HC Deb 19 November 1992 vol 214 cc431-514

[Relevant documents: The Minutes of Evidence taken before the Treasury and Civil Service Committee on 16th and 17th November (House of Commons Papers Nos. 201-iii and-iv.]

Order read for resuming adjourned debate on amendment to Question [18 November]: That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 12th November; welcomes the Government's continuing commitment to the firm control of public expenditure; supports the new expenditure plans, which honour the Government's commitments and provide protection of capital spending; applauds the specific measures the Government has taken to encourage confidence and foster recovery; and congratulates the Government on achieving a substantial reduction in underlying inflation, which has laid the foundations for sustainable growth.—[Mr. Lamont.]

Which amendment was: to leave out from 'House' to the end of the Question and to add instead thereof: `regrets that the Autumn Statement confirms that the recession is continuing and that unemployment and bankruptcies will continue to rise; regrets also that investment which has fallen substantially during the recession will fall again for 1992 and will at best, according to Government forecasts, rise by only one quarter of one per cent. during 1993; deplores the worsening balance of payments and the failure of the Government to recognise the need for a policy for manufacturing and for the regions; demands an emergency employment programme to reduce unemployment and the fear of unemployment and additional investment measures to boost the construction industry and business as a whole; and calls for a long-term industrial and training policy for Britain'.—[Mr. Gordon Brown.]

Question again proposed, That the amendment be made.

Madam Speaker

I must announce to the House that, between 7 pm and 9 pm, there will be a limit on speeches of 10 minutes.

4.28 pm
The Chief Secretary to the Treasury (Mr. Michael Portillo)

May I first welcome to her new position the hon. Member for Peckham (Ms. Harman)? She is speaking for the first time today in her role as Chief Secretary—[HON. MEMBERS: "Shadow."]—shadow Chief Secretary. She brings with her the reputation she acquired, as health spokesman, of being a real big spender. Her translation to her present role where she is responsible for keeping tabs on the promises made by the Labour party is a case not so much of a poacher turning gamekeeper as of a fox being put in charge of a chicken coop—or a chicken co-op, as the hon. Lady would call it.

The achievement of last week's autumn statement is to create the conditions for a return of confidence and so to remove a barrier to growth in our economy. The announcements made by my right hon. Friend the Chancellor of the Exchequer provide the strongest reassurance that the Government will maintain the most rigorous control of public spending and have evolved a robust medium-term strategy for limiting its growth.

Equally, his statement provides well targeted encouragement to sectors of the economy badly hit by the recession. The statement demonstrates a finely judged balance between the toughness required at a time when national finances are under strain and a willingness to respond prudently to the needs of business at a time of prolonged recession.

Despite all the huffing and puffing from the Opposition, the economic fundamentals today are promising. First, inflation has fallen from nearly 11 per cent. to under 4 per cent. Second, we now have the lowest interest rates in the European Community and the lowest seen here for 15 years. Thirdly, our exchange rate makes our products highly competitive, whether we are selling in overseas markets or in home markets against overseas products.

Dr. John Marek (Wrexham)

The right hon. Gentleman could also add that our share in world trade and manufactures has fallen from 6.7 per cent. in 1979 to 5.6 per cent. That might put his previous remarks into context.

Mr. Portillo

During part of the 1980s there was a decline in our share of trade and manufactures, but that stabilised around the late 1980s and has stabilised further since. So I do not think that the hon. Gentleman's point is at all well made.

As long as we continue to keep inflation down, the competitive edge provided today by a floating pound will be of significant advantage to British business.

Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Gentleman talks about keeping inflation down. I can understand that he has some hopes of keeping down the levels of pay in the public sector, although that is very difficult, but can he really now, after what has been said in the past week, still believe that it will be possible to keep pay in the private sector down to 1.5 per cent.? Does he really believe that?

Mr. Portillo

The right hon. Gentleman is confusing two things. I was talking about inflation, not about pay. A part of my speech which I shall come to later is about pay. But, do I believe that my right hon. Friend has set monetary conditions at the right level in order to maintain downward pressure on inflation and to achieve his target of between 1 and 4 per cent. inflation? Yes, indeed I do believe that.

As growth returns, we need to be sure that its fruits are not simply gobbled up by an uncontrolled expansion of the state. The Government's objective over the medium term is to reduce public spending as a proportion of national income, because in that way an increasing share of the proceeds of economic growth will remain with individuals: those who created it. It is the wealth creators who work and invest who should enjoy the lion's share of what is produced by their efforts.

If public spending were allowed to grow too fast, if would absorb all the benefits of growth, and the recovery would serve only to fatten the state. The burden of spending could eventually smother the private sector. We must therefore keep a careful eye on the proportion of national income that is absorbed by public spending. That ratio next year will stand at about 45 per cent. It has climbed so high because of a static, or even falling, gross domestic product and a continuing real rise in public spending, largely driven by the demands of the recession on the public purse.

Although the ratio is no higher than it was in the last recession, the state takes too much of our national income today. The ratio of spending to GDP must be reduced. That is a fundamental objective of this Government, and I reiterate it now unambiguously.

It can be done. We can reduce the ratio of spending to GDP and at the same time reduce Government borrowing, and we shall do both. I speak with confidence, because the Government have done it before. In the 1980s, the share of national output taken from wealth creators and spent by the state fell from a peak of 47 per cent. to under 40 per cent. At the same time, our fiscal position became so healthy that we were able to repay debt. Over the first three terms of this Conservativve Government, we cut the country's debt burden by the equivalent of £10 billion per year—the cost of 160 hospitals or 500 road bypasses or 5p off the standard rate of income tax.

I remind the House that those achievements took time. We had to maintain our resolve year after year. But our perseverance paid off. Restraint and fiscal prudence in the 1980s delivered a formidable hat trick—cuts in income tax, increased spending on priority programmes and reductions in the national debt.

Mr. Dafydd Wigley (Caernarfon)

Was not the reduction from 46 per cent. to 40 per cent. during the 1980s partly achieved by the privatisation of telecommunications and water? Did not the privatisation of water lead to charges to the charge payer being equally great, if not greater? Does the Chief Secretary agree that we are talking not about greater personal incomes but about a redesignation that suits his purposes?

Mr. Portillo

My figures exclude the effects of privatisation. We always publish the figures and establish the ratio on the only reasonable and fair basis on which to compare the figures from year to year, and that is excluding privatisation proceeds.

The privatisation of water was an important and helpful achievement. It has enabled the industry to embark upon a major 10-year £30 billion programme of investment in our infrastructure. I am only sorry that the Labour party believes that, when a privatised industry invests in the infrastructure, the correct knee-jerk response is to offer to tax it. That is disappointing.

The effects of recession have hit all countries and., like that of many other countries, the United Kingdom's borrowing is increasing. I want to make it clear that I do not welcome that. It is a direct consequence of the recession, however, and we cannot hide from it or from its consequences. As borrowing increases, so does the cost of servicing debt. If those extra costs in turn feed through to higher borrowing, eventually borrowing will spiral. If we listened to the Opposition, scrapped the ceilings on public expenditure and gave in to every demand and every interest group, we might be popular today but would certainly be bankrupt tomorrow.

We must avoid the prospect of more and more Government money going to debt repayment rather than to refurbishing schools, building new roads and improving the health service. As the economy recovers, borrowing must be brought down towards balance. That makes it essential to control what the Government spend. Accordingly, this year, we introduced a new system for the control of public spending.

Before any Government can decide how much they will spend, it is essential that they should have a clear idea of what the country can afford. The rate of growth in public spending must be kept below the trend rate of growth of the economy. The Government have simply done what any family or business does every day—decided what they can afford and then decided how to spend it. If we had taken the Labour party's advice, we should have done the exact reverse—added up everything on which we would like to spend and then claimed that that was what we could afford. Labour plans its spending bottom up—an unedifying posture. The current round has been conducted on a strictly top-down basis, which is the only sensible approach.

In setting the annual ceilings for public spending, we have made allowances for the effects of the economic cycle, but without loosening our grip on total Government expenditure over time. It would be wrong to rein back on social security spending directly related to the recession and wrong to squeeze other programmes to find the necessary money to pay for it.

That does not mean, however, that the recession is an excuse for public spending to be let rip. We must not allow the temporary and unavoidable increase in spending to be absorbed into a permanent increase. If we do, spending will ratchet ever upwards. The new control total that we have introduced seeks to distinguish clearly between spending related to the recession and other spending. As we emerge from recession we shall ensure that, when the cost of unemployment declines, other programmes do not grow and take up the slack.

That strategy was endorsed by the Cabinet in July. We set ourselves the remit to stick to our cash plans on the old planning total for 1993–94, but to achieve growth in the new control total across the next three years of no more than 1½ per cent. per year in real terms.

That was a challenging target. It meant reducing by half the average rate of growth in the non-cycical part of public spending compared with recent years. We have now set plans that fully meet the remit. The planned growth rate in the new control total for the next three years averages just under 1½ per cent.: 2¼ per cent. in 1993–94, but ¾ to 1 per cent. in the next two years.

A top-down approach implies the need to address priorities very clearly and resolutely. My erstwhile boss, and now noble Friend, Lord Lawson was apt to quote Mendes France's dictum that to govern is to choose. Lord Lawson was apt to quote it in French. However, as foreign languages are rightly frowned on in this Chamber, I shall say it in English. Foreign languages are frowned on except gobbledegook talked on the Benches opposite.

To govern is indeed to choose. One might go further and say that to be in opposition is to avoid choice; to call for everything and have to pay for nothing. Labour has called for lower borrowing, more spending, lower interest rates and, recently, even no tax increases.

The Opposition Front-Bench team do not confine themselves to speaking gobbledegook: they employ it in their accounting methods. The House may remember that yesterday we heard the hon. Member for Dunfermline, East (Mr. Brown) give his analysis of car tax; the clear voice of a new school of economics. After a week in which he could study all our press releases, all the tables, all the figures, red books, blue books, brown books and grey books, planning totals, new control totals and the total of those totals, the hon. Gentleman came up with one calculation. He divided the cost of abolishing car tax by the estimate of extra car sales next year. Wow! The computers laboured at Walworth road and brought forth a mouse—a Brown mouse. What a gift for "Spitting Image": the "Alas, Smith and Brown" school of economics at work.

The essence of good government is to choose, and we have ensured that money is spent on priorities. Under the new system, final decisions rest with the Cabinet. Decision-making has become collective. Together, we took the view that we were honour-bound to stick to our manifesto commitments. We have done so. We chose to direct our spending plans to support industry, to educate the rising generation and to ensure adequate protection for the needy. Again, we have done so.

We have kept our election pledges on child benefit and all the benefits which we promised to uprate in line with inflation. We shall deliver the 153,000 homes that we promised would be provided through the Housing Corporation. We are expanding the city challenge programme, and will set up the Urban Regeneration Agency. We shall keep our promise to spend more in real terms on health.

Mr. Clive Soley (Hammersmith)

In about three or four weeks, it will be a year since the Chancellor of the Exchequer promised that he would introduce a mortgage rescue programme which would rescue 40,000 people. So far, it has rescued about 100. When will the other 39,900 be rescued? Will it be in the next three or four weeks? That is all the Chancellor has before his promise runs out.

Mr. Portillo

The building societies—rather effectively—committed their resources to slowing down the rate of repossessions. I should have thought that the hon. Gentleman would welcome that instead of carping about it.

Mr. David Shaw (Dover)

I was most interested in my right hon. Friend's comments about the ability of the Opposition to add up. I was one of those who, as reported in column 313 of yesterday's Hansard, was extremely disturbed about it. Does my right hon. Friend have enough information from the Opposition to cost their programme and determine what level of tax and what level of borrowing they would preside over, and even to determine whether the City of London could even finance that level of borrowing? Or is it a massive Labour cover-up?

Mr. Portillo

My hon. Friend will realise that those are questions for the hon. Member for Peckham, whom I described earlier as the Chief Secretary but who is in fact the shadow Chief Secretary. It is her responsibility to add up the promises that Labour makes and make sure that they can be delivered. Undoubtedly the hon. Lady will use her speech to enlighten the House.

The hon. Member for Dunfermline, East was pressed on his spending plans at a press conference on 9 November. He said that his proposals would increase public spending. Naturally, he was asked what was the figure involved. The hon. Gentleman said straightforwardly: I am not prepared to put a figure on it. Thank goodness that the hon. Gentleman is now reinforced by the hon. Member for Peckham, who will undoubtedly ensure that a figure is put on it.

In our manifesto, we pledged to spend £6,300 million over three years on roads. We shall do that, but the money will now buy more roads than when it was promised. We shall build the Jubilee line extension, as we promised, provided that the agreement with the private sector can be signed.

Capital spending in the health service will reach record levels. Local authority spending of receipts will boost capital programmes on houses and schools. Our policy priorities will enable 25 per cent. more youngsters to have places in further education in the next three years, and enable more of our school leavers to join youth training. The present record level of students in higher education will be sustained. We shall reach the target set out in our manifesto of one in three entering higher education by the year 2000.

The hon. Member for Peckham issued a press release before the autumn statement listing all the promises that she thought we would break. We broke none of them. I hope that she will use her speech today to offer an apology, and possibly a word of congratulation. The decision that we took to protect capital spending stands in sharp contrast to the approach of some previous Governments. In the late 1970s, the Labour party was in power. It became temporarily converted to the need to control public spending. The House may remember that that was under the skilled tutelage, not to say psychotherapy, of Dr. Witteveen of the International Monetary Fund. After a few sessions on his couch, Labour's knee-jerk reaction was to cut capital spending.

Hospitals were cut by 29 per cent. Roads were cut by a staggering 33 per cent. Water investment was also slashed by a third. Labour's axe was swung with gusto, and its aim was unerring: always the capital project, the easiest target in the short term but the most damaging in the long term. The cuts were undiscriminating, unthinking and unwise.

The Labour party did not care. Well, one person cared. The junior Minister for Education, the hon. Member for Eccles (Miss Lestor), cared, and she resigned. But some had fewer scruples. Into her place stepped the hon. Member for Derby, South (Mrs. Beckett), to implement the cuts of her Government.

Mr. David Shaw

Where is she now?

Mr. Portillo

She sits opposite me.

An important decision that we took in the autumn statement was to limit for one year pay settlements in the public sector to a maximum of 1½ per cent. This is not an incomes policy. It is a decision by a major employer—the Government—to control its costs. At about £80 billion a year, the public sector wage bill accounts for more than one third of Government current spending.

Since we are preserving capital spending and maintaining support to people out of work, it is essential to seek pay restraint from people in work. However much Opposition Members would like to protect capital spending, they cannot afford to agree, because they cannot afford to disagree with the National Union of Public Employees and the Confederation of Health Service Employees.

Our approach to public sector pay has received widespread support. People know that it is reasonable for the Government to ask their employees to show restraint when many people in the private sector have no choice but to be restrained.

For a good number of people in the private sector, the recession has already brought about low pay, no pay rises, or loss of jobs. By contrast, during the past two years only about 2 per cent. of the jobs lost have been in the public sector. In each of the past three years, average earnings for public sector workers have risen faster than for those in the private sector.

Mr. Clive Betts (Sheffield, Attercliffe)

Does the Chief Secretary accept that his proposals, together with the Prime Minister's comments about pay in the private sector, amount to a Government incomes policy? Was that part of the Conservative party's election manifesto?

Mr. Portillo

The hon. Gentleman may not have been listening carefully. I began this passage by saying that it was not an incomes policy, but an employer's attitude to the amount of money to be paid to the people who work for him, and I am now explaining that. I am happy to repeat to the hon. Gentleman that it is not an incomes policy.

My remarks about average public sector earnings during the past three years are true, not merely for doctors and teachers, but also for nurses, national health service ancillary workers, civil service clerical staff and local authority workers. Opposition Members should ask their constituents who work in the private sector what they think about automatic public sector pay rises, whatever the conditions in which we find ourselves. The state simply cannot make awards well above inflation, year in and year out, no matter what the state of the economy.

To return to the remarks of the hon. Member for Attercliffe, the Government should not and will not dictate what settlement levels are right for private sector businesses. It is up to each employer to decide what he or she can afford to pay. Everyone knows that, in general, the lower the growth in wage costs, the better the United Kingdom's competitive position will be.

The director-general of the Confederation of British Industry has said that, and has reminded us that previous experience is instructive. Often, Britain has had a competitive edge and has let the advantage slip because of higher real wage costs. It would be sad if history were to repeat itself and if the gains in competitiveness which flow from a lower exchange rate were to be frittered away in higher costs.

Growth in earnings is lower than for a generation. Even so, our unit labour costs are rising faster than in some of the countries with which we compete. During the past 10 years, we have come a long way, but more progress may be required if the United Kingdom is to succeed in the world of the 1990s.

People in prominent public sector positions should exercise restraint and set an example, especially hon. and right hon. Members. We cannot, as so many hon. Members have done, call for the protection of capital spending and the preservation of benefits unless we are willing to share in the sacrifice. The Government will therefore recommend to the House a resolution prescribing a nil pay increase for Members of Parliament from January, and I hope that there will be support for that proposition from both sides of the House.

Mr. Nicholas Winterton (Macclesfield)

While wishing entirely to support and endorse what my right hon. Friend has said—it will be a sacrifice for many hon. Members to do that, but that is the example we have to set—what approaches has he made to the relatively newly privatised utilities whose chairmen and chief executives have increased their salaries by 100, 200 or even 300 per cent? Are they going to make a sacrifice?

Mr. Portillo

Although the levels of private sector pay should not be dictated by the Government, people in that sector have important responsibilities, and set examples. When I heard the message from the CBI conference that Members of Parliament should reduce their pay, I thought that a similar message might have been sent in the opposite direction, by some hon. Members to some of the people gathered at that conference.

The state of the Labour party worries me. In the run-up to the election, its members showed signs of beginning to understand free market economics. They talked about free markets, incentives and profits, but since then they have had a relapse. Yesterday, the hon. Member for Dunfermline, East was again attacking the failure of free markets, sounding a little like a recording which might have been made in Poland in the late 1970s. Apparently, he seriously believes that a Government can spend their way out of recession—but they cannot.

