of business, but they clearly explained their policies and their effects. Those policies are working, and it is evident to me and to all my hon. and right hon. Friends that were the country to suffer the misfortune of Labour being elected to power, a Labour Government would never show anything close to the determination displayed by my right hon. and learned Friend the Chief Secretary and the other members of the Treasury team in defending the value of sterling and this country against the high inflation rates that we saw under previous Labour Governments.

5.52 pm
Mr. A. N. Beith (Berwick-upon-Tweed)

In making his useful points about small businesses, I am surprised that the hon. Member for Cornwall, North (Sir G. Neale) did not refer also to the penal level of uniform business rate that small firms suffer, involving the projection by the Government of the highest rates of inflation into small business costs for the following year—using the maximum permitted level—instead of exercising the discretion that the Government had to set the business rate at a significantly lower level. That decision has affected businesses of all sizes, and small firms in particular.

Inflation is bad. I am sure that other right hon. and hon. Members have shared my experience of being told by constituents, and by pensioners in particular, every time that the television news announces a fall in inflation, "I don't understand it. They say that inflation is coming down, but prices are rising in the shops that I use."

Any inflation means rising prices, so unless there is zero inflation, we are talking about something that damages the economy in a number of ways. Inflation makes pricing impossible, disguises relative prices, and enables some price rises to be concealed in the general level of increases —and thereby prohibits rational economic decisions being made. Inflation redistributes wealth from the prudent to the profligate. It penalises saving and rewards borrowing.

Inflation makes property a more attractive investment than production, and allows Governments to escape responsibility for their actions. It is not without significance that the two groups that tend to like inflation are those who borrow extremely heavily and see the cost of their debt falling, and Governments who behave imprudently and want to rescue themselves from their actions by printing more money.

Inflation is at the root of all short-termism, and is the enemy of sensible, long-term decisions. One cannot safely predict what to do about business investment and pricing if one does not know what will happen to the future value of the country's currency.

Even modest levels of inflation can be highly significant. Inflation of only 5 per cent. will bring a doubling of prices in 14 years. We should not deceive ourselves that, because inflation is currently running at 4 per cent. to 5 per cent., the problem is solved. The problem remains, and much more must be done.

The Government obviously tabled today's motion to emphasise that Labour does not appear to have any policies for dealing with inflation. However, the debate has the added effect of emphasising that the Government also are short of policies. Let us start, however, with Labour.

Even our old friend credit control has disappeared from Labour's amendment. It must have accepted at long last that credit control is not a feasible or practicable way of containing inflation, and is not something that could reasonably be introduced into the economy. Labour no longer mentions that subject.

I did not expect the debate to end with even more doubt being cast on Labour's already weak position on inflation —but it was, by the unwillingness of the hon. Member for Derby, South (Mrs. Beckett) to answer with a straight yes the question "Would you be prepared to see interest rates increase if that was necessary to defend sterling's position in the exchange rate mechanism?" There were shades of Labour's old attitude to nuclear weapons—"It may be necessary to have them, but we announce now that in no circumstances will we ever use them."

There is no point in being a member of the ERM and having interest rates that, although uncomfortable in their effects, are not as drastic as nuclear weapons if one is not prepared to say that one is prepared to use them.

I accept that the hon. Member for Derby, South believes in Britain keeping its position in the ERM, but her very hesitation is a dangerous signal.

Mr. Enright

Is the hon. Gentleman suggesting that the only way to maintain parity in the exchange rate mechanism is by use of interest rates? That is an interesting economic theory.

Mr. Beith

That is a method which Governments use, and which the present Government have been compelled to employ. Intervention by use of reserves is one such mechanism that must be used in those circumstances. General economic management is another. At the end of the day, however, if one is not prepared to use the interest rate weapon, one might as well not be in the ERM.

Mr. Enright

The hon. Gentleman did not—

Mr. Beith

The hon. Gentleman has a loud voice, but that does not alter the fact that his argument is weak. The hon. Member for Derby, South could have given a simple and straightforward answer, but she did not. It was unwise of her to take that stance.

The Government's problem is that they have two anti-inflation policies. One is membership of the ERM. The Chancellor of the Exchequer has answered questions from me to the effect that he would use interest rates if necessary to maintain this country's position. The other is recession—which is, by the Government's own indications, a temporary mechanism. They do not want recession to continue, but it looks likely to remain for some time. When it ends and recovery arrives, prices will no longer remain as low as they have been recently.

It is incontrovertible that over the Christmas and new year period prices of household goods were lowered, and that had a beneficial effect on the retail prices index. If recessionary conditions change, as we all hope they will, the Government will need other means of controlling inflation, yet they still show no sign of being willing to address that question.

Nor can the Government claim an unblemished record. Britain has one of the worst records for inflation. Since 1950, prices in Britain increased faster than in the United States, Germany, France, Japan, or Canada. Italy apart, Britain has the worst inflation record of all the G7 countries.

The British people have seen the value of their pound reduced under successive Governments, both Conservative and Labour. Since 1950, the pound's value has fallen consistently: a 1950 pound is worth only 7p today, whereas today's German mark and American dollar are worth 32 per cent. and 19 per cent. of their respective 1950 values.

If that record is ever to improve, Britain must adopt a long-term policy to deal with inflation. Our advocacy of an independent central bank, committed to price stability, is the only such policy that is on offer to the British people. I have rarely heard a more compelling demonstration of the case for an independent central bank than that provided by the evasiveness shown today by hon. Member for Derby, South. I should be much happier if I knew that the central bank would decide interest rate policy on the basis of price stability and maintaining sterling's position, and that future Ministers in any party would have nothing to do with that decision—that they would get on with the job of managing fiscal policy and providing the infrastructure that the economy requires.

If control of interest rates were taken out of the hands of politicians and given to an independent central bank, the fight against inflation would be continued all the time, and the problem of Governments going soft on inflation —particularly in the run-up to general elections—would be avoided. Greater stability of prices, interest rates and economic growth would result. Recent studies have concluded that countries with independent central banks typically enjoy lower inflation, irrespective of their political make-up and budgetary policies; and there is no cost in terms of lower growth.

Mr. Ian Taylor

I have followed the hon. Gentleman's argument about price stability. Can he tell us what would be his party's policy at this juncture? It appears that he has some plans to raise taxes, but that, surely, would be an irresponsible policy for a country that is moving out of a recession. Will he clarify his party's fiscal policy?

Mr. Beith

It is certainly not irresponsible to invest in the economy now, as we suggest. As was pointed out in a recent report by the Treasury and Civil Service Select Committee, the best time at which to invest in the public infrastructure is a time of recession. Some of the investment will need to be financed by borrowing, but I regard investment as a much more prudent use of borrowing than tax cuts. Tax cuts ought to be achieved by means of growth, which should bring public finances to a point at which we do not need as much revenue, or revenue is buoyant because of the extent of that growth in the economy.

Surely it is much more prudent to use the means at our disposal to invest now. Such tax cuts as we have proposed have been designed either to make real decisions possible on such matters as the use of energy, or to achieve a better distribution between the richest in society and the poorest. We have made specific proposals—different from Labour's proposals—about the tax scale. Our proposals are designed to enable us to increase pensions and child benefit.

Incidentally, that would probably work into the economy faster than tax cuts granted to the better off. On the whole, people with no money to spend will spend more of what they subsequently gain by way of increases in pensions and benefits.

The absence of any coherent alternative suggests that no one can produce a better method of building in a firm anti-inflation policy than central bank independence. Already, the Government are becoming complacent about their inflation policy. The Prime Minister claimed that he had inflation licked—although prices were still rising at a rate of more than 4 per cent. a year, and although the recent reductions have taken place during the longest recession since the 1930s and could easily be reversed in the event of a recovery. Prices have more than doubled since May 1979; the pound of May 1979 is worth only 41p in 1992.

Labour scarcely mentions inflation in its economic policy documents. I do not think that the party sees inflation as a problem: I do not think that it recognises the corrosive effects of inflation to which I referred at the beginning of my speech. Labour appears to have abandoned the policy of credit controls, for instance.

Having read the motion and the amendment, we find that we are left with the only coherent alternative—an alternative that we shall probably use in the end in any event. The Government have given us to understand that, if we joined the European monetary system and a single currency were introduced, that currency would have to be operated by an independent central bank. The Chancellor has been quite clear about that. He said in the House that, in stage 3, the European central bank would have to be free to set interest rates without interference. That is the view of every member state."—[Official Report, 21 November 1991; Vol. 199, c. 517.] Clearly, the Chancellor has accepted that a European single currency could not be run without an independent central bank. Why should we not enjoy that advantage now? Why should we not say, here and now, that the central bank would exercise independent responsibility for monetary policy, having price stability as its objective?

That would be a much better position to adopt for an Opposition party entering an election. It would be helpful if people knew that, during an election campaign and subsequently, a central bank would exercise that independent responsibility. The Government might do the country a service. If they are so worried about the consequences of other parties' coming into office, why do they not build that in now as part of a firm, permanent anti-inflation policy?

The Economic Secretary to the Treasury (Mr. John Maples)

Surely there is a difference between an independent central bank that is running a single currency—I do not think that there is any practical alternative to that—and the Government of the day continuing to be responsible to the House of Commons for monetary policy when running their own currency. I follow the hon. Gentleman's argument about the independent central bank; indeed, some examples, such as the Bundesbank, work extremely well. Does he not agree, however, that some non-independent central banks—such as those in Japan and France—seem to work equally well?

Mr. Beith

Japan's central bank has gradually increased its independence from Government, and that has contributed to Japan's control of inflation. Let us take the example of countries that simply have more independent central banks than we have. The United States Federal Reserve, for instance, is not an independent central bank in the full sense of the term, but it has still been able to produce a better inflation record—even with its high public-sector deficits—than we have managed in this country. Generally, the record seems favourable.

As the Economic Secretary pointed out, there is a difference between running a single currency for Europe and running our own domestic currency. There is a practical difference: taking instructions from 12 or more Governments would be even worse than taking instructions from one Government. A central bank will be in a much better position if, on this issue, it takes no instructions from Governments. The present Government are denying themselves a permanent contribution to anti-inflation policy by refusing to embody that principle in our system.

There are many other ways in which we should fight inflation. We should fight it by increasing our manufacturing capacity; we should fight it by promoting competition, and by ensuring that we do not have the rigged markets that exist now in some of the privatised utilities, where genuine competition has not been allowed to develop. Competition is crucial to keeping prices down. At the end of the day, however, the only firm and reliable anchor is an independent central bank, and we shall continue to advocate it until, eventually, the country gets it.

6.6 pm

Mr. Dudley Fishburn (Kensington)

It is a pleasure to follow the hon. Member for Berwick-upon-Tweed (Mr. Beith), who could justly claim—perhaps alone—that when his party was last in power, before Britain came off the gold standard, inflation rates were very much more stable and sensible than they are today.

As my hon. Friend the Member for Cornwall, North (Sir G. Neale) said earlier, the remarkable control of inflation that has been exercised over the past 18 months is a real tribute to my right hon. Friend the Prime Minister, who made it clear that that would be his top priority when he got the job. Moreover, it was he who, as Chancellor of the Exchequer, took us into the exchange rate mechanism—a discipline that has done so much to squeeze out inflation from our economy in the long term and, notwithstanding the prevarications of Opposition Front Benchers, will continue to do so.

Interestingly, in those first speeches when my right hon. Friend the Prime Minister determined the need to control inflation, he made the point that is so seldom made: inflation is, above all, a social cruelty. It hurts parts of our society that are often overlooked in the great economic debates. It hurts the quiet: those who save, the elderly and others who are often at the greatest disadvantage. My right hon. Friend the Prime Minister was right to say that that was one of the main reasons to control inflation.

The previous Prime Minister also believed strongly in the need to control inflation, but she took her eye off the ball. Had she but done what the German Chancellor did so frequently, and looked at the back pages of The Economist every week, she would have seen that the broad gauge of monetary growth in 1987, 1988 and 1989 was running away at a rate that was much greater than the economic growth of the time. Even though economic growth in those years was strong, at about 4 per cent. a year, none the less monetary growth was between three and four times the rate of our real economic growth.

There is no mystery about inflation. If the rate of increase in the amount of money keeps pace with the growth of domestic output, there is no inflation. If, however, the increase in the amount of money runs ahead of the increase in gross domestic output, there is inflation. The likelihood is that we shall have real growth in the economy of about 2 per cent. in the year ahead. If the money supply grows by about 6 per cent. in the year ahead, then, as sure as eggs is eggs, inflation will be about 4 per cent.

The chance now before us—the success of the past 18 months has led to that chance—is to reach out and grab not stability at 4 per cent. but stability at 0 per cent. inflation: to have a system in this country, as other countries have had so frequently in the past, under which the value of money and the price of a basket of consumer goods do not change from year to year. We shall look ahead, as my right hon. Friend the Member for Hertfordshire, North (Sir I. Stewart) so clearly said, to the long term without the short-term uncertainty that creates its own disparities.

I was delighted to hear the speech of the right hon. Member for Blaenau Gwent (Mr. Foot), not least because, as always with him, there was that great historic reach. He went back through Alexander Pope to Oliver Cromwell. If we were to return to a time of 0 per cent. inflation, it would be, on any historic basis, a return to normality. It is broadly true to say that, from the time of the Restoration after Oliver Cromwell until the outbreak of the first world war 250 years later, consumer prices in Britain remained stable. That is not to say that prices in Britain did not change within that general overall basket. Of course they did. For example, there was the dramatic collapse in the price of wheat in the 19th century which, in itself, led to the industrial wealth of that century.

When there is stability within a currency, leading to stability of prices overall, there can of course be great changes in individual parts of the economy. It is interesting to note that throughout the 19th century—the time of greatest industrial wealth and expansion in this country —when things were changing with every passing decade, there was, none the less, complete price stability. From the start of the 19th century to its end there was no change. I recall the famous anecdote of the Duke of Wellington who, in 1933, sold some land that his ancestor had bought on returning home triumphant from the battle of Waterloo. He sold, for exactly the same price sterling, exactly the same amount of land as the first Duke of Wellington had purchased.

The real increase in inflation started when we abandoned the gold standard in the 1930s. Since then, the value of the pound has fallen catastrophically—to about 2.5 per cent. of its value in 1933. However, the chance to reach out and grab true stability-0 per cent. inflation—will take great political courage. In a sense, inflation is like valium. It creates an easy sense of well-being. One can do nothing very much, yet one can feel that things are jogging along nicely.

It is in that drugged state that many savers say that they like inflation. It gives them the illusion of a high rate of return on their investment. House owners may say that they like inflation because it wipes out their debt and seems to give them a capital increase on their main investment. Some companies pretend at times to like inflation because it gives them a seemingly effortless ability to increase turnover and profit. Worst of all, though, Governments occasionally say that they like inflation because it allows them to hand out excessive public spending year after year without having to pay the true cost.

No party likes inflation more than the Labour party. When the Labour party was in power, it was what can only be described as an inflation junky, with prices rising year after year, way beyond 5 per cent. inflation—which gives that easy, if illusory, feeling of well-being—to about 20 per cent. inflation, which led to economic catastrophe.

We now all know—it is not a matter of debate—that the sense of ease that even low inflation gives is wholly illusory. It undermines Britain's wealth year after year. Even 4 or 5 per cent. inflation, which seems to be so attractive, undermines and, in the course of 20 years, almost eradicates the existing wealth of the country—the wealth that has been built up over generations. Even worse than that, it blunts the ability and the zest of those people who are able to create wealth in our society, for the benefit of us all.

There are only two ways in which we shall fail to reach this chance of price stability, of zero inflation. The first is devaluation. One hesitates to say it, but I think that the reply that the hon. Member for Berwick-upon-Tweed gave this afternoon increases the likelihood that we shall have a sterling devaluation, or that there will be uncertainty over sterling in the years ahead.

Mr. Beith

Does the hon. Gentleman agree that that was the reply that I elicited from the hon. Member for Derby, South (Mrs. Beckett)?

Mr. Fishburn

I apologise to the hon. Gentleman for not having made that clear.

The risk of devaluation is one of the ways in which we can be sure that our inflation norm of 0 per cent. cannot be reached. Devaluation would not make this country more competitive. It would make higher interest rates a certainty—a spectre that would cast its shadow for years ahead. It would also mean that once again we would absorb other countries' inflation through higher import costs. Membership of the exchange rate mechanism, to which the Government are so strongly committed, puts the risk of devaluation behind us, so long as the Government remain in power.

As for the second way in which inflation could take off again, an increase in our domestic money supply could come about as a result of excessive Government-induced wage increases in the public sector which have shot ahead of wage increases in the private sector. If we can hold on to the idea that, having reduced inflation to 4 per cent., we can, together with the other countries of Europe, reduce it to the point where there is constant stability, the prize ahead of us will be enormous.

We must not, however, risk becoming number blind. Even if we hold inflation at 4 per cent., we must be aware of the fact that a 6 per cent. pay settlement will be 50 per cent. above the rate of inflation, that a 20 per cent. increase in the community charge will be five times the rate of inflation and that increases in council rents of, say, 16 per cent. will be four times the rate of inflation.

As inflation becomes ever lower, the demand that it makes upon us is that we should not be figure blind and that we should concentrate on the smallest increase in inflation rates. The prize of zero inflation is clear: that we shall have ever lower unit production costs, which will make our exports more competitive. The prize is long-term planning. For the first time, the attraction of shorttermism—the ability to take profit now because of the uncertainties of the future—will be diminished. People will say to themselves, "I can invest for 10 years in the knowledge that the underlying value of the money that I invest over that decade will not change." Of course, it will increase the well-being of the people because every increase in wages earned in an economy with 0 per cent. inflation is real wealth and not merely an illusion.

Inflation benefits the debtor and penalises the creditor. As society becomes older, as shown in its age profile, so the public will tend to become more a public of savers and less a public of borrowers. They will demand increasingly that we do not allow inflation to rise, as it has done so frequently in the past. Most of all, to keep inflation still and to aim towards the 0 per cent. target will require a political will which my right hon. Friend the Prime Minister has shown. For that reason, I believe that the country will show where its support for him lies.

6.20 pm
Mr. Greville Janner (Leicester, West)

I remind hon. Members that the motion starts by inviting the House, at the Government's behest, to congratulate the Government on its"— that is, the Government's— prudent economic policies". That anyone should invite the Government to congratulate even themselves on their economic policies is the height of breathtaking cheek. It is the ultimate in chutzpah. It is the most monstrous zenith of shamelessness. The Government are inviting the House to congratulate them on their economic policies when those policies have created a totally unnecessary recession, depression and slump which are ravaging the country. That is a matter of not just statistics but of human suffering.

I wish to hold up my constituency, my city of Leicester and my county of Leicestershire, as a mirror, because I know it best. Of course high inflation is bad news, but low inflation is a disaster when it is at the cost of vast unemployment, a massive collapse of businesses, large and small, mortgage misery and repossessions on an unparalleled scale, poll tax chaos and crime leading to social misery and the breakdown of the lives of far too many families.

A year ago, when the position was only starting to get really bad, The Sunday Times said: Any fool can reduce inflation when the economy is flat on its back. Our economy, which the Government say that they have managed prudently, is not just flat on its back; it is prostrate. It is knocked out for the count. It is destroying the lives, security, homes and happiness of millions. Yet the Government say that the House should congratulate them on what they have done.

Jobs do not mean just the right of people to go out to work; they mean the dignity of work, the ability to earn a living and the right not to be in debt. In the east midlands, 49,000 jobs were lost last year, 29,000 of them in manufacturing industries. Manufacturing industry is on its back. It is in the worst mess that it has ever been in.

My dad, who was Member of Parliament for my seat—yes, I have an hereditary seat, of which I am proud—used to say, "Don't worry, my boy, about Leicester. It will be all right, because in Leicester we make what people have to have—hosiery, knitwear and shoes. They cannot go without them. In the last slump in the 1930s, Leicester was fine. Don't worry, my boy. Leicester is the second most prosperous city in Europe". My poor father would turn in his grave if he knew what was happening today. Hosiery, knitwear and footwear are all dying. The traditional industries of our city are prostrate and jobs are falling away.

Since 1979, when the Government came into power, unemployment in Leicester has risen by 174 per cent. That is the second highest rise in the country. In my constituency, unemployment rose by 37 per cent. in the last year. That is not just a statistic: it means human misery and disaster.

Anyone who doubts that should come to my surgeries to meet the people who come to seek help. In the past, those were often manual workers, people without skills. Such people may have no special skills to sell, but they are just as entitled to jobs as brilliant people emerging from universities and technical colleges.

Recently, three professional people have come to my surgery. One was an accountant who had been employed in a major accountancy firm in the City and who had come back home to Leicester for family reasons; he could not get a job. A second accountant had been told by the local job centre that, because he was under 5 ft, he was too small, and that was why he could not get a job. That was ridiculous.

When we consider how difficult it is for people of average height, with average intelligence, to get jobs, what a terrible time it is for the disabled, the sick, the handicapped and people with learning difficulties who have to compete in the same market. There are no jobs for them. For that we get low inflation. Thank you very much. I prefer higher inflation and jobs for my constituents.

It is not just the unemployed and the ordinary workers, as they are sometimes called, who have a problem. Some of the worst sufferers now are people who have never been unemployed in their lives. For the first six months, they cannot get help from the Government because of the rules. They cannot even get on training schemes, and they do not know how to cope.

I am president of an organisation called the Retired Executives Action Clearing House, REACH. It is a fine, non-political organisation which looks for jobs for people who were retired early, when in their prime. They want to do something constructive even if they are not paid. People are entitled to jobs when they are young, but as I approach middle age I think that jobs for older people are also important. Why should not people have jobs? We are told that it would create higher inflation and that the cost is too high. The cost of low inflation is too high and is ravaging the lives of too many of my constituents.