The hon. Member made a famous remark at a press conference about the state being an engine of growth in the economy. Sometimes, I look across the Chamber and think that I see three great engines of growth—the hon. Member for Dunfermline, East, the hon. Member for Peckham and the Leader of the Opposition. Three great engines of growth stoking up public spending—Gordon, the big blue engine, Harrietta, the pink railway carriage, and John, their fat controller, all huffing, puffing and shunting about, raising clouds of steam. The time has come to blow the whistle on all three.

Our new system of controlling public spending has forced us to distinguish between long-term and short-term objectives—between what is most important and what is less pressing. The discipline of working within fixed totals has obliged the Government to confront every increasing demand-led pressure. Every pound spent on one priority is a pound which is not available for another. We approach those decisions with determination and clarity.

An increasing proportion of our national wealth is taken by demand-led programmes: pensions, social security benefits and legal aid are just three. Every developed country is facing the need to support an aging population at a time when there is no increase in the size of the working population.

We shall need coolly to assess the impact on other programmes if those costs are allowed to continue to rise faster than economic growth. For the longer term, we need to consider the balance between provision by the state and by the individual. The Government have provided incentives for people to make provision themselves for retirement, beyond what is offered through state schemes, by building up their entitlements in personal and occupational pension schemes.

We face an evolving world in which, while the cold war is over, the country needs to face up to new challenges. My right hon. and learned Friend the Secretary of State for Defence is implementing, "Options for Change" and we shall continue to ensure that resources available for defence match the changing requirements placed on our armed forces.

Also, we must recognise Government's responsibility to ensure continuing improvements in our transport infrastructure. We have decided that the task is too great and important for the Government alone. The Chancellor has invited the private sector to play a larger role in meeting the transport needs of a competitive economy through his proposals to encourage private finance, and many of my hon. Friends welcomed that yesterday.

Other services which have traditionally been provided by the state need not be state monopolies. We have embarked on a policy of involving the private sector, whenever it is cost-effective to do so, in the supply of services, from social housing to prison management. The autumn statement takes that further. Our proposals on leasing should bring a welcome injection of new provision and new management to essential services.

My right hon. Friend's autumn statement demonstrates the Government's clear-sighted approach, not just to the problems of this recession nor just to the year ahead—nor even just to the three years covered by our plans—but to our determination to address the fundamental challenges facing many Governments, and to bring fresh thinking to that task.

The Government have faced up to hard choices and made tough decisions. For that reason, the autumn statement has been well received in the House and widely welcomed in the country. In the Lobby tonight, my right hon. Friend and the Government will deservedly be supported with enthusiasm.

5 pm

Ms. Harriet Harman (Peckham)

It is extraordinary that, on a day when another 10,000 redundancies have been announced, the Chief Secretary opened the debate without a reference to unemployment.

The Royal Bank of Scotland has announced that 1,000 jobs will go in each of the next three years, Blue Circle Cement is to axe 550 jobs, about one fifth of its work force, excavator maker JCB is to cut 80 jobs, and I understand that within the last few minutes it has been announced that about 5,000 workers are to be made redundant by British Rail.

In other words, we have today witnessed jobs disappearing in manufacturing, services, construction and energy in every region of the nation. Although the Chief Secretary found time to make quite a good joke about Thomas the Tank Engine, he did not find time to recognise just what is going on in Britain today.

We have seen in recent weeks some signs that the Government recognise that they have gone wrong. They must know that they have a problem on their hands. The trouble is that they cannot distinguish between the PR exercise that they think is necessary to create the good news story for the newspapers and the real programme for recovery that is necessary for the recession. So they make promises in which they do not believe and continue to say, as the Chief Secretary said today, that the ending of the recession can be left to the market. At the same time, they criticise those who call for Government action.

The autumn statement is a mix of measures in which the Government do not believe and which, even on their predictions, do not add up to achieving recovery. It will not bring an end to the relentless increase in unemployment, and today we have seen not only job losses rise but manufacturing output figures revealing a further fall.

Last month, the Prime Minister appeared live on our television screens, on ITN and on BBC News, and said, more in the way of a cry for help than a Prime Ministerial broadcast: We are looking for a strategy that will deliver recovery, that will deliver growth, that will deliver jobs. It is clear from the autumn statement that the Government are still looking.

Under pressure, the Chancellor has admitted the error of his ways, but, through lack of conviction, he has failed to apply the remedies that are needed. So instead of a housing policy to build, repair and modernise homes, we have the purchase—perhaps the nationalisation—of 20,000 empty properties. Instead of an industry policy, £400 is taken off the price of a new car. Instead of the release of the accumulated receipts of council house sales, we have the future release of receipts, if only councils can dump their houses and assets on to an already stagnant market. Worst of all, instead of an employment programme and policy, unemployment is left rising.

The Government have begun to admit their failures, but have failed to provide the solutions.

Mrs. Judith Chaplin (Newbury)

The Labour party fought the last election on a programme of large tax increases. If, heaven forfend, Labour had won, would that programme have been implemented?

Ms. Harman

We did not fight the last election on a policy of increasing taxes. The Tories fought the election on misrepresenting our tax policies. Since the election, many people have lost their jobs, cannot pay taxes and are having to draw unemployment benefit.

Mr. Graham Riddick (Come Valley)

During that election the Labour party argued strongly and consistently that the upper earnings limit for national insurance was wrong and should be abolished. Does the hon. Lady still hold to that view?

Ms. Harman

Our policies were fair. In the current situation, we have set out how we would bring about recovery. To bring an end to the recession, we have suggested how our programme could be paid for. It is significant that Conservative Members can talk only about the programme of the Labour party prior to the last election, but have nothing to say about their autumn statement and the effects that might have.

Mr. Michael Ancram (Devizes)


Ms. Harman

I will give way once more, especially to the hon. Gentleman, who spoke yesterday.

Mr. Ancram

In fact, I am hoping to speak later in the debate. In view of her remarks, will the hon. Lady put a figure on what Labour's programme would cost, the hon. Member for Dunfermline, East (Mr. Brown) having refused to answer that question?

Ms. Harman

We have set out what we believe needs to be done to bring an end to rising unemployment. We have said that the public sector must play an important part and that public spending will need to be increased. We have explained how our measures would be achieved. We have said, for example, that we do not believe it right to lift stamp duty on share dealing or that the recently privatised utilities should sit on billions of pounds in the bank when that money could otherwise be available for investment.

We have set out clearly our programme of what needs to be done and how it would be financed—[Interruption.] I am asked to give the figures. The Government throw out figures which, even on the day they are printed, prove to be wrong.

Mr. Bernard Jenkin (Colchester, North)


Ms. Harman

I hope that the hon. Gentleman will forgive me for not giving way. I must make progress.

The Government have begun to talk about growth, but there is no real expectation of growth. They have begun to talk about investment, but they have no strategy for it. They have also begun to talk about fairness, but they take money out of nurses' pay packets to make cuts in the national health service budget.

Many people believe strongly that the Government have simply stood by while the menaces of unemployment and recession have stalked us and engulfed every region of the country. People appreciate that there are worldwide economic problems, but they also know that our recession started earliest and is lasting longest.

Even against the background of worldwide economic problems, between 1990 and 1993, Japan's manufacturing output will have risen by 1 per cent. Manufacturing output will have risen in Canada by 2 per cent.; in Italy, by 2 per cent.; in France, 5 per cent.; in America, nearly 6 per cent.; and in Germany, 8 per cent. But manufacturing output in Britain will have shrunk by 5 per cent. The same story applies to business investment, total investment and the national income.

People hold the Government responsible for the way in which they have managed the economy, which has left us with soaring unemployment and public borrowing, with imports overtaking exports and with imports still rising, and with a stagnating housing market as we are about to enter our third winter of recession.

There is a strong feeling throughout the nation that the Government must act positively. They must provide a recovery programme that will lift the fear of unemployment, stimulate the housing market, provide stability and confidence for industry and provide incentives for investment. The recession has cost the nation dear. This year, we have spent £1.5 billion more on unemployment benefit because of it. It has also cost the Treasury in lost receipts. This year, Treasury receipts were £5 billion less than last year because of the recession.

Despite the upbeat talk, the autumn statement is not a recovery package. Without investment and growth, we shall not see an end to the relentless increase in unemployment. The fear of unemployment and high personal indebtedness hang over the economy. I was struck by the fact that, when the Chancellor spoke on the economy at the Tory party conference, the only time that he mentioned debt was when he mentioned his personal debt to the Prime Minister for keeping him in his job.

The personal sector's financial liabilities have increased from £204 billion in 1985 to £470 billion in the first quarter of 1992. The ratio of personal sector debt to personal incomes has risen from 86 per cent. in 1985 to 115 per cent. in 1991. Against that background, the Government will not end the recession simply by waiting for people to go out shopping. People are burdened by personal debts.

Mr. Henry Bellingham (Norfolk, North-West)

I, too, am concerned about investment and recovery. One of the biggest investors in East Anglia is Anglian Water, which has a huge programme for improving the environment and investing. If that utility is taxed, will it continue to invest in improving the environment?

Ms. Harman

We have been talking about profits made in the depth of a recession by utilities that have been privatised and are now running a monopoly. They can certainly find enough money to make donations to the Conservative party. We think that people in East Anglia would rather see that money invested to boost the construction industry and create demand in the economy than sitting in a bank account.

The lack of demand in the economy and the squeezing of profit margins mean that private industry will not move into recovery simply in response to lower interest rates. The Government have been forced to go some way towards acknowledging that public investment is important in ending the recession, although the Chief Secretary moved slightly away from that today. The growth in public sector investment is set to fall from 7 per cent. this year to 1.25 per cent. next year, and the Government forecast an increase of only 0.25 per cent. in total fixed investment.

With 400,000 building workers on the dole and 60,000 homeless families living in temporary accommodation, Tory as well as Labour-controlled councils, the construction industry, employers and unions are increasingly angry that the Government will not let councils use the £5 billion capital receipts from the sale of council houses to build more homes and provide a boost for the construction industry. The Labour party has consistently argued that it is plain common sense to allow the progressive relaxation of the constraints on capital receipts. The Government have refused to unlock that £5 billion of capital receipts. Instead, they have said that councils can spend all the receipts from their sales between now and the end of next year.

Thus, councils have thirteen and a half months in which to sell. In his statement yesterday, the Chancellor told us that that would stimulate extra capital spending by local authorities of more than £1.75 billion. But that figure is bogus. To reach it, councils must not only maintain the level of council house sales but increase it in that thirteen and a half months by 20 per cent. Does the hon. Member for Norfolk, North-West (Mr. Bellingham) think that his council will increase the sale of council houses in his local authority by 20 per cent. in the next 13 months, against a background of redundancies and a wage freeze in the public sector?

Mr. Jenkin

The hon. Lady has outlined a number of problems facing us in the economy today, but does she honestly think that defying the 1.5 per cent. guidelines for public sector pay increases and going for bigger increases will reduce unemployment, increase investment or solve any of the problems that she has outlined? Moreover, has she any idea how she would pay for it?

Ms. Harman

I am trying to deal with capital receipts. I shall deal with the public sector pay freeze in a moment.

Does the Chief Secretary really believe that council house sales will even hold steady this year? Does he expect us to believe that council house sales will go up by one fifth next year? Will more people buy their homes against a background of rising unemployment? They will not, and the Chief Secretary must know that.

We have taken the time to check with local councils. On the basis of the latest right-to-buy applications, they expect not to keep council house sales steady but that there will be a dramatic drop in receipts from council house sales. In Trafford, applications for right to buy are down by 68 per cent.; in Sunderland, they are down by 50 per cent.; in Plymouth, they are down by 39 per cent.; in Calderdale, they are down by 55 per cent.; in Coventry, they are down by 52 per cent.; and in Enfield, they are down by 40 per cent.—that means a drop of 40 per cent. in council house sales.

Where will the £1.75 billion which the Chief Secretary promised come from if council house sales collapse, as councils know that they will? Is it that the money can come only from councils selling all their other assets—their pools, libraries and parks? Sunderland council said that it was even contemplating selling the pictures off the walls in the town hall. Is not the real story that either councils will not have that £1.75 billion to spend, or we are set to see an unprecedented asset-strip—a forced privatisation and a selling of public assets at the bottom of the market?

To produce false figures on such a key issue as capital investment is not the way to generate confidence in the construction industry. The absence of new construction projects and the uncertainty that hangs over those already announced will not bring confidence back to the beleaguered construction industry. The Jubilee line extension was first announced in January 1989. It was announced again in November 1989, and in May this year it looked as though it was off. It was re-announced last week, but still, we note from the Chief Secretary, with no start date.

Plans for the Heathrow express rail link project are near to collapse and the £400 million cut in the external financing limit of London Transport threatens a range of services that would not only provide work but improve the long-term economic competitiveness of our capital city.

The picture on overall investment is bleak and on private investment it is bleaker still. Business investment has fallen by more than 10 per cent. in the past two years. The Government have begun to express concern, but the sum total of their proposals will, according to their own figures, leave investment stagnating next year. Yet they plan to cut the Department of Trade and Industry budget in real terms from £1.6 billion this year to £0.9 billion by 1995–96. Hardest hit are regional and general industrial support, set to fall by 15 per cent. in real terms in just two years.

What justification can there be in cutting programmes such as those to create jobs in assisted areas, those to provide grants to development areas, or inner city training projects? Cutting the DTI's budget is not the way to generate industrial confidence and, by 1995–96, the DTI's budget will be the same size as the Department for National Heritage's budget. Perhaps the two Departments can be merged into one Department of Heritage, Trade and Industry, presided over by a Minister for Fun and Former Glory, as industry becomes our past, but not part of our future.

There are fears that the manufacturing sector will be so weakened that it would be unable to respond if there were to be an upturn in demand. For the first time in Greater London there are more people on the dole than there are employed in the manufacturing industry. As the recession hits, that will be the case in other districts as well.

Things are so bad that even the Conservatives' traditional winter ball is in trouble—I am glad to say. This year, many firms will not be going to the ball. Former staunch supporters that will not be attending this year include Taylor Woodrow, Charles Barker, a public relations company, and GKN. The chairman of Bauman Webber, glass manufacturers, when asked—as usual—to pay for an advert in the brochure for the ball, said: It is the ultimate sick joke—asking British industry to lend support. Now I wish the function every possible failure. Peter Edmundson of Anglia Secure Homes said: The damage done by the inept dogma of the Government cannot easily be forgiven. They are leaving the ugly sisters of recession and bankruptcy to go to the ball on their own. They will stay at home and so will many others.

The autumn statement predicts that growth is set to rise next year by only 1 per cent. But increases in productivity mean that growth of at least 2 per cent. is needed to stop the relentless increase in the dole queue. The Chancellor admits that unemployment is set to carry on rising. We now have the highest male unemployment since the 1930s.

The real level of unemployment is probably closer to 4 million than 3 million, and there is now a four and a half year high in the number of long-term unemployed. However, as the number of unemployed grows, the budget of the Department of Employment is to be cut. Training and enterprise councils are to have £36 million cut from the budget that they were promised for next year.

The Government preach about the iniquities of the dependency culture, but they create dependency on a massive scale as people who want to work are thrown on the dole. The Government are adding to the dole queue. After the threat to 30,000 miners' jobs, the squeeze on local government spending means that thousands of council workers across the country will be made redundant. The National and Local Government Officers Association estimates that up to 50,000 jobs will go. We are talking not about jobs that are to be moved from the public to the private sector under compulsory competitive tendering, but about jobs that will actually go.

Public sector workers face not only redundancy but a wage freeze. Cutting the real wages of 5 million public servants is not the way to generate consumer confidence. To freeze public sector pay, to have a centrally imposed pay ceiling, is an unfair policy which will not work. It also means that the Government are reneging on everything that they said about pay bargaining. It is unfair to make public sector workers pay the price of the Government's economic failures. The policy will not work. High wages in the public sector did not lead to the recession, and freezing those wages will not end the recession. However, it will mean Ministers going back on their promises.

In May this year the Secretary of State for Health said at the Royal College of Nursing: The review body is safe. I can endorse the resolution demanding that the Government retains the nurses and midwives pay review body. We will. The Chief Secretary has just said that the Government will impose pay restraints. If the Government keep the review body and accept its recommendation for nurses, other public sector workers who do not have review bodies will face either pay cuts or redundancies.

In order to impose pay restraints in the public sector, the Government have performed a U-turn in their drive to decentralise pay bargaining. National health service hospital trusts were recently told to set their own pay levels. Now they are being told that if they give workers an increase of more than 1.5 per cent., their services will have to be cut even further.

I hope that one of the Ministers will deal with the issue raised yesterday by my hon. Friend the Member for Oxford, East (Mr. Smith) as it was not addressed then. As my hon. Friend said, the Government have overlooked the effects on the public sector pay bill of increments, which are automatically paid as part of the contract, to nurses, doctors and many other public sector workers. That means that any workers who were denied their increments could take their employers to court. A decision not to pay the increments would require legislation. But if the Government stick to their 1.5 per cent. overall ceiling, paying the increments will mean that there is little if anything left for other public sector workers. I hope that the Minister will answer that.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell)

As my right hon. Friend the Paymaster General made absolutely clear yesterday, the 1.5 per cent. ceiling applies to settlements—the total amount of pay in the settlement for any given year that is awarded to a particular group. While the hon. Lady is listing the problems of a pay policy in the national health service perhaps she will explain why, under the last Labour Government, nurses' pay fell 3 per cent. in real terms, and has risen by 43 per cent. under this Government.

Ms. Harman

The Minister has not answered my question whether the increments that are automatically paid under contract are included in the 1.5 per cent. ceiling.

Mr. Dorrell

They are in the base to which the 1.5 per cent. is applied to calculate the amount available to that group.

Ms. Harman

Which means that other people who do not receive increments will either have their pay frozen or will have to accept pay cuts.

The Government say that they plan to use a public sector pay policy to make available an extra £1.5 billion. They say that public servants must make the sacrifice because there is no other way. But the Government who tell some of the lowest paid to take cuts in their standard of living plan to lift the stamp duty on share transactions next April—a move which will mean a loss to the Exchequer of £1.5 billion over the next two years.

On Tuesday the Prime Minister talked of the British people's instinct for fairness. People will not think it fair to take money out of the pay packets of nurses and put it back into the wallets of people dealing in shares.

Mr. Portillo

While we are on the subject of fairness, how will the hon. Lady vote on the issue of the pay of Members of Parliament?

Ms. Harman

I think that it is right that the pay of Members of Parliament should be taken out of the arena, and not be used as a political football. I believe that our pay should be tied to that of civil servants. That decision was right—our salaries should be pegged to civil servants' pay levels.

I should like to ask the Chief Secretary whether he and his hon. Friends who are baying for a pay freeze for Members of Parliament will accept that their directorships, consultancies and other jobs are to be kept within the 1.5 per cent. Do they want to have a spiralling increase—[Interruption.] There seem to be a number of different views among Conservative Members on that subject.

I do not think that people will think that the plans for the health service are fair. When we compare the expenditure planned for the health service with the figures in the autumn statement, we see that there is a fall of nearly £700 million.

The costs of the recession are not measured only in the wreckage of lives and communities. The costs can also be seen in our public accounts. Money pours out to finance the growing number of people who are forced to depend on benefits, and receipts drop as companies go bust. Those who survive see their profits fall. In just four years, the public sector accounts have gone from a surplus of £14 billion to a deficit of nearly £40 billion, and the debt is still rising. That is the real story of the recession as it affects the public sector borrowing requirement.

After the autumn statement Conservative Members cheered. They waved their Order Papers and breathless Tory Back Benchers enthused to waiting journalists that it was absolutely brilliant. One said, "He has given me everything I wanted and more."

There is no reason for anyone to have confidence in anything that the Chancellor or Treasury Ministers say. We can all remember the Chancellor saying that he had seen the green shoots of recovery, but astonishingly he still maintains that he did see them—he just could not explain what happened to them. These are the people who told us that a vote for the Tories on 9 April would bring recovery on 10 April.

The really impressive figures in the autumn statement, towering above all others, are the margins of error. The average errors in predicting growth in investment are now 17 times greater than the growth that they predict. The figures predict a quarter of 1 per cent. increase in growth of investment, yet the average error for such prediction in recent years has been a 4.25 per cent. overestimation. If the Government do no more than repeat their past errors, there will be, not an increase of a quarter of 1 per cent., but a fall in growth of 4 per cent.—I mean, a fall in investment of 4 per cent.

Mr. Michael Fabricant (Mid-Staffordshire)

The figures do not add up.

Ms. Harman

It is the Government's figures which do not add up. The 0.25 per cent. increase in investment figure must be set beside the next column of figures, which shows that there is likely to be an average 4 per cent. drop.

It is clear that the Government's belief that the market will sort everything out has left them and the Chief Secretary as spectators while the recession deepens and jobs are lost. The right hon. Gentleman has no idea of how to end the recession; he does not even mention the job losses. The market has failed to offer answers to the new challenges of the environment, the north-south divide or the changes in the former Soviet Union and eastern Europe. Having been in power for so many years, the Government now talk about opportunities and say that everyone else must take up those opportunities—yet the Government have allowed their opportunities to pass them by.

Of course there have always been opportunities, but the Government have not been prepared to turn them into realities for Britain. Throughout the country people are fearful of unemployment and of businesses folding. They are desperate for a reason to be confident, but the Government have a blind spot: they will not see that when the economic situation is as serious as it is the Government, and the Government alone, can stem the tide of disaster.

Confidence cannot be restored to the economy unless confidence in the Government is restored, and no one can have confidence in this Government. It is they who are the obstacle to the recovery that we need.

Mr. Deputy Speaker (Mr. Michael Morris)

I call Mr. Terence Higgins—

Mr. Brian Wilson (Cunninghame, North)

On a point of order, Mr. Deputy Speaker, which is highly germane to this debate. While my hon. Friend has been speaking, news has been coming in—she alluded to it briefly—of an announcement of 5,000 redundancies by British Rail—

Mr. Deputy Speaker

Order. That is not a point of order for the Chair.

Mr. Wilson


Mr. Deputy Speaker

Order. Redundancies outside have nothing to do with the Chair; neither have I had any requests for a statement.

Mr. Wilson

Further to that point of order, Mr. Deputy Speaker. Would it be in order to request a statement on the redundancies announced by British Rail this afternoon?

Mr. Deputy Speaker

Order. I have made it clear that I have had no requests for any statements. [HON. MEMBERS: "You have now."] Order. I have made it clear that I have had no requests for statements on any subject.

5.33 pm
Mr. Terence L. Higgins (Worthing)

I join my right hon. Friend the Chief Secretary in congratulating the hon. Member for Peckham (Ms. Harman) on her new appointment. No doubt we shall be hearing her speak in that capacity for many years to come. Unlike her, I welcome the autumn statement and I believe that in retrospect it will be seen as a turning point in our economic affairs.

I begin by dealing with an issue that has been too little mentioned. In his Budget speech in March, the Chancellor referred to a decision to change the annual Budget timetable so that tax and spending proposals would in future be presented to Parliament at the same time. He then issued a White Paper on budgetary reform in March. Both the Budget statement and the White Paper were rather overtaken by the general election, so an important change in our parliamentary procedures has been overlooked.

My right hon. Friend asked for comments on the White Paper. I do not know whether he has received many, but right hon. and hon. Members have not fully appreciated what is proposed. It has always been a strange feature of our affairs that what we describe as a Budget is not what people usually regard as one, because ours is concerned only with raising taxation; it does not bring together the two sides of the equation—taxation and public expenditure. Hence my welcome for my right hon. Friend's proposal.

The bibliography at the end of the White Paper, curiously, does not refer to the report 10 years ago of the Select Committee on Procedure (Finance) which dealt at considerable length with this issue. Although the report—I had the honour to chair the Committee which produced it—received a very dusty reply from the then Financial Secretary, I hope that as the Chancellor has now agreed to take the two sides of the equation together, which was our main point, he will also look at some of the other recommendations that we made.

There is a case for putting the technical matters which usually appear in the Finance Bill into a separate Bill, and for introducing a taxes management Bill embodying the aspects relating to changing rates, and so on. New taxes should appear in the form of separate legislation. I hope that Treasury Ministers will consider a number of these points.

I welcome the fact that next year we shall have two Budgets—one at the usual time and, if the proposals go through, another in December. That will have a radical effect on some of the points that we debate in this House.

We should also consider another point from the Select Committee report that I have mentioned. In this House we exercise a degree of control over taxation and public expenditure but, strangely, we have never had any control over borrowing. There is certainly a case—it happens in the United States—for our having some control over it, if only as a trigger to provoke a necessary debate if borrowing reaches excessive levels.

As for the broader aspects of the autumn statement, we have been interested in how policy has been set out after the withdrawal from the exchange rate mechanism of the European monetary system. We had an emergency debate, the Chancellor appeared before the Treasury and Civil Service Select Committee, he made his Mansion house speech, and now we have had the autumn statement. The pattern of policy has now been comprehensively and clearly stated.

A great deal of criticism has been launched at the fact that we joined the ERM and then withdrew. Even with maximum hindsight at the point when we joined—had we known then that we should be forced to withdraw when we did—it would still have been the best way to reduce inflation from 11 per cent. to 4 per cent. Any other way of achieving that objective, by deflation or other means, would have been much less satisfactory and a far more painful way of attaining the Government's fundamental achievement of reducing inflation to the point at which we can resume non-inflationary economic growth. That is the idea contained in the autumn statement.

Although my right hon. Friend's autumn statement was rightly acclaimed by Conservative Members, we shall be repeatedly told in the next three or four months by the media and by the Opposition that it has failed in its objective. Whatever had been done, unemployment is a lagging indicator and would have continued to rise. That does not mean that what my hon. Friend did in the autumn statement was wrong; nor does it mean that we shall fail ultimately to produce the necessary results if we are to get back to growth.

There is no doubt that the balance of payments is likely to deteriorate in the coming months. The well-known J-curve effect is bound to have an impact. Import prices will rise, with an adverse effect on the balance of payments, and it will be some time before exports pick up and reverse that trend. I hope that my right hon. Friend the Chancellor will not be put off by anything that the Opposition say, either about the trend in unemployment in the immediate future or about the balance of payments. The measures that he has taken are the right ones and we shall see a resumption of growth.

When there is a devaluation or a fall in the exchange rate of the kind that we have experienced, it is usual to say that the Government should deflate in order to make that exchange rate stick. That was not necessary in the present circumstances. Had we remained in the ERM, we were heading not for zero inflation but probably for minus 1 per cent. or minus 2 per cent. inflation. Therefore, there is no reason to take further action in terms of deflation and the balance struck by my right hon. Friend in the autumn statement is about right.

Mr. Nicholas Budgen (Wolverhampton, South-West)

I note my right hon. Friend's assessment that we might have had minus 1 per cent. or minus 2 per cent. inflation. At what stage did he think that the monetary squeeze imposed by the ERM was much too strong?

Mr. Higgins

The question that needs to be considered is precisely the one that I posed a moment or two ago. We saw a fall in inflation from 11 per cent. to 4 per cent., and we may see a further slight decline now. None the less, that was the least painful way of achieving that fall. In that sense, the fact that we were in the ERM was beneficial to Britain.

There are difficulties about the cross rate between the deutschmark and the dollar, over which we have relatively little control or influence, but the exchange rate is probably about right. The general level in relation to both those currencies is near enough correct. As my right hon. Friend the Chancellor said, we have had a substantial cut in interest rates by 3 percentage points in a short period and, in addition, a change in the exchange rate, which I believe will produce the right level of growth.

Having said that, we need to be clear that in those circumstances one should allow the so-called automatic stabilisers to operate fully. I was rather heartened by what my right hon. Friend the Chancellor said about distinguishing between cyclical increases and non-cyclical increases in public expenditure. As the hon. Member for Peckham also rightly pointed out, one must not seek to offset by further reductions in public expenditure or increases in taxation the fall in revenue which is also the result of the recession in the same way as there is an increase in public expenditure on social security benefits. I hope that that is a point on which there can be complete agreement on both sides of the House; otherwise, there would be a dangerous situation.

There is clearly a problem with regard to funding. I welcome what my right hon. Friend the Chancellor said yesterday about further privatisation proceeds. I have always argued, as has the Treasury and Civil Service Select Committee, that privatisation proceeds should be regarded as a means of funding the public sector borrowing requirement rather than looking at them in any other way. It is also important to stress the help to funding the PSBR which was the result of borrowing foreign currency before we withdrew from the ERM—selling deutschmarks and buying sterling—which has itself made a considerable contribution to the funding process.

Another point that I hope that my right hon. Friend and his colleagues will consider carefully is that the PSBR, M4 and all the other indicators are in many ways a deficient way of managing our economic affairs. I have always thought it strange that in private business one has an income and expenditure account and a balance sheet, but the Government have only an income and expenditure account and pay no regard at all to the balance sheet.

The reality is that over the years we have seen huge fluctuations in the net worth of the British economy, or the Government sector, which have clouded many important aspects of economic management. Now that we have better data on that, we shall gradually be able to construct a more sophisticated Government balance sheet and national balance sheet. Some attention needs to be given to that important issue.

I have already said that the devaluation, the cut in interest rates, and the autumn statement will return us to non-inflationary economic growth, but it has to be done in the international context. I am glad that the Prime Minister has taken such a tough line on the Uruguay round of the GATT negotiations. It would be absurd if a dispute about whether there should be a subsidy in a particular country for oilseed, or whatever, were to jeopardise the entire GATT negotiations and the Uruguay round on which the immediate and long-term future of the world economy so importantly depends.

Therefore, I hope that the negotiations now taking place will be brought to a successful conclusion. It would be absurd for narrow national interests within the EC to jeopardise our negotiating position, adherence to the GATT rules as they now are and the future improvements in that area.

Having said that, I believe that the Government's overall policy is now right and that the autumn statement will be seen as a turning point in our economic affairs when we review these matters in the future.

5.46 pm
Mr. Robert Sheldon (Ashton-under-Lyne)

The right hon. Member for Worthing (Mr. Higgins) was right to draw attention to the importance of GATT, something on which I am sure that the House is united. He mentioned that we shall have two Budgets next year, but he will realise that we have had two Budgets this year. There is no question but that this autumn statement has been rather more of a Budget than the usual autumn statement.

This autumn statement owes its origins entirely to the consequences of black Wednesday, 16 September. It is a great pity that all the voices that we heard from Germany and elsewhere did not penetrate the Treasury to bring about an agreed devaluation which would have saved £1 billion or £2 billion. The voices were strong and the nonsense of going up to 12 per cent., then 15 per cent. and then coming down, was one of the more shameful aspects of the whole affair. We were behaving like a banana. republic when we should have had greater sense and a greater feel for the situation. The Treasury always used to have that, the Bank of England certainly had it, and it is a great pity that, at a time of crisis, their tentacles did not spread to an understanding of those matters.

We are seeing a discontinuity. There has been a fundamental change, quite rightly, one would expect it, following the events of black Wednesday. Old policy had to be thought out afresh, and I do not grumble at that. However, those who try to pretend that that is part of the continuing pattern of reacting to the kind of dogmas that we had in the past fail to understand the fundamental change that we are seeing.

In order to illustrate that, we need only consider the autumn statement and what would have happened if we had not had black Wednesday. It is fairly clear that there would have been some big changes in the autumn statement. Let us look at one or two.

A 1½ per cent. growth is expected in domestic demand. I suspect that that would have probably been zero. Non-oil GDP is going up by 0£75 per cent. Again, it would have been zero or perhaps less. The right hon. Gentleman talked about negative inflation and he could well have been right. Manufacturing output certainly would not have grown; it would probably have shrunk further. The retail price index could well have gone down and it might even have met some of the true definitions of deflation—negative inflation.

Those things have changed. We heard that the Chancellor was singing in his bath, but for someone who has lost Britain £1 billion or £2 billion that seems to be an excessive reaction.

Inflation is not the main priority. It has been the main priority for all Chancellors of the Exchequer in the past, and it has now changed. Clearly, levels of inflation will be rather more than had previously been thought.

The Government's main priority is moving towards growth, and I am delighted to see that—in terms of words, if not entirely in terms of actions—they are moving towards growth in manufacturing industry. About time too. At least the Government are making the right sounds, even if they are not doing the right things. In the past, people have looked to the City for the salvation of our economy. When Churchill pointed out that finance should be less proud and industry more content, he may have been acknowledging that finance depends on industry. The lesson that must be learned is that manufacturing industry is not just an add-on, but a fundamental part of the whole.

London owes its development as a financial centre entirely to manufacturing industry, which, in the past, produced the goods that made London a means of putting money into industry. Similarly, New York became the financial centre of the United States, because it provided the means of putting money into the big steel makers and so forth. Today, Frankfurt is a major financial centre because it is responding to the needs of German manufacturing industry. Formerly, no one had heard of Tokyo as a financial centre; now it is one of the two or three major financial centres of the world, for the same reason.

The Bundesbank has become powerful not because it is the cause of German success, but because it is the result of that success. If our industry were equally successful, I might be prepared to adopt the view of the Bank of England that so many Germans take of their Bundesbank; unfortunately, however, our manufacturing industry has declined. Even today, the Financial Times contains pages of great manufacturing names that are going under, and we have not yet reached the end of that unhappy roll.

I am delighted to learn that the Government are now talking of manufacturing industry in more respectful terms than they have ever used before. When he was Secretary of State for Trade and Industry, Nicholas Ridley—now Lord Ridley—said: I do not think it is a disaster if we become an economy primarily based on the service sector. It isn't vital that we have a large manufacturing sector. I think that it is indeed a disaster that we have allowed manufacturing industry to decline so badly. It is not just a question of jobs, although of course jobs are important; it is a question of output.

When manufacturing industry is becoming more efficient, it is possible to employ declining numbers, and to use the wealth that is created to improve the infrastructure and our social services—to help our fellow citizens, in fact. The more we make, the more we replace imports; the more we make, the more we can export; and the money that produces can pay for the improvements I have cited.

Not so long ago, we used to make virtually everything in this country. That certainly happened in my lifetime: indeed, it was happening when I was a young man working in industry. If a customer wanted to buy something, he turned to the various directories that were the equivalent of today's Yellow Pages, which advertised any number of goods. We made everything—from typewriters to washing machines, from cars to textiles. We may have imported some goods, but in the main they were curiosities.

I appreciate that the world has changed, and that there is now international specialisation. Nevertheless, the most important aspect of our former dominant industrial position was the fact that, if the Chancellor of the Exchequer increased demand, he also increased production at home: the two went together. Now that we import so many of our manufactured goods—more than we export—the use of demand management to control the economy is not the same as it used to be. If demand is increased, the number of imports also increases. That is why, for the first time for 10 or 15 years, manufacturers must be helped directly if they are to be helped at all. They cannot be helped in the same "macro" ways that were used in the past.

Mr. Bellingham

I agree with some of what the right hon. Gentleman is saying, but I think that he should be careful not to sell Britain short. According to the German magazine Director, 27 of the top 50 European companies are British.

Mr. Sheldon

That has always been the case. Fifty or 100 years ago, we had the largest companies in the world; unfortunately, size did not always go together with efficiency or performance.

I welcome the Chancellor's acceptance of the importance of capital allowances, for which I have argued throughout my parliamentary life. Obviously Labour Members must welcome it, as it was part of Labour's programme. However, I would have preferred the allowances to be rather higher. Until now, they amounted to 25 per cent.; that was nonsense, as salesmen often received 25 per cent. commission on orders, and in most cases the true depreciation—the price that could be obtained for the sale of the asset—was well below 75 per cent. of the purchase price. That was not an investment incentive; it was an investment disincentive. Those who invested in plant and machinery lost money.

I am also delighted that the Chancellor has restricted the measure to plant and machinery. I have repeatedly argued for that as well. Much so-called investment is not real investment at all: it may be spent on office furniture and fancy reception areas. Investment in plant and machinery is the closest that we can get to a definition of true investment. I should, of course, have been happier if the Chancellor had increased the allowance to 60 or even 70 per cent. There was a time when free depreciation operated.