As to business failures, there was a 79.4 per cent. increase in the east midlands last year. There was a 96.5 per cent. rise in bankruptcies. Do the Government know that? These were honest, decent business people who have gone bust. They could not pay their debts. When they go down, they pull other people down with them. Those innocent people all suffer because the Government, who are inviting us to congratulate them on their economic policy of all things, do not know how to manage a corner shop. It is a disgrace. The east midlands has become the worst region for business failures, and it is the Government's fault. Firms large and small are going out of business unnecessarily. That is the cost of low inflation.

I always thought that people were entitled to homes. My right hon. Friend the Member for Blaenau Gwent (Mr. Foot) is wearing a daffodil.

The land, the land, it was God that gave the land, God that gave land to the people. That was another of my father's ditties. People are entitled to a roof over their heads. What has happened, all in the name of low inflation? House prices have collapsed. That is not all right for those who happen to own houses, especially if the house is a family's entire wealth. If someone wants to sell his house so that he can get on his bicycle and go to look for another job, he is stuck because he cannot sell.

People who have bought their houses, including council houses, cannot pay their mortgages. What happens then, in the name of low inflation? In 1991, 716 possession orders were made in Leicester county court—an increase of 48 per cent. on 1990. People who were entitled to have homes lost them. There are no rented houses because, in the name of low inflation, local authorities are not allowed to build houses. They cannot even use the money they get from those that they have sold. So people have no jobs, no businesses and no homes. That is the price of low inflation, and the Government say that we must congratulate them on their record.

They say that they are the Government of law and order. In the name of low inflation, they do not want high pay or too many policemen, although we have a few more than we used to. In Leicester, the number of police may have increased by 10 per cent., but crime has increased by 187 per cent. since 1979. I asked the Home Secretary by what number, and by what percentage, reported (a) criminal offences and (b) crimes of violence have increased in Leicestershire since May 1979. The Minister said: The available information compares the 12 months to June 1979 with the 12 months to June 1991". They do not want to give us the figures for the next nine months—I do not blame them—because the figures have got much worse.

The answer went on: Between these periods, the total of notifiable offences in Leicestershire increased by 52,906". There was an increase from 29,481 to 82,387. crimes of violence increased by 2,245."—[Official Report, 25 February 1992; Vol. 204, c. 421–22.] There was an increase from 1,823 to 4,068. Although I asked for the percentage, the Government did not provide it, because it does not sound good. It is an increase of 300 per cent. Crime is burgeoning and our social fabric is collapsing. People do not have homes, jobs or businesses, but we are asked to congratulate the Government on their economic policies. What a cheek.

The Government should be slung out, not congratulated. Recession is when other people are out of work, depression is when you yourself are out of work, and recovery is when the Government are out of work.

6.32 pm
Sir David Mitchell (Hampshire, North-West)

The debate on inflation is particularly well timed just before the Budget. Most people—not all—recognise that inflation is undesirable. The hon. and learned Member for Leicester, West (Mr. Janner) referred to high inflation as bad news and low inflation as worse. He is not alone in thinking that.

Mr. Janner

The hon. Gentleman is a distinguished Member, but he was not listening properly. I said that high inflation is bad news but low inflation is a disaster when it is at the cost of vast unemployment, massive collapse of businesses, large and small, mortgage misery, repossession of homes, poll tax chaos, crime and breakdown of families. I am obliged to the hon. Gentleman for giving me an opportunity to repeat that.

Sir David Mitchell

If the hon. and learned Gentleman does not think that a "disaster" is even worse, I am not sure what is. On a number of other occasions during his speech—I noted them—he made it clear that he does not regard a little inflation as particularly undesirable.

Many people recognise that inflation damages savings and pensioners. It has an effect on wage claims and on industrial costs. It damages the ability of industry to be able to compete in world markets, particularly industries that deal with forward orders where they have to estimate their costs. It damages the farming industry where selling prices remain static but costs rise continually.

I hope that the hon. and learned Member for Leicester, West will be prepared to consider that there is another hidden effect that is more insidious, damaging, debilitating and, ultimately, more serious. Inflation is the first call on the profits of any and every business. For example, a corner shop may have £5,000 worth of stock on its shelves. If inflation is 10 per cent., next year it must have £5,500 worth of stock if it is to have the same number of packets of cereals and tins on the shelves. The profits will have to be used simply to maintain the amount of stock. A small engineering works may have £1 million worth of work in progress. It could be in Leicester, Andover, Basingstoke or wherever. If inflation is 10 per cent., it would need another £100,000 simply to have the same amount of work in progress a year later. Where would that £100,000 come from? It means that money that should be spent on research, development and investment is used simply to keep pace with inflation.

The hon. and learned Member for Leicester, West said that he would prefer inflation to be a bit higher. Damage would be caused by that because our competitors could spend their money on research, development and investment and so become more competitive. In the world of high inflation, that cannot be done. The first call on every penny is used only to keep the business intact.

Inflation has a cumulative effect. Over the past five years cumulative inflation has been just over 35 per cent. That means, with £1 million worth of work in progress, £350,000 has not been spent on research, development and investment. Inflation damages industry's ability to stay fit and competitive.

To be specific, the cumulative figure for inflation over the past five years is 35.6 per cent. I hope that the hon. and learned Member for Leicester, West will recall that the cumulative figure for the last five years of the previous Labour Government was 100.7 per cent. If a business had £1 million worth of work in progress, after five years of a Labour Government it would need £2 million. That would simply finance the work in progress, the purchase of raw materials and so on. The hon. and learned Member for Leicester, West seems to forget the effect that that has on the ability to invest in modern machinery and equipment.

It is no wonder that British industry was on its back when the Labour Government left office in 1979. The cost is far greater than the hon. and learned Gentleman seems to realise. He said that the cost of low inflation is too high. It may be insidious and may not appear immediately on the surface, but in the long term, high inflation is the most damaging thing for any country's economy.

I regret that the Opposition have not taken this opportunity to explain how or whether they would tackle inflation. It is clear that the hon. and learned Member for Leicester, West does not regard it as a high priority. He spelled out what he sees as the damage brought about by trying to get inflation down. In the long run, every business in his constituency, as in mine, is severely undermined by a failure to bring down inflation and to keep it down.

Mr. Deputy Speaker, given my interest in small businesses, you will not be surprised to hear that I wish to refer to the contribution that small businesses make in terms of jobs, wealth creation and a broader tax base. As they grow in number, the revenue to the Exchequer grows and its ability to finance the many other things that we all want is stronger. The contribution of small businesses was not always as widely recognised. Those of us who, in the past, have played a role in reminding people of the value and importance of the contribution of small businesses are pleased to see that it is more widely recognised. All businesses, large and small, suffer from the effects of inflation. All incorporated businesses have benefited from the reductions in corporation tax introduced by the Government. That enables business to grow. However, those corporation tax cuts from 45 per cent. to 35 per cent. for large businesses and to 25 per cent. for small businesses do not apply to unincorporated businesses. My hon. Friend the Member for Cornwall, North (Sir G. Neale) said that this is a serious aspect of taxation, because while a small incorporated business pays corporation tax at 25 per cent. an unincorporated business pays at 40 per cent. Unincorporated businesses are the seed-corn of our future prosperity—the smallest businesses that have just started that are beginning to move, to be the springboard from which they grow—yet they must pay more tax. It is not beyond the wit of man, the Treasury and my right hon. Friend the Chancellor in the Budget to devise a means by which investment within an unincorporated business is allowed for tax. That would offset the disadvantage that they suffer under existing arrangements.

In the past two years, many small businesses have gone into liquidation, ceased trading or gone bankrupt. Many did so because they could not find the resources to offset the cost of inflation. I understand the complaints of the hon. and learned Member for Leicester, West because the businesses of my constituents have also gone into liquidation, but how often did they do so because they did not have enough money to finance the orders that they could get?

Mr. Radice

I remind the hon. Gentleman, who has been making an interesting speech, of the small problem for small businesses of very high interest rates. The hon. Gentleman would not be fair to his own case if he did not point that out.

Sir David Mitchell

High interest rates are the price that we must pay to reduce inflation, but once it has been reduced high interest rates will not continue. We have had a series of reductions in interest rates as inflation has come down, and as it lowers further more reductions will be made. I urge my right hon. Friend the Chancellor of the Exchequer not to forget the unincorporated business in his Budget.

The Chancellor has been more successful in squeezing out inflation than he has been given credit for. In January, inflation was recorded at 4.1 per cent., but that figure covers 12 months. Who would choose a map of where he has been to decide where he is now? If one looks at where my right hon. Friend is now and takes the figure for the past three months, one finds that, annualised, the figure is not 4.1 per cent. but only 1.5 per cent. The annualised figure for December to January shows a fall of 0.8 per cent. It is true that in the past 12 months we have had an increase of 4.1 per cent., but the reality is that the figure is now substantially lower. That is an immensely important victory, bought at, the hon. Member for Durham, North (Mr. Radice) will agree, a very high price. I hope that hon. Members on both sides of the House agree that, having paid that price and reduced inflation, we should not take the risk of overheating the economy again.

Finally, I wish to mention an aspect which I see as a uniquely British engine of inflation—house prices. As the economy picks up, there will be a substantial increase in demand—

Mr. Janner


Sir David Mitchell

Hindsight is the only exact science known to man. Foretelling the future is more difficult. Leading economists who advise banks say that later this year the economy will pick up. I have no insider knowledge, except that the experts tell me that that is likely to happen. When it happens, as assuredly it will, one of the signs will be an increase in demand for housing. There is a pent-up demand for housing among young people who, when they obtain better work, will want to buy a house.

But if we do not increase the supply of land with planning consent, that increased demand for housing will send land prices up and, as it does so, it will provide additional collateral for people to borrow against the higher value of their house. At least one county planning officer believes that he can suspend the law of supply and demand in his county and that an increased supply of land will not help to keep the price of land down. That is a disastrous approach. I urge my right hon. Friend the Secretary of State for the Environment to play his part in this. Land worth between £1,500 and £2,000 an acre is, with planning consent, worth £300,000 an acre. That engine for inflation of short supply of land must not be let loose on the country as it comes to the end of recession and grows in prosperity in the years ahead.

6.45 pm
Mr. Jimmy Wray (Glasgow, Provan)

I have sat here all afternoon and I was disappointed by the way in which the Chief Secretary made his speech. He made it clear to Labour Members that he was not interested in getting inflation down. He said that bearing down on inflation was the cornerstone and responsibility of the Government. After the next election, it will be their tombstone.

I represent one of the poorest constituencies in Scotland. Unemployment is probably the highest in Britain, at about 24 per cent., although the Government estimate it at between 16 and 17 per cent. Other statistics tell a different story. At great length, the Chief Secretary went back to the 1970s, when inflation was 31 per cent. He did not remind the House that when the Labour Government left office inflation had been reduced to 7.8 per cent.

Despite all the revenue from Scottish oil, the Government have failed. It must be embarassing for them to have to defend the way in which they have treated the people of this country. The nation now realises the mistake that it has made and how it has been conned, tricked and lied to by Conservative Members. The Chief Secretary did not give the true state of the country. It is a matter not only of inflation—if it were, that would be easy to remedy—but of stabilising prices, which the Government have never been able to do.

Let us look at the state of the country as the Tories will be leaving it to a Labour Government. Inflation has reached 4.1 per cent. From 7.1 per cent. in 1979, it rose to a peak of 10.1 per cent. Should we really trust the Government when they say that they are going for zero inflation? What a piece of nonsense. Any economist will say that a country that aims for zero inflation should take advice and should probably aim for 1 or 2 per cent. to oil the machinery, but the Government have not taken advice from anyone.

The Minister failed to tell the nation how the Government lied in 1983 when inflation was 3.7 per cent. The Government said that they were tackling inflation and aiming for a zero rate, but that was when they were expecting to get re-elected. They had been back in power only two years when inflation increased to 7 per cent. Two years after they had been re-elected in 1987, inflation doubled to 8.3 per cent. Now, in 1992, the Government are hanging on until the last day and there are some faces that we shall not see again. I think that inflation will be trebled if the Conservatives are returned to power—it will go back to 9 per cent.

It was sad that the Minister mentioned Germany when he asked whether any Government had an inflation rate of 1 per cent. He knows that the slump in the German economy has been caused by the reunification of east and west.

He failed to tell the nation that, although inflation is still running at 4.1 per cent., food prices have increased this year by 4.5 per cent. Household services such as postage and telephone bills have increased by 7.8 per cent. and motor prices by 9.1 per cent. Unless the Government can tackle those problems, we shall fall further into a slump.

The Minister did not tell us about the underlying rate of inflation. In 1990, it was 5.6 per cent., but that was without the mortgage interest rate. In 1991, we had the highest inflation rate—5.9 per cent. —of the seven major western economies, including Canada, the United States, Germany, France and Italy, whose inflation rates were hovering at 3 per cent. and 4 per cent.

The Government talk about recession, but they are not interested in the state of the country. They created this recession—;that is the way in which they work. They are not interested in the people of this country—if they had been, they would never have allowed the country to get into such a serious state. It annoys me when a Minister defends the policy of a Government who are in ruins. We have the statistics, and the media are explaining them to the nation.

The Government hope that possibly by encouraging independence in Scotland they will be able to slip in the back door, but the Scottish people are a red-blooded nation, compassionate and caring. Do the Government honestly believe that the Scottish people would allow the people of England, Ireland and Wales beside whom they have fought and died over hundreds of years to return the Conservatives to power? The Scottish people will vote Labour, and all the rhetoric about independence will go out of the window. A member of the Scottish National party said that we would have a Scottish army. Another said that we would have 50 embassies. But we have hundreds of embassies. We are international socialists.

Poverty and homelessness on the banks of the Clyde are the same as poverty and homelessness on the banks of the Thames, the Rhine or anywhere else, because Europe is uniting. There are now 12 countries in the European Community. Malta, Cyprus, Greece, Spain and Czechoslovakia are now joining it. The hon. Member for Cornwall, North (Sir G. Neale), who is no longer here, referred to the exchange rate mechanism. He said that institutions would withdraw their money from this country, but why will they do that when we are in the ERM?

The Government must get rid of the slums and the poverty that they have created in Britain—10 million people are living in poverty and 180,000 are homeless. If one goes to Centre Point in Soho, one can see the effect of the policies adopted by the Government. They took away income support from 16 and 17-year-olds. In that age group the homelessness rate has now risen to 77 per cent. That is proof of the Government's mistakes. We want a Government who are compassionate and believe in helping the poor, but this Government have failed to do that.

The Government believe in the hierarchy. They are now shouting about the minimum wage, but I did not hear them shouting about the wage increases for those in the hierarchy. Giving people £3.40 an hour means that those people can spend more. If they can spend more, there are more tax revenues and that in turn leads to increased growth. The way to get rid of inflation is to create jobs and to give people more so that they can spend more.

The mathematician on the Government Front Bench thinks that he is a comedian—does he think that he is as funny as Arthur Askey? He referred to Polly the Parrot. That is not the serious stuff that we shall accept from a Minister when the country is in crisis. The Government have been advised by economists that short-term policies will not work. We need long-termism to speed growth in gross national product and gross domestic product, but the Government have failed badly and stuck to high interest charges. The ideal inflation rate is 0 per cent.—in fact, it might be less than that.

We are worried about fraud and bias and the way in which the Government have conned the nation. My hon. Friend the Member for Derby, South (Mrs. Beckett) made it clear that the Government lied. They said that they wanted people to own their own homes. In 1987, that was the banner under which they fought. They said that every member of society should own his own home. People went to borrow money from the Abbey National and other agencies at a rate of 9 per cent. No sooner were they in their homes, putting on a light and later trying to get a night's sleep when the interest rates went up to 16 per cent. Some 70,500 people have been turfed out of their homes. What are the Government doing about that? Nothing. They have been told about it day in and day out, but they have done nothing.

There are 2.6 million unemployed people, and that is a lot of people. It is very sad when people in my constituency ask when the recession will end. I cannot tell them because we are in such a mess that it will take a long time to get us out of it. Some people in my constituency have never had a job. All that they wait for on a Monday morning is for the giro to come through the door. The only difference between grass and a giro is that, although both are green, one feeds the cattle and one feeds a human being. Some people will never get a job because they are over 50 or 60 and have never had a job under this Government. They have no chance of getting one. Consequently, repossessions take place every day.

Perhaps there are some hidden talents in the Government which have never come to light. They have had three shots and three Chancellors but every Chancellor has either given in or not done the job.

Let us consider the way in which the Government have treated the people of England and Scotland with regard to the poll tax. An extra £14 billion was thrown down the drain. It cost every poll tax payer an extra £178. Those are the hidden costs that no one talks about. The Government are letting the poll tax still run on. They could have abolished it already, but they did not because they knew that youngsters were not putting their names on the register and that there was an election coming up.

What the Government have done to this nation's utilities is a scandal. They have taken our prime resources out of the hands of the many and sold them off to the few. No wonder the senior citizens are shouting about surcharges of £190 at the end of the year, to be paid for out of their poor pensions. Naturally, they wonder what a Labour Government would do. A Labour Government would raise taxes to 50 per cent. for the very rich. It is surely better to tax high earners—those earning more than £30,000—than to give them scandalous rebates of £300 or £400. How could any human being do that? Conservative policy is to give the richest people tax relief. I wonder how Conservatives will explain to the nation why they have so badly treated pensioners, the unemployed and the poor people who have to pay 20 per cent. of the poll tax while they live on scraps. No decent politician would stand for that.

Mr. Rupert Allason (Torbay)

Would the hon. Gentleman support the Government if they introduced a generous scheme of rebates or discounts for those who live alone? When the council tax was introduced, Opposition Front-Bench spokesmen opposed the granting of such discounts to pensioners and others living alone, but would the hon. Gentleman support the idea?

Mr. Wray

Yes, we would support it—if the Government got it right. but they are giving rebates to millionaires as well. That is why we oppose the idea. We would certainly give rebates to senior citizens, and we are committed to increasing their pensions, for single people and for couples, by £5 and £8 respectively. That is not a lot but it is a start—it is more than the Tories ever gave them. We will also increase child benefit by a few pounds—the Government froze it for many years.

Mr. Thomas Graham (Renfrew, West and Inverclyde)

I am sure that my hon. Friend will agree that since the Conservatives came to power in 1979 Strathclyde has lost more than half its manufacturing jobs—166,000 of them. As a result, repossessions on an unprecedented scale have been taking place in Scotland and our young people have had to go on to the streets because they have no homes —the Government have savagely reduced the money allocated to council houses and the number of available council houses. Does my hon. Friend agree that Strathclyde has suffered enough under this dramatically bad Government?

Mr. Wray

Yes. That is why business people in Scotland and England have been gathering in the past two or three months and saying that they would rather back a Labour Government with sound policies than a Government who do not believe in investing in manufacturing, training, technology or anything else.

I am grateful for having had the opportunity to speak in the debate.

7.4 pm

Mr. Robert Hicks (Cornwall, South-East)

The hon. Member for Glasgow, Provan (Mr. Wray) made a typically robust speech but I am not certain whether his agenda for a Labour Government necessarily coincides with the views of his Front-Bench spokesmen. It is not without significance that the hon. Member for Derby, South (Mrs. Beckett), when describing her interpretation of the sequence of events between 1974 and 1979, did not refer to the role of the International Monetary Fund in determining Labour's financial policies. It was a humiliating experience for this country when the IMF imposed conditions and restraints on us. I hope that that will never happen again, whichever party is in power.

The right hon. Member for Blaenau Gwent (Mr. Foot) mentioned the courtesies of this House. There have been few occasions over the years when he and I have agreed on the remedy for political or economic recovery for this country, but we have always agreed on the urgent need for our football team, Plymouth Argyle, to make an immediate recovery so as to avoid relegation from the second division this year.

No one should ever doubt the need to minimise the adverse effects of inflationary tendencies in the economy. At worst, inflation can devastate an economy and undermine the whole fabric of society. That was the worst experience of Germany after the first world war. Certain countries in the third world are experiencing similar phenomena now.

Under the last Labour Government we experienced inflation rates in excess of 20 per cent. My right hon. and learned Friend the Chief Secretary said that the average inflation in the five years of Labour control was 15 per cent. Due to the external influence of the IMF, restraints were introduced following the wages explosion under the auspices of the so-called social contract. It seems a long time since we went through that experience, but many of my constituents, especially the middle-aged and the elderly, remember the adverse effects. That was undoubtedly an unhappy period.

During a period of high inflation it may seem that people are superficially better off because of pay or pension increases, but we all know from personal experience that few people or businesses are better off. I offer two examples of this; they are of particular relevance given that we may be on the election hustings in the near future. During the mid-1970s, teachers were granted a significant pay increase following the Houghton review. That was to be welcomed; it was an acknowledgment of the work that teachers undertook for society. But within a couple of years the positive advances represented by that pay increase were eliminated by inflation.

Secondly, the effects on people who depended on pensions and fixed incomes were striking. Like my hon. Friend the Member for Cornwall, North (Sir G. Neale), I represent a constituency in which more than 20 per cent. of the electorate fall into that category. I know from my constituency casework at the time how rapidly people's incomes were eroded in real terms. They retired on what they perceived to be a reasonable income, sufficient to maintain an acceptable standard of living. If their pensions, however, were not subject to automatic review —only a minority in those days enjoyed such pensions —they soon found themselves in genuine financial difficulties.

The Government have been right to concentrate on the need to keep inflation under control. There have been variations. At times during the past 13 years, we have been more successful than at others, but since 1979 inflation has averaged about 7 per cent., half the rate under the previous Labour Government.

As my hon. Friend the Member for Cornwall, North mentioned, especially since my right hon. Friend the Member for Huntingdon (Mr. Major) became Prime Minister, we have had to manage the economy against a difficult international background. We have had to take difficult and harsh decisions. It has not been easy for the country as a whole, but the present signs such as average earnings, the level of pay settlements and factory gate prices show that we have become more competitive and thus able to take advantage of any upturn that may occur in the level of world trade and economic activity.