I understand that the allowances are to be time-limited, but I do not believe it. I think that they will be built into the new sensible approach to manufacturing industry, and will become a permanent memorial to the Government's change of attitude. At least they are now facing the realities. It is a pity that this is happening during a recession, because we shall not see the desired levels of investment; but at least something is being done.

I was pleased to note that Howard Davies of the CBI was inching back to a better understanding of manufacturing industry. I also welcomed the formation of the National Manufacturing Council. Its members, however, cannot forget their past: they still feel constrained to make a bow to their past political errors. They talk of the record of the 1980s, and state that manufacturing made considerable strides then. That is obvious nonsense. I lost 33 per cent. of my companies between 1979 and 1981. The council also mentions progress since 1985, but its views sound like those of Tory politicians rather than representatives of manufacturing industry.

As I have said, I lost one third of my companies, and I feel badly about it. They were not old-tech companies; they were medium-tech companies of the kind that can be seen in France, Germany, Japan and indeed every country in the world. Those companies went bust and closed their doors, and it is possible that a further 10 per cent. will go.

The country as a whole has experienced a similar decline. These are serious matters: the narrowness of our present industrial base is one of the country's main problems. We have an horrendous balance of payments deficit, in the middle of the deepest recession since the war. Along with that deficit—a deficit of historic proportions—we are experiencing the miserable failure of our export performance. We must ask why that is happening. In the past the two developments would never have coincided, but we have grown accustomed to experiencing a balance of payments deficit in the midst of a slump.

Sir Terence Beckett, the former director general of the CBI, once called for a bare-knuckled fight. He did not like the Government's attitude to the slump between 1979 and 1981. He came from manufacturing industry and realised the damage that was being done to it, but he did not realise that powerful importers and financiers were members of the Confederation of British Industry. Conservative party voices had high places in the CBI. Unfortunately for manufacturing industry, therefore, Sir Terence was soon brought to heel. That was very sad. He understood manufacturing industry. He thought that the CBI represented it, but it did not. At least the CBI is making up a bit for that now. Howard Davies and a few other voices are moving in the right direction. It is up to us to encourage them.

British producers have been helped by the depreciation of the pound. It was fixed at an absurd level. I should have preferred the pound to be somewhat lower than it is now against the deutschmark. Failing a revaluation of the deutschmark, it is a pity that we and the other European Community countries found it impossible to get together and devalue our currencies so as to force a revaluation of the deutschmark. That cannot be done, though; the differences between us are insuperable.

I have always been and I am still in favour of a fixed exchange rate. Wildly fluctuating rates of exchange are a barrier to competitive pricing. We cannot price finely when the rates are going up and down every day and every week. There has to be a readjustment of exchange rates every two or three years, though. Even if the readjustment is 10 per cent. or 15 per cent., it is less expensive than the violent fluctuations that force manufacturers to fix high prices in order to cover their profit margins.

At one time it was possible, depending upon whether one was importing or exporting, to hedge in the forward market. If one sold a batch of goods that went on a certain ship on a certain day, one could hedge perfectly. We cannot do that now. The home and the export markets are much the same. People buy over a long period, then cancel, or hold one up. If one hedges against that, one may lose money on one's currency as well as losing money on one's sales. Therefore, manufacturers cannot operate in that way. We must therefore accept the need for fixed exchange rates that will have to be readjusted every so often. We cannot fix the exchange rates for ever.

Capital programmes take time to come to fruition. The new deal in the United States resulted in the great Tennessee valley authority, but it was several years before they began to feel the effects. We are experiencing the same problems. It takes time before people can be employed. However, we can do something about housing starts. We can free the capital resources held by local authorities, though not enormously. I have enough of the Treasury mentality still in me to know that one cannot throw those resources away, but we can do something in that direction.

We can do something even better in the case of housing repairs. They get people working next week. There are jobs that I could hand out straight away to people who come to my advice bureau. I am sure that every other hon. Member is in the same position. It is a pity that we have not turned our attention to that aspect.

As for the international dimension—GATT and Maastricht—the economic aspects of Maastricht do not bother me that much. I do not believe that monetary union will ever work, so I am more relaxed about it than are some of my colleagues. Does any hon. Member really believe that Italy will fit in with a German-dominated, fixed and unalterable economy? I just cannot see it. It is dreamland I have seen the results of some of the intervention policies in relation to farm subsidies.

In one instance, Germany had about 500 cases of fraud each year; we had about 600 cases; and Italy had about three. There are differences between countries. Anybody who thinks that we can merge countries together just like that is mistaken. I am not bothered about that, however: it will not happen. It is a pity that all the European Community countries will not consider the Bill in Committee. Committee stages expose such nonsenses. I am sure that they will be exposed during our Committee stage.

Mr. Budgen

Does the right hon. Gentleman appreciate that he has touched upon one of the many arguments used by those in the Conservative Whips Office—"Vote for the treaty," say they. "We know that it's a complete nonsense, but if you're right in saying that it's nonsense, it will break up and it won't have the effects that you say it will have". Is it not a fact, however, that to vote for nonsense probably imposes upon the British people the risk of a return to the over-tight credit that they have endured for the last two years, and that, before it breaks up, a great deal of damage will have been done to our fellow citizens?

Mr. Sheldon

My feeling, although it is not so strong as it is in relation to my previous comments, is that we shall not get that far. We can see the cracks now. We shall not need to wait very long. The danger about bothering about that is that we are not bothering enough about what is even more important. The Prime Minister was right to draw attention to the difference between Maastricht, which is a nonsensical problem, and the real problem of GATT and the equally great economic problems of Russia and the eastern European countries. It may not be long before they cease to be economic problems. They could become political problems, and even military problems. It is wrong to concentrate on these preoccupations and to ignore the greater problems that could yet face us.

The return to growth promises very little. It also depends upon the Government's incomes policy—compulsion in the public sector and exhortation in the private sector. The first will not work very well. The second will be a complete failure. The Government talk about the failures of the past. They need to think about the failures of the present. The autumn statement suggests that they have quite a bit to learn.

6.6 pm

Mr. James Hill (Southampton, Test)

It has been extremely interesting to hear the old and the new economic voices of the Labour party. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made a strong case for manufacturing industry. I suppose that he is unaware of what is happening in the far east, in the ASEAN countries, and I suppose that he is unaware that China is building hundreds and hundreds of factories, using local labour. British, Hong Kong and Taiwanese companies are investing in China and are producing exactly what the right hon. Gentleman looks back to—almost to the old Commonwealth preference days when it would all have come right again.

I have visited the Shanghai Tool company. I do not know whether the right hon. Gentleman has visited it. It is an enormous conglomerate. It makes tens of thousands of tool kits, spanner sets and all the other goods that we import. If we went into any hardware shop, we should find that nearly 80 per cent. of the goods on sale there come from the far east. They certainly come from Taiwan. They certainly come from the Shanghai Tool company. Apart from our own peripheral problems, we shall be forced to compete with giants, in manufacturing terms. Sometimes we lose sight of what is happening in the rest of the world.

This debate ought to be called a confidence debate. Our society needs to place more confidence in our banking industry, our investors and our shippers. Anyone listening to Opposition Members today would have gained little confidence from them and would not immediately have rushed out to phone their broker and say, "Buy me into UK Limited."

Years ago, we had the British disease in manufacturing, but now we have despondency. We cry immediately that nothing will work out. I view the autumn statement as a good step towards restoring confidence in the private sector. Shadow Ministers have a great responsibility to advance their party's policy, but they must ensure that they do not denigrate everything that this House or the other place is doing. That is a road to disaster.

I do not think that everyone needs to have run a business to understand business. We are more a university of business than a house of business and sometimes our theories go a little awry.

Some years ago, I tabled written questions on joint ventures between the public and private sectors on road and bridge construction. I am pleased that at long last we are moving strongly in that direction. That is exactly what is happening in China, Taiwan and Singapore, and it is a good example to follow.

One of the best confidence-boosting measures in the autumn statement is that designed to deal with the problems of the housing market. Once again, it has been denigrated as being too little, too late, but £750 million has been allocated to buy unoccupied homes which are falling into disrepair. We have some magnificent housing associations, and I can think of two in my constituency—Hythe and South Bank housing association and Swaythling housing association. They will be eager to obtain some of those millions, with which they could buy quite a number of empty properties that are being vandalised. In the short term, it will do much to house homeless people and to reduce council lists.

Mr. George Howarth (Knowsley, North)

It will not work.

Mr. Hill

The hon. Gentleman obviously did not listen to the first half of my speech: we must have some confidence, and £750 million is not an insignificant sum.

Mr. Howarth

But not false confidence.

Mr. Hill

I eagerly await the hon. Gentleman's speech, which will be very depressing.

The issue of councils being able to spend capital receipts has been running for some years. It became apparent during the election campaign that councils could spend 25 per cent. of their receipts from sales, but now they will be able to spend 100 per cent. That is a good move, but not all local authorities have been assiduous in selling their council house stock. Some of them have made it almost impossible for tenants to buy, and we had to enact legislation to force them to sell. Tremendous incentives are now on offer to councils which have not been politically inspired to sell council houses.

My right hon. and hon. Friends in the Treasury could consider the provisions on the purchase of capital equipment. Increasing allowances from 25 per cent. to 40 per cent. is a bit mean. Manufacturers are looking forward to selling JCBs, tractors or anything made in the United Kingdom and to a higher allowance than 40 per cent. Perhaps that could be considered in the next Budget.

I am pleased to see that an extra 8 per cent. has been allocated to further education colleges, but we now have a problem with primary schools. In Hampshire, 72 primary schools are consulting on whether to close, merge or continue. At little cost, some of them could be turned into joint primary and middle schools and could be used to the benefit of the community. The community is adapting to primary school policies, and volunteers have much to offer. Sometimes the most run-down areas have the most enthusiastic volunteers, but a little more expenditure should be allocated to primary schools.

We have honoured our manifesto commitment to pensioners and families. That was surprising, given the despondency about the Government's proposals.

We must deal with the desperate state of our communications infrastructure, which is as essential to industry as industry itself. If a factory incurs extra cost in getting its products to a port or airport, or has to use a long winding route, that increases costs.

I hope that I have not spoken for too long. We must ensure a successful conclusion to the GATT round. I shall mention that to Delors and Mr. Mitterrand, who are playing a very dangerous game. Until they come round and see the benefits of GATT for the whole world, rather than a few hundred French farmers, we shall be in difficulty. It appears that there will be a push to get a decent settlement to the GATT talks, but I dislike the nationalistic approach to world problems.

6.18 pm
Ms. Janet Anderson (Rossendale and Darwen)

The autumn statement represents the vacuum at the heart of the Government's policy—the gap between what Ministers promise at the election and what they do when they are re-elected. It is a question of trust, and the Government can no longer be trusted. As my hon. Friend the Member for Dunfermline, East (Mr. Brown), the shadow Chancellor, said yesterday, it is more a matter of misrepresentation to the people than representation of the people.

The Chancellor, who claims to favour capital investment, has cut the capital programme for London Transport. Much-needed renovation to lines that cause misery to London commuters is to be cancelled, and he refuses to provide urgently needed funds.

Mr. Mark Wolfson (Sevenoaks)

Will the hon. Lady give way?

Ms. Anderson

I will not give way at this stage.

The Chancellor refused to provide urgently needed funds for the electrification of the west coast main line, which is vital to the economic regeneration of the north-west and is of considerable interest to businesses and people in my constituency.

I have to tell the Chancellor and other Conservative Members that the business men and women of Rossendale and Darwen view that omission with considerable concern and regret. It came as no surprise to me recently to receive a letter from a business man in my constituency who told me that, although he was a former Tory voter—he voted Conservative at the general election—he would vote Labour from now on. His letter ended with the words: Never has so much harm been done to so many businesses by so few". The Chancellor talks about giving the construction industry a kick start, yet he refuses to allow local authorities to spend the £5 billion of existing capital receipts to fund new housing. The builders in my constituency will not forgive him for that, either.

The Chancellor talks about growth, and the need to boost consumer confidence, yet he imposes a 1.5 per cent. ceiling on pay increases for some of the lowest paid workers in the country.

Meanwhile, the Secretary of State for Employment—I am sure that by rights he—[HON. MEMBERS: "She."]—should now be renamed the Secretary of State responsible for unemployment—proposes to turn the screw further by abolishing the wages councils.

Devaluation has cut the living standards of ordinary people, and so will the new incomes policy of a Government who are supposed to believe in the free market. While Lord King awards himself a pay rise of no less than £1,000 a week, those who work in the public sector are being asked to shoulder the burden of the Government's economic incompetence. According to the Government's logic, the cosseted privileged public sector workers must take their fair share of the pain of the recession. I suggest that Ministers tell that to the 3,500 staff who have lost their jobs in the national health service since the general election.

We are told that nurses can afford to take what amounts to a pay cut because they have greater job security than workers in the private sector. If that is true, the Government should guarantee that there will be no more nursing redundancies. Why should nurses take the blame for the Government's failure? Yet that is what has happened. The council tax is bad enough, but the tax on nurses, on whom we rely for our health care, is not only morally reprehensible but unjust and shortsighted. It is indicative of the Government's short-term approach to everything.

Another example of that misguided philosophy, hidden in the small print of the autumn statement, is the postponement of nurse prescribing. The general secretary of the Royal College of Nursing says that nurses have suffered a double blow in the autumn statement. Not only do they face a pay cut, but their long struggle to win prescribing rights has been swept aside in favour of short-term cost cutting.

The Department of Health's research into the cost of nurse prescribing proves it to be cost effective, and recognises that patients would be treated faster and nurses would gain increased job satisfaction if nurse prescribing were introduced. The Government fought a general election on a pledge to introduce nurse prescribing, and the Secretary of State for Health has made several commitments to the scheme, including one to implement it by October 1993.

The Conservative manifesto said: We will introduce powers for nurses to prescribe where appropriate". The Secretary of State said in the House on 3 May that the Government were fully committed to the idea of nurse prescribing. In a speech to the Royal College of Nursing congress on 22 April she said: Nurse prescribing makes sense. It is a proper recognition of community nurses' skills. We will implement nurse prescribing by October 1993. In November 1991 the Department of Health published a cost benefit analysis of nurse prescribing which found that the savings that it generated almost exactly offset the cost of implementing and running the scheme, even before a value had been placed on the improved service to patients.

The declared aim of the National Health Service and Community Care Act 1990 was to put patients' interests first. Similarly, the citizens charter and patients charter are based on that philosophy. If the Government are serious about putting patients first and delivering an effective health service, they should reconsider their decision to postpone nurse prescribing.

6.25 pm
Mr. Julian Brazier (Canterbury)

I join other Conservative Members in welcoming the autumn statement as an important step in the right direction, but I shall also sound two possible notes of caution. The first is that there is still a danger that the money supply may be too tight. The second is that, in common with several of my right hon. and hon. Friends, I am concerned that the fiscal side is in danger of becoming too loose. The combined effect of those two factors could be a double squeeze on the private sector—which, after all, generates all wealth.

Two monetary features of my right hon. Friend the Chancellor's public spending announcement are welcome. The first is the 1 per cent. cut in interest rates. The second, and the more important, is his commitment to a monitoring range for broad money—M4.

After a third successive cut in interest rates and a substantial devaluation against all other currencies, it may seem churlish to suggest that the money supply may still be too tight. None the less, if we look around us at the economy, all the indicators are still of tight money, with the solitary exception of the narrow money measure MO. This morning's figures confirm that M4, which has fallen from a peak of more than 18 per cent., remains at about 5 per cent. I believe, as does the Bundesbank, that M3 is a better measure of economic output—and that has fallen from 22 per cent. to about 3 per cent. now.

The anecdotal signs in the economy, too, still suggest that money is too tight. I welcome my right hon. Friend the Chancellor's initiative with the banks. I believe that bankers are being thoroughly greedy at the moment, but we must recognise the fact that, as well as being greedy, they are frightened.

The situation in the motor industry is definitely improving; yet Ford has recently announced that it is substantially increasing its payment period to small suppliers in stages from 30 days to 120 days. That, too, is a sign of the tightness of money in the economy. What one company is doing is reflected in many others.

A third factor which suggests that money is too tight is the kind of national balance sheet analysis carried out by people such as Tim Congdon—

Mr. Matthew Taylor (Truro)


Mr. Brazier

I will give way in a moment.

Such a balance sheet analysis shows, for example, that the ratio of mortgage debt to the value of the nation's housing stock is at an all-time high. The situation is similar in the commercial property sector, and that is especially important to the banks.

I am certainly not a gloom monger. I firmly believe that the measures announced by my right hon. Friend last week are exactly what we need to move us on towards recovery.

However, I suggest that in at least one respect—on the residential side—there is a danger that the property market may go further.

There are two reasons for that, the first of which is historic. The ratio of house prices to earnings is now 3:1. It is important to look back to the last sustained period of low inflation for a comparison, because I believe that the Government have cracked inflation, so I shall look back to the decade from the mid-1950s to the mid-1960s. The ratio then was exactly 3:1. Because that ratio is a lagging indicator, in a recession, especially in the latter portion of a recession, one would expect it now to be rather below trend. So there are historical reasons for believing that house prices may fall further.

That reason is reinforced by a geographical fact: for the first time in its history, this country is about to have a land border—via the channel tunnel. The extreme disparity between house prices in south-east England and those in north-west France cannot continue to be as wide as it now is. Several of my constituents are already buying second homes, or even retirement homes, across the channel.

I suggest to my hon. Friend that it is possible that the housing market will have one further stage of readjustment to make and that that may result in further monetary tightening as people become less willing to spend as a result.

I do not suggest for a moment that we should try to persuade water to run uphill on house prices, but I believe that there are two respects in which it is important that we keep our eye on monetary policy. First, my right hon. Friend should think of tightening the monitoring range for broad money from a monitoring range to a firm target. If we find that M4 moves below the 4 per cent. bottom, we should then be willing, whatever is happening to the exchange rate, to loosen the money supply.