Mr. Graham

Does the hon. Gentleman realise that this Government had an incredible windfall from North sea oil and gas, and from the money they reaped from privatisation? The hon. Gentleman referred to the period of the Labour Government when oil prices quadrupled and we did not have our own oil. We were forced into doing things that we would not necessarily have liked to have done. That was true international pressure. Although the Government have reaped the rewards of oil, gas and privatisation, we still have unemployment raging into the millions. How can the Government continue like that after 13 years?

Mr. Hicks

I know the relative impact made on the constituents whom I have represented while I have had the honour to be a Member of Parliament. I have been a Member of Parliament under two Conservative Governments. Some rather critical remarks were made earlier about the first Conservative Prime Minister under whom I served—the right hon. Member for Old Bexley and Sidcup (Mr. Heath). There is no doubt that when it comes to standards of economic management and to making the best use of the resources at one's disposal, this Government's performance, especially in the past 18 months or so, has been much better than before. I wholeheartedly support the decisions made in the past 18 months.

It has been suggested in the debate that, given the more favourable climate, encouragement might be given in certain sectors to stimulating the level of economic demand without prejudicing the inflation position. Several of my colleagues have made suggestions to my right hon. Friend the Chancellor of the Exchequer. May I suggest three areas in which a modest boost might be given which, in my view, would not jeopardise the Government's counter-inflation strategy? I do not refer to tax cuts because I am not convinced that that is the best way forward now.

First, we must consider carefully a relaxation of the restraint on local authority capital receipts for low-cost social housing and other specialist housing, such as that for the elderly, for the disabled and for the single homeless. If that could be accompanied by a relaxation of the conditions governing eligibility for home repair and improvement grants, it would be helpful for the housing and construction industry and it would have an immediate, beneficial effect.

Secondly, we must resolve once and for all the procedures governing payments to this country from European regional development fund sources. There is still confusion. In the Plymouth travel-to-work area, of which my constituency is a part, there is still uncertainty about whether we shall be able to take up the full allocation under the RENAVAL programme. At present, we have been able to take up only £3.5 million of £11 million. That has still not been confirmed.

Thirdly, many references have been made to the pressures currently placed on smaller business enterprises. If there are surplus funds at the disposal of the Chancellor, there is a strong case for easing the financial overheads placed on the smaller business units through a freezing of this year's projected increase in the level of the uniform business rate. If hon. Members, whether Opposition Members or Conservative colleagues, are criticial of me for suggesting that, I respectfully remind the House that I was the Conservative Member who, when the uniform business rate was discussed in the House, tabled an amendment suggesting that the transitional period for the new arrangements should be extended from five years to 10 years. I could foresee the genuine problems that smaller business units would face in the short term as a consequence of what may well be a desirable, long-term objective.

I am certain that when we come to the crucial day, which may be sooner rather than later, the country will be in no doubt about the respective merits, based on actual performance, of the two major political parties. All Conservative Members have an obligation to ensure that my right hon. Friend the Prime Minister is returned not only with a majority sufficient to give him the ability to form a future Administration, but with a majority large enough that he does not have to worry about the position of the minority parties or about a hung Parliament.

7.17 pm
Mr. Giles Radice (Durham, North)

We have heard a characteristically attractive and honest speech from the hon. Member for Cornwall, South-East (Mr. Hicks). I am sure that he will forgive me if I do not take up all his points, although I will refer to one or two as I go along.

When the Government chose to have a debate on inflation, I hoped that we should learn how a Conservative Government, if elected, would improve on their poor inflation record during this Parliament. I hoped that we should also learn how a Conservative Government, committed to a balanced budget, would justify having a public sector borrowing requirement of more than £20 billion. I hoped that we should also learn how a Conservative Government would get us out of recession. We have heard none of that from the Chief Secretary to the Treasury. Instead, we heard a speech of astonishing vacuity and triviality—a speech almost empty of serious content.

Only a party facing defeat at a general election would have launched such a debate—and in such a manner. Only a Government without a sense of shame would have called a debate about inflation. Of course we all welcome the decline in inflation from its double figures high point in 1990. It certainly demonstrates the effectiveness of the exchange rate mechanism, which many of us have supported for a long time, or British membership of it, as a framework for reducing inflation.

However, the Chief Secretary failed to point out that the Government are responsible for putting inflation into double figures in the first place. As one of my colleagues asked, if the battle against inflation is so important for the Government, how come we have to win it twice?

Sir David Mitchell

Does the hon. Gentleman recall that, when the then Chancellor of the Exchequer was reducing interest rates and making credit easier, which caused the boom to which the hon. Gentleman refers and the inflation that followed, Labour and Liberal Front-Bench Members were calling for him to do even more? That would have stoked up an even higher rate of inflation and caused even worse problems.

Mr. Radice

I am about to refer to precisely that point. The hon. Gentleman has anticipated my next argument.

The right hon. Member for Blaby (Mr. Lawson) used to boast of bringing inflation down to zero, but that was before he and the present Prime Minister, who was then Chief Secretary, allowed the economy to become out of control during the 1987–88 boom. Everybody now agrees that that period was a disaster for the country. Some of us actually said so at the time. I do not want to quote myself, but I shall do so if the hon. Member for Hampshire, North-West (Sir D. Mitchell) wishes.

With respect to the hon. Gentleman, it is not just the mistake of reducing interest rates too sharply in the wake of the October 1987 stock market crash, as the Prime Minister suggested at Question Time yesterday. Many other countries did precisely that, but they then put up interest rates. A much more important factor was the unprecedented explosion of credit and borrowing which followed financial deregulation.

If the hon. Gentleman doubts me, I pray in aid the right hon. Member for Blaby, who said precisely that about a month ago. He pointed out that that was the major cause of what happened. That explosion of credit had the effect of inflating the house market, and it led to a splurge of consumer spending. It was an important factor.

Most objective commentators would agree that another major error was the tax-cutting budget of 1988, which reduced taxes by £6 billion and gave all the wrong signals to the consumer when the economy was already out of control. The result of those crass policy errors was a badly overheated economy, which led to soaring inflation and a record balance of payments deficit.

The Government also fail to point out—we heard nothing about it from the Chief Secretary—the other side of the coin. They have managed to reduce inflation from its high point only because they have also created the longest recession since the 1930s, a recession which is still with us. I was amazed not to hear of that from the Chief Secretary. As we all know, GDP, excluding oil, has declined for six successive quarters since the second quarter of 1990. I hope that we hear less of the humbug about our recession being due to world recession. The Government know that that is nonsense, and they should stop pretending otherwise.

In March 1991, the Government, the Governor of the Bank of England and the Chancellor of the Exchequer admitted to the Treasury Select Committee that the British recession was home-grown. In answer to a question from me, the Governor of the Bank of England said: The recession here is in response to what was undeniably an excessive growth in previous years and what might be called unilateral correction by us. There was nothing about world recession.

The next day, even more significantly, the Chancellor, in answer to another question from me, said: I do not think that there is a world recession. I think it is absolutely true that the main cause and origin of the recession is a response to the very fast growth which exceeded the underlying growth of capacity. He did not blame a world recession; he said that it is a response to our getting the economy out of hand.

In short, our recession was not a response to world factors but was acknowledged, even by Ministers, to be "home-grown", a way of dealing with the inflation that they themselves had caused. It is clear what has happened to the British economy. To bring it back into balance, the Government put up interest rates to record levels. They relied entirely on interest rates because, for ideological reasons, they ruled out putting up direct taxes, as they were urged to do by many commentators.

Reliance exclusively on interest rates took a long time to work. It had malign side effects, particularly on the housing market and investment, and ultimately it plunged Britain into a very deep recession, with all that that means in lost output, redundancies, bankruptcies and rising unemployment.

The real question facing the House and the country is how we bring about a recovery without driving up inflation again. The Government spent more than a year saying that recovery was in sight—just around the corner. We were told that the economy would recover in a natural, cyclical way, as destocking ended and consumer confidence revived. Despite all the optimistic forecasts—many made to the House and to the Treasury Select Committee—and despite all the fine ministerial words, the recovery has simply not arrived. Indeed, Ministers have recently adopted a new formula. They say that the ingredients for recovery are now in place—whatever that means.

If we are to know what to do and if we are to have recovery without putting up inflation again, it is important to analyse what has gone wrong. We cannot blame the recent slowdown in the German and French economies for our own recession or for the slowness of our economy to recover. Indeed, our exports to the EC—we actually heard it from the Chief Secretary—have been one of the few success stories of the past year or so.

The key problem is the reluctance of the British consumer to spend, despite falling inflation and reduced interest rates. The Governor of the Bank of England is probably right to say that consumers may be making attempts to reduce their existing debt holdings in much the same way that companies … have sought to reduce their borrowings. In other words, consumers having taken on an excessive level of debt in the early 1980s—[Interruption.]— I wonder whether the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark), who is speaking from a sedentary position, might listen, because it is a point that he knows very well—are understandably reluctant to take on new commitments. My conclusion is that we cannot, indeed should not, rely solely on the consumer to bring about recovery.

The Government also have a role particularly in fiscal policy, as the Treasury Select Committee has pointed out. In that connection, it has been hilarious to observe the Government, in their dying days, suddenly rediscovering Keynesianism. One would think that the so-called monetarist revolution of the early 1980s, which the hon. Member for Selly Oak opposed, had never happened. I feel quite sorry for some of the devotees of the medium-term financial strategy who are still stranded on the Conservative Benches.

Whatever happened to controlling the money supply? What about reducing public spending or reducing the public sector borrowing requirement? What about balanced budgets? All the things we used to hear about in the 1980s are a thing of the past. We are told, "Don't worry about it." Now we are told that the Government have decided to increase borrowing to pay for tax cuts —"borrowing billions to bribe millions", as my right hon. Friend the Leader of the Opposition has put it. That is deathbed Keynesianism with a vengeance. Indeed, it is living proof that, in Major's Tory party, electoral expediency always comes first.

I believe—here I agree with the hon. Member for Cornwall, South-East—that reducing the standard rate, as the Government apparently propose, is the least effective way of bringing Britain out of recession, and the most dangerous for inflation.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Will my hon. Friend, with whom I sit on the Treasury Select Committee and for whom I have great regard, tell us how increasing taxation on those we need to gear up the recovery will help the economy, them or the future Labour Government for which he hopes?

Mr. Radice

Our top rate of taxation is the lowest in the European Community. I believe that it is sensible for those who are well off to pay a fair rate of tax. I do not believe that they are doing so at present. I do not see any evidence that reducing taxes on the very rich improves the supply side of the economy. All the evidence is that they tend to do less work.

Mr. Beaumont-Dark

That is not an answer.

Mr. Radice

Well, it is an answer that satisfies me, even if it does not satisfy the hon. Gentleman.

Given the problem of personal debt—[Interruption.] I wonder whether I could hold the attention of the hon. Member for Selly Oak for a second—it will not necessarily be enough to encourage people to spend by reducing taxes. Judging from the continuing high figures for imports—despite the recession—even if they spend, much of the money which goes in tax cuts could leak away on foreign goods. Using up public resources on tax cuts means that there is less money for other anti-recession measures and for investment in education, training and research and development—all important items. Above all, the recovery would be insecurely based and inflation-prone. If the recovery was based on tax cuts, it would be a recipe for another round of the stop-go to which we have become so accustomed under the Conservative Government.

If part of the objective is to increase consumer spending, and so bring about a sustained recovery, it would be far more sensible, as well as more socially desirable, to increase child benefit and pensions, as the Labour party proposes. In that way we could at least be certain that a good proportion of the increase would go directly into consumption.

Mr. Beaumont-Dark

Where will the money come from?

Mr. Radice

The hon. Gentleman asks where the money will come from. That happens to apply also to the Government, who propose to reduce the standard rate of tax and pay for it by borrowing. We cannot have any lectures from the Conservative party about financial rectitude when it has amassed such an enormous public sector borrowing requirement. The hon. Gentleman's point cannot be a serious one.

As my right hon. Friends suggest and as the Confederation of British Industry recommends, we will also need to give assistance to industry through investment incentives and the acceleration of infrastructure projects. At the same time, we must make an immediate start on investing in education, training and research and development, thus improving the supply side of the economy. As my hon. Friend the Member for Derby, South (Mrs. Beckett) said, we must look at both the demand and supply sides of the economy if we are to bring inflation under control.

If we are serious about reducing inflation and keeping it down, about creating a recovery and sustaining it and about looking beyond 9 April to seek a long-term future for the British economy, we will need a mixed set of objectives to emphasise not only control of inflation but sustaining growth, increasing investment and creating jobs. We will also need a mixed set of policy instruments. We cannot rely entirely on interest rates, as the Government have done.

Above all, we shall need a balance in the economy, which we have signally failed to achieve in the past five years. On their past record, we shall never obtain that from the Conservative Government. That is yet another reason why we need a Labour Government.

7.34 pm
Mr. David Evans (Welwyn Hatfield)

I make no apology for taking a trip down memory lane, because there are many young people who will vote for the first time in the forthcoming election and I do not believe that they understand what the consequences of a Labour Government would be.

I agreed for once with the Leader of the Opposition when he admitted in one of his habitual gaffes that Labour did not have a clue how to tackle inflation. We certainly know that that is true. I am relieved to find that he and his party have finally come clean on the issue. Therefore, it is not surprising that he goes out of his way to avoid talking about inflation. That probably comes as a huge relief to the right hon. and learned Member for Monklands, East (Mr. Smith).

Anti-inflationary policy is a clear indicator of a party's fitness to govern. Sound money lies at the heart of a stable community. It determines whether a Government can produce the conditions for prosperity or must break their promises. That is why any debate on inflation will quickly spill over the narrow confines of economic theory. Its scope is far wider than that. Inflation is a scourge which harms senior citizens, mortgage payers, people on fixed incomes and especially those with savings. It undermines our ability to export and create long-term employment. Real jobs come from making things that people want to buy at the right price.

Unit costs are paramount. That is something that the Labour party clearly does not understand. Simply to ignore the problem reveals at best a total lack of comprehension of the real world and at worst a gross dereliction of duty. I can think of no greater single threat to the general well-being of the British people than hyper-inflation.

The Government understand the aspirations of working people and business. That is why in the past 12 years we have made the battle against inflation our highest priority. That is why we have more people in work than ever before and why we have more small businesses than ever before. We have proved that economic growth in the United Kingdom can be based only on low inflation. That is why the United Kingdom grew faster than Germany or France in the 1980s. In the previous two decades, we had the slowest growth of the major EC countries.

If inflation goes unchecked, the achievements of British industry are continually undermined. For example, it has been estimated that each additional percentage point of inflation costs business £5,000 million a year—an unacceptable overhead over which the Government have direct control. If inflation is rampant, the confidence of industry is undermined and uncertainty spreads. As companies look no further ahead than the short term, they fail to invest in new jobs and equipment. They begirt to lose their competitive edge.

The Government have given firms the confidence to invest. Today, business investment is almost 60 per cent. higher than it was in 1981. Since 1979, it has grown faster in the United Kingdom than in France and Germany. Furthermore, interest rates rise with inflation. That reduces cash flow, particularly in small companies with a limited ability to borrow. Inevitably, people with mortgages are also hit.

Our membership of the exchange rate mechanism inevitably places constraints on the extent of interest rate cuts. We understand that. Nevertheless, since my right hon. Friend the Member for Huntingdon (Mr. Major) took over as Prime Minister, interest rates have fallen by 5.5 percentage points. Such truths appear self evident to Conservatives. That is why we have been so single-minded in our quest for low inflation. Labour is likely to have more success in the quest for the holy grail. The used and damaged goods which it palms off as economic policy would light a bonfire of inflation, which would become the funeral pyre of the British economy. In the 1970s, Brazil and the United Kingdom once again had two things in common—Ronnie Biggs and hyper-inflation.

Labour claims that inflation can be curbed by introducing credit controls, and that they should be used rather than interest rates. Unfortunately, even after 12 years in opposition, they have not decided what form their credit controls would take. The hon. Member for Dagenham (Mr. Gould) has pointed out that, since 85 per cent. of personal credit takes the form of mortgages, credit controls would have to cover mortgage borrowing if they were to have any impact on overall levels of activity in the economy.

The right hon. and learned Member for Monklands, East disagrees. He wants to inhibit the banks' capacity to lend. It is self-defeating for anyone searching for an alternative to interest rates to argue for direct controls on the quality of money in the banking system.

The Opposition's policy would result in higher interest rates. That has always been Labour's way—it has tried, and it has failed. It is hardly surprising that Labour clings ever more tightly to the exchange rate mechanism. Its recent conversion is the product of blind panic rather than fiscal prudence. It sees the ERM as an answer to all its problems. It is an escape route from tough economic decisions. Someone should be kind and tell those on the Labour Front Bench that the ERM means being willing to accept high interest rates and limits on spending and borrowing—the two things that Labour Members and socialists have closest to their hearts.

Why are the Opposition shy about telling us what they would do if they were in government? If they are not going to devalue, interest rates would have to go up. We all know that that would happen under Labour. Why are Labour Members so shy about it? Why do they not come clean?

Aside from those examples of Labour's kamikaze approach to economics, I am concerned about their taxation rates. It is obvious, even to the most left-wing commentator, that, to meet its multitude of spending policies, Labour would have to increase taxes. The Oppositon have tried to hide that, just as the benevolent drunk buys a few drinks, but their multitude of policy documents remain full of expensive promises for every interest group under the sun.

Labour may no longer be a party of principle, but it is a party of priorities—literally dozens of them, £35 billion of them. The hon. Member for Copeland (Dr. Cunningham) has said that education is the first priority. The hon. Member for Cynon Valley (Mrs. Clwyd) has said that the United Nations aid target is a top priority. The hon. Member for Dunfermline, East (Mr. Brown) tells us that bridging the skills gap will be a priority. The right hon. and learned Member for Monklands, East thinks that growth in investment is the key priority. Labour politicians are reeling off the goodies like over-zealous games show hosts—£35 billion, £36 billion, and so the list goes on.

Treasury Ministers have rightly calculated that Labour's promises amount to an extra £35 billion in public expenditure. Everyone knows that that extra spending will be financed through higher direct taxation—through £20 a week in direct taxation on everyone earning more than £20,000 a year. Do Opposition Members think that 180,000 teachers earn too much? If they do not, why are they going to take another £20 in tax off them?

The Government are in a position to borrow because we have had the prudence to pay back £27 billion of borrowing since 1979. While our public sector borrowing requirement is 1.75 per cent. of GDP, Labour's reached a peak of 9.5 per cent. in 1975–76. It was robbing Peter to pay Paul.

I want my children to hear about the experiences of the 1970s, which show what happens when taxes increase, as they inevitably do under a Labour Government. I recall visiting a supermarket with my wife in the mid-1970s, looking for some Branston pickle. We could not find it because the front of the jar was taken up with price increases which had been stuck on. When we found it, my wife said, "Don't buy the first one, look at the back, because you'll find one cheaper."

Mr. Burt

Since my hon. Friend is taking a trip down memory lane, does he recall the days when there was an overwhelming smell of methylated spirits in supermarkets because the shop assistants were taking off last week's prices and putting on this week's? Does he not fear that that time will return?

Mr. Evans

My hon. Friend is right, although in my case they were not taking the prices off with methylated spirits but just sticking them over the old ones. One could not tell what the product was because so many price increases had been stuck on. If one shopped around for a while, one could cut a lot from the grocery bill by taking products from the back because the bloke had not had time to stick the new price on.

When employers grant wage increases that they cannot afford, they pass them on in higher prices; hence the Branston pickle. The result is a wage-price spiral that benefits no one, except ferry companies and airlines as people scurry to other countries where they can earn a living and not pay ridiculous rates of tax. Add to that Labour's plan for a national minimum wage. Can one believe it? Think of all the youngsters and women with families who want to work. Labour will do away with that, and the price of goods and unit costs will go up. Labour has no consideration for the nation, or for the millions of people who like going to work and like having a part-time job. It is total nonsense.

The Minister said last week that that might cost 100,000 jobs. I think that he has got it wrong and that the figure will be nearer 2 million.

Mr. Radice

Or 20 million?

Mr. Evans

Two million will do.

A socialist Government would hurt the very people it claimed to protect. The worst cruelty of the 1970s was that high inflation robbed pensioners of their lifetime savings. During the nightmare of the late 1970s, there was a 30 per cent. reduction in the value of their savings. It was not until the 1980s that they started to see a decent return on the money that they had spent a lifetime scraping together. I am sick and tired of the Opposition and of the bleeding heart tendency, who try to claim that the moral high ground belongs to them, while advocating policies which would hurt the people that they claim to respect—the unskilled and the low-waged.

When Labour Members were in government, they even resorted three times in five years to taking away the £10 Christmas bonus, yet they tell us that they will look after pensioners. They are going to give pensioners £5 or £8, but inflation will be ripping away at 27 per cent. They took Christmas pudding off the pensioners.

We have created conditions for lasting national prosperity. Since 1979, the average inflation rate has been 7.6 per cent., less than half Labour's comparable figure of 15.5 per cent. Our best figure has been 2.4 per cent.—Labour can only dream about that. The only time that the Labour Government invested in a space programme was when inflation went into orbit.

In August 1975, our inflation rate made us the sick joke of Europe. When I am at home, my children ask me, "Come on; what was Labour's highest inflation rate?" I say, "Have a guess." They say, "10 per cent." I say no. They ask, "11 per cent?" I say, "Sorry." They say, "12 per cent." [HON. MEMBERS: "Higher."] They say, "13 per cent." [HON. MEMBERS: "Higher."] They say, "It can't have been 14 per cent." [HON. MEMBERS: "Higher."] "15?" [HON. MEMBERS: "More."] "16?" [HON. MEMBERS: Morel They say, "Oh come on, dad; you've got to be joking. Was it 17?" (HON. MEMBERS: "More."]"18?" They say, "Make a cup of tea, mum, this is getting silly." When they get up to 20 per cent., they say, "Oh, it can't be true. This must be a joke you're telling us. 21 per cent? 22 per cent? 23? 24? 25? 26? 27? That's unbelievable." The truth is that it is a joke. Here we are now with an inflation rate of 4.1, and the Opposition are still not satisfied.

The current rate of inflation would have had Jim Callaghan and Denis Healey dancing above No. 10. Those two fiddlers on the roof staked their faith and reputation on the social contract, which, because of inflation and greed, was a disaster for this country. Who will ever forget Customs and Excise, railway men, tanker drivers, rubbish collectors and grave diggers going on strike because of greed and because inflation had overtaken them? They had to strike for more money. The National Union of Public Employees and the Confederation of Health Service Employees got the support services on strike. It was a nightmare: everybody was being blackmailed by the unions, the TGWU lot, with their beer and sandwiches in No. 10 at 11 o'clock every morning, when the chant was, "We want more, we want more."

The Chancellor left for Heathrow in his Jaguar, and on his way he found that the IMF, the official receiver, had arrived. It had come to run our country and to tell us whether we would be able to pay for this or that. The Government totally relinquished their responsibility and the IMF was in Downing street telling them how to run the country and look after our people. That is what happened when that lot were in power. The Chancellor finally told us why the IMF was here.

Our policies are tried and tested—and, just as important, we have had the courage to stick to them. In 1981, 364 economists told us that the recession would never end if we continued our policy of reducing inflation but we stuck to our guns and proved them wrong. In 1985, the raising of interest rates to 14 per cent. was highly unpopular, but we faced the unpopularity and inflation came down again. We have the stomach to take unpalatable decisions which will ultimately benefit the country, and we shall continue to do so.

Labour has seen the basis of its economic policy laughed out of every country in eastern Europe. To Labour, a credible economic policy means keeping the IMF out of the Treasury. That would be its sole ambition, so that the IMF was not telling a Labour Government what to do. What better example of that could there be than the right hon. Member for Leeds, East (Mr. Healey) being dragged back from Heathrow? Bookmakers say that they would rather offer odds on the prospect of night following day than on the likelihood of inflation going down under a Labour Government. That is what is known as a racing certainty, and it is also a racing certainty that that lot will not get back into power.

7.54 pm
Mr. Derek Enright (Hemsworth)

I shall continue the stroll down memory lane which was started by the hon. Member for Welwyn Hatfield (Mr. Evans). I recall the winter of discontent in 1978 and I remember my right hon. Friend the Member for Blaenau Gwent (Mr. Foot), who at that time was Leader of the House and the Member for Ebbw Vale, coming to the by—election at Pontefract and Castleford. We told him that I million people were unemployed and that the trade deficit was £500 million. We said that the average interest rate that year was 10.7 per cent., taxes were averaging 34.75 per cent. of people's wages and that 3,000 houses a year were being repossessed. We told him that those things were unacceptable and that we could not stomach them.

My right hon. Friend the Member for Blaenau Gwent is very wise and he said, "I agree, it is indeed bad. But if the other lot get in, it will be even worse." I did not believe him and I have suffered for that. The figures show that there are now 2.5 million unemployed people—1.5 million more than during the winter of discontent. The current trade deficit is £5.6 billion, 11 times what it was when Labour was in power. The average interest rate is 12.4 per cent., 2 per cent. up, and taxes average 37 per cent. of people's wages, almost 3 per cent. up. Worst of all, there have been 75,000 house repossessions. That means that 75,000 families are paying for the Government's ham—fisted attempt to deal with inflation.

Part of my constituency covers Wentbridge and cognoscenti on the Government side will realise that Wentbridge was the home of Anthony Barber. We all know about baby booms and we remember Barber booms. We recall what he did to the economy and what a Labour Government had to do to remedy that. We had to struggle when the price of oil quadrupled, but no Conservative Member has mentioned that. That price increase caused enormous difficulties, but in spite of them we were able to stay below the average rate of inflation in the European Community. That cannot be said of the past five years. Inflation in Britain has increased more than in any Community country. That is appalling.

Sir Gerrard Neale

Can the hon. Gentleman explain why, for the first time since the war, the United Kingdom has lower inflation than Germany and the lowest rate for many years?

Mr. Enright

I do not know where the hon. Gentleman gets his figures, but they are totally wrong. I shall give him some accurate figures on what the pound was worth in 1979 and what it is worth now. Conservative Members have spoken about printing money. In 1979 the pound was worth $2.12, but it is now worth $1.75—an 18 per cent. drop. In 1979 the pound was worth 465.57 yen, but it is now worth 225.5 yen—57 per cent. down. In 1979 the rate for the pound was DM 3.89, but it is now DM 2.88—a 26 per cent. drop. I do not wish to be unfair and admit that our economy has done rather better than some others, especially in terms of currency. Greece and Portugal are two countries that have done worse, and we could certainly look at countries on the west coast of Africa. I congratulate the Government on managing to keep ahead of those economies. It is a pretty poor state when we have to boast of how well we do—

Mr. Radice

Does not what my hon. Friend has said give the lie to the Conservative party, which accuses us of always devaluing the pound? Since 1979, it is the Conservative Government who have considerably devalued the pound.

Mr. Enright

My hon. Friend makes the point with great clarity. The problem for the Government, which is shared by the Liberal Democrats, is that they take a one—dimensional view of the economy. There are no hues or shades; there is no four—sided consideration. The Government come up with one solution at a time. They cannot think laterally—they think in tidy lines.

I shall cite a good example of how the planning and the policy of the Government inevitably lead to inflation—inflation not just this year, but increases being stoked up for 20 years ahead. The Government take an accountant's view, year in and year out. They say, "Is there a little bit of profit this year? Jolly good, let's see if we can get one next year." They do not plan for five or 10 years ahead.

That lack of planning is clearest in the Government's energy policy. There used to be 12 pits in my constituency. I accept that a couple of them had to close because they were worked out—there is no argument about that—but other pits have 30 years' coal reserves. For reasons that I cannot understand, those pits are being closed. Perhaps it is ideology; perhaps it is an inability to think things through. We are gradually being left at the mercy of foreign fuels. We are not looking to the next century—yet, by then, coal will once again have overtaken all other forms of fuel as the principal factor in the production of the energy that we need. There has been no thought of that.

The Government say that they have spent lots and lots of money on the coal industry, and they have. I grant them that. However, that money has been spent not on keeping pits alive, not on clean coal technology and not on getting together with our European friends, but on closing pits and paying off men to get them out of work. We should think of the heedlessness of the Government's attitude towards those who have been made redundant, all in the so—called cause of bringing down inflation.

It does not matter whether those people used to work for the electricity boards or in the pits. Those people are, perhaps 50 and they have their pay—off of £40,000. That is not a lot of money on which to live; it will not do them a great deal of good. They get that money and they think that it will be a bit of a nest egg. They can get out of what is perhaps not a very good environment and they hope to start earning again—but no, they are not allowed on the Government's training schemes. Quite frankly, on some occasions I tell them that they are lucky not to be allowed on them. I can give an example from my constituency about those schemes. A gentleman who came to see me last weekend said, "I went on the training scheme and I was promised that I could train for a heavy goods vehicle licence, but I have now been with the firm for three months and I have spent that entire time delivering packages here, there and everywhere, in a little van on my own." The Government's training schemes are just cheap labour and the Government are subsidising that in different areas. It is appalling.

I prefer to call the minimum wage the just wage. When I was brought up in the Young Christian Workers, we talked about the need for a just wage. We talked unashamedly about the state having a part to play in a just wage—just as all the Christian Democrats on the continent believe. They are happy to accept a just wage. I would accept that challenge, too. Conservative Members know that if they visit a car factory in Germany on a Friday, the workers are not eking out the work to get overtime to help to pay the rent or to pay for a holiday. They say, "We are earning sufficient now. We are proud of our products and we are going to get on with producing them. We want to have as much free time as possible." They get the job done. That is what happens in a high—wage economy.

If we insist on having a low—wage economy, we will have low—value jobs and skills will be wiped out. That has happened. We who have relied upon the textile industry to provide jobs know that only too well. The multi—fibre arrangement was meant to be a form of work swapping. It was intended that people in the industry should move out of it and into high—tech industry so that poorer parts of the world could then develop their textile industries. What happened? Jobs were lost, but there was no positive planning by the Government to bring in new technology.

We know what the Government's policies are all about —they do not put them together. We cannot look at just one thing at one time; we have to deal with education, training, the health service and industry and develop them together. How to get the balance right depends on what is found in the books—and, quite frankly, I am terrified of what we will find in the books.

I want to say a word about the exchange rate mechanism. Both the Conservatives and the Liberal Democrats are rather taken with the ERM. I am sorry to attack the hon. Member for Berwick—upon—Tweed (Mr. Beith) in his absence, but he made certain comments about the ERM. I understand why he has had to return to his constituency; I am sure that my very good friend Gordon Adam will beat him at the next general election.

The ERM does not depend merely on interest rates. Nor, because we are in the ERM, are we so susceptible to the old so—called run on the pound. Conservative Members are living in the old days. The very fact that the new Labour Government will be in the ERM with a commitment, together with the rest of Europe, to bring in the social charter will bring the support that we need from the other members of the European Community. Our determination to do that, which was confirmed to me just a fortnight ago, already impresses people, not from the European Parliament, but from the other member Governments. I am proud of that.

When the Chief Secretary was talking about pretty polly parrots, he reminded me of the Greek story about Echo. She was a nymph who went to Hera, her mother —[Interruption.]

Madam Deputy Speaker (Miss Betty Boothroyd)

Order. It is a historical story.

Mr. Enright

Echo went to her mother and told beautiful tales that entranced her. While she was telling the tales, naughty things were going on. Echo did not realise what was happening, and she kept on telling the beautiful tales and the naughty things kept happening. Hera said, "I will punish you so that everything you say is mere repetition of the last thing said." I was reminded of that because the Chancellor of the Exchequer is very like that. If the right hon. Member for Finchley (Mrs. Thatcher) said, "Poll tax, poll tax", he said, "Poll tax, poll tax"—and then it went down to the Chief Secretary. Every little twist and turn in policy has been followed slavishly. Echo met her end when she encountered Narcissus—who fell in love with his reflection, jumped in the water and drowned. That is what will happen to the Government—and the sooner the better.

8.9 pm

Mr. Alistair Burt (Bury, North)

I enjoyed the speech of my hon. Friend the Member for Welwyn Hatfield (Mr. Evans). He causes amusement among Opposition Members, but that is prompted more by worry than anything else. They know that my hon. Friend the Member for Welwyn Hatfield has his finger on the pulse.

Mr. Barry Field (Isle of Wight)

He is the voice of Britain.

Mr. Burt

Just as my hon. Friend says. When my hon. Friend the Member for Welwyn Hatfield expresses in such clear terms his fears of how Labour would run the country, he knows that many are listening. The appropriate classical analogy is not with Hera but with Prometheus, who was chained to the rock, and every day had part of his liver torn out. That is what would happen to Britain if Labour took office.

I enjoyed the contribution of the hon. Member for Hemsworth (Mr. Enright), but I am sorry that the right hon. Member for Blaenau Gwent (Mr. Foot) is not in his place, for I enjoyed his speech also. He spoke of the knockabout nature of the speech made by my right hon. and learned Friend the Chief Secretary. One always knows when Labour Members are worried, because they refer to "knockabout". Last week, they referred to the speech of my right hon. Friend the Secretary of State for the Environment in those terms, but we all know how much damage it did them. It was a good speech.

Today, my right hon. and learned Friend did not make a knockabout speech but exposed the large gaps in Labour's policies for dealing with inflation. The hon. Member for Berwick—upon—Tweed (Mr. Beith) said that he did not expect to discover in today's debate further question marks over Labour's inflation policies, but did so.

The right hon. Member for Blaenau Gwent went wrong when he referred to the prostitution of this Parliament. That was over the top. The right hon. Gentleman saw his party, Government, and country bend over backwards to allow the trade union movement to take over. That was real prostitution, and the right hon. Gentleman should always remember that.

History teaches us much about the ravages of inflation on not only a country's internal economic development but relationships between nations as a consequence of economic decline and expansionism—with the aggressive nationalism that that often produces—but it is remarkable how little history has taught the British Labour party. Little attention is paid in its calculations to the effect of inflation on the future.

We can all be forgiven for imagining that inflation matters very little to Labour. It appears from today's performance by Labour Front Benchers that they do not appreciate the importance of inflation, which is why they have no policies for dealing with it. As my hon. Friend the Member for Welwyn Hatfield said, that alone should disqualify Labour from ever holding office.

Inflation is arguably the biggest single threat to any economy. It devalues currency over a long period. thus affecting the competitiveness of nationally—based industries, as well as the savings of all—and especially of those on fixed incomes. Investment and savings are the key to this country's recovery from the present worldwide recession. Increasing competitiveness in industry has already been made possible by the Government over the past decade. Higher manufacturing productivity proves that, as does Britain's share of world trade in manufactures, which has increased for the third year in succession.

That performance is likely to improve only in a low tax, low interest rate, and low inflation economy. The raw material for capital investment in industry comes not from Government, as the Opposition so often suggest, but from savings—which are often derided by Labour as unearned income. Try telling those of our constituents who have worked hard all their lives to put a little money away that that is unearned income.

Labour makes no secret of its high taxation policies, regardless of the growing number of economic advisers who support the Government's contention that the way out of the present recession is to encourage lower taxation as a stimulus for industry and higher personal consumption. Labour's taxes on savings would damage the crucial raw material needed for industrial recovery. It is as if Labour was stuck in a time warp—in the 1960s and 1970s—when the world was a different place, and socialism was alive—if not particularly well—and stalking the world with its flawed economic analyses. The world has moved on, but Labour has not—and it persists in following policies that would fuel inflation and exacerbate recession.

Raised public sector expectations were the down fall of the last Labour Government, in the winter of discontent —and Labour is starting that whole process over again. One remembers training levies, interference in business, and higher interest rates. This afternoon, my right hon. and learned Friend the Chief Secretary described, analyst by analyst, the expected scenario of higher interest rates under Labour. He quoted the Confederation of British Industry's assertion that every percentage point increase in inflation rates adds another £5 billion to industry's costs.

A survey by The Financial Weekly found that 87 per cent. of fund managers believe that the Conservatives are better at controlling inflation and that only 3 per cent. backed Labour. In another survey, The Independent on Sunday found that only 5 per cent. of top business executives trust Labour to control inflation, while 91 per cent. distrust Labour's anti—inflation credentials. Those are the very people whom Labour expect to be in the forefront of recovery should it form a Government—but they have no confidence in Labour. Some recovery that would be.

In debating inflation on a larger scale, sometimes we forget to relate it to our constituents. Labour talks incessantly of the need to put money into public services, but appears to have forgotten the connection between that and the need to control inflation. My constituents have not. During the 1974–79 Labour Government, as inflation went through the roof and the country moved towards bankruptcy and the International Monetary Fund, the Government had great plans for my constituency, as for many others. The effect of the catastrophic situation that Labour Government brought upon themselves turned those dreams to nightmares.

We saw first restrictions on local government finance. I quote from a 1975 circular entitled "Local authority expenditure: Financial Planning 1976–77". It required local government expenditure to go on standstill for the following year. Bearing in mind the rate of inflation then, standstill meant real reductions in expenditure. Paragraph 7 of that document stated: But there will inevitably be a reduction in the standard of local services. Paragraph 12 added: Those local authorities that have already allowed children to be admitted full time to infant classes on reaching the age of 4 should review this policy in the interests of economy. Rising 5s should not be admitted unless they make no additional call on educational resources. So much for Labour's current plans on nursery education for all. Labour promises, but it cannot deliver. That was the reality when Labour was last in government, and it would be the reality next time.

If that were not bad enough, I will describe the effect of the last Labour Government on Bury's health services. For the first time since the inception of the NHS in 1948, expenditure fell in my constituency between 1974 and 1979, by 2 per cent. The effect on services can be imagined. Capital expenditure plans were reduced, and the general hospital for which my constituents had long waited had to wait for a Conservative Government before it was built.

That is what inflation means in practice. If one lets the economy run into the sand, one cannot do what one has promised. Local authority and health services were badly neglected in my constituency. Labour cannot deliver the caring services that it is always talking about.

If the control and conquest of inflation in the past has had an effect on my constituency, I hope that, once we are through the present recession, firm control of the economy will have a beneficial future effect for not only my constituency but for the development of Conservative thought and policy as we head towards the year 2000.

In the past, I have made no secret of my concern about the fact that, from time to time, the Conservative party in government has become over—identified with an economic rigidity that extends far beyond its normal remit. The market philosophy, while of enormous benefit in its own sphere, can be inappropriate when applied to other aspects of life. I have always believed that economics is a good friend of Governments, but not always the best master.

Unlike the Labour party, the present Conservative Government have always understood that conquering inflation gives the firmest base to the economy. Only firm control of the economy gives a Government the opportunity to put into practice the other policies—the social policies—that are a necessary adjunct of any modern Government. In a sense, traditional Conservativism has seen off its greatest enemy: an outdated and fatally flawed socialist theory of both society and the economy. At the hour of its greatest triumph, however, it is important that modern Conservatism is not sabotaged by a laissez—faire market capitalistic model that would threaten to undermine the social consensus that has grown up in the United Kingdom.

In my view, that social consensus has much in common with the German social market philosophy. It recognises the essentially free-market nature of capitalism, but it also recognises its limits, and its need to be controlled from time to time. If socialism is finally to be defeated, we must ensure that everyone in the country has a stake in what modern free—market economics can produce for the country as a whole.

That means that the next Conservative Government, as well as committing themselves resolutely to the firm control of inflation and the management of the economy, must ensure that they continue to strive for solutions to the major social problems of our time. They must be determined to make the reduction of unemployment a priority. They must be determined to break down further the apathy and inertia that can often blight the lives of many people on our public housing estates. They must continue the initiatives that are being launched by my right hon. Friend the Secretary of State for the Environment in relation to inner cities. They must continue, and intensify, their work in relation to the homeless, and must redouble their efforts to ensure that no one is left out of modern society because of lack of opportunity to improve educational skills, before and after leaving school.

The next Conservative Government must also continue to ensure that modern industrial society looks at the pollution caused by the processes of the 19th century with a 20th—century eye, so that growth and production are not incompatible with a high quality of life.

Many factors are needed to combat the social problems that affect not only this country, but many countries in modern society. One is the absolute determination and commitment of the Government of the day—and I am convinced that a Government led by my right hon. Friend the Member for Huntingdon (Mr. Major) will possess that determination. A second is the economic means to combat the problems—an economic base that can be achieved only through the firm control of inflation. I am convinced that only a Government led by my right hon. Friend can do that.

Labour's lack of consideration and understanding of those issues has damaged my constituents and the country in the past. We must ensure that it does not have the chance to do the same again.

8.22 pm
Mr. Paul Flynn (Newport, West)

The hon. Member for Bury, North (Mr. Burt) referred to the "prostitution" allegation made, quite fairly, by my right hon. Friend the Member for Blaenau Gwent (Mr. Foot). I congratulate the hon. Gentleman. On the last occasion when we spoke together in a debate, he took a courageous step by not supporting his party—the Government—and taking a stand on its atrocious decision not to back the timely, if overdue, attempt to ban the sale of tobacco products in Europe. The hon. Gentleman said no to that, and the decision fell in Committee.

If we are to discuss who is prostituted in the House, perhaps we should examine the difference between the two sides. Unlike many other Opposition Members, I am not supported or sponsored by a trade union, a commercial organisation or any other body. Unfortunately for Conservative Members, I believe that the Government's craven decision—which has since been reinforced—not to back the attempt to reduce the amount of smoking among young people, when we know that the tobacco firms are deliberately concentrating their £100 million advertising campaign on the young, is largely due to the fact that Conservative Members have prostituted their position in the House.

The figures are telling. Although Conservative Members repeatedly speak of Labour Members' being in hock to the unions, the truth is very different. Only 17 Opposition Members are paid advisers to trade unions, and even if we include all the others with paid involvement, the total is only 14 per cent. As for Conservative Members, 85 per cent.—

Madam Deputy Speaker

Order. The hon. Gentleman is straying very far from the motion.

Mr. Flynn

I shall come back to the motion, Madam Deputy Speaker, but I think that the matter needs—

Madam Deputy Speaker

Order. I hope that the hon. Gentleman will come back to it immediately, because he is very far from it.

Mr. Flynn

This preposterous motion asks us to congratulate the Government on the terrible state in which we now find ourselves. The speech with which the Chief Secretary opened the debate began with a joke about a parrot and ended with a joke about a haggis; there was very little in between. In their pre—election tension—hysteria, even—the Government seem to feel that the answer to all their problems is to put on cheap vaudeville acts at the Dispatch Box: we were given another of those last week.

The Government have begun to believe their own mythology. The hon. Member for Isle of Wight (Mr. Field) talked, quite erroneously, about the difference between the interest rate in this country and that in Germany. What we have now is not the best interest rate in Europe, or among similar countries; we have just about got down to the average—but at what an enormous cost, in bankruptcies, soaring unemployment and the collapse of the housing market.

Only today, we have learnt from an authoritative organisation that 2.5 million households are struggling with debt. According to its report, many people suspected that that was so, but only now is the seriousness of the position recognised. At least one of the main determinants has been the Government's decision about the social fund, which meant that those in desperate need were given loans —or, if they could not repay such loans, received nothing. All those families have become caught up in a cycle of debt that overshadows their whole lives. Instead of living life to the full, they find that their every action and decision is determined by their debt level.

A new and vulnerable group of debtors created entirely as a result of the Government's policy are the 15,000 pensioners who have taken on home income bonds. One of the principal brokers of such bonds was the West Bromwich building society. They were sold in the atmosphere of euphoria that followed the 1988 Budget, when the banks were infected with the general mood of optimism. I believe that many of the bonds are fraudulent.