Secondly, and in some ways more importantly, we must look again at our funding policy. My right hon. Friend the Member for Worthing (Mr. Higgins) was right to suggest that borrowing some of our money from abroad had a welcome loosening effect on monetary policy, which shows up in this morning's figures. I suggest that we should be willing to do not only what we did 10 years ago, but also what the Americans are doing now through the Federal bank: we must be willing, up to a certain point, to underfund. That is a way in which to get more liquidity back into the banks.

The fear of a £40 billion policy of gilt-edged sales next year is a significant factor in the tightness that we find in the market now. Long-range interest rates did not fall at all last week when base rate came down. Long-term interest rates actually marginally hardened, and they are now about 8.5 per cent.

That point brings me naturally to fiscal policy, the other side of my speech. As I stressed, we should underfund. However, no serious economist of any school believes that we could monetise the whole of next year's prospective deficit. Like others of my hon. Friends, I feel that we must be willing to consider some very unpalatable and painful choices in the medium term. We should plot a path over the medium term of five or six years back to a balanced budget and we should firmly commit ourselves to that path.

We must be willing to look at some unattractive choices, on both the tax and spending sides. I mention three items on my own shopping list on taxation, none of which would be very painful and each of which should be considered. First, we should end the anomaly whereby married couples can opt to have it both ways. Married couples can opt to be taxed separately and to claim the married person's tax allowance. I am all in favour of choice, but it seems wrong that a couple should be allowed to choose to have it both ways when public borrowing is so stretched.

Secondly, with the welcome measure to abolish car tax—a thoroughly sensible measure to assist a very important industry—it would be reasonable to complete the sensible move towards full fiscal neutrality on cars as a perk. My right hon. Friend the Chancellor has already gone a long way towards that. He should complete the move in next April's Budget.

Thirdly, we should abolish the 50 per cent. discount on council tax for second homes, if they are genuinely second homes. There should, of course, be sensible safeguards for those in special circumstances, such as those who have had to move although the sale of their original residence has fallen through.

One area on the spending side in which I would not suggest further cuts is defence spending. That may come as no surprise to my hon. Friend the Financial Secretary. I make two points. First, in a single decade—from the mid-1980s to the mid-1990s—on our present plans we shall have cut defence spending as a proportion of GDP from 5.2 per cent. to 3.2 per cent. Even if the international changes were as rosy as we thought they were when "Options for Change" was launched—I am not convinced that the international outlook is especially rosy—that is still a massive reduction in spending. It is far larger than the planned reduction in manpower. I suggest that further cuts in defence spending beyond our present plans would be unwise.

Secondly, it is now the defence procurement budget, almost alone of the various areas of Government spending, which directly and immediately reaches forward into manufacturing industry. When companies have short order books in other areas, it is potentially economically costly to cut defence orders. Such a cut could undermine the design bases of the companies involved.

We must face the fact that there will have to be some cuts on the spending side. I shall mention three areas that we could consider. The first is one aspect of higher education. I am a strong supporter of the increase in opportunity for higher education that we have provided. Participation in higher education has doubled. However, there is waste in one area of higher education. We have an extraordinary system—I do not know of any other country which has such a system—of sending the majority of our students away from home to study on courses, hundreds of miles away in some cases. In most other countries, the majority of people study at their local university., so neither taxpayers nor parents face the cost of accommodating them elsewhere.

The second area that we should consider is the legal aid budget. I welcome the modest step that my right hon. and noble Friend the Lord Chancellor has taken. When I hear some of the howls of outrage, I am reminded of the old adage that hell hath no fury like a vested interest masquerading as a principle. The legal aid budget has doubled in four years and a 10 per cent. real increase is planned in each of the next two years, so we should look harder still at it. We should consider reducing the scope of legal aid as well as eligibility on which we have started.

The third area is spending on local government. We should ask ourselves whether we can justify each of the extra duties imposed on local government over the past few years. Many of them are welcome, but do we really need all of them? Last week, I came across one small example involving £30 million to £40 million a year. How could we have agreed to a new arrangement for the typing of Crown prosecution service documents which will cost an extra £750,000 in Kent alone next year? We must go through the fine print of such arrangements. We must be willing to take every step that we can, in little bits and in larger bits, to get the fiscal deficit down so that we can see a return to a balanced budget within five or six years.

I end where I came in. In a number of ways, the autumn statement is the package that we need for recovery. We have seen a substantial easing of monetary policy, although I should like to see us go further. We have seen a return to a monitoring range for broad money, and we have seen a number of welcome individual fiscal measures which will help vital industries towards recovery.

If the Government develop their policy further, we shall see a return to growth—sustainable growth—over the next year or two. It will be non-inflationary growth. We have beaten inflation. It is right that the clear, single objective of non-inflationary growth has been the Government's consistent objective since 1979.

6.38 pm
Mr. Giles Radice (Durham, North)

My speech will be mercifully short because of the weakness of my voice. Autumn may be a season of mists and mellow fruitfulness, but in the House of Commons it is a time of sniffles and hacking coughs. I am no exception.

I suggest that the autumn statement may be a turning point. Sadly, it is not a turning point in the nation's economic fortunes. As the autumn statement itself shows, the economy is still in profound recession, with rising unemployment, falling investment, and a large and growing balance of payments deficit at a time of recession, which must be very worrying.

It is, however, I believe, a turning point in the Government's approach to fiscal policy, and here I want to refer to the area about which the hon. Member for Canterbury (Mr. Brazier) was speaking, although perhaps in a rather different way. Many commentators have concentrated on devaluation and the ability to reduce interest rates since we were forced out of the ERM. But of course there is little new about this. All that has happened is that we have returned to the floating world of the 1980s, a world which I thought had very grave disadvantages.

What is different in the autumn statement is that for the first time since 1979 the Government are overtly using fiscal policy in what can be described as a Keynesian way. Of course, Ministers are denying that this is the case. The Chancellor continues to say, as he said to the Select Committee on the Treasury and Civil Service, that he does not believe in kick-starting the economy by "some artificial stimulus or device." This new approach has been forced on the Government by the depth of the recession, and of course the measures that the Government have adopted are too little and too late. Even so, most people would see measures such as the £750 million to buy empty houses, the temporary freedom of local authorities to use future capital receipts, the capital allowances for industry and the removal of the tax on motor cars as stimuli or devices to assist recovery.

Anybody who really believes that Tory economic policy is a seamless web, which is the line that is often peddled before our Select Committee, should compare the 1992 autumn statement—which I agree is a sort of mini-Budget—with the Budget of 1981. In the March Budget of that year the Government drastically tightened the fiscal stance even though the economy was in deep recession. The then Prime Minister's economic adviser called it the biggest fiscal squeeze of peacetime. We have been reminded by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) what that did to industry.

The 1992 autumn statement, with its £37 billion public sector borrowing requirement, its automatic stabilizers—I agree with the right hon. Member for Worthing (Mr. Higgins), who was such a good Chairman of our Select Committee, that the automatc stabilisers are fully working—and, of course, the so-called recovery package, modest and inadequate though that is, is totally different in tone and emphasis from what happened in 1981.

Mr. David Willetts (Havant)

Does the hon. Gentleman not recognise that in the circumstances of the 1981 Budget we were looking at inflation of over 10 per cent.? Does he not accept that now, with inflation below 4 per cent. and still falling, it is a very different economic situation?

Mr. Radice

I agree that it is a different economic situation to this extent: that the recession is deeper, probably, and has lasted much longer. Therefore, it is right that we should be doing something about it.

Mr. Budgen

Since many hon. Members are concerned about the comparison between 1981 and 1992, there is a further difference. The period before 1981 had been marked by very considerable increases in the money supply and there was no doubt that for quite considerable periods credit had been much too lax. On the other hand, the period before today has been one in which credit has been much too tight.

Mr. Radice

I do not want to intervene in the grief of the monetarists because I do not really believe in all that stuff, as the hon. Gentleman knows perfectly well.

Unfortunately, though it may be different in tone, it is unlikely that this package will be enough to bring about the recovery that we all want. The Chancellor has pointed to interest rate reductions as his main weapon in bringing about recovery, but it will not necessarily do the trick. We have only to look at what has happened in the United States, where interest rates are much lower than they are in the United Kingdom, yet, even so, there is not a full recovery taking place there.

Anybody who wants to see what has happened to our debt ratio need only turn to chart 3.8 on page 65 of the autumn statement. It really puts the problem in relief, and it is a very severe problem. Lord Lawson, who was, of course, the chief architect of our financial liberalisation, has admitted that he underestimated the impact that it was likely to have, and it has brought this debt problem with it. The question is whether the reduction of interest rates will be enough to stimulate consumer spending. I do not believe that it will and I do not think that we can risk it. That is the case for Government action and for a more significant package than the Government have brought to the House in the autumn statement.

The Government have missed a tremendous opportunity in one area. They should have used all the existing capital receipts so that local authorities could go ahead with investing in useful projects. I believe that the package should be paid for by borrowing at this time. In a slump of this scale and length, the proper reaction is the Keynesian one of deficit Government financing.

I share, however, the worry about the size of the PSBR; it is £39 billion, I think, in the coming year and it could go up to £50 billion the year after, which would be 7 per cent. of gross domestic product, according to the Grey Book. I agree with my pair, the right hon. Member for Shropshire, North (Mr. Biffen), that we cannot allow the PSBR to continue at that level for any length of time. We see only too clearly the consequences in the United States not only in inflation but of the fact that, if the PSBR continues at a very high level for a long time, the Government lose their ability to act, their flexibility.

That is why I agree with the right hon. Member for Shropshire, North and believe that there is a case for increasing taxes, not necessarily in the next Budget but when the economy is on the path to recovery. We have to use all the weapons at our disposal and it is about time the Conservative party stopped its ideological objections to putting up taxes, even direct taxes, because they may need to do so and they should face up to that.

Mr. Higgins

The PSBR that the hon. Gentleman is talking about here is the one before the automatic stabilisers have worked through. He needs to place his worries about taxation against the background that we are back in a situation where they have worked. So I do not share the view expressed by my right hon. Friend the Member for Shropshire, North (Mr. Biffen) yesterday about taxation.

Mr. Radice

The right hon. Member for Shropshire, North wanted it in the next Budget; I do not want it in the next Budget. I want recovery on the way before we start operating. The right hon. Member for Worthing is, of course, right that once there is a recovery that in itself improves the PSBR, because expenditure on unemployment, one hopes, begins to come down and the tax take increases.

I also believe that there are very considerable problems with Keynesianism in one country, as we saw in France in 1981–83. There is always a danger if one expands one's economy when others are contracting theirs. That is all the more true in the United Kingdom when we have this enormous structural balance of payments deficit. I was very alarmed to see on page 65 of the autumn statement that the Government, or at any rate their forecasters, are predicting a further rise in import penetration. That must be extremely worrying and it suggests, as the Confederation of British Industry has pointed out, that our manufacturing base may now be too small, so that if we start to expand we shall suck in imports from abroad.

That makes the case for a European-wide programme of infrastructure projects, as suggested by Mr. Jacques Delors, but turned down by the Prime Minister at the Birmingham summit. I hope that the right hon. Gentleman will take a more sensible attitude at the Edinburgh summit. Certainly there is a case for European-wide recovery. If we expand alone, our balance of payments deficit could become so large that it would be impossible to finance, and that must be a serious problem.

The autumn statement shows that old-style monetarism and primitive laissez-faire economics are out, and I am glad about that. There is a new agenda, in the United States and elsewhere, and that new agenda implies a more active role for Governments in economic affairs. In the autumn statement, the Government have moved halfheartedly in that direction. But their heart is not in it and, over the next few years, the country will turn to those who really believe in more purposive government—the genuine article, as represented by my right hon. and hon. Friends on the Opposition Front Bench.

6.51 pm
Mr. Michael Ancram (Devizes)

Although I may not agree with everything that the hon. Member for Durham, North (Mr. Radice) said, I think that we would all agree that his new voice of mellow fruitfulness suits him; we hope to hear it again in the near future.

The debate to which I have listened over the past two days has been one of contrasts—not least that between Conservative Members' optimism and the considerable gloom and doom of the Opposition. I find it difficult to relate the attitude taken by the hon. Member for Peckham (Ms. Harman) to the reaction that I found in my constituency last weekend.

Some time ago, when I asked Honda and Rover in my constituency what they wanted the Government to do, they told me that it would be helpful if the car tax was abolished. That has happened in two phases, and the necessary legislation is now before the House.

Given that jobs are at stake in this essential industry, it is surprising that the hon. Member for Peckham should say, disparagingly and somewhat dismissively, that all that the Government had done was to take £400 off the price of an average car. Car workers in my constituency welcome the change because it makes it more likely that they will keep their jobs in future. I should add that, although £400 may not be much to the hon. Lady, an awful lot of people will regard it as the deciding factor in considering whether or not to buy a car. Some Labour Members' suggestions show them to be quite out of touch with reality.

One or two hon. Members who have spoken have touched on the Government's attempt, which I warmly welcome, to use public sector money to increase private sector investment. That affects a number of areas, the first of which is housing. The Chancellor has told us that—750 million will be made available for the purchase of repossessed houses. I welcome that, because I believe that anything that firms up the housing market must, in the long run, be good for housing. I am sure that I am not alone in knowing of constituents who are holding back from buying a house not because they are frightened because they think they may not have the money to pay the mortgage, but because they think that if they wait another two or three months the price will have fallen; it becomes a self-fulfilling prophecy. Any measure which firms up the housing market will bring purchasers back into the market and give it the boost that the construction industry and housing in general so badly need.

I hope that my hon. Friend the Financial Secretary will talk in detail to the building societies and housing associations. There is a fear that, as the housing market recovers, a case may be made in the building societies for repossessing houses which are not being repossessed at present because their equity value is too low. That would totally undermine everything that the Government seek to achieve. I hope that my hon. Friend will make that point to the building societies.

I hope, too, that my hon. Friend the Financial Secretary was as disturbed as I was to hear suggestions this morning that housing associations would not use the £750 million to buy repossessed houses but would buy new ones. That will not produce the desired effect on the housing market. I hope that my hon. Friend will tell the housing associations, through the Housing Corporation, that the Government have provided the money for a particular purpose. If we are to make money available, we must ensure that it is spent in the most effective way.

I strongly endorse the proposal in the autumn statement to crack open, if not completely abolish, the so-called Ryrie rules. If ever rules prevented public sector finance increasing private sector investment, it was the Ryrie rules. As my hon. Friend the Financial Secretary knows, I have campaigned for some time for their removal, so I welcome that change—even though, at the moment, it does not go far enough.

I was delighted to read the remarks of my right hon. Friend the Chancellor at column 996 of Hansard: I have asked my hon. Friend the Financial Secretary to carry forward and develop our policy in this area, encouraging the private sector to bring forward proposals and to help us identify any obstacle which frustrates its success."—[Official Report, 12 November 1992; Vol. 213, c. 996.] There is enormous scope for private sector investment, and I hope that my hon. Friend the Financial Secretary will explore it to the full. Certainly in respect of joint ventures, where the risk can be reasonably shared, there is enormous scope for the Government and the private sector to work together on projects which will earn in future and which, in the end, will show a return not only for the private sector but for the public sector.

I was interested to hear what the Chancellor said about leasing, which also has great potential—not just leasing on an ordinary rental basis but leasing on hire purchase terms. Some years ago, it was suggsted that prisons, for example, could be built by the private sector and paid for by the Government on an annual basis over, say, 21 years. That project was prevented by the Ryrie rules, which demanded that the total cost was counted in the first year. I hope that my hon. Friend the Financial Secretary will explore such projects, in which I see enormous scope.

If the rules are further relaxed, the private sector can be brought in to provide the investment that we so badly need. I am talking not only about prisons. I hope that my hon. Friend will talk to the construction and engineering industries about projects to build hospitals and colleges, and possibly even to build or repair schools. Such projects could all be handled through the leasing system if it were properly organised. Ultimately, it is for the construction industry itself to produce proposals, but I hope that my hon. Friend will set the scene so that the industry understands its limits and remit and can produce proposals that the Government can accept.

The autumn statement is about hope and confidence, as the hon. Member for Peckham said, though listening to her speech I had the horrible suspicion that she was keen to avoid any hope or confidence for fear that it would destroy her case on behalf of her party. I hope that I am wrong in that suspicion, but I have to say that that was the tenor of her remarks and of those made yesterday by the hon. Member for Dunfermline, East (Mr. Brown). I have confidence and hope, and I believe that the autumn statement represents the beginning of a new dawn for the British economy.

6.57 pm
Dr. John Marek (Wrexham)

I agree with some of what the hon. Member for Devizes (Mr. Ancram) said, especially about the introduction of private capital into public sector services, although I take issue with his remarks about the reaction to the autumn statement.

When I went to my constituency last weekend, I found that a local creamery was about to close its cheese-making line, with the loss of 250 jobs, that the Inland Revenue was to contract, which may result in the loss of another 200 jobs in the area, and that, instead of spending money on training, the training and enterprise council was to build itself brand new posh offices for senior management, taking another 80 jobs away from my constituency. I suspect that most hon. Members will be able to identify with my constituency experience. If the hon. Gentleman's experience is different, all well and good, but I feel sure that his constituency is not typical.

We have recently heard the alarming news that 5,000 British Rail employees are to get the chop. That will mean dirtier stations, more vandalism, poorer maintenance and a smaller back-up crew in case of illness. Whatever the Government say about improving our infrastructure, they are doing the opposite. As usual, black is white.

Last week The Sun contained a good article entitled "The wisdom of lament". There were four photographs of the Chancellor of the Exchequer in various poses. The article compared what he said last year in his autumn statement on 6 November with what he said this year. The article says: Last year he said: `It has become increasingly clear that we are emerging from recession. Our exporters have performed remarkably well.' Fact: Since last November unemployment is up, while output and business confidence have slumped. The Chancellor is also quoted as saying: The monthly rate of increase in unemployment peaked in March and is likely to moderate further in coming months as recovery gets under way. But the article says: Fact: The monthly rise was in fact higher in July 1991 and January 1992 also beat the March 'peak'. Last year the Chancellor said: Consumer confidence has increased this year and is likely to go on rising as the fear of unemployment begins to abate. But the fact is that unemployment rose by 380,000 in the past year to 2.85 million, or 10.1 per cent. of the work force. Last year the Chancellor said: We have followed a prudent and cautious monetary policy, whose credibility has been underscored by our commitment to the ERM. But the article says: Fact: The pound is in free fall after Lamont blew billions trying unsuccessfully to stay in the ERM. That was billions of our money. Those are the facts of the matter. That is why Opposition Members do not believe all the talk about the recession being over and the sun rising in the sky.

We have been treated to a remarkable litany of rows between our Government and those of other member states of the European Community. It began with the social chapter. We had to negotiate an opt-out purely as a result of the dogma of the Conservative party. We did not endear ourselves to other member states.

A special provision for Britain on economic and monetary union had to be written into the Maastricht treaty. The Government have always denied that there is any need for harmonisation of excise duties, yet now they are slowly beginning to talk about the problems that will face us on 1 January when it will be legal for citizens of Britain to import cigarettes in quantity and wine in almost unlimited quantities.

Even Chancellor Kohl had to rebuke the Chancellor of the Exchequer for his interpretation of events leading up to black Wednesday. Today, the French have attacked us for what they say is the aggressiveness, incompetence and selfishness of the Minister of Agriculture, Fisheries and Food in his tendentious statements about how the GATT negotiations were conducted.

Whatever the truth of the matter—I do not say that all the criticisms of the Government are right—the rows, taken in their entirety, show that we are not popular in Europe. As the Chancellor had to take us out of the ERM, against all his policies, he has no credibility with our colleagues in Europe. I do not make any personal attack on him, but he got it wrong, and he should be given another job so that someone else with more credibility can take over the extremely important position of Chancellor of the Exchequer.

Unfortunately, integrity is not a trait of the Government. Members of the Government hang on to office. Black is often white. This afternoon, the Chief Secretary to the Treasury said that the 1.5 per cent. limit on public sector pay rises was not an incomes policy. I guarantee that, if he went out into the street and asked members of the public, they would say that it was an incomes policy. Yet the Government say that it is not, simply because they want to be seen to adhere to their political dogma. They know full well that they cannot, so they act differently but maintain that they are not doing so.

The Chief Secretary said that building up a good infrastructure was too great a task for the Government alone. That is a clear-cut example of black being white. The House will not need to be reminded that the Government went to extraordinary lengths in section 40 of the Channel Tunnel Act 1987 to ensure that they were prohibited from providing any money for the development of the fast link from London to Folkestone and the channel tunnel.

Yet the Chief Secretary told us this afternoon that infrastructure is too great a task for the Government alone, and they must bring in private investment. I do not believe the Government, and I have not believed them for many years. In this matter, they have not changed their ways one iota.

It is true that, after black Wednesday, certain facts dawned on the Government. They realised that one needs a sound economy to back up any political or monetary theory which one may wish to put into practice and on the basis of which one may wish to experiment with the British people.

The autumn statement contained some changes. Let us take British Rail as an example. Leasing will be allowed. There has been great talk about the Jubilee line, as if it will save the whole country from John O'Groats to Lands End. On Monday, Tuesday, Wednesday, Thursday—every day—we are told in press releases that the Government will build the Jubilee line. Great—I have no objection whatever—but is not a policy or a philosophy: it is a tame excuse for the Government's inadequacy and unwillingness to do anything else.

Why can we not have a fast link between the capital and Heathrow? Why has there been delay and procrastination for years? Other modern capitals in western Europe, such as Frankfurt and Amsterdam, have a fast transport system between their main airport and the city. Yet the British Government refuse to act. Their policy is abject, and our condemnation must be total. Tonight we hear that 5,000 jobs are to go at British Rail. That will make our infrastructure even worse.

I conclude on a slightly more technical point, but one which demonstrates the inability of the Government to govern the country properly. On 3 November, British Rail issued a press release saying that it intended to sell its consultancy subsidiary, Transmark. It said: Last year Transmark had a turnover of nearly £10m and an operating surplus of £1.1m. Its team of consultants worked on more than 200 projects in 30 countries. The company also carried out work for the BR businesses, for Passenger Transport Executives and for County Councils in the UK. British Rail drew upon that subsidiary's expertise and resources. There might have been a book transaction for services rendered between one part of British Rail and another.

If that subsidiary is sold, British Rail will be forced to go out to private consultants elsewhere: or, if it has financial difficulties, it will not seek the expertise of consultants. It follows as day follows night and night follows day that the quality of decision-making and management at British Rail will deteriorate if Transmark is sold and its services are not available to British Rail as part of its inherent structure.

Yet the Government, in a triumph of political dogma over common sense, are forcing British Rail to put that small subsidiary on the market and obtain a few measly millions of pounds to reduce the borrowing requirement from perhaps £47 million to £49 million.

Mr. Radice

My hon. Friend means "billion".

Dr. Marek

Yes. But the Government will not save even £1 billion. They will save £0.1 billion or perhaps even £0.01 billion.

There is a long way to go, and the Government have not learnt much. They are on a learning curve and some things have been done, but they must answer the questions, "Why privatisation? Is it good for the country?" and decide whether there should be a policy change. Is privatisation absolutely necessary for British Rail, since not one expert has backed the Government's plans for the rail system and the Select Committee on Transport has asked the company to delay privatisation for some time?

I must finish, as I see flashing lights ahead of me. The Government have been listening for once. I commend them for that—they do not often do so—and I hope that they will take some notice of what I have said.

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse)

I remind the House that between now and 9 o'clock speeches will be limited to 10 minutes.

7.10 pm
Mr. Nicholas Budgen (Wolverhampton, South-West)

People who try to protect me from myself often tell me that I ought not to talk so much about interest rates and monetary policy. However, even people who are uninterested in the subject should notice the cost of the most recent—and most fortunate—occasion when we broke out of a great monetary mistake.

Before and around white Wednesday, the Government lost three times as much money as they hope to save in the public sector pay freeze. They borrowed $10 million in ecus, partly to encourage support for the exchange rate mechanism, and that cost will be increased by the 15 or 16 per cent. devaluation. Then they tried—on their own behalf—to support the pound, which is likely to cost between £1.5 billion and £2 billion, although they say that the amount can never be crystallised. If it could be today, it would be at about £1.5 billion. The Government will receive a large bill from the Bundesbank for the activities that it carried out on their behalf. Many people in the markets think that that bill will also be about£1.5 billion.

So I shall tell constituents who ask me why I do not ask more questions about the level of public pay or ask for more money for this or that industry that getting monetary policy wrong is expensive. It can be seen to be three times as expensive as the savings made at the expense of public sector employees.

During our recent history we have made two important monetary mistakes and we may make yet another vast mistake. The first mistake was when Lord Lawson shadowed the deutschmark with the pound between 1986 and 1988. Secondly, it has now become politically correct to remark that it was perhaps a mistake to have such a tight monetary policy between 1990 and white Wednesday. I always know when things become politically correct because my right hon. Friend the Member for Worthing (Mr. Higgins) enunciates them and he said that it was clear that monetary policy was too tight in our recent history. My hon. Friend the Member for Canterbury (Mr. Brazier) also gave a clear sign that monetary policy was too tight before we came out of the ERM.

The issue is not merely academic. It is not academic to someone who has a negative equity in their house, or to small business people who have been squeezed into the ground in the past two years. It is not academic to the banks—I understand that it is popular to attack them—because their credit base has been severely eroded as a result of the considerable fall in property values. Having lent so unwisely to big property companies, it is understandable that the banks have to preserve their position at the expense of small borrowers, who are being screwed into the ground. Those are not mere academic mistakes and they could be repeated.

I take up the argument put so well by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). By way of an aside, he said that he was in favour of fixed exchange rates but that monetary union would never come about. As I pointed out to him, the rougher but more eloquent members of the Tory Whips Office tell recalcitrant Conservative Members that that is why they should vote for Maastricht. They say, "Okay lad, if you say it's a complete mess-up, it will come apart at the seams so you might as well vote for it rather than ruin your career."

Voting for nonsense is an integral part of the political process, but Maastricht is nonsense which could do a great deal of damage before it breaks up. It is important to understand that, under the proposals for monetary union in the Maastricht treaty, it is at least arguable that we are under a legal obligation to return to the ERM and to stage 2 of monetary union. The fact that we could be forced by the European Court back into the ERM and thus into stage 2 after 1 January 1994 has been well argued. If that happens we shall be ruled by German monetary policy, as we were between 1990 and 1992. I am not attacking the Germans: they are perfectly entitled to run their economic policy in the manner that they regard as appropriate to their economy. The people who put us under German surveillance should be attacked and anyone who votes for the Maastricht treaty is likely to submit us to that.

I have a helpful suggestion. We are fortunate in having an extremely persistent and persuasive barrister, called Martin Howe—I do not know whether he is also learned—who also has the good fortune to be Lord Howe's nephew. He has written some interesting documents which comment on the Maastricht treaty. In one paper, which was recently published by the Centre for Policy Studies, he said that if we ratified the Maastricht treaty and did not go into stage 2 and join the ERM we might find that the court ordered us to do so. Mr. Howe also says of the opt-out, which has been such a source of pride to the Government: The implications of the UK's Treaty obligations would appear to render its position, if opted out of Stage 3 monetary union, quite invidious. The UK would then be obliged by Treaty to seek to maintain a narrow band parity against the ECU block. However, the UK would be excluded from voting on the Governing Council which takes interest rate decisions for the ECU currency. The UK would be obliged to follow ECU interest rates in order to maintain its parity, but would have no say in setting them. This consideration renders the UK 'opt-out' from Stage 3 so unattractive that it must be queried whether its insertion in the Treaty can be regarded as anything more than an attempt at window dressing. I assume that he does not want to be hit on the head with a frying pan by Lady Elspeth Howe at Christmas, and so I assume that he must have thought carefully before he said that.

We need an advisory ruling from the European Court or, at the least, an indication of the view of the Commission towards the whole subject. We do not want to vote for the Maastricht treaty and for monetary union and then find that we are under increasing pressure, to which our leaders may give in, to go back into the ERM and stages 2 and 3. We must make sure that we retain the right to run our monetary policy in the way that is appropriate to the British economy.

7.20 pm
Mr. Dafydd Wigley (Caernarfon)

I suspect that we shall hear a great deal more of the subject raised by the hon. Member for Wolverhampton, South-West (Mr. Budgen) in the coming weeks and months. Indeed, it might be a good idea to apply the 10-minute speaking rule to all stages of the Maastricht Bill.

Our problem was not that we were in the ERM but that we were in it at an over-valued level. We said in October 1990 that the pound was at far too high a parity. Having settled down at about DM2.40 to the pound, with a 7 per cent. interest rate, it seems now to be at a reasonably sustainable level. People in other EC countries recognised way back that a realignment was inevitable, as I discovered when I discussed the matter at length in Brussels in February.

Developments have occurred in an uncomfortable manner, and the whole issue could have been better arranged. Even so, there appears now to be some basis of stability. Does the Treasury see the autumn statement as contributing towards greater convergence or divergence within the figures that are monitored when considering the likelihood of our re-entering the ERM? In that context, will the Minister comment on the Government's latest thinking about the likelihood of our re-entering the ERM, a subject that must have considerable significance for the economic policies that we should be following?

The objective of further pressure on inflation, towards which the Government have been working up to now, is no longer necessary and could be dangerous. It is possible for us to live with somewhat higher inflation—of perhaps 4, 4.5 or 5 per cent.—with an interest rate of 7 per cent. We now need more than anything a period of stability. We also need some strategy. We still face the danger of short-termism, which, particularly on the industrial scene, causes much of our difficulty.

I hope that the autumn statement will lead to greater confidence in industry and that that confidence will be based on stability and a willingness to accept greater risk-taking. That has been missing for a long time. We must ensure stability of demand, stability of interest rates, stability of currency and stability of inflation. I am not yet convinced that those have been achieved, although I have no doubt that the autumn statement reflects a basic change in Government policy.

It will be interesting to see how that change works through. After all, the requirements to which I referred are needed not simply for manufacturing industry but for housing. In particular, they are needed to encourage risk-taking in housing by private individuals. I also hope that the GATT round problems can be solved. It would be disastrous if the GATT position went wrong.

I am perturbed about the lack of reference to unemployment in the speeches of Conservative Members. Unemployment must remain an overwhelming worry. Hundreds of thousands of people in Britain with a contribution to make to the economy are denied the opportunity of contributing. It must be part of the Government's strategy to create employment so as to overcome unemployment, and I hope that when he replies to the debate the Minister will say how the Government expect their employment strategy to work.

There is also concern about what will be the policy of the Department of Trade and Industry towards regional investment. The figures coming from the autumn statement suggest that there will be a rundown in regional spending, and that may result in our not being able to take full advantage of the resources that may come from the European Community in terms of regional policy, with areas such as Wales and Scotland, and some of England's depressed areas, missing out.

The Chief Secretary said that the level of public expenditure as a proportion of GNP had dropped from 46 to 40 per cent. It is projected to increase to 45.5 per cent. Despite his intervention, I suggest that the Chief Secretary misled us by suggesting that the effects of privatisation had been totally taken out when formulating the figures.

I accept that money received from privatisation is not taken into account in the figures, but taxation revenue that used to come in to pay for, say, the water services in years gone by, certainly in the early 1980s, is now in the private sector lock, stock and barrel. The industry is no longer part of the public sector. People are now paying water taxes, as it were, and are thereby paying the water companies for what used to be public sector services but which are now private profit-making activities. That must be taken into account.

Mr. Michael Stephen (Shoreham)

Does the hon. Gentleman accept that, if the water companies had not been able to go out to borrow money, financed by slightly increased charges, taxes would have had to be increased and they would have had to be paid by the very people of whom he is speaking?

Mr. Wigley

Perhaps, but that should be taken into account in the money that is being spent on public sector or quasi-public sector activities and be part of the overall services that in 1980 were in the public sector.

I wish to examine the figures applying to Wales, although most of the figures that we need to see the true picture are not available. I hope that the Welsh Office will be forthcoming in providing the figures in due course. I am disturbed by the fact that the figures for 1993–94 show a reduction for the Welsh Office of £50 million compared with the previous plans.

That is worrying, because the areas that come under the Welsh Office, from the point of view of its activities in Britain as a whole, show increases—agriculture by £590 million; trade and industry by £1,220 million; employment by £170 million; housing by £230 million. All those areas are analogous to Welsh Office responsibilities, but in Wales the total expenditure is to go down by £50 million. In Scotland, expenditure will go up by £70 million and in Northern Ireland by £50 million, but in Wales it will go down by £50 million. We must have an explanation for that, because the implications could be far-reaching.

The figures for Wales have been fudged by the changes in definition. Expenditure on our university and further education has come through to the Welsh Office, along with additional spending on care in the community arid the effect of the coal closures, which no doubt are being taken into account. We need clarification from the Welsh Office and, once that has been provided and the figures are available, we must have a debate on the implications of the changed Government economic strategy for Wales.

I press the need for investment programmes in the long term. Those programmes must provide not only financial but social and environmental benefits. For example, I have pressed in the past for house insulation programmes. The implementation of those would save energy costs and, by that means, help disabled and elderly people, who are particularly dependent on energy and spend a large proportion of their budgets on it.

Proper energy-saving policies would also reduce the demand for energy, and that would have implications for the depletion of energy reserves and the avoidance of large-scale capital spending on unnecessary energy projects. That money could be redirected to hospitals and schools. The provision of energy is labour-intensive, so it could be geared to areas of high unemployment.

I also press for more capital expenditure on renewable energy sources, in particular on hydro, tide and wind power projects. The post-1998 position applying to the non-fossil fuel obligation must be clarified as soon as possible. We must spend more on recycling. Such capital expenditure would bring great revenue and environmental benefits in the longer term. We must spend more on public transport, including the electrification of the railway line to Holyhead and the south Wales line right through Pembrokeshire.

We have heard that £700 million will be devoted to the purchase of houses. I hope that the Government, and the Welsh Office in particular, will allow part of that money to be used to buy houses that have been used as second homes or holiday homes, many of which are for sale because people cannot afford to retain them. When the market is depressed, there is often a negative equity element in such homes. Those houses can then be used urgently to provide homes for those on waiting lists.

The cuts taking place in the legal aid scheme are the largest since its introduction 40 years ago. I am concerned not for the well-being of solicitors but because those proposals could hit at least 10 million people who are dependent on legal aid to get justice out of society. If they lose their ability to take their cases to the court and get justice, they will miss out. I hope that that is not the Government's intention.

7.30 pm
Mr. John Townend (Bridlington)

I welcome the recovery package in the autumn statement, because it includes a number of initiatives that my hon. Friends and I have been calling for for some time, particularly to stimulate the housing market and encourage exporters and investment. I welcome it also because it brought an interest rate cut.

Although the package should bring the confidence that we have been lacking for several months, it would have been better to have it five months sooner. That was not possible because we were locked into the exchange rate mechanism in a straitjacket. As my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) said, the Chancellor is now on record as saying that, because of those constraints, monetary policy was too tight during the summer. My hon. Friend spoke about the adverse effect that that had.

I remind those who criticise the Government that both the Labour and Liberal parties supported our membership of the ERM to the bitter end. Now that that debacle is over, I wish that the Government would remove uncertainty and make it clear that we shall not return to the ERM. I am afraid that they will not do so, because of the ratification of the Maastricht treaty.

I want the Treasury to reduce interest rates much less frequently but, when they do so, in bigger tranches. Interest rates have fallen by 3 points since white Wednesday. Because they have gone down by one point at a time, there has not been the fillip to confidence that there would have been had they been reduced by 3 points immediately we came out of the ERM, and had we taken the strain off the exchange rate in one go. Nigel Lawson made the same mistake when the economy was overheating. Instead of putting interest rates up by 2.5 per cent. to bring that overheating to a halt, he imposed death by a thousand cuts—two cuts of 0.5 per cent. and one of 1 per cent.