A typical example is a lady in my constituency. Her home was worth £47,000, and she took out a bond that was described to her as a high-interest bond. What she was not told was that it was a high-risk bond, and that the sum was on loan. That happened only two years ago. The lady was in her early 60s when she took out the bond. If the debt continues until the year 2015, she will owe the building society £1.5 million. I believe that that is a fraud. Two years into the bond, that lady now finds that the value of her property has fallen from £47,000 to £40,000, and that her debt has increased to £35,000.

People who have been prudent all their lives, and have bought their own homes, have been offered such deals and have suddenly been faced with the dreadful prospect of homelessness and all that goes with it—for their local councils have no houses to put them in. The Government were responsible for the sudden boom in house prices. Their policies were responsible for the following loss in confidence. Conservatives have repeated their parrot cry tonight—it amounts to a mantra—that a Labour Government would lead to high taxation. It is one of the many myths that they put about. [Interruption.] Let me remind the hon. Member for Lancaster (Dame. E. Kellett-Bowman) who is making noises over there and who I am sure will be happy to intervene—

Dame Elaine Kellett-Bowman (Lancaster)

I merely said that I do not think that people should risk it.

Mr. Flynn

Perhaps they should not have risked a Tory Government. It is because of what has happened under the Conservative Government—I shall be happy to give way to the hon. Lady if she can deny it—that we have the highest taxes that we have ever experienced.

The arithmetic stares us in the face. In 1979, total tax under Labour amounted to 34.25 per cent. It has now risen to 37 per cent. The Conservative party is the party of high taxes. What the Government have done, however, is to shift tax from the more visible area—income tax—and put it on to value added tax and national insurance, where the burden is less obvious. People are therefore less aware of the tax burden that has been imposed on them.

Dame Elaine Kellett-Bowman

The hon. Gentleman does not refer to what the Government did as a result of their tax policy. When we reduced the 98 per cent. tax rate that had prevailed under Labour, we encouraged energetic people to return to this country from abroad. Therefore, we increased the tax yield from a much lower rate of tax. If the Labour party were to get in, people would immediately flee this country and a lot of effort would be put into evading tax instead of into productive employment. We have levied tax from a vastly increased number of high earners. That has led to more money being put into the national health service, education and pensions. That is what we have done with the increased tax yield from high earners.

Mr. Flynn

I am grateful to the hon. Lady, but that is a different point. The Conservative party is the party of high taxes. They have increased national insurance from 6.5 per cent. to 9 per cent. and they have increased VAT from 8 per cent. under Labour to 17.5 per cent. Those are penal tax increases.

In a few weeks' time, the Labour Government will introduce fair national insurance rates. If a person is on an average wage of £13,000 to £15,000, he or she pays 9 per cent. in national insurance. If somebody is earning £76,000 —I understand that that is the Prime Minister's salary—he or she pays 3 per cent. If somebody is earning a salary equivalent to that of the editor of the Daily Express, which I understand is about £200,000, he or she pays less than 1 per cent. It is inequitable that the national insurance burden should fall most heavily on those on average or just below average wages. The next Labour Government will ensure that that tax burden is shared fairly and more evenly.

Dame Elaine Kellett-Bowman

Has the hon. Gentleman taken into account the fact that the recent pay settlement for teachers means that 150,000 teachers will have to pay an additional 9 per cent. in national insurance contributions? Is that not most inequitable? It will lead to a great many people deciding not to enter the teaching profession. Nurses, hospital workers and policemen will also be caught by the additional 9 per cent. national insurance contribution which forms part of the Labour party's policy. It is the only part of their policy of which we are absolutely certain.

Mr. Flynn

Once again, the hon. Lady repeats the mythology that is printed in the tabloid press. That is the tabloid version of what the Labour party will do. As for what has been referred to as tax on unearned income of £30,000, again there will be a levelling up. The tax system is unfair and inequitable. Does the hon. Lady believe that we should maintain a system that places the highest tax burden on the lowest earners? I am sure that she does not believe that we should.

Reference has been made to business failures. One of the saddest sights during the recession has been the number of companies going into liquidation. Inflation, the obvious reason, is not the main cause of companies going into liquidation. It is indefensible that the Government have failed to control the main cause of business failures in my constituency and many other parts of the country. I refer to the insolvency laws and the Government's failure to control those parasites in business who make a habit of going into liquidation.

I give as an example a company owned by Mr. Brian Walker in my constituency. Nine of his companies went into liquidation. Six of his factories caught fire. That gentleman has built up debts amounting to more than £1 million, but he would say that he has no debts at all: that only those companies had debts. As the debts are corporate, not personal, debts he can carry on and not be declared insolvent or be disqualified from carrying on a business. What both he and many other people do is form a company and run up huge liabilities. They then unload the assets of those companies into a lifeboat company, after which those companies are put into receivership. They then leave their debts behind them.

Madam Deputy Speaker

Order. I have to call the hon. Gentleman to order once again and remind him that he ought to look at the substantive motion and the amendment. I am not hearing very much about inflation from him at the moment. Perhaps he will come back to that.

Mr. Flynn

The subject of bankruptcies has been raised during the debate and—

Madam Deputy Speaker

Order. It may well have been raised, but not while I have been in the Chair. I am sure that the hon. Gentleman is not challenging my ruling on this matter.

Mr. Flynn

I would not dream of doing such a thing, but I am afraid that we have been the victim of the average chairmanship throughout most of the debate and I now realise that—

Madam Deputy Speaker

Order. I insist that the hon. Gentleman should now keep his remarks either to the amendment or to the substantive motion.

Mr. Flynn

Thank you, Madam Deputy Speaker.

The arguments about the rate of inflation advanced by those who sit on the Treasury Bench show a certain loss of memory. The speech of the hon. Member for Welwyn, Hatfield (Mr. Evans) was laced with stories gleaned, it appears, from Christmas crackers, which led to hysterical laughter from his hon. Friends. He did a pantomime turn on interest rates and the levels of inflation. It is right to point out to Conservative Members that there was a time, painful though it may be for them to remember it, when inflation rose to 22 per cent. under this Government. That was in May 1980. I see that the hon. Member for Canterbury (Mr. Brazier) is looking at me in astonishment. That was no joke. The rate of inflation was stoked up by the Government. Contrary to the promises that the Conservative party made in its election literature not to increase VAT, as soon as it got into power, it stoked up inflation by 4 percentage points.

The second boom, which led to another bust, was stoked up in 1988 by the totally irresponsible Budget of the right hon. Member for Blaby (Mr. Lawson), the previous Chancellor. The Chief Secretary to the Treasury said that he wanted credit for all that the Government have done. Perhaps in the reply to the debate the Government will tell us how much credit they claim for the position that we are in.

I gave them a model to work on. It was from a man greatly revered in the House by those on the Government Front Bench when they were all "Yes ma'am, no ma'am" Ministers and Sir Alan Walters was an adviser to the previous Prime Minister. His assessment was that the world recession was 30 per cent. to blame, as one would accept. It is more difficult for Britain to get out of recession because of the position in the rest of the world. No reasonable person would pretend that that was not the case. Sir Alan Walters said that the Government were mainly responsible for the recession. He apportioned the responsibility at 70 per cent. to the Government's mismanagement of the economy and 30 per cent. to the world recession.

I do not know whether those on the Treasury Bench wish to be more ambitious and claim even more credit for it, but it would be nice to know how they apportion blame in the argument about black and white—world recession and British recession. I know of no commentator who does not agree that the Government's policies are responsible. The hon. Member for Pembroke (Mr. Bennett) once criticised the right hon. Member for Blaby as the man who had got us into this mess. That was recorded in an early—day motion. If it is understood that the problems are the result of the actions and the unfortunate Budget of the right hon. Member for Blaby, why on earth do not Conservative Members recognise that?

We are told that unemployment is a price worth paying. That is nonsense. Even in the Government's fiddled figures there is enormous unemployment. For example, one lady works as a cleaner in the Palace of Westminster in the early morning, at St. Thomas's hospital in the afternoon and occasionally in the evening in a hotel bar. She is one person receiving three low wages. According to Government figures, she is three people, because they count her three times in the employment figures. Again, the hon. Member for Canterbury looks astonished, but that is right. That is part of the mythology of the Government's figures. We have heard in the debate that there are more people in work than ever before. That is nonsense. There are more people in the job count, because many people are counted several times.

My right hon. Friend the Member for Blaenau Gwent made a telling speech. I shall end by reminding the House of what he said, because it was apposite. He quoted the words of Pope. We will be meeting in the House in a few months' time with many absentees from the Government Benches. My right hon. Friend said that we might well feel that the spirits glide here And haunt the places where their honour died. The motion is one without honour.

8.43 pm
Mr. Conal Gregory (York)

I wish to address the important subject of inflation from the historical perspective, its current relevance and in the context of the family and employment in York.

In the historical context, under the last Labour Government the average rate of inflation was 15.5 per cent. Sadly, as I think all economists, even socialist ones, would admit, inflation rose in 1975 to a peak of 26.9 per cent. I trust that that will go down in the history books and that we shall not see it happen again, even as a footnote. It was a real warning to the country.

The underlying rate of inflation in December was the lowest since 1969. Only a month ago, in January, the inflation rate was 4.1 per cent. As my right hon. and learned Friend the Chief Secretary said earlier, that is below the average for the European Community and for the OECD. Those welcome figures have been achieved against opposition by the Labour party and by the Liberals throughout. Every anti—inflationary measure taken by the Government has been opposed.

Inflation is not a significant part of current socialist philosophy. I followed with interest the party conference of the socialists in 1991. In the major speeches made on that occasion by the Leader of the Opposition, I could find no reference to inflation. That shows the interest of the socialists in inflation.

Rather than talk in the abstract, I should like to deal with how inflation affects one part of the economy. In that context, I shall take my constituency of York. Low inflation benefits the elderly, who were the subject of my maiden speech. The savings of the elderly now count for something, but they were eroded in times of high inflation. Those on fixed incomes, often forgotten by political parties, now find that their incomes count for something.

Mortgage payers, about whom we are concerned constantly, are purchasing their homes but there was a period of hyper-inflation—at over 26 per cent. under Labour—when it made no sense for people to take on that long—term commitment for 20 or 25 years. The Government, who have stood firm on the right of tenants to buy council accommodation, know that it makes sense for people to be able to develop that nest—egg and pass it on to future generations.

As regards exporters and their employees, the only opportunity for big international exporters such as Nestle, Rowntree, Terry, and British Rail Engineering Ltd. to develop a sound national base is to look further afield for markets, not just in Europe but worldwide. Those markets will be eroded if we have hyper-inflation at home. If we have low inflation, companies will not have to increase prices three or four times a year, with the consequent: high prices that have bedevilled us.

Employment has not been explored adequately in the debate. One praiseworthy aspect of low inflation is the numbers who have moved into employment. Since the last election, unemployment in York has been reduced by 24 per cent.

The fastest growth area of the economy, not only nationally but in York, is tourism. Because people have more money in their pockets as a result of low inflation, that disposable income can be spent on tourism.

Finally, employment in York has benefited from construction. When there is low inflation, it is worth while for companies to extend their properties, as has happened with General Accident, whose premises are close to the River Ouse. Because the company has additional responsibilities and has taken on additional employees, it has had to extend its building.

I contrast that good record with what would happen under Labour. Higher inflation is a concomitant of socialism and would come about through the artificial minimum wage. A number of economists have said—I believe that they are accurate—that it would raise prices by 3.5 per cent. over three years. Higher inflation would also be caused by the social charter. That is Euro-speak and Euro-engineering. The training levy proposed by the Labour party would add significantly to inflation. Higher state borrowing would require private companies such as those I have mentioned as well as those in the state sector to increase inflation. Higher interest rates would result.

I must draw to the House's attention the unrealistic hopes of the public sector. The Association of Locomotive Engineers and Firemen and the union that used to be known as the National Union of Railwaymen, both of which are well represented on the Opposition Benches, have expectations way beyond the level that could be paid for by British Rail or by the users of British Rail. Those artificial expectations would be raised under a socialist Government.

Also, the red tape, especially in employment matters, caused by the Opposition's proposals would strangle business and would increase costs. The black economy would also be encouraged. People would think that there was little point paying one's full taxes if there was high inflation. The black economy would rise to monumental proportions.

I shall try to be as charitable as I can, but the socialists believe that there should be a wider public sector, and that through that there would be a larger economy. In fact, it would simply mean that costs would rise artificially and excessive spending would lead to increased inflation.

In contrast, the Conservatives have safeguarded public services. For example, from 1964 to 1970, investment in the railways fell by 57 per cent. in real terms under a Labour Government. It rose by 48 per cent. under the Conservatives from 1970 to 1974. It rose by only 13 per cent. under Labour from 1974 to 1979, and it has increased by a staggering 55 per cent. in real terms since 1979. Therefore, we can have low inflation at the same time as good services.

If the Labour party is to safeguard the economy by borrowing, it would have to sell gilt-edged securities at a high level. That would raise inflation. It would also increase taxation. I hope to hear from the Opposition Front-Bench spokesman that the Opposition's proposals would mean raising the basic rate of tax by 10p or 15p, abolishing the ceiling on national insurance, raising the top rate of income tax back to 50p in the pound and reducing the value of many tax reliefs and allowances, as well as imposing a swingeing 9 per cent. surcharge on savers. The Labour party believes that high wages would restore living standards. In fact, they would lead to higher prices—

Mrs. Beckett

I am sorry that I have not had the pleasure of listening to all the hon. Gentleman's speech, but I am struck by his remark about a swingeing 9 per cent. surcharge on savers. I am sure that he will be aware that what we propose is a 9 per cent. charge on investment income above £3,000 and on investments per person at well over £30,000. I am sure that he was a Member of the House when, in 1988, the Government withdrew all help with housing costs from those with capital of £8,000. Today, help with housing costs is lost to those with capital of £3,000 per unit—that could be a couple. In other words, the hon. Gentleman was a Member of the House when the Government really penalised small savers, who have to be those on the lowest incomes or they would not be eligible for consideration in these matters. So we do not need any lectures about penalising savers from the hon. Gentleman.

Mr. Gregory

I am delighted that the hon. Lady has confirmed that there would be a tax of that nature on savers. She sidestepped the important point that high inflation under Labour eroded the value of people's savings by one third. I would not want to face the electorate of Derby, let alone York, with that appalling track record.

I should like to pursue this further, but time does not permit me. The important point is that Labour would continue to be the party of high inflation, which would affect the interests of the public sector and the vast majority of employers and employees. The defeat of inflation continues to be the core of the Government's economic policy, and in that way we shall ensure a sound and prosperous Britain.

8.55 pm
Mr. Thomas Graham (Renfrew, West and Inverclyde)

Some time ago, I asked Ministers to tell us the price of certain basic foods, and none of them could do so. Can the Minister tell me the price of a pint of milk, a loaf of bread, a tin of beans or a 3 lb bag of potatoes? I should be delighted if he could do so. If he cannot, I must tell him that pensioners, the unemployed and everyone in the country has to purchase those goods to survive. If the Government do not know their cost, they should not be sitting here hypocritically debating inflation.

The Government's attitude to inflation worries me. Their methods of driving down inflation have put 3 million people on the dole. Not long ago, I spoke to a young unemployed man with a family of three. I asked him what was the most important consideration to him. He said, "Obviously, Tommy, taking care of my family, ensuring that we can purchase our groceries, pay for heating and children's clothing and ensuring that our children go to school and are educated." Today that man needs a job. The Government are concentrating on low inflation, but they have thrown millions on the dole.

Inflation is important, but the right to a wage is even more important. I am convinced that the young family to whom I spoke would have liked to earn an average wage, even if it meant a 10 per cent. increase in inflation. I hope that the Minister understands that the right to work is an important part of the fabric of life in Britain. The Government have been so blinded by inflation that they do not see the realities of life. Their policies have driven people into the most abject poverty imaginable to mankind. Britain is supposed to be a high—technology country, but thousands of companies in Strathclyde have gone to the wall. Manufacturing industry has been decimated. In the Strathclyde regional council area alone, 166,000 manufacturing jobs have been lost—more than half its manufacturing base.

Those are mind-boggling figures, yet the Government, who tell us that they are concerned about inflation, are allowing our manufacturing base to go to the wall. If those manufacturing companies were kept open and their workers employed, perhaps we could have zero inflation. I agree with my hon. Friend the Member for Glasgow, Provan (Mr. Wray) that it is madness to go for zero inflation. The Government know what I mean by that, so I shall not spell it out.

For the past 10 years, the Tory Government have promised miracle after miracle. The only miracle is that they are still in office. Unemployment is 2.6 million—9.2 per cent. of the work force. Who do we blame when nearly 10 per cent. of our modern society's work force are unemployed instead of making this country a good and fit place to live? Who can believe that 9 per cent. of the work force are unemployed when our schools are falling apart, when there are pot holes in our roads and when hospitals are collapsing? We need regeneration to improve the fabric of our society. We need restructuring—now. After 13 years—

Madam Deputy Speaker

Order. I must call the hon. Gentleman to order. I refer him to the amendment and the motion, which deal with inflation. If he referred to inflation from time to time, he would keep himself in good order.

Mr. Graham

I take your point, Madam Deputy Speaker, but I am saying that although the Government are obsessed with inflation they are not tackling its root causes. They should ensure that Britain has better infrastructure and a manufacturing base.

I am sure that your house, Madam Deputy Speaker, is nicely furnished. Before furnishing a house, one must decorate the walls and ensure that the floor is secure, that there is water in the taps and that there is a bathroom to flush the waste away. What I am saying to the Government is that they do not have a bathroom to flush the waste away. There is no water to drink for refreshment and no electric current to get the nation going again.

The economy contracted by 2.5 per cent. in 1991—the worst calendar year since the depression of the 1930s. My mother was unfortunate enough to be a young person in that depression in Scotland, but she remembers very well that when someone took ill the people in the close gathered up sixpences to pay the doctor, who came along and did the business. That was how society behaved in the depression of the 1930s.

The Government's drive towards private medicine is preventing many people from getting proper treatment, yet the Government think that inflation is the main problem. What they are doing to the country is savage. Manufacturing investment in 1991 was down 14 per cent. Britain is the only EC country where manufacturing investment is lower than in 1979. The sum of £30 billion in manufacturing investment has been lost because the Government have failed to make such investment at the same rate as Labour. Investment in the whole economy is down 11 per cent. In 1989, the Government spent 0.52 per cent. of the national wealth on civil research and development, compared with 0.92 per cent. in Germany, 0.86 per cent. in France and 0.66 per cent. in Italy. Since 1979, revenue from North sea oil has amounted to more than £100 billion.

Those figures are an indictment of the Government. They have squandered the revenue from North sea oil, which has been dug out in the most savage weather conditions by workers who have seen their compatriots thrown on to the dole. That revenue should have been spent on education, health, training and industry to get everyone back to work.

I ask the Minister to please stop squandering and privatising the nation's wealth. The public built the companies that the Government have given to their friends in the City. The general election will not be long. The time has come when the people of Great Britain want to take back what rightfully belongs to them, not to the Government's rich friends. We should be looking after people who are in need, in hospital and on the dole, and people who are unemployed and handicapped. The Minister should hang his head in shame. I have told him that until I am sick and tired—

Madam Deputy Speaker

Order. I have heard enough. If the hon. Gentleman will relate his comments to inflation, I shall listen. If not, he must resume his seat.

Mr. Graham

I have related my remarks to inflation. The Government have mismanaged the economy, inflation and every part of our society. I am delighted that it is not long until the general election when we can show them what is what.

9.5 pm

Mr. Nicholas Brown (Newcastle upon Tyne, East)

Not only are the Conservatives absolutely useless in Government but it is pathetically clear that they are not shaping up as very much of a parliamentary Opposition. They are struggling to get the hang of holding Supply days. They choose the wrong topics and the wrong decade. Government business managers have recently held Tory Supply days on taxation, privatisation, industrial relations, and now inflation. In his excellent speech, my right hon. Friend the Member for Blaenau Gwent (Mr. Foot) said that that was merely an election stunt but, having considered the topics that they have chosen to debate on their four Supply days, it is clear that they are getting ready to fight the 1979 election rather than the one that is coming in a few weeks.

Do the Government want to debate the recession? We could talk about the longest and deepest recession for 50 years. Do they want to debate unemployment? We have experienced the highest rise in unemployment since records began. Do they want to talk about record mortgage repossessions, business closures, the lack of economic growth or rising crime? No, the Conservatives do not want to discuss those issues. Their choices for debate are tangential and even when discussing the topics that they have singled out for our attention, they spend most of their time attacking a fictional version of the previous Labour Government's record or an invented and highly speculative version of what they allege will be the next Labour Government's record.

Before dealing with current affairs, I must respond to the case made by Conservative hon. Members against the previous Labour Government. I have sat through most of this debate. Has anyone heard any Conservative hon. Member mention, let alone praise, Mr. Anthony Barber? My hon. Friend the Member for Hemsworth (Mr. Enright) remembers Lord Barber, the Tory Chancellor, whose monetary policies in 1972 and 1973 stoked up inflation for the incoming Labour Government. That incoming Labour Government inherited inflationary pressures in the economy from the Barber regime and then had to tackle the quadrupling of world oil prices.

The Labour Government cannot be blamed for Anthony Barber or for the quadrupling of world oil prices. The 1974–79 Labour Government deserve credit for getting inflation down to below the average of the Twelve in the European Community. As my hon. Friend the Member for Glasgow, Provan (Mr. Wray) said, they did not have the benefits that North sea oil brought to the Conservatives in the 1980s, yet Labour never had a manufacturing deficit. The Conservatives have had one every year since 1983.

Labour ran a higher annual growth rate of 2 per cent. compared with 1.75 per cent. under the successor Tory regime. Mortgage rates under Labour averaged 10.75 per cent. compared with the 1979–92 Tory average of 12.65 per cent., yet the Conservatives claim to be the party of the home owner and pretend that we are not.

Under Labour our share of the world's major manufacturing exports rose from 8.5 per cent. in 1974 to 9.1 per cent. in 1979. By 1984, the Conservatives had got that back down to 7.5 per cent. If investment in our nation's manufacturing base had continued at the same rate of growth as under the Labour Government an extra £30 billion would be invested in manufacturing industry in Britain today.

Instead, it is pitiful that manufacturing investment today is lower than when the Conservatives came to office. We should remember that all this took place under a Labour Government committed as a matter of policy to bearing down on unemployment. In 1979, Saatchi and Saatchi hired actors to pretend to be unemployed workers in a poster campaign with the slogan "Labour isn't working". There is no need to hire actors now. The Employment Gazette shows that—without exception—for every single year the Conservatives have been in office the annual average percentage rate of the work force unemployed has been higher than it was under the last Labour Government.

In 1979 the Tory election slogan implied that the Conservatives wished to reduce unemployment. What they have actually done is to maintain it at considerably higher levels every year for the past 13 years. Truly is it said that "Unemployment is nature's way of telling you that you voted Conservative"—

Sir Gerrard Neale

If what the hon. Gentleman says about the Labour Government at that time is correct, perhaps that would explain why there was a sterling crisis under that Government which forced them to devalue. Does the hon. Gentleman put it down to coincidence that both the Labour Governments before the one under discussion had sterling crises and had to devalue?

Mr. Brown

The hon. Gentleman is trying to rewrite the history of the last Labour Government. Conservative Members always try to depict that period as a grim disaster. It was nothing of the sort. There was much to praise in the last Labour Government's programme, especially given the problems with which they had to deal. The two major problems were inflation, which had been stoked up by the previous Conservative Government led by the right hon. Member for Old Bexley and Sidcup (Mr. Heath) and Chancellor Barber; and the quadrupling of world oil prices. How that Government conducted themselves must be seen in that context.

Mr. Radice

Is it not also true that since 1979 the pound has considerably depreciated against the dollar, the yen and the mark?

Mr. Brown

My hon. Friend, who made an excellent contribution to the debate, hits on a good point. Ministers do not come to the House and explain their depreciations of the currency. I recall the Prime Minister saying that the Government had no higher duty than to maintain the value of the currency; he did not go on to explain why he has not done that.

Mr. Maples

I am sure that the hon. Gentleman does not want to mislead the House about the exchange rates. The value of the pound against an average basket of foreign currencies is the same now in real terms as it has been for the past 12 years.

Mr. Brown

The Minister asserts that having first carefully picked his basket of currencies—without referring to the dollar, the yen or the mark, which would have constituted a more relevant comparison.

When discussing anything that has happened since 1979 it is official Government policy to blame someone else for the shortcomings of the past 13 years, but I did think it a little disloyal of the Secretary of State for the Environment to come to the House last week and to blame the rest of the world—in a much better speech than the Prime Minister would have made in similar circumstances. I hasten to add that I make no such charge against the Chief Secretary.

In the 1979 election manifesto, the Conservative party included a section sternly headed, "The control of inflation". It said: To master inflation, proper monetary discipline is essential, with publicly stated targets for the rate of growth of the money supply. At the same time, a gradual reduction in the size of the Government's borrowing requirement is also vital. The Conservatives, we note, did not mention a gradual reduction in the public sector borrowing requirement being vital over the cycle.

To the Conservative party led by the right hon. Member for Finchley (Mrs. Thatcher), a gradual decline in the PSBR was vital—full stop. History, alas, does not record whether the present Prime Minister and Chancellor of the Exchequer were dissenting voices in those days, but I suspect that they were not. I will lay odds—which would have been attractive to the hon. Member for Welwyn Hatfield (Mr. Evans) who spoke earlier—that the present Chancellor never had the nerve to say to the right hon. Member for Finchley what he said in Treasury Questions last November. When asked how he would pay for borrowing, he said: We shall pay for borrowing by borrowing—that is the normal way in which one pays for it."—[Official Report, 28 November 1991; Vol. 199, c. 1062.] I must try that out on my bank manager. I do not think that it will work with him and I am certain that it would not have worked with the previous Prime Minister. It shows how times have changed. We shall find out in a couple of weeks how that line is working for the present Prime Minister.

In its 1979 election manifesto, the Conservative party also said: The state takes too much of the nation's income; its share must be steadily reduced. When it spends and borrows too much, taxes, interest rates, prices and unemployment rise so that in the long run there is less wealth with which to improve our standard of living and our social services. The Conservative party then went on to do the opposite. It increased, not reduced, the share of the nation's income which the state takes, and it has maintained that increase for every year since 1981. By the summer of 1980, the Conservative Government had British inflation running at 21 per cent. The comparable average for the 12 EC countries was 14 per cent. Unemployment was high and rising. The Conservatives' response was to bring about the worst recession since the second world war.

In describing the 1st century Roman conquest of northern Britain, Tacitus said: They created a desert and called it stability. The Conservative approach to north Britain's industrial base has been similar. When Conservatives say, "Oh, the north has not been so much affected by our latest recession", they forget that the north has not yet recovered from the earlier one. The point was effectively underscored by my hon. and learned Friend the Member for Leicester, West (Mr. Janner).

By 1983, the Conservatives were telling us in their manifesto, under the heading, "Success against inflation", that We shall maintain firm control of public spending and borrowing. If Government borrows too much, interest rates rise, and so do mortgage payments. By 1987, in "We the People"—the right hon. Member for Finchley was using the royal "we" even then—the language had become far more robust. It was even slightly hysterical. The manifesto said: Inflation is an evil. As with all cancers, it needs to be completely eradicated. To this end, we shall endeavour to achieve zero inflation. Oh yes? In view of the Conservatives' previous methods, the more frightening question is "How?". The manifesto continued: We shall maintain strict control of public expenditure and borrowing. There is also a warning against extravagant monetary and fiscal policies which would produce hyper—inflation and economic chaos. I presume that the Chancellor and the Prime Minister have read that.

On the 1988 Budget and its aftermath, I will read to the House an extract from a candid article in an American magazine called International Economic Insights. There are more economic insights in the article than we ever get from the Government in the House of Commons. The article, referring to the 1988 boom and its aftermath, says: In the latter stages of the boom, however, it was becoming clear that macroeconomic discipline …was being threatened by one of the government's microeconomic reforms: deregulation of the financial sector. This is very honest stuff. The article continues: There was an explosion in bank lending in the late 1980s which sent broad money growth soaring into the high teens. That unleashed a boom in asset prices, particularly houses, which generated an unprecedented and unsustainable surge in consumer spending. Government macroeconomic policy then turned to the task of curbing the inflationary consequences of that boom. The main policy instrument was high interest rates"— as we all know. The article then says: Clearly, the reduction in inflation has not been painless." The people who said that the reduction had not been painless might have thought of that before they allowed it to be stoked up. The article goes on to state: we have had to forgo some output as a price for eliminating its inflationary consequences. Quite. The author, our own Chancellor of the Exchequer, clearly accepts on the Government's behalf both the blame for the problem and the responsibility for the chosen remedy. In order to bear down on inflation, the Conservatives have engineered in this country the worst recession since the 1930s. They do not know when it will end. Last summer, the Prime Minister told us that Britain's position is strengthening month by month. It was not. The Chancellor, last May, said: Things are starting to go rather well for the economy. They were not. Later, the Chancellor told us that The green shoots of economic spring are appearing once again. That is a poetic image. It turned out to be not so much the Darling Buds of May" as the "darling buds of maybe". The reason that the green shoots of economic spring are not coming through is, of course, that both the Chancellor and the Prime Minister have been talking to the plants. The Chancellor clearly repeats over and again that Rising unemployment and the recession have been the price that we have to pay to get inflation down. That price is well worth paying. The Prime Minister drones on at the poor little green shoots of economic spring, saying: Inflation must go. Ending it cannot be painless. The harsh truth is that if a policy isn't hurting, it isn't working. No doubt he was half remembering something that his mother told him as a child. In the circumstances, is it surprising that the green shoots of economic spring are not coming out of the ground? They want to be spoken to in a much more soothing manner, probably in a lilting Edinburgh accent.

In 1987, the Conservatives claimed their objective to be zero inflation, yet in 1987, 1988, 1989, 1990 and 1991 they could not even get inflation down to the EC Twelve average—something that the Labour Government managed to do in their last full year in office. That is not surprising, as, although they claim to be bearing down on inflation, in a number of key areas the Conservatives were actually stoking it up. As well as VAT increases, to which successive Conservative Governments seem to be addicted, the poll tax made its unique contribution to our inflation rate.

As my hon. Friend the Member for Newport, West (Mr. Flynn) has pointed out, the Conservatives have also been at it with the public utilities. If one takes the cumulative change in the retail prices index from 1979 to 1981, one finds to one's surprise that the cumulative change is not zero but 135.4 per cent. That is from the party that has inflation as its priority. If one then takes certain public utilities and compares the inflation rate from 1979 to 1991 with the all-items rate—135.4 per cent., let me remind the House—one finds that electricity prices have gone up by 149.1 per cent., that gas prices have gone up by 167.7 per cent., and that telephone charges have gone up by 142–2 per cent., increases that were front-loaded in 1980 and 1981, with percentage increases of 28.2 per cent. and 23.5 per cent. respectively. Perhaps most obscenely of all, water charges have gone up by 265.3 per cent. from 1979 to 1991.

Why should all those items have price rises substantially ahead of the rate of inflation? What possible explanation could one seek? The explanation is pretty obvious. The Government intended to sell off those industries and ensure that the prices rose so that they could get a successful sale. Who pays the price for that successful sale? It is the consumer with Conservative-inspired inflation.

In the debate, Conservative Members asked what Labour would do. They always ask that when they can think of nothing to say. They do not listen or bother to follow the debate. They just say, "Well, what would Labour do?" If they had bothered to read the Labour amendment to the motion, they would see that we call on the Government to introduce measures which include support for investment in manufacturing industry and in training, since without such measures inflationary pressures will simply re-emerge. I am certain that that would be the case.

That policy, combined with our commitment to the exchange rate mechanism, seems to me a sufficiently substantial anti-inflationary policy. Let no one, absolutely no one on the Conservative Benches, try to peddle the misleading statement that the Labour party is not committed to playing its full part within the workings of the ERM and ensuring that it bears down on inflation. We were committed to the ERM well before it became fashionable on the other side of the House. We understand the disciplines that are involved.

However, it is not necessary to spell out from this Front Bench precisely which mechanism at which point in time a Labour Chancellor of the Exchequer would need to use in order to preserve our position. A series of options would be open to a Labour Chancellor, just as a series of options is open to a Conservative Chancellor. Conservative Members know that and know that we shall have a full range of options open to us just as they have a full range of options before them.

In drawing her excellent speech to a conclusion, my hon. Friend the Member for Derby, South (Mrs. Beckett) introduced a further quotation. I should like to refer to it again. But before I do so, hon. Members on both sides of the House will be interested to hear the forecast from the National Institute of Economic and Social Research which was released earlier this evening. It predicts that with a continuation of Tory policies unemployment will continue to rise throughout 1992 and 1993. Total investment will fall in 1992 by a further 1.3 per cent. After a fall of 15 per cent. in 1991, manufacturing investment will fall by another 4.9 per cent. in 1992 and that growth will be just 1.3 per cent. in 1992, well down on Norman Lamont's forecasts last November. Those are the views of an independent institute. There is no recovery here. Indeed, the review comments: There is little tangible evidence of any recovery in activity in the early weeks of this year. I will treat the House again to the quotation that my hon. Friend the Member for Derby, South used earlier. If we'd known how it would turn out, we wouldn't have done anything different. Those are not General Custer's last words. They are the words of the Chancellor of the Exchequer explaining why the recovery did not come earlier, and, as we now learn, looks as if it will come substantially later, if at all, under the present regime. My hon. Friend the Member for Derby, South made the point that if we have to go through all this again, it is highly unlikely that our fellow citizens will vote to do so. I urge them not to.

9.28 pm
The Economic Secretary of the Treasury (Mr. John Maples)

The debate has been characterised by a variety of speeches. It is interesting that, although the opening and closing speeches for the Opposition had some interesting characteristics, and the last one in particular was amusing, neither made any effort to grapple with the issue of inflation or to state what the Labour party's policies would be.

My hon. Friends the Members for Hampshire, North-West (Sir D. Mitchell) and for Cornwall, North (Sir G. Neale) reminded us of the serious dangers of inflation to business. My hon. Friend the Member for York (Mr. Gregory) reminded us of the devastating effect that inflation can have on savings. My right hon. Friend the Member for Hertfordshire, North (Sir I. Stewart) pointed out clearly the weaknesses in the Opposition's policy. We were encouraged by my hon. Friend the Member for Kensington (Mr. Fishburn) to go for zero inflation. I am afraid that I missed the speeches of my hon. Friends the Members for Cornwall, South-East (Mr. Hicks), for Bury, North (Mr. Burt) and for Welwyn Hatfield (Mr. Evans), but I am told by my hon. Friend the Minister of State that they were worth reading, and I shall certainly read them.

I listened with interest to the hon. Member for Berwick-upon-Tweed (Mr. Beith). He is pretty tough on inflation—as tough as us, if not tougher. His intervention on the hon. Member for Derby, South (Mrs. Beckett) was interesting because she failed to respond to his invitation to say that Labour is serious about inflation.

My hon. Friends and I find that the appalling thing about this debate is having to take lectures on inflation from the Labour party. If one wants to know what will happen in the future it is sometimes interesting to look into the history books. I think that one Labour hero said, "There's no need to look into a crystal ball when you can read the book." The book does not read very well. During the period of the Labour Government, the average inflation rate in Britain was 15.5 per cent. and the average for the European Community was 12 per cent. During the period of this Government, the average inflation rate in Britain has been 7.2 per cent., which has been the average for the European Community.

Mr. Allen McKay (Barnsley, West and Penistone)

The effect also matters.

Mr. Maples

Inflation is a bad thing. That may surprise the hon. Gentleman, but it is.

Under Labour, the highest rate of inflation was 26.9 per cent. and the lowest was 7.6 per cent. Under the Government, the average has been 7.2 per cent. Our average rate is lower than Labour's lowest rate.

During that time it is not surprising that M0 was growing at 12 per cent. a year, and public spending was out of control. That resulted in a letter that the then Chancellor of the Exchequer was forced to write to the International Monetary Fund—an interesting document for students of history. I doubt whether a British Chancellor has ever been forced to sign a more humiliating document than the letter that the right hon. Member for Leeds, East (Mr. Healey) had to write on 15 December 1976, asking the IMF for a standby agreement. Such agreements are usually given by the IMF to bankrupt Latin American countries. He had to apply for a substantial loan and, in the last paragraph of that letter, in effect he had to hand over the control of British economic policy to the president of the IMF.

We do not have much to learn from the Labour party about inflation, but the interesting question is: what has it learnt? The Labour party has had 13 years in which to reflect and to repent. It seems to me that those years have not been spent usefully.

In "Meet the Challenge, Make the Change" in 1989, there is a short paragraph of about 20 lines on inflation. It does not make any effort to say how to deal with the problem, but it contains this amazing, mind-bending sentence: Inflation is in fact a complex phenomenon whose causes will vary from one situation to the next. That is a facile cop-out because it does not say what one does to control inflation.

In 1990, the Labour party went further. In "Looking to the Future", the 1990 policy revision, there is a page on inflation. Again, there are no suggestions on how one would set about keeping it under control, but there is this amazing proposition: We propose to develop regular discussions between government, employers, trade unions and others about Britain's economic prospects".

Hon. Members

What is wrong with that?

Mr. Maples

That is not a policy for dealing with inflation. It sounds to me and to my hon. Friends very reminiscent of beer and sandwiches at No. 10. With the new model Labour Treasury team, I suspect that it would have to be shellfish and champagne.

In 1991, "Opportunity Britain" went a little further, as it contained a paragraph headed "Monetary discipline". It is only a heading, it does not say anything about monetary discipline and it dismisses the use of interest rates, calling instead for the use of credit controls.

The subject of credit controls is interesting. I do not know whether Opposition Members have studied the remarks of the right hon. Member for Llanelli (Mr. Davies), who has the advantage over all of them of having been a Treasury Minister for a few years. In June 1989, he was reported as saying: The Labour Party idea that you should have credit controls is rubbish. There is no way you can control credit except by controlling the price of credit, and the price of credit is Bank Rates. A couple of weeks later, on 18 June, the Leader of the Opposition said on "Panorama" that we need credit controls. Obviously, he had not read or digested those remarks. My right hon. and hon. Friends and I can forgive him. He has a little difficulty when he is let out alone, and we understand that. Perhaps the more honest comment came from him in that famous "World at One" interview with James Naughtie—[Interruption.] Opposition Members do not like it. We have the tape of that interview and it makes fascinating listening. When James Naughtie asked the right hon. Gentleman, "What would a Labour Government do to reduce inflation?", after having lost his temper and sworn a little he said, "To cut a long story short, we don't know." We know that he does not know, but it is a pity that some Labour spokesmen are not aware of that.

The debate about credit controls rumbled on. In October 1989, a few months after the remarks by the right hon. Member for Llanelli, the hon. Member for Dagenham (Mr. Gould) said in a Walden interview that a Labour Government would impose controls on mortgage lending specifically on people trading up. Of course he realised that if there had to be credit controls they would have to be on mortgage lending, which accounts for more than 80 per cent. of consumer borrowing. A week later the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) said that he strongly disagreed and that there was no way in which they would penalise a family who wished to buy a larger house. On that, as on so many matters, there is something of a muddle among Labour Front-Bench spokesmen.

We found especially interesting—this was brought out in the speech by the hon. Member for Derby, South—the fact that the key lever for controlling monetary policy and inflation is interest rates. It is the key lever used by all other members of the exchange rate mechanism, by the Bundesbank and by the Dutch and French central banks. It is also used by the Americans and the Japanese, but apparently we do not need to use it. We went through a ridiculous charade over interest rates and what has been christened Monklands law, which states that whatever interest rates are, they ought to be 1 per cent. lower. That was the case at varying interest rates last year.

The "World At One" is a dangerous programme for Labour's Front-Bench spokesmen because on that programme on 15 November last year the shadow Chancellor was asked by the presenter whether he would like the Government to make further cuts in interest rates. One would have thought that he would say 1 per cent. It had been 1 per cent. all year, so why should it be any different? However, the shadow Chancellor said: I would have to take advice about it". Apparently, he did not need any advice when he was calling for a 1 per cent. cut every two weeks during 1991, but by October he needed advice about it. Perhaps it is good that humility has broken in, because Monklands law was never a sensible policy. The shadow Chancellor's attitude shows that Labour does not have a serious policy on inflation. It is not serious about interest rates and that shows that Labour is not serious about inflation.

The Labour party recently developed or found by accident a rather convenient fig leaf called the exchange rate mechanism. We are supposed to take seriously its commitment to the ERM, but it is rather difficult to take seriously a party that apparently cannot make up its mind about Europe. [Interruption.] Labour supported Britain's entry to the European Community in 1962, opposed it in 1964, supported it in 1966, opposed it in 1971, supported it in 1975, opposed it in 1983 and now Labour supports it again. Every single member of the shadow Cabinet who was in the House in 1972—I have the Division list here —opposed British entry to the Community in 1972 when the Bill on accession to the Community went through Parliament. The Division list contains the names of not only the shadow Chancellor but the Leader of the Opposition. In 1986—only five and a half years ago—14 members of the shadow Cabinet voted against the Single European Act. By chance, I have the Division list for that and among the names are those of the hon. Member for Derby, South and the right hon. and learned Member for Monklands, East (Mr. Smith). Over the past five and the next 10 years the key to the development of the European Community is the Single European Act and 14 Labour Members, including the two proponents whom we are now supposed to take seriously, voted against it. The 1983 Labour manifesto on which they all ran for election or re-election stated: We will also open immediate negotiations with our European Community partners and introduce the necessary legislation to prepare for Britain's withdrawal within the lifetime of a Labour Government. I have kept until last the words of the Leader of the Opposition. Apparently the keystone of the Opposition's policy on inflation is membership of the exchange rate mechanism. The attitude of leading Labour Members to the ERM and the European Community throws an interesting light on the question whether they can be taken seriously. As usual, the Leader of the Opposition is the somersaulter supreme on this issue. In 1975, in an article in Tribune, he said: Only the EEC in its political and economic dimensions is the robber of the real sovereignty of the people". In 1983—he had not changed his mind during those eight years—he said: We want out of the Common Market. In 1988, he had changed his mind. In The Independent on 4 February, he was quoted as saying these amazing words: I have never seen hostility towards the European Community in the Labour party". Where had he been? Obviously, he had not been listening to his right hon. and hon. Friends. What is more, he obviously had not been listening to himself.

During the short space of five years, the Labour party has moved from outright opposition to the European Community to fawning acceptance of anything that comes from Brussels. From the way in which Labour Members behave, one would think that Mr. Delors had a large block vote at the Labour party conference. We are supposed to take seriously that Damascene conversion by two or three Labour Members—[Interruption.] I am getting enough laughs.

Let us look behind those few members of the Opposition Front Bench whose word we have on that matter. Last week, we had a debate on the economy Four of the eight Labour Back Benchers who spoke in that debate called for devaluation. That is hardly a ringing endorsement of the Opposition Front-Bench policy. In the debate on the autumn statement, 25 Labour Back Benchers tabled an amendment calling for full-blooded socialism. That is not even consistent with membership of the European Community, let alone the exchange rate mechanism.

What I and some of my hon. Friends wondered during that debate was how many more Labour Members thought the same and would have liked to sign that amendment. We suspect that it was the brave tip of a cowed and gutless iceberg—[HON. MEMBERS: "It is melting."] It is melting fast. The only reason why the Labour party decided to favour the ERM is that the party perceived differences of opinion within the Conservative party about it. When we shot that fox, Labour decided to favour economic and monetary union. Its policy has been driven by disingenuousness and opportunism.