The subjects of public expenditure and Government debt have exercised my mind ever since I have been in the House. Indeed, I have spoken in every autumn statement debate since 1979. As a chartered accountant, my natural instinct is for sound money, control of public expenditure and a balanced budget. However, far too often I have had to chide my Front-Bench colleagues for planning to spend too much or for having spent over their budgets. That failure has resulted in frequent changes in Government spending.

Way back in 1981 or 1982, I said in a speech in the Chamber that the problem of controlling spending was that we had a system in which everybody demanded what they wanted and every spending Minister put in a bid, inevitably causing upward pressure on expenditure. I said that we should change that system and that the total should be fixed and then divided among spending Ministers, who should be told that that was all they would receive and must do their best with it. I am therefore delighted that the Government have now accepted that suggestion, which has long been forgotten, and have adopted a top-down formula, which will go a long way towards preventing slippage in expenditure plans, particularly in the second and third years of the cycle.

Owing to the inexorable rise in public spending and the sharp decline in revenues caused by the fact that the recession has been longer and much more severe than anticipated, our public finances are deteriorating significantly. This year, the public sector borrowing requirement will be £37 billlion, probably rising to £44 billion next year. These two years alone will increase interest costs by some £6 billion, which means £6 billion more taxation or £6 billion more expenditure. Naturally, it will cause upward pressure on interest rates and difficulty in funding, which might crowd out private investment.

I was delighted to hear the Chancellor's commitment to return to a balanced budget, and I strongly supported him when he said that it would be a tough spending round. With our public sector finances in such a state, it could not be tough enough for me this year. I welcome the limit on public sector pay. Indeed, a couple of weeks ago I suggested that there should be a freeze. However, when one looks at the figures in detail, one must ask how tough it has really been. Has the Chancellor really made the spending Ministers' pips squeak? Where is the evidence of blood on the floor? I regret to say that there is not much.

After allowing for inflation, the planning total will go up by almost 4 per cent. and even the new control total, which excludes the cost of recession, shows an increase in real spending of 2.3 per cent. Considering the fact that public sector wages will be fixed at 1.5 per cent., the real increase in programmes is considerably more than 2.3 per cent. That is hardly a tough spending round when our budget deficit is soaring.

If one looks at individual departmental budgets, one would think that those Departments with a high labour content—Education and Health—would show a reduction but, even with the pay freeze, the education budget will go up by 3.6 per cent. and the health budget by 1 per cent. in real terms. Clearly, the money that we are saving in public sector pay restraints will not reduce the budget deficit but will increase programmes. I just hope that the Minister can convince me that that increase will go into capital projects, but I do not believe it will.

Overseas development will go up by £100 million this year. When we have large balance of payments and budget deficits, is it sensible to spend £2 billion a year in that way? We are borrowing from foreigners whom we have to pay back with interest to give to foreigners. We could easily have cut £500 million off that budget, and I hope that the Chief Secretary will consider doing so next year. That would leave us plenty of money for famine aid, disaster aid and other such relief.

I am delighted that, at long last, the outdated Barnett formula for Scotland and Wales, which gave those countries an excessive share of our public expenditure, has been abolished as regards future increases. It was a difficult nettle to grasp, but I congratulate the Government on doing so. However, they have not dealt with the backlog of the past 20 years whereby in Scotland expenditure per head of population on education is 36 per cent. higher than in England, and on health is some 29 per cent. higher. It is higher than in the north of England, which is not the most prosperous area. Next year, the Chief Secretary should look at redressing the balance of the past 20 years. Expenditure in the other countries of the Union should be fixed until the expenditure per head in England has reached the same level.

I accept that the plans for years two and three are slightly tougher. I do not understand why we should start increasing expenditure again in 1995–96. The test will be whether the figures for the next two years will stick. Even if they do, I do not believe that we shall have done enough to reduce the PSBR. If we are to have a strong free market economy, we must bring spending down to below 40 per cent. and balance the budget.

The autumn statement takes us in the right direction but does not go far enough. If we are to deal with the serious problem of the budget deficit, we need another assault on spending next year; otherwise, we must face the unacceptable alternative of increasing taxation. If the Government are in any doubt about which course they should take, I remind them that the pubic elected us because they believed that we would not put up taxes and that the Opposition would. If my right hon. Friends need any help in deciding, I suggest that they look at what happened to George Bush.

The autumn statement sets out a coherent economic policy for recovery. Anyone who believes that it will not be a long haul is fooling himself. We face the serious problem of a double deficit: a budget deficit and a balance of trade deficit. This country is living beyond its means. This year is the first of what will have to be a number of years of financial stringency if we are to reduce those enormous deficits.

I hope that all Cabinet members have the stomach for the fight. Conservative Members will support them, because what is at stake is the creation of a strong and successful economy. If Cabinet members falter, they should realise that we are behind them and will not hesitate to give them a friendly push.

7.41 pm
Mr. Mike O'Brien (Warwickshire, North)

The hon. Member for Bridlington (Mr. Townend) welcomed the public sector pay restrictions and said that they could not be too tough for him. I wonder why it is that hon. Members with safe jobs and regular incomes are able to call for sacrifices from those who are low paid. Why is it that the call for belt tightening is always directed at the working people of Britain? It always seems that the people who are the greatest scrooges when it comes to public sector spending and pay for the low-paid workers become the biggest Santas when it comes to giving tax cuts to millionaire fat cats.

In as much as the autumn statement gives the Government a policy where for two months there was only a vacuum, it is to be welcomed, but the statement will not bring recovery or tackle the fundamental problems of British industry. I also suspect that it will not restore to British industry the long-term confidence that it needs. The Chancellor and the Prime Minister cannot bring confidence because no one can guarantee what their policy will be next week. Indeed, there have been so many U-turns, S-bends and policy gymnastics from the Chancellor that I wonder whether his parents, too, were circus acrobats.

The new economic strategy has been forced on a Government who have appeared out of control and very much at the mercy of events. Many of the more sensible U-turns in the autumn statement—for example, capital allowances—have been forced on a reluctant Chancellor. Now that the Chancellor has lost most of his totems—from the exchange rate mechanism to M3—we have to rely on his judgment to guide our economic policy.

The quality of the Chancellor's judgment will not, however, inspire confidence in British industry. After all, he is the Chancellor who said no to devaluation, no to leaving the ERM, no to a public sector borrowing requirement of more than £35 billion and no to necessary interest rate cuts in the months up to September, on the basis that we needed to stay in the ERM. The Chancellor's judgment is unsound. He is in partnership with a Prime Minister who was responsible, when he was Chancellor, for guiding the economy into the ERM at too high an exchange rate—also not a man of good judgment. Industry knows that the Government's judgment is unsound, which is why confidence will be slow to return and recovery will not come easily.

The unemployed know only too well that few of them will find jobs as a result of the autumn statement and that many more people will lose their jobs. The two years since the Prime Minister took office have seen unemployment rise by 71 per cent. or 1.2 million people. During that time, the number chasing each job vacancy has risen from 11 to 30. Can Ministers understand the dispiriting desperation of a family man looking for a job when he knows that he has to compete with 29 other people for that job? The number of young people out of work has risen by 323,000. The number of lost manufacturing jobs has risen by 541,000.

In my constituency of Warwickshire, North the jobless total has more than doubled, from 2,070 to 4,632. Some 587 miners at the Daw Mill pit were told just a few weeks ago that they were about to be made redundant. They have been saved until now only by the review in the coal industry.

The taxpayer pays an average of £9,000 per year—in extra benefits and tax lost—for every person out of work. It has cost my constituents £41.7 million—or more than £560 per voter—to maintain the Prime Minister's high unemployment policies.

After 14 years of Thatcherite policies, the long-term Government policy of individual tax cuts and deregulation of industry has resulted in escalating unemployment, a manufacturing trade deficit, cuts in public services, lack of confidence in the Government, and dismay among the British people such as I have never experienced before. There is a desperation among the people that the Government are incapable of finding a solution and are just plain unlucky. People feel that the Government do not know what they are doing and are a bunch of amateurs.

The Government's stated overall long-term aim of further tax cuts and deregulation will only make matters worse, as the price of doing so will be the Government's failure to provide the necessary infrastructure. In pursuit of their ideological objectives, the Government have succeeded only in damaging the economy.

The basic Tory philosophy of government is at fault. For too long public policy has been solely geared to the myth that Britain's future hangs on helping the mini-entrepreneur, the little man in the garden shed. The aim has been to reduce individual taxation and force self-reliance. However, as Robert Reich, economic adviser to President-elect Clinton, has said, in the age of new technology a nation's economic progress depends not so much on individual entrepreneurs as on collective entrepreneurial talent. It does not depend on little men in garden sheds, but on research scientists in well-funded universities developing advanced conductors, on systems analysts devising new software for international companies and on designers applying new technology to consumer requirements.

For the collective entrepreneur, taxation and tax cuts are peripheral, and a policy of tax cuts is peripheral to the future prosperity of Britain. Good education, a highly skilled work force and an effective infrastructure are essential, as is a Government working in partnership with British industry.

Japan, Germany, Austria, Taiwan and other countries with successful economies long ago learnt the lesson that the collective entrepreneur, not the mythical individual, is the steam engine of change in the economy. They have recognised the interdependence of the components of the modern economy, including that of Government spending. They know that tax cuts are inefficient if they restrict increased spending on universities, transport and infrastructure.

It is clear that this hands-off Government have produced not more prosperity, but market instability and long-term decline. The ideology of less government has produced less public transport and less education, and less of many of the factors necessary to an economy. The free market has its place, but the hidden hand of the market is not enough. The failure of Thatcherism over the past decade has made that clear. As other economies have found, the hidden hand needs a helping hand—not an interfering hand, but a guiding hand. Governments, through intervention and a clear sense of direction, can be that guiding hand.

The Government have spent 14 years saying that they cannot do much except create a low inflation, low tax regime. Clearly, that policy has failed and we need a Government who are prepared to intervene and work in partnership with industry to end the abdication of responsibility which persisted through all those years of Thatcherism. The Chancellor and other Ministers have spent so long saying that they cannot intervene that now no one has any confidence that they could do so even if they wanted to.

The one nostrum that the Government now believe in is that low inflation is, of itself, a prerequisite to recovery. That is one of the few totems left to them after the death of M3 and M1, shadowing the deutschmark and the ERM. However, the intellectual gap in the argument is that our industrial base has been undermined in pursuit of that objective. Industry is now in fundamental trouble. The idea that low inflation of itself will somehow lead to recovery does not make sense. We need a motivating factor and a full-blown Keynesian recovery package if we are to get genuine recovery. Low inflation can only be part of that package. It is the overall package of policies that will bring recovery, and it is the inadequacies of the rest of the package in the autumn statement that will ensure that recovery is still a long time away.

This autumn statement is bad for my constituents, bad for the unemployed and bad for the industry in my constituency. It is also bad for the Conservatives in my constituency. Warwickshire is a Conservative-capped county council and a Conservative council; I would expect the Government to defend it, but I heard this week—

Mr. Deputy Speaker

Order. Mr. Bellingham.

7.51 pm
Mr. Henry Bellingham (Norfolk, North-West)

The hon. Member for Warwickshire, North (Mr. O'Brien) made an eloquent speech, but he wrote it before he heard the autumn statement. He has asked for a package for recovery, including some intervention, and that is exactly what the statement contained. The response to it from builders and people connected with construction and housing in my constituency has been one of pleasure. Small businesses are very pleased; medium-sized businesses are extremely pleased, because they know that there will be a definite boost for construction and housing. They are particularly pleased that certain crucial infrastructure projects will be preserved and boosted. They are also pleased about the preservation of some of the defence procurement projects.

A number of extremely important road schemes are in the pipeline for my constituency. One of them is dualling on the A47, just west of King's Lynn. We hope that it will come on stream soon. There is also the crucial flyover at the Hardwick roundabout outside King's Lynn—a notorious bottleneck. The flyover should be built in the near future. This is why my constituents and many other people in west Norfolk are extremely pleased that the Government are getting their act together.

I also welcome the 1 per cent. cut in the base rate. I only hope that it will be passed on to customers by the banks. The banks have begun to learn that base rate reductions must be passed on. I received a letter the other day from a small business man in my constituency. He was complaining not about the base rate that he was being charged but about the arrangement fees—£1,500 for a new overdraft, a staggering sum. I hope that the Financial Secretary will tell the banks to be more sympathetic to small businesses.

Recovery is all about confidence, which until now has proved elusive. It will start to return, however. Many people have been worried about their jobs and worried because they have detected that the Government have been locked into a system of limitations that has reduced their room for manoeuvre. I believe that the autumn statement can present a new way forward which will help to generate confidence, particularly among the crucial people who will start moving house or improving their homes and spending more in the shops. That in turn will have a knock-on effect throughout the economy.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and the hon. Members for Caernarfon (Mr. Wigley) and for Warwickshire, North all mentioned the ERM, although the hon. Member for Caernarfon was a good deal kinder about it than was my hon. Friend. I am extremely pleased that we are not tied into what is going on in the German economy any more. I think of it this way: we went into the rottweiler's kennel and we did not get just scratched and nipped—we had a limb bitten off and we came out of the kennel severely mauled. I hope to goodness that we will not go back into that kennel for a long time to come.

I welcome the fact that the Prime Minister said the other day that it is not our policy to go back into the ERM tomorrow or the next day but that we will take stock of the situation and take a decision some time in the future. He has also made it clear that the decision will not be influenced or constricted by the fact that we ratify the Maastricht treaty. The Prime Minister is an honourable man, and I prefer his view on the subject to that of my old friend—

Mr. Budgen

Will my hon. Friend give way?

Mr. Bellingham

No, because of the 10-minute rule. I was referring to my old friend the former Chancellor's nephew. I spent some years of my life in a part of the Fens renowned for its spires and gargoyles, and I had many a happy evening with the former Chancellor's nephew. He is sound on many points and a first-class barrister—I practised with him for a while—but on this issue his interpretation is over-sentimental and unduly restrictive. I prefer the Prime Minister's view to that of Martin Howe.

I welcome this package, but I am still worried about home owners in my constituency and about those trapped in mortgage equity debt. A home owner told me the other day that he had bought a house for a considerable amount of money and then seen its value drop. His fiancée had left him, he had lost his bonuses at work and he was in dire straits. He had thrown the keys back at the building society thinking that everything would be all right, but he came to my surgery having received a letter from the building society asking what was to happen to the £20,000 that my constituent owed it—he did not understand that the money was his liability.

I ask the Financial Secretary to consider carefully what it would cost to give tax relief to constituents like mine who have lost huge sums of money when their houses have been repossessed. May we have the figure? I urge my hon. Friend also to consider a scheme to encourage mortgage insurance. Many people do not insure their mortgages, but they could. It would make life a lot easier for budding home owners if they knew that they could get tax relief under a mortgage insurance scheme.

Many hon. Members have been selling Britain short, but I do not think that we should. We must try to build up confidence, which is what my constituents need. Small business men who are determined to get going and medium-sized businesses that want to invest—they all need confidence. We have heard a great deal about the decline of British manufacturing, but the figures do not add up to the gloomy totals that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) proposed. Twenty-seven of the top 50 European companies are British. The other day The Economist carried out a survey which discovered that 13 of the top 30 medium to small-sized firms in the world were British. Statistics from America the other day, published in "Week's 5th Global 1,000" showed that 110 of those 1,000 companies were British. It is time we stopped selling ourselves short.

I do not often listen to Radio 4 in the morning, but the other day I tuned in to "Thought for the Day" at the absurdly early hour of 7.50 am. A bishop was speaking and he quoted a remark that I think came from the Bible. He was not asking to avoid trouble, turmoil and tumour; all he was asking for was to overcome, not to be overcome. I hope that the Chancellor will overcome. This autumn statement is a step in the right direction, and I shall back it wholeheartedly.

7.58 pm
Mr. Matthew Taylor (Truro)

It strikes me that much of the reaction to the autumn statement derived not so much from what was in it but from what was not in it. Many of the plaudits that it earned were a result of briefings emanating from Ministers and their officials before the statement, suggesting that there would be tax increases, cuts in benefits, measures to send people who rely on disability support reeling, and so on. They also suggested that, against the wishes of those who have campaigned for so long to increase overseas aid from this country, it would be cut.

After all these behind-the-scenes briefings, reported in the newspapers, we were meant to cheer—Conservative Members did—because these terrible things had not come to pass. It was not a particularly original political trick, nor did it produce an autumn statement that will start to turn around our economic problems. That is the other respect in which the statement was remarkable not for what it contained but for what it did not.

Much of the autumn statement is welcome. We argued for many of its measures a considerable time ago. Those who have lost their job in the meantime might well be looking for an apology from Ministers, not just a U-turn. However, its measures go nowhere near far enough to turn the economy round. The job losses and business failures that followed the previous Budget and autumn statement when Ministers made similar predictions prove the point. The action being taken now is too little, too late, a phrase which has been used a lot about the autumn statement.

That the action is too late can hardly be denied by Conservative Members, let alone by the Chancellor and the Financial Secretary to the Treasury. It is self-evidently too late to be taking investment measures—which were advocated so many months ago—for all those people who have lost their jobs and for all those businesses that have gone bankrupt in the meantime, waiting for precisely the kind of U-turn that the Government now claim to have made.

But the action is too little as well. A few weeks ago my hon. Friend the Member for North Cornwall (Mr. Tyler) and I led a delegation of people from Cornwall to Downing street. It was not party political. It was composed not of party politicians but of representatives of a cross-section of businesses, jobs and political viewpoints in Cornwall. It included an architect, a farmer, a postmaster, a builder, an hotelier and others who once worked but are now unemployed, who once ran businesses but are now unemployed.

Those involved in the delegation were united, not by a political ideology but by a belief in their county and in their ability to put things right for themselves if only they are given a fair wind and the necessary support from the Government. Each member of the delegation wrote to the Prime Minister and the Chancellor outlining the problems in their own sector of the economy. That presentation, "Cornwall's charter for jobs", concluded: We now ask this Government to recognise the difficulties we are facing. Most are not of our own making. They have been created by national policies that have treated Cornwall, its people and communities harshly. Our wish is for the Government to behave as any business and employer must: we ask it to become pro-active. We ask it to remove the obstacles to Cornwall's success. We ask it to provide its people with the tools it needs to create jobs for its jobless, and a future for its children. Those sentiments would be echoed by people throughout Britain, particularly in the rural, so-called peripheral, areas that have been particularly disadvantaged by so many of the Government's policies.