Mr. Nicholas Brown

On the subject of disingenuousness and opportunism, I am sure that the Minister will recall that in the last three of the Conservative party's manifestos one of the key elements of its attack on inflation was its very tough strictures on borrowing. Is that still the case?

Mr. Maples

We shall continue to run a very responsible fiscal policy. We have always done so. I have just checked my copy of the Division list, only to find that the hon. Gentleman voted against the European Single Act. I thought that he might have been about to rise to tell us that we had been mistaken—

Mr. Brown


Mr. Maples

The hon. Gentleman has had his opportunity.

Labour's Treasury team has been investing a good many of its lunch hours in the City, trying to persuade people that Labour is now a reformed character and should be allowed out on parole. It would be interesting to hear what some of the City commentators have had to say about that. My right hon. and learned Friend the Chief Secretary pointed out that almost all of them thought that the advent of a Labour Government would bring an increase in interest rates. Some of them said that interest rates would go up, some said by 4 per cent., but none said that they would go down.

What about inflation? That is the subject of today's debate—[Interruption.] I am dealing with the Opposition's policy on inflation. I shall start with James Capel. Who had lunch at James Capel? Will nobody own up to that? James Capel estimates that under Labour, inflation typically would be about 2 per cent. higher. Goldman Sachs has predicted that inflation would be higher under a Labour Government. S. G. Warburg said: the biggest flaw in Labour's approach concerns the absence of a credible strategy for tackling inflation.

Mr. John Smith


Mr. Maples

I am in the middle of a paragraph—[HON. MEMBERS: "Give way."] I shall do so in a minute. I am in the middle of a paragraph and I shall give way when I have finished it. UBS Phillips and Drew—

Mr. Smith


Mr. Maples

I am dealing with the City. When I have finished, I will give way to the right hon. and learned Gentleman.

UBS Phillips and Drew said that it was not yet convinced that the Labour party has successfully expelled its inflationary tendencies. I would be especially interested to know—and so should the Leader of the Opposition—who had lunch with UBS Phillips and Drew. Not only did they strike out on interest rates and inflation, they struck out pretty generally. The UBS Phillips and Drew briefing also said: It is not hard to ridicule this pot-pourri of supply-side socialism: that unmistakable whiff of failed 1960s policies; the National Investment Bank, surely destined to retrace the history of the National Enterprise Board, picking losers. Labour talks a lot about investment, but the investment made by its members in lunch hours does not seem to have paid off.

Mrs. Beckett

Has the Minister seen UBS Phillips and Drew's most recent report, which talks about a second Labour Government consolidating their position after a second election victory?

Mr. Maples

That must have been written by someone else. I quote again: A pot-pourri of supply side socialism: that unmistakable whiff of failed 1960s policies". I quoted only about six of the 22 comments that I have before me—none of which is favourable.

Labour has not only failed to convince the City—

Mr. John Smith

The Economic Secretary made a point of quoting Goldman Sachs, to which Conservative Members constantly refer. Did the hon. Gentleman read a day or two ago that the Government's given explanation for the recession—international factors—was described as eyewash by Goldman Sachs? If the Minister believes Goldman Sachs in one instance, why does he not believe it in another?

Mr. Maples

I do not believe anybody on everything, but Goldman Sachs' chief economic adviser has been a consistent supporter of Treasury policies throughout the past 18 months. Goldman Sachs says that, under Labour, interest rates and inflation would increase, and it does not make any very polite comments about Labour policies.

The Opposition are in disarray over several of their policies, but nowhere more so than in respect of their policies on spending and tax. In 1989, the Leader of the Opposition promised: At the time of the next General Election, we will set out the accurate costs of our manifesto proposals. A few months later, the hon. Member for Derby, South said: We will begin the detailed costing of the manifesto at the end of next year"— that is, 1990. We did not get it, and in September 1991, we were told by the hon. Member for Copeland (Dr. Cunningham): Detailed spending pledges will not be included in Labour's manifesto". That must be one of the first examples of an election promise being broken before the election has even taken place.

We have done the Opposition's sums for them. We make the cost of their proposal £35 billion—or did. I cannot remember any specific pledges being denied but if any have been, we have no difficulty, because new pledges are added all the time. I could ask my right hon. and learned Friend the Chief Secretary for confirmation, but I believe that the total now is £37 billion or £38 billion.

Under Beckett's law, the hon. Member for Derby, South says that those are not pledges but wishes and prayers. Let us examine a couple of them. In "Opportunity Britain", Labour states that it will increase overseas aid to 0.7 per cent. of GNP. That would cost £2.3 billion. The hon. Member for Derby, South says that is not a pledge, but in his speech to the Labour party conference last year the shadow Foreign Secretary confirmed that target, saying that that was a firm commitment, costed and clear. He pledged that a Labour Government would carry it out. Who are we to believe—the shadow Foreign Secretary or the hon. Member for Derby, South?

Mr. Smith


Mr. Maples

I have one more question for the right hon. and learned Gentleman to answer. "Opportunity Britain" stated that Labour will increase the basic pension in line with prices or earnings, whichever is the higher". The right hon. and learned Member for Monklands, East confirmed that at Labour's party conference, when he said: Of course that Labour Government will restore the link between retirement pensions and earnings and prices— whichever is the higher. Who are we to believe in that instance—the shadow Chief Secretary or her boss? The right hon. and learned Member for Monklands, East did worse. He produced a completely new spending pledge that was not even included in the £35 billion that I mentioned. On 30 December, he said on "World At One"—a dangerous programme for the right hon. and learned Gentleman: I would release the capital sums which local authorities have at their disposal". There is up to £8 billion of those. I do not know whether we are talking about £2 billion, £3 billion or £8 billion. However much it is, it is public spending and it is public borrowing.

Mr. Smith


Mr. Maples

The right hon. and learned Gentleman was not even listening when I made my last point, and I have given way several times to Opposition Front Benchers.

I have discovered the secret. I have discovered why the Labour party has difficulties with its arithmetic. Into my hands has fallen an interesting document entitled "The Way to Win: Labour's Campaign Handbook for the 1990s". It provides guidance for Labour candidates, and it contains an interesting section headed "Counting the Votes". I want my right hon. and hon. Friends to listen to this: why Labour has difficulties will be made clear.

The document explains: You need to know how many votes you require to win. That is pretty uncontentious, but it is a little more complicated than it sounds. The document continues: For example, Constituency A has 65,000 voters. If the general election turnout is 75 per cent., then the total voting will be 48,750. If only two parties stand, you need 50 per cent. + 1 to win—24,375. If Labour candidates are thought by the Labour party not to be able to add up to 25,000, it is not surprising that the Opposition Front Bench cannot make it up to £35 billion.

Mr. John Smith

The Economic Secretary referred to expenditure on overseas aid. Will he make it clear, speaking on behalf of the Government, that the Government are reneging on their commitment to meet the United Nations target?

Mr. Maples

It is a long-term target, as we have made clear. [Interruption.] That is exactly the point. The shadow Foreign Secretary said that Labour would meet it in the lifetime of a Parliament: he said that a Labour Government would do it in five years. It is in a list of spending pledges.

I am glad that the right hon. and learned Member for Monklands, East intervened, because I am just coming to him. The right hon. and learned Gentleman represents the respectable face of the Labour party. He is not very consistent about the exchange rate mechanism or European monetary union; he does not have much of a policy on inflation. He ran on a 1983 manifesto. Nevertheless, he represents the respectable face of the Labour party. What we must ask ourselves is whether he represents anyone in the Labour party other than himself. From time to time, he represents his client down in Islwyn; but he certainly does not represent the parliamentary Labour party.

Recently, we have been entertained by a series of articles in the newspapers. They started in The Guardian —[HON. MEMBERS: "It is a Tory newspaper."] We are told that it is a Tory newspaper. We had the headline: Curious case of the Scot on the rocks". We learn that the right hon. and learned Gentleman is not radical enough", and less clever than he thinks". We read Why the knives are coming out for John Smith", and Why the claws are out for John Smith". I have quoted from only four of the many newspaper articles that have appeared over the past 10 days.

I originally thought that all this was because Labour Back-Benchers were upset about raising people's taxes if they earned more than £390 a week, or about the idea that raising income tax helped the country to get out of the recession. Then I realised that I had been very naive. The truth was revealed to me in one of the newspaper articles, in which it was made clear that nothing of the sort was the case—that we were seeing a jockeying for position for when Labour lost the next election.

That was set out very succinctly in The Independent on Sunday—not, I think, a supporter of the Conservative party—which stated: More worrying for Labour is the most convincing theory, that last week's shenanigans constituted elaborate jockeying for the party leadership should Labour fail to become the government. Many within the party detect a pre-emptive strike to damp down Mr. Smith's chances of walking his way to the … leadership. Not only is the right hon. and learned Gentleman not as clever as he thinks; he is not as popular as he thinks.

There are red lines on the carpet in the Chamber so that we cannot stick swords in each other's fronts. Perhaps we should arrange for a red line to be drawn behind the right hon. and learned Gentleman, to make sure that no one can stick a dagger in his back. I hope that it does not happen, but, if we were to find a dagger in his back, whose fingerprints would we find on it? Would they be those of one of the 25 signatories to the amendment to the autumn statement who want socialism, or would they be those of one of the 100-odd other hon. Members who would have liked to sign it but did not? Or would they, perhaps, be those of an acolyte of the Leader of the Opposition, tired of having his economics corrected all the time?

Nor", I read in The Independent on Sunday, is his relationship with Neil Kinnock close, the Labour leader realising that his Shadow Chancellor does not admire his grasp of economics. That must be the understatement of the year. Whatever the truth may be about the conspiracy against the right hon. and learned Gentleman, he has been seriously wounded by it. He does not have the confidence of his own party, so how can he expect to have the confidence of the nation?

Let me now turn to the hon. Member for Derby, South, the junior partner in this Bearnaise sauce circuit around the City. She likes to pose as a paragon of fiscal virtue. I hope that this is not an indelicate subject to raise in the House, but this is a lady with a past—a very disreputable past. She used to be a socialist. That is no longer fashionable, so she denies it. She used to be very left wing. Ten years ago, she would have been the scourge of the policies that she now espouses. In the 1981 contest for the Labour party leadership, she supported the right hon. Member for Chesterfield (Mr. Benn). [HON. MEMBERS: "Oh!"] In 1980, this great supporter of the European Community wrote in Tribune about the European Community where she described it as This selfish, greedy, little clique of countries and declared: none of the arguments for staying in the European Community can be sustained. That is the same hon. Member who now lets Mr. Delors write her scripts. She is standing on her head on most of the issues that—

Mrs. Beckett

A couple of things have happened in the meantime that the Minister appears not to have noticed. First, we had a referendum on the European Community which was won by those people who wished to remain in the Community. Secondly, in the 1983 election campaign, the Labour party put a specific option before the country—that we should not remain in the Community. That option was rejected. I am a democrat. I accept the decision of the country. It appears that the Conservative party voted for the European Community and for the Single European Act but that it now wishes that it had not done so.

Mr. Maples

What intellectual rigour, what consistency of principle that can be so easily undermined. I suspect that it is the sniff of office, not the 1983 election defeat, that has brought about the change.

The hon. Lady is also the originator of Beckett's law, which is in tatters. She says one thing; the shadow Cabinet does another. We have already seen a few of the contradictions. The hon. Lady has no credibility and, apparently, no authority within the shadow Cabinet. She has got a £35 billion millstone round her neck and it is going to sink her. After the election, when the Labour party is in opposition, her job will be to run the shadow Chancellor's campaign for leadership of the Labour party.

I do not intend to dwell on the position of the Leader of the Opposition. He has changed his mind not just about a couple of things but about everything that he ever believed in. He used to be a famous left-wing firebrand. He has changed his mind about nuclear disarmament, nationalisation, Europe and even the monarchy.

Mr. Graham

Will the Minister give way?

Mr. Maples

No. I am not giving way to anybody else. There are only three minutes of the debate left.

It is difficult to take seriously anything that the Leader of the Opposition says. At the ad-men's bidding, he has given up the principles for which he went into politics and which he has held all his life. It shows through and is pretty shallow. The inflation record of the Labour party when in government was the worst in our history and the worst in the industrialised world. The Labour party has learnt nothing since then. It has no policy on inflation. It refuses to acknowledge that interest rates are the key to controlling inflation—in the words of the Labour party's own leader, when asked what Labour would do to control inflation, "We don't know."

The Labour party has had a sudden, opportunistic conversion to the exchange rate mechanism, but how can we believe its sincerity now when for years it castigated the very idea of Europe and when the whole shadow Cabinet voted against the Single European Act only five years ago? The Labour party has invested heavily in selling its new-found respectability to the City, only to have its policies comprehensively rubbished by City commentators. Labour would have had a massive public spending programme which inevitably would mean higher taxes. Beckett's law is in tatters, contradicted twice in a year by her own boss, the shadow Chancellor. If the shadow Chancellor does not have the confidence of his own parliamentary party, how can he expect to get the confidence of the country?

The Labour party is led by a man whose desperate thirst for office has led him to change his mind on everything he ever believed in, even the monarchy. He is the greatest imposter of them all. Labour has no policies on inflation and no credibility. It is running on the biggest false prospectus since the South Sea bubble and it will be rumbled by the electorate for its opportunism and insincerity.

Question put, That the amendment be made:—

The House divided: Ayes 188, Noes 324.

Division No. 100] [10 pm
Adams, Mrs Irene (Paisley, N.) Campbell, Ron (Blyth Valley)
Allen, Graham Campbell-Savours, D. N.
Anderson, Donald Canavan, Dennis
Archer, Rt Hon Peter Clark, Dr David (S Shields)
Armstrong, Hilary Clarke, Tom (Monklands W)
Ashley, Rt Hon Jack Clelland, David
Ashton, Joe Clwyd, Mrs Ann
Banks, Tony (Newham NW) Cohen, Harry
Barnes, Harry (Derbyshire NE) Cook, Frank (Stockton N)
Barron, Kevin Cook, Robin (Livingston)
Battle, John Corbett, Robin
Beckett, Margaret Corbyn, Jeremy
Bell, Stuart Cousins, Jim
Benn, Rt Hon Tony Crowther, Stan
Bennett, A. F. (D'nt'n & R'dish) Cryer, Bob
Benton, Joseph Cunliffe, Lawrence
Bidwell, Sydney Cunningham, Dr John
Blair, Tony
Davies, Rt Hon Denzil (Llanelli)
Boateng, Paul Davies, Ron (Caerphilly)
Boyes, Roland Davis, Terry (B'ham Hodge H'I)
Bradley, Keith Dewar, Donald
Bray, Dr Jeremy Dixon, Don
Brown, Gordon (D'mline E) Dobson, Frank
Brown, Nicholas (Newcastle E) Duffy, Sir A. E. P.
Brown, Ron (Edinburgh Leith) Dunnachie, Jimmy
Bruce, Malcolm (Gordon) Dunwoody, Hon Mrs Gwyneth
Callaghan, Jim Eadie, Alexander
Edwards, Huw Marek, Dr John
Enright, Derek Marshall, David (Shettleston)
Evans, John (St Helens N) Marshall, Jim (Leicester S)
Ewing, Harry (Falkirk E) Martin, Michael J. (Springburn)
Fatchett, Derek Maxton, John
Faulds, Andrew Meacher, Michael
Field, Frank (Birkenhead) Meale, Alan
Fisher, Mark Michael, Alun
Flannery, Martin Michie, Bill (Sheffield Heeley)
Flynn, Paul Morgan, Rhodri
Foot, Rt Hon Michael Morley, Elliot
Foster, Derek Morris, Rt Hon A. (W'shawe)
Foulkes, George Morris, Rt Hon J. (Aberavon)
Fraser, John Mowlam, Marjorie
Fyfe, Maria Mullin, Chris
Galloway, George Murphy, Paul
Garrett, John (Norwich South) Oakes, Rt Hon Gordon
Garrett, Ted (Wallsend) O'Brien, William
Gilbert, Rt Hon Dr John O'Hara, Edward
Godman, Dr Norman A. O'Neill, Martin
Golding, Mrs Llin Parry, Robert
Gould, Bryan Pendry, Tom
Graham, Thomas Powell, Ray (Ogmore)
Griffiths, Nigel (Edinburgh S) Prescott, John
Griffiths, Win (Bridgend) Primarolo, Dawn
Grocott, Bruce Quin, Ms Joyce
Hain, Peter Radice, Giles
Hardy, Peter Randall, Stuart
Harman, Ms Harriet Redmond, Martin
Haynes, Frank Rees, Rt Hon Merlyn
Heal, Mrs Sylvia Robertson, George
Healey, Rt Hon Denis Rogers, Allan
Henderson, Doug Rooney, Terence
Hinchliffe, David Rowlands, Ted
Hoey, Kate (Vauxhall) Ruddock, Joan
Hogg, N. (C'nauld & Kilsyth) Sedgemore, Brian
Hood, Jimmy Sheerman, Barry
Howarth, George (Knowsley N) Sheldon, Rt Hon Robert
Howell, Rt Hon D. (S'heath) Shore, Rt Hon Peter
Howells, Dr. Kim (Pontypridd) Short, Clare
Hoyle, Doug Skinner, Dennis
Hughes, John (Coventry NE) Smith, Andrew (Oxford E)
Hughes, Robert (Aberdeen N) Smith, C. (Isl'ton & F'bury)
Hughes, Roy (Newport E) Smith, Rt Hon J. (Monk'ds E)
Ingram, Adam Smith, J. P. (Vale of Glam)
Janner, Greville Soley, Clive
Jones, Barry (Alyn & Deeside) Spearing, Nigel
Jones, Martyn (Clwyd S W) Steinberg, Gerry
Kilfoyle, Peter Stott, Roger
Kinnock, Rt Hon Neil Strang, Gavin
Kumar, Dr. Ashok Taylor, Mrs Ann (Dewsbury)
Lambie, David Thomas, Dr Dafydd Elis
Lamond, James Turner, Dennis
Leadbitter, Ted Vaz, Keith
Lewis, Terry Walley, Joan
Litherland, Robert Wardell, Gareth (Gower)
Lloyd, Tony (Stretford) Watson, Mike (Glasgow, C)
Lofthouse, Geoffrey Welsh, Michael (Doncaster N)
Loyden, Eddie Williams, Rt Hon Alan
McAllion, John Williams, Alan W. (Carm'then)
McAvoy, Thomas Wilson, Brian
McCartney, Ian Winnick, David
Macdonald, Calum A. Wise, Mrs Audrey
McKay, Allen (Barnsley West) Worthington, Tony
McLeish, Henry Wray, Jimmy
McMaster, Gordon
McNamara, Kevin Tellers for the Ayes:
Madden, Max Mr. Jack Thompson and
Mahon, Mrs Alice Mr. Eric Illsley.
Adley, Robert Arbuthnot, James
Aitken, Jonathan Arnold, Jacques (Gravesham)
Alexander, Richard Arnold, Sir Thomas
Alison, Rt Hon Michael Ashdown, Rt Hon Paddy
Allason, Rupert Aspinwall, Jack
Alton, David Atkins, Robert
Amery, Rt Hon Julian Atkinson, David
Amess, David Baker, Rt Hon K. (Mole Valley)
Amos, Alan Baker, Nicholas (Dorset N)
Baldry, Tony Fookes, Dame Janet
Batiste, Spencer Forman, Nigel
Beaumont-Dark, Anthony Forsyth, Michael (Stirling)
Beggs, Roy Forsythe, Clifford (Antrim S)
Beith, A. J. Forth, Eric
Bellingham, Henry Fowler, Rt Hon Sir Norman
Bellotti, David Fox, Sir Marcus
Bendall, Vivian Freeman, Roger
Bennett, Nicholas (Pembroke) French, Douglas
Benyon, W. Fry, Peter
Bevan, David Gilroy Gale, Roger
Biffen, Rt Hon John Gardiner, Sir George
Blackburn, Dr John G. Garel-Jones, Rt Hon Tristan
Blaker, Rt Hon Sir Peter Gill, Christopher
Body, Sir Richard Glyn, Dr Sir Alan
Bonsor, Sir Nicholas Goodlad, Rt Hon Alastair
Boscawen, Hon Robert Goodson-Wickes, Dr Charles
Boswell, Tim Gorman, Mrs Teresa
Bottomley, Peter Gorst, John
Bottomley, Mrs Virginia Grant, Sir Anthony (CambsSW)
Bowden, A. (Brighton K'pto'n) Greenway, Harry (Ealing N)
Bowden, Gerald (Dulwich) Greenway, John (Ryedale)
Bowis, John Gregory, Conal
Boyson, Rt Hon Dr Sir Rhodes Griffiths, Sir Eldon (Bury St E')
Braine, Rt Hon Sir Bernard Griffiths, Peter (Portsmouth N)
Brandon-Bravo, Martin Grist, Ian
Brazier, Julian Ground, Patrick
Bright, Graham Gummer, Rt Hon John Selwyn
Brooke, Rt Hon Peter Hague, William
Brown, Michael (Brigg & Cl't's) Hamilton, Rt Hon Archie
Browne, John (Winchester) Hamilton, Neil (Tatton)
Bruce, Malcolm (Gordon) Hampson, Dr Keith
Buck, Sir Antony Hanley, Jeremy
Budgen, Nicholas Hannam, Sir John
Burns, Simon Hargreaves, A. (B'ham H'll Gr')
Burt, Alistair Hargreaves, Ken (Hyndburn)
Butcher, John Harris, David
Butterfill, John Haselhurst, Alan
Campbell, Menzies (Fife NE) Hawkins, Christopher
Carlile, Alex (Mont'g) Hayes, Jerry
Carlisle, John, (Luton N) Hayhoe, Rt Hon Sir Barney
Carlisle, Kenneth (Lincoln) Hayward, Robert
Carr, Michael Heathcoat-Amory, David
Carrington, Matthew Heseltine, Rt Hon Michael
Carttiss, Michael Hicks, Mrs Maureen (Wolv' NE)
Cash, William Hicks, Robert (Cornwall SE)
Channon, Rt Hon Paul Higgins, Rt Hon Terence L.
Chapman, Sydney Hill, James
Chope, Christopher Hind, Kenneth
Churchill, Mr Hordern, Sir Peter
Clark, Rt Hon Alan (Plymouth) Howarth, Alan (Strat'd-on-A)
Clark, Dr Michael (Rochford) Howarth, G. (Cannock & B'wd)
Clark, Rt Hon Sir William Howe, Rt Hon Sir Geoffrey
Clarke, Rt Hon K. (Rushcliffe) Howell, Rt Hon David (G'dford)
Coombs, Anthony (Wyre F'rest) Howell, Ralph (North Norfolk)
Cope, Rt Hon Sir John Howells, Geraint
Cormack, Patrick Hughes, Robert G. (Harrow W)
Couchman, James Hunt, Rt Hon David
Currie, Mrs Edwina Hunt, Sir John (Ravensbourne)
Davies, Q. (Stamf'd & Spald'g) Hunter, Andrew
Davis, David (Boothferry) Irvine, Michael
Day, Stephen Irving, Sir Charles
Devlin, Tim Jack, Michael
Dickens, Geoffrey Jackson, Robert
Dicks, Terry Jessel, Toby
Dorrell, Stephen Johnson Smith, Sir Geoffrey
Dover, Den Jones, Gwilym (Cardiff N)
Dunn, Bob Jones, Robert B (Herts W)
Durant, Sir Anthony Jopling, Rt Hon Michael
Dykes, Hugh Kellett-Bowman, Dame Elaine
Eggar, Tim Kennedy, Charles
Evans, David (Welwyn Hatf'd) Kilfedder, James
Evennett, David King, Roger (B'ham N'thfield)
Fallon, Michael King, Rt Hon Tom (Bridgwater)
Farr, Sir John Kirkwood, Archy
Favell, Tony Knapman, Roger
Fenner, Dame Peggy Knight, Greg (Derby North)
Field, Barry (Isle of Wight) Knight, Dame Jill (Edgbaston)
Finsberg, Sir Geoffrey Knox, David
Fishburn, John Dudley Lamont, Rt Hon Norman
Lang, Rt Hon Ian Shaw, Sir Giles (Pudsey)
Latham, Michael Shaw, Sir Michael (Scarb')
Lee, John (Pendle) Shelton, Sir William
Lennox-Boyd, Hon Mark Shephard, Mrs G. (Norfolk SW)
Lester, Jim (Broxtowe) Shepherd, Colin (Hereford)
Lilley, Rt Hon Peter Shersby, Michael
Livsey, Richard Sims, Roger
Lloyd, Sir Ian (Havant) Skeet, Sir Trevor
Lloyd, Peter (Fareham) Smith, Sir Dudley (Warwick)
Lord, Michael Smith, Tim (Beaconsfield)
Luce, Rt Hon Sir Richard Smyth, Rev Martin (Belfast S)
McCrea, Rev William Soames, Hon Nicholas
McCrindle, Sir Robert Speller, Tony
MacGregor, Rt Hon John Spicer, Michael (S Worcs)
MacKay, Andrew (E Berkshire) Squire, Robin
Maclennan, Robert Stanbrook, Ivor
McLoughlin, Patrick Stanley, Rt Hon Sir John
McNair-Wilson, Sir Michael Steel, Rt Hon Sir David
McNair-Wilson, Sir Patrick Steen, Anthony
Madel, David Stephen, Nicol
Mans, Keith Stern, Michael
Maples, John Stevens, Lewis
Marland, Paul Stewart, Allan (Eastwood)
Marlow, Tony Stewart, Andy (Sherwood)
Marshall, John (Hendon S) Stewart, Rt Hon Sir Ian
Martin, David (Portsmouth S) Stokes, Sir John
Maude, Hon Francis Sumberg, David
Mawhinney, Dr Brian Summerson, Hugo
Mayhew, Rt Hon Sir Patrick Tapsell, Sir Peter
Mellor, Rt Hon David Taylor, Ian (Esher)
Meyer, Sir Anthony Taylor, John M (Solihull)
Michie, Mrs Ray (Arg'l & Bute) Taylor, Matthew (Truro)
Mitchell, Andrew (Gedling) Taylor, Sir Teddy
Mitchell, Sir David Tebbit, Rt Hon Norman
Morris, M (N'hampton S) Temple-Morris, Peter
Morrison, Sir Charles Thompson, Sir D. (Calder Vly)
Moss, Malcolm Thompson, Patrick (Norwich N)
Neale, Sir Gerrard Thornton, Malcolm
Needham, Richard Thurnham, Peter
Nelson, Anthony Townend, John (Bridlington)
Neubert, Sir Michael Tracey, Richard
Newton, Rt Hon Tony Tredinnick, David
Nicholls, Patrick Trippier, David
Nicholson, David (Taunton) Twinn, Dr Ian
Nicholson, Emma (Devon West) Vaughan, Sir Gerard
Norris, Steve Wakeham, Rt Hon John
Onslow, Rt Hon Cranley Waldegrave, Rt Hon William
Oppenheim, Phillip Walden, George
Page, Richard Walker, Bill (T'side North)
Paice, James Walker, Rt Hon P. (W'cester)
Parkinson, Rt Hon Cecil Wallace, James
Patnick, Irvine Waller, Gary
Patten, Rt Hon Chris (Bath) Walters, Sir Dennis
Patten, Rt Hon John Wardle, Charles (Bexhill)
Pawsey, James Warren, Kenneth
Peacock, Mrs Elizabeth Watts, John
Porter, Barry (Wirral S) Wells, Bowen
Porter, David (Waveney) Wheeler, Sir John
Portillo, Michael Whitney, Ray
Price, Sir David Widdecombe, Ann
Raison, Rt Hon Sir Timothy Wiggin, Jerry
Rathbone, Tim Wilkinson, John
Riddick, Graham Wilshire, David
Ridsdale, Sir Julian Winterton, Mrs Ann
Roberts, Rt Hon Sir Wyn Winterton, Nicholas
Roe, Mrs Marion Wolfson, Mark
Ross, William (Londonderry E) Wood, Timothy
Rossi, Sir Hugh Woodcock, Dr. Mike
Rost, Peter Yeo, Tim
Rowe, Andrew Young, Sir George (Acton)
Rumbold, Rt Hon Mrs Angela Younger, Rt Hon George
Ryder, Rt Hon Richard
Sayeed, Jonathan Tellers for the Noes:
Scott, Rt Hon Nicholas Mr. David Lightbown and
Shaw, David (Dover) Mr. Tom Sackville.

Question accordingly negatived.

Main Question put:—

The House divided: Ayes 304, Noes 201.

Division No. 101] [10.15 pm
Adley, Robert Durant, Sir Anthony
Aitken, Jonathan Dykes, Hugh
Alexander, Richard Eggar, Tim
Alison, Rt Hon Michael Evans, David (Welwyn Hatf'd)
Allason, Rupert Evennett, David
Amery, Rt Hon Julian Fallon, Michael
Amess, David Farr, Sir John
Amos, Alan Favell, Tony
Arbuthnot, James Fenner, Dame Peggy
Arnold, Jacques (Gravesham) Field, Barry (Isle of Wight)
Arnold, Sir Thomas Finsberg, Sir Geoffrey
Aspinwall, Jack Fishburn, John Dudley
Atkins, Robert Fookes, Dame Janet
Atkinson, David Forman, Nigel
Baker, Rt Hon K. (Mole Valley) Forsyth, Michael (Stirling)
Baker, Nicholas (Dorset N) Forsythe, Clifford (Antrim S)
Baldry, Tony Forth, Eric
Batiste, Spencer Fowler, Rt Hon Sir Norman
Beaumont-Dark, Anthony Fox, Sir Marcus
Beggs, Roy Freeman, Roger
Bellingham, Henry French, Douglas
Bendall, Vivian Fry, Peter
Bennett, Nicholas (Pembroke) Gale, Roger
Benyon, W. Gardiner, Sir George
Bevan, David Gilroy Garel-Jones, Rt Hon Tristan
Biffen, Rt Hon John Gill, Christopher
Blackburn, Dr John G. Glyn, Dr Sir Alan
Blaker, Rt Hon Sir Peter Goodlad, Rt Hon Alastair
Body, Sir Richard Goodson-Wickes, Dr Charles
Bonsor, Sir Nicholas Gorman, Mrs Teresa
Boscawen, Hon Robert Gorst, John
Boswell, Tim Grant, Sir Anthony (CambsSW)
Bottomley, Peter Greenway, Harry (Ealing N)
Bottomley, Mrs Virginia Greenway, John (Ryedale)
Bowden, A. (Brighton K'pto'n) Gregory, Conal
Bowden, Gerald (Dulwich) Griffiths, Sir Eldon (Bury St E')
Bowis, John Griffiths, Peter (Portsmouth N)
Boyson, Rt Hon Dr Sir Rhodes Grist, Ian
Braine, Rt Hon Sir Bernard Ground, Patrick
Brandon-Bravo, Martin Gummer, Rt Hon John Selwyn
Brazier, Julian Hague, William
Bright, Graham Hamilton, Rt Hon Archie
Brooke, Rt Hon Peter Hamilton, Neil (Tatton)
Brown, Michael (Brigg & Cl't's) Hampson, Dr Keith
Browne, John (Winchester) Hanley, Jeremy
Buck, Sir Antony Hannam, Sir John
Budgen, Nicholas Hargreaves, A. (B'ham H'll Gr')
Burns, Simon Hargreaves, Ken (Hyndburn)
Burt, Alistair Harris, David
Butcher, John Haselhurst, Alan
Butterfill, John Hawkins, Christopher
Carlisle, John, (Luton N) Hayes, Jerry
Carlisle, Kenneth (Lincoln) Hayhoe, Rt Hon Sir Barney
Carrington, Matthew Hayward, Robert
Carttiss, Michael Heathcoat-Amory, David
Cash, William Heseltine, Rt Hon Michael
Channon, Rt Hon Paul Hicks, Mrs Maureen (Wolv' NE)
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 Hordern, Sir Peter
Clarke, Rt Hon K. (Rushcliffe) Howarth, Alan (Strat'd-on-A)
Coombs, Anthony (Wyre F'rest) Howarth, G. (Cannock & B'wd)
Cope, Rt Hon Sir John Howe, Rt Hon Sir Geoffrey
Cormack, Patrick Howell, Rt Hon David (G'dford)
Couchman, James Howell, Ralph (North Norfolk)
Currie, Mrs Edwina Hughes, Robert G. (Harrow W)
Davies, Q. (Stamf'd & Spald'g) Hunt, Rt Hon David
Davis, David (Boothferry) Hunt, Sir John (Ravensbourne)
Day, Stephen Hunter, Andrew
Devlin, Tim Hurd, Rt Hon Douglas
Dickens, Geoffrey Irvine, Michael
Dicks, Terry Jack, Michael
Dorrell, Stephen Jackson, Robert
Dover, Den Jessel, Toby
Dunn, Bob Johnson Smith, Sir Geoffrey
Jones, Gwilym (Cardiff N) Rost, Peter
Jones, Robert B (Herts W) Rowe, Andrew
Jopling, Rt Hon Michael Rumbold, Rt Hon Mrs Angela
Kellett-Bowman, Dame Elaine Ryder, Rt Hon Richard
Kilfedder, James Sayeed, Jonathan
King, Roger (B'ham N'thfield) Scott, Rt Hon Nicholas
King, Rt Hon Tom (Bridgwater) Shaw, David (Dover)
Knapman, Roger Shaw, Sir Giles (Pudsey)
Knight, Greg (Derby North) Shaw, Sir Michael (Scarb')
Knight, Dame Jill (Edgbaston) Shelton, Sir William
Knox, David Shephard, Mrs G. (Norfolk SW)
Lamont, Rt Hon Norman Shepherd, Colin (Hereford)
Lang, Rt Hon Ian Shersby, Michael
Latham, Michael Sims, Roger
Lee, John (Pendle) Skeet, Sir Trevor
Lennox-Boyd, Hon Mark Smith, Sir Dudley (Warwick)
Lester, Jim (Broxtowe) Smith, Tim (Beaconsfield)
Lightbown, David Smyth, Rev Martin (Belfast S)
Lilley, Rt Hon Peter Soames, Hon Nicholas
Lloyd, Sir Ian (Havant) Speller, Tony
Lloyd, Peter (Fareham) Spicer, Michael (S Worcs)
Lord, Michael Squire, Robin
Luce, Rt Hon Sir Richard Stanbrook, Ivor
MacGregor, Rt Hon John Stanley, Rt Hon Sir John
MacKay, Andrew (E Berkshire) Steen, Anthony
McLoughlin, Patrick Stern, Michael
McNair-Wilson, Sir Michael Stevens, Lewis
McNair-Wilson, Sir Patrick Stewart, Allan (Eastwood)
Madel, David Stewart, Andy (Sherwood)
Mans, Keith Stewart, Rt Hon Sir Ian
Maples, John Stokes, Sir John
Marland, Paul Sumberg, David
Marlow, Tony Summerson, Hugo
Marshall, John (Hendon S) Tapsell, Sir Peter
Martin, David (Portsmouth S) Taylor, Ian (Esher)
Maude, Hon Francis Taylor, Sir Teddy
Mawhinney, Dr Brian Tebbit, Rt Hon Norman
Mayhew, Rt Hon Sir Patrick Temple-Morris, Peter
Mellor, Rt Hon David Thompson, Sir D. (Calder Vly)
Meyer, Sir Anthony Thompson, Patrick (Norwich N)
Mitchell, Andrew (Gedling) Thornton, Malcolm
Mitchell, Sir David Thurnham, Peter
Morris, M (N'hampton S) Townend, John (Bridlington)
Morrison, Sir Charles Tracey, Richard
Moss, Malcolm Tredinnick, David
Neale, Sir Gerrard Trippier, David
Needham, Richard Twinn, Dr Ian
Nelson, Anthony Vaughan, Sir Gerard
Neubert, Sir Michael Wakeham, Rt Hon John
Newton, Rt Hon Tony Waldegrave, Rt Hon William
Nicholls, Patrick Walden, George
Nicholson, David (Taunton) Walker, Bill (T'side North)
Nicholson, Emma (Devon West) Walker, Rt Hon P. (W'cester)
Norris, Steve Waller, Gary
Onslow, Rt Hon Cranley Walters, Sir Dennis
Oppenheim, Phillip Wardle, Charles (Bexhill)
Page, Richard Warren, Kenneth
Paice, James Watts, John
Parkinson, Rt Hon Cecil Wells, Bowen
Patnick, Irvine Wheeler, Sir John
Patten, Rt Hon Chris (Bath) Whitney, Ray
Patten, Rt Hon John Widdecombe, Ann
Pattie, Rt Hon Sir Geoffrey Wiggin, Jerry
Pawsey, James Wilkinson, John
Peacock, Mrs Elizabeth Wilshire, David
Porter, Barry (Wirral S) Winterton, Mrs Ann
Porter, David (Waveney) Winterton, Nicholas
Portillo, Michael Wolfson, Mark
Price, Sir David Wood, Timothy
Raison, Rt Hon Sir Timothy Woodcock, Dr. Mike
Rathbone, Tim Yeo, Tim
Riddick, Graham Young, Sir George (Acton)
Ridsdale, Sir Julian Younger, Rt Hon George
Roberts, Rt Hon Sir Wyn
Roe, Mrs Marion Tellers for the Ayes:
Ross, William (Londonderry E) Mr. John M. Taylor and
Rossi, Sir Hugh Mr. Tom Sackville.
Allen, Graham Dunwoody, Hon Mrs Gwyneth
Alton, David Eadie, Alexander
Anderson, Donald Edwards, Huw
Archer, Rt Hon Peter Enright, Derek
Armstrong, Hilary Evans, John (St Helens N)
Ashdown, Rt Hon Paddy Ewing, Harry (Falkirk E)
Ashley, Rt Hon Jack Fatchett, Derek
Ashton, Joe Faulds, Andrew
Banks, Tony (Newham NW) Field, Frank (Birkenhead)
Barnes, Harry (Derbyshire NE) Fisher, Mark
Barron, Kevin Flannery, Martin
Battle, John Flynn, Paul
Beckett, Margaret Foot, Rt Hon Michael
Beith, A. J. Foster, Derek
Bell, Stuart Foulkes, George
Bellotti, David Fraser, John
Benn, Rt Hon Tony Fyfe, Maria
Bennett, A. F. (D'nt'n & R'dish) Galloway, George
Benton, Joseph Garrett, John (Norwich South)
Bidwell, Sydney Garrett, Ted (Wallsend)
Blair, Tony Gilbert, Rt Hon Dr John
Boateng, Paul Godman, Dr Norman A.
Boyes, Roland Golding, Mrs Llin
Bradley, Keith Graham, Thomas
Bray, Dr Jeremy Griffiths, Nigel (Edinburgh S)
Brown, Gordon (D'mline E) Griffiths, Win (Bridgend)
Brown, Nicholas (Newcastle E) Grocott, Bruce
Brown, Ron (Edinburgh Leith) Hain, Peter
Bruce, Malcolm (Gordon) Hardy, Peter
Callaghan, Jim Harman, Ms Harriet
Campbell, Menzies (Fife NE) Haynes, Frank
Campbell, Ron (Blyth Valley) Heal, Mrs Sylvia
Campbell-Savours, D. N. Healey, Rt Hon Denis
Canavan, Dennis Henderson, Doug
Carlile, Alex (Mont'g) Hinchliffe, David
Carr, Michael Hoey, Kate (Vauxhall)
Clark, Dr David (S Shields) Hogg, N. (C'nauld & Kilsyth)
Clarke, Tom (Monklands W) Hood, Jimmy
Clelland, David Howarth, George (Knowsley N)
Clwyd, Mrs Ann Howell, Rt Hon D. (S'heath)
Cohen, Harry Howells, Geraint
Cook, Frank (Stockton N) Howells, Dr. Kim (Pontypridd)
Cook, Robin (Livingston) Hoyle, Doug
Corbett, Robin Hughes, John (Coventry NE)
Corbyn, Jeremy Hughes, Robert (Aberdeen N)
Cousins, Jim Hughes, Roy (Newport E)
Crowther, Stan Ingram, Adam
Cryer, Bob Janner, Greville
Cunliffe, Lawrence Jones, Barry (Alyn & Deeside)
Cunningham, Dr John Jones, Martyn (Clwyd S W)
Davies, Rt Hon Denzil (Llanelli) Kennedy, Charles
Davies, Ron (Caerphilly) Kilfoyle, Peter
Davis, Terry (B'ham Hodge H'l) Kinnock, Rt Hon Neil
Dewar, Donald Kirkwood, Archy
Dixon, Don Kumar, Dr. Ashok
Dobson, Frank Lambie, David
Duffy, Sir A. E. P. Lamond, James
Dunnachie, Jimmy Leadbitter, Ted
Lewis, Terry Quin, Ms Joyce
Litherland, Robert Radice, Giles
Livsey, Richard Randall, Stuart
Lloyd, Tony (Stretford) Redmond, Martin
Lofthouse, Geoffrey Rees, Rt Hon Merlyn
Loyden, Eddie Robertson, George
McAllion, John Rogers, Allan
McAvoy, Thomas Rooney, Terence
McCartney, Ian Rowlands, Ted
McCrea, Rev William Ruddock, Joan
Macdonald, Calum A. Sheerman, Barry
McKay, Allen (Barnsley West) Sheldon, Rt Hon Robert
McLeish, Henry Shore, Rt Hon Peter
Maclennan, Robert Short, Clare
McMaster, Gordon Skinner, Dennis
McNamara, Kevin Smith, Andrew (Oxford E)
Madden, Max Smith, C. (Isl'ton & F'bury)
Mahon, Mrs Alice Smith, Rt Hon J. (Monk'ds E)
Marek, Dr John Smith, J. P. (Vale of Glam)
Marshall, David (Shettleston) Soley, Clive
Marshall, Jim (Leicester S) Spearing, Nigel
Martin, Michael J. (Springburn) Steel, Rt Hon Sir David
Maxton, John Steinberg, Gerry
Meacher, Michael Stephen, Nicol
Meale, Alan Stott, Roger
Michael, Alun Taylor, Mrs Ann (Dewsbury)
Michie, Bill (Sheffield Heeley) Taylor, Matthew (Truro)
Michie, Mrs Ray (Arg'l & Bute) Turner, Dennis
Morgan, Rhodri Vaz, Keith
Morley, Elliot Wallace, James
Morris, Rt Hon A. (W'shawe) Walley, Joan
Morris, Rt Hon J. (Aberavon) Wardell, Gareth (Gower)
Mowlam, Marjorie Watson, Mike (Glasgow, C)
Mullin, Chris Welsh, Michael (Doncaster N)
Murphy, Paul Williams, Rt Hon Alan
Oakes, Rt Hon Gordon Williams, Alan W. (Carm'then)
O'Brien, William Wilson, Brian
O'Hara, Edward Winnick, David
O'Neill, Martin Wise, Mrs Audrey
Parry, Robert Worthington, Tony
Pendry, Tom Wray, Jimmy
Powell, Ray (Ogmore)
Prescott, John Tellers for the Noes:
Primarolo, Dawn
Mr. Jack Thompson and
Mr. Eric Illsley.

Question accordingly agreed to.

Resolved, That this House congratulates the Government on its prudent economic policies, which have led to a substantial reduction in inflation; notes that the level of inflation in the United Kingdom has been half that under the previous Government, is now below the average for the European Community and close to the level in Germany; notes further that low inflation is essential to a sustained recovery in output and employment; and draws attention to the policies of Her Majesty's Opposition, which would inevitably lead to higher inflation, higher interest rates and higher unemployment.