Along with millions of people in Britain, people in my part of the world are suffering from the devastation of the economy that the recession has wrought. In Cornwall, male unemployment is approaching 20 per cent. Business failures in the south-west are up 40 per cent. this year on last year. High street banks are closing and tourism, fishing and farming are suffering terribly, too.

I do not ask merely for expenditure; there are other things that the Government can do. One is to tackle the problems within the banks, not merely the lack of interest rate cuts, but, even more significantly, the way in which the banks treat so many small businesses. I campaigned at the general election, as did my colleagues, for a banking charter. The Government have done nothing to make the banks establish a proper contractual relationship with small businesses that would ensure that when the banks sting their fingers abroad and with big businesses, it is not local small business men who are asked to pay the price.

The cut in interest rates is welcome, but promises of a new economic strategy raised hopes of much more. In many areas such as my own, businesses need a reduction in the uniform business rate, a fully funded development agency and assisted area status to aid investment. Instead, in the longest recession since the 1930s, the Government are proposing to review assisted area status, reducing the area of the country that is eligible for help from 35 per cent. to around 30 per cent. That will cut off the blood supply, the lifeline, for so many more businesses.

More generous investment in the infrastructure would have put our builders, plumbers and electricians back to work on projects for the future. To suggest that future capital receipts will be released for that is a some time, one time, maybe never, kind of promise. Cornwall has money from its capital sales, particularly the council house sales. We have people who are now jobless with the skills to build homes. We have one of the worst problems of homelessness in the country. All we need is the political will from the Government to release even a proportion of those funds for the investment that is needed, but that political will is still not there.

Our businesses face further threats of continued high water rates, higher electricity charges because of the distance from generating stations, the possible termination of inter-city rail services at Plymouth and Exeter. Time and again, we have to put up with Conservative Members in the south-west and elsewhere complaining about the effects of the very policies for which they voted in the first place. They have shed crocodile tears about electricity price increases, when they voted for the system that has led to those increases; about water rate increases, when they voted for the system that led to those increases; and about rate increases, when they voted for the system that created those increases. Worst of all, they have had meetings with Prime Ministers and Ministers when they hold in their own hands, through their votes, the chance to change Government policy and to defeat Government policy merely by coming together and exercising the power that they have—crocodile tears indeed.

To those Ministers and other Conservative Members who may be worried about taking such a wide turn away from past policies I say that half a Keynesian is better than no Keynesian, but full-hearted policies are what our county and country need.

The British public are forgiving of people who make U-turns. They know that if one drives down the wrong road, the most sensible action is to turn round at the earliest moment and find the right route. They ask only two things—first, an apology for the mistake and, secondly, that there is some indication that, having turned round, the Government know where they are going. For a start, it is better to go back up the road one has come down than to drive off into the fields or woodlands on either side where one is only likely to become bogged down and in a worse situation than when one started.

One area that is being attacked because the Government believe that they must tackle spending in some small way is legal aid. The legal aid changes are designed to save money for the Government, but they will make no great difference to our general economic problems or fortunes. However, they will make an enormous difference to those individuals who can no longer obtain the legal help that they would once have had.

Millions who were once eligible for legal aid have already been taken out of it. The Government say that legal aid costs have increased, but that is because of the complexity of cases, not because more people are eligible for it; fewer are eligible for it.

The Government should be tackling the legal system, not the legal aid. They should be seeking to create simpler routes by which people can obtain the genuine redress to which they should be entitled in our modern society. The Government are tackling the symptom, not the cause, and millions of people, many of them those hit hardest by the recession, will suffer as a result.

Those changes could have been included in the autumn statement. They could have been made. I fear that the Government have realised their mistakes and pulled into the field only to find themselves bogged down. I fear that unemployment will continue to increase this autumn—

Mr. Deputy Speaker

Order. Mr. Douglas French.

8.8 pm

Mr. Douglas French (Gloucester)

I have no hesitation in welcoming the autumn statement as a reasonable formula to provide a short-term way out of our current economic problems, but I have the greatest difficulty in being persuaded that it was the logical next step in a long-term policy strategy. We must consider carefully what our long-term aim for the economy is.

Like other hon. Members, I remain extremely uneasy about the planned level of public borrowing. In the 1991 autumn statement, borrowing was set at £19 billion; by the time of the 1992 Budget, it was at £28 billion. We are now told that it will be £37 billion in 1992–93—about twice the original estimate. The forecast for 1993–94 puts it at £44 billion. I cannot help fearing that it is heading inexorably towards £50 billion, which would be 8 per cent. of gross domestic product and would take us back into IMF territory. We must avoid that at all costs.

Some forecasts—even those of reputable City analysts —now suggest that the figure may reach £65 billion in 1994. Goldman Sachs, using a 1.5 per cent. growth projection, puts it at £80 billion. If such figures are really being contemplated, they are much too high. As we know, a burden of debt must be serviced. In the past 10 years we have made impressive progress in reducing debt servicing; we do not want to make a deliberate decision to return to it now.

My right hon. Friend the Chief Secretary to the Treasury said that we had managed to cut the debt-servicing burden by £10 billion. It seems, however, that we are now set on moving in the opposite direction. We had a hard lesson to learn, and I am disturbed by the possibility that we shall have to learn it again.

Many hon. Members have mentioned the 1981 Budget. I agree with my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and with the hon. Member for Durham, North (Mr. Radice) that the situation in 1981 was different from the present situation, but there is some common ground. The public borrowing level was then far too high. I well remember the difficulty experienced by the then Chancellor—not his nephew—in trying to decide how to handle the deficit. He had to make the difficult decision to raise taxes—not a welcome decision, given that the 1979 general election had been fought on a platform which preached the virtues of a low-tax economy, but a decision that had to be made to reduce public borrowing. Within a short time, things were moving reliably in the right direction.

Although I am a great advocate of low-tax regimes, if I had to choose between borrowing moving out of control and increasing taxation, I would reluctantly choose to increase taxation. One of the worst courses is to pretend that tax increases may not be necessary, before eventually finding that they have to be imposed after all.

What worries me particularly about the present circumstances is the speculation now rife in the press that taxes will have to rise in the next Budget. Such speculation is most unhelpful and pulls us in exactly the opposite direction from the one in which we should be moving. If the aim is to create confidence, the chances of creating it will be undermined when people start worrying about facing tax increases before long. The prospect of an increase in indirect taxation—in VAT, for example—may conceivably have a beneficial effect in bringing forward a purchase, but it will result in a vacuum later. Threats of income tax increases cause people to worry about their household budgets and are likely to prevent the renewed confidence that the rest of the strategy seeks to promote.

It is very unwise to let it be known that taxes are likely to rise or, indeed, to set out a package in which the arithmetic points inescapably in that direction. If tax increases are eventually to he necessary, the longer they are delayed the more damage there will be. More debts are incurred, more uncertainty is caused, confidence is undermined, and the economy remains further away from where we want it to be.

My right hon. Friend the Member for Worthing (Mr. Higgins) mentioned the change in Budget timetables. I think that mini-Budgets should be avoided wherever possible. They do not help the continuity of policy, they do not increase confidence, and they do not provide the reliable framework that businesses need. If judgments are sound at the time when a Budget is made, they ought to remain in place for at least a year.

I welcome the bringing together of the income and expenditure statements, but I view with dismay the prospect of another Budget in March and a further one in December. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) referred to two Budgets in a year; in fact, there will be three in a little over a year. That is unnecessary, and almost certain to undermine confidence.

I am also not in favour of time-limited incentives. I thought that we had learnt our lesson when Lord Lawson ended the system of dual mortgages on single properties, and in doing so caused no end of trouble. We then tested the market with a temporary moratorium on stamp duty, which had absolutely no effect. Now we have a 40 per cent. capital investment allowance, which is apparently to end towards the end of 1993. Trying to concertina people into making decisions in such a limited time is likely to undermine the quality of the decisions made. I firmly oppose time-limited incentives as they merely distort markets and increase speculation.

I accept that some of the measures in the autumn statement were necessary because the recession was so deep, but I suspect that some would not have been necessary if interest rates had come down earlier. Here I entirely agree with what was said by my hon. Friend the Member for Bridlington (Mr. Townend). The policy of dribbling the rate down one percentage point at a time strikes me as being open to considerable doubt. The single percentage point was invariably heavily trailed, discounted in advance and implemented in a diffident fashion, with an obvious fear of the exchange rate consequences.

At no time did it look as though that would be the end of the matter. It always looked as though there might be a further instalment, and the reduction was frequently accompanied by a warning that in the event of adverse consequences the rate would have to rise again. It never looked to business men as though rates were set to remain at a particular level for any length of time; the old enemy, uncertainty, was a constant factor.

It is hardly surprising that in such circumstances a business man should defer decision making, and hardly surprising that it should be concluded that low interest rates alone were not enough to get his business moving and to move us out of recession. It was clear that a further raft of measures would be needed.

From the point of view of the international capital markets, it is clear that capital movements are influenced by comparative interest rates, but interest rate levels are only one indicator of the health of the economy.

Capital, after all, seeks out currencies in anticipation of potential movement in their capital value. That is bound to be a reflection of international judgment of the underlying health of the economy involved. Capital likes to move into a currency when, on a balance of probabilities, it is likely to be at its lowest and ready to move up; strong currencies are those that markets expect to move up, and weak ones are those that they expect to move down.

That perception could better have been created if at some stage in the downward spiral a reduction of two percentage points had been made. It could have been done without adverse exchange rate consequences. I very much regret that the Chancellor did not choose to make that reduction. Had he done so at the right time, I believe that much of this package of measures would have been unnecessary.

8.19 pm
Mr. Clive Betts (Sheffield, Attercliffe)

Last Thursday Conservative Members waved their Order Papers after the Chancellor's speech. The same Members waved their Order Papers after the Budget statement earlier this year. The difference is that in his Budget statement the Chancellor forecast that growth would be 1 per cent. this year, but in his autumn statement he forecast a 1 per cent. reduction in growth. In his Budget statement, the Chancellor forecast a current account deficit of £6.5 billion, but he is now talking about £12 billion. In his Budget statement, the public sector borrowing requirement was to be £28 billion, but it is now forecast to be £37 billion. With that forecasting record, one has very real doubts about whether the forecast for next year of 1 per cent. growth is right. If it is not, the economy will continue to decline.

It is not just the figures that have changed. The words have changed, too. Last spring, unemployment was still "the price worth paying" for reducing inflation. Now the accent appears to be on growth, jobs and dealing with unemployment. Even borrowing is no longer a dirty word on the Conservative Benches. It hardly could be, given the amount of Government borrowing.

When one looks at the details of the autumn statement, which we have had the opportunity to do since last Thursday, one finds that they contain no coherent or effective plan of action to deal with the depths of the recession and depression that the Government have created. There is no effective plan of action to create the jobs that people require.

We find that there is no new money in the autumn statement, but if we are to create jobs we shall have to spend money. The Government are constrained by their own problems with the public sector borrowing requirement—a self-inflicted problem. The Opposition support a major expansion of investment in the infrastructure. We make no apology for saying that the public sector has to be the motor for recovery. Of course we want investment in the private sector, but, at a time when confidence in the private sector is so low, the public sector has to be the catalyst to get the private sector going. That may demand, in the short term, a further increase in the public sector borrowing requirement, but if it is properly managed it will generate the revenues that are necessary to pay for it in the medium term.

Before the Government accuse the Opposition of wanting to increase the PSBR, I should like them to explain how they calculated the autumn statement figures relating to public expenditure and the PSBR. Why do the Government believe that they are the right figures to deal with our present economic problems? The figures for public expenditure have all the signs of having been decided before the Government made their U-turn, to some extent, and of the Government not having altered them in the light of the circumstances that we now face.

As well as there being no overall increase in expenditure, most of the schemes put forward are not new, either. The Government have highlighted certain key projects, but in the last few months there were suggestions that they would be cut. The Government now claim a victory and a boost for recovery, simply by maintaining schemes that were already in the programme.

The Government admitted to some cuts last Thursday —cuts in legal aid and invalidity benefit, which I deplore. Since last Thursday, however, we have found hidden cuts that were not declared. There is to be a cut in the urban programme, which represents the expenditure of money that is targeted directly on the most deprived areas of the country. The Government have placed particular emphasis during the past few years on spending to help to generate economic activity in the most deprived communities—in particular, expenditure on infrastructure projects. The end of the urban programme will affect people who have the least change of getting jobs and will increase unemployment where it is already at the highest level. That cut ought to have been explained openly to the House. It is a disgrace that it was not.

When we hear about local government expenditure proposals next week, we shall no doubt find that there are further hidden cuts. Every local authority—not just Labour local authorities—is talking about the jobs it will have to shed next year and the people it will have to get rid of. It is yet another aspect of the autumn statement that will lead to increased unemployment, not to more jobs.

On the question of public sector pay, we were told this afternoon that this is simply a matter of employers dealing with the employment costs of their workers. That is an incredibly narrow view for the Government to adopt. They are an employer, but they are also supposed to be managing the economy. If we take spending power away —for that is what reduced wages mean—from the poorest in our community, we shall reduce demand in the economy. That, in turn, will create job losses in other sectors of the economy. This is yet another measure which will have a depressing effect on jobs in general.

Where the Government have acted, they have acted insufficiently. Why did they not let local authorities spend the housing capital receipts that they now hold? My hon. Friend the Member for Peckham (Ms. Harman) well illustrated the problems that local authorities will face in trying to sell assets in a depressed market. Why force local authorities to do that when they already hold sufficient resources? New homes are needed. Houses and schools need to be repaired. Expenditure on housing repairs could be put into effect very quickly. The need is there; the money is there; and the private sector has the capacity to carry out the work. Why will the Government not put the money held by local authorities to work in the private sector and therefore meet the needs of local communities? It would be a simple matter for the Government to do that.

It is worse than that, however. The Chancellor of the Exchequer referred to adjusting the capital control totals of local authorities. I have an awful feeling that when local authorities are told how much their capital allocations are to be, they will find that part of the miserable amount of extra money that they received through the capital receipts initiative will be clawed back by means of a reduction in the credit that they are allowed to have in the next financial year. The effect of the measure, therefore, will be even less than the Government pretend.

I welcome the reduction in interest rates and the relaxation of the ridiculous rule that prevented private sector capital expenditure in the public sector. That rule is nonsense. We ought to get rid of it. However, the Government will not face up to the fact that the lack of confidence in the private sector means that these measures will have little impact. We can reduce the cost of money to as low a level as we want, but if the private sector does not feel that the risk of investment is worth taking, investment will not occur. That is the problem that the Government face. The reduction of interest rates by 3 per cent. in the United States has not stimulated much investment in the private sector. That is why a major public sector thrust is needed.

The autumn statement contains no reference to European-wide initiatives. We have the presidency of the European Community for six months. What a wasted presidency it has been. The Government refused to put European economic recovery on the agenda. By doing so, they have failed not only the British people but all the people in the European Community. They should be ashamed of themselves.

There is a medium-term problem for the housing market. We have heard a great deal about the immediate crisis that faces the housing market. In real terms, house prices are falling. Money is relatively cheap. People are using their savings to reduce indebtedness. Building societies are not lending much money. No new houses are therefore being built. If confidence returns in two or three years' time, it will amount to a potentially lethal mixture that will lead to another massive increase in house prices.

The autumn statement will do nothing to get the economy moving. There is no coherent strategy, beyond the immediate survival of the Government. There is no new money. There are few genuinely new schemes. There are hidden cuts and missed opportunities. There is no European perspective. The package is long on rhetoric but short on any real strategy to assist the unemployed and to create the climate for economic success. It is a missed opportunity for the Government, but, more importantly, it is a missed opportunity for the country.

8.29 pm
Mr. David Willetts (Havant)

I should like to give a wholehearted welcome to the autumn statement. I should have liked to give it a fulsome welcome, but, with the constraints of the 10-minute rule, suffice it to say that with the lowest interest rates and tax rates in Europe we now have the basis to rebuild consumer confidence, which is crucial. We hear so much talk about investment as though it were virtuous and consumption was somehow naughty. The only reason for investment is that there is already consumer demand, which the investment is aimed at meeting. I have no hesitation in emphasising the elements of the Budget that will encourage consumers to spend more.

The figure for lending in October was £5.1 billion—the highest since November 1990. That is one small sign that perhaps consumers are feeling more optimistic about the future. It was an encouraging indicator.

I know that many people in the Treasury still have at the back of their minds the terrible warning of 1972, when we left the previous attempt at a fixed exchange-rate link with the continent of Europe. It was the basis on which the Barber boom subsequently took off. We allowed borrowing to rise out of control and eventually suffered the inflationary consequences.

Although I welcome the cuts in interest rates, I hope that the Chancellor and the Financial Secretary will be able to make it absolutely clear that, if there is any prospect of inflation rising above the target range, and particularly if the growth of M0 and M4 are rising towards the top of their target range, they will have no hesitation in increasing interest rates. The only thing that would be worse than the recession of the past two years is if it were to be followed by the same mistakes as happened during the Barber boom.

I want to dwell briefly on one exciting element of the autumn statement—the proposals on private finance for public projects. I welcome the special responsibility that the Financial Secretary is being given to carry that initiative forward. I am sure that he well knows that there is a history of Treasury teasing on the subject.

We have been told before that liberalisation of the rules on private finance for public projects is to take place. Ingenious schemes are proposed by merchant banks and construction companies for building and operating prisons, roads or hospitals, but the Treasury says, "'This is all very interesting and is a good idea, but, of course, it would be cheaper if it were carried out in the public sector, with borrowing at gilt rates"—and, sadly, we decide not to carry them forward. According to that argument, we would nationalise ICI to reduce the cost of borrowing to finance investment. I hope that this time around the changes are serious.

I have noted in particular how the stress has been put on private sector road building and toll roads. Of course I welcome interesting innovations, but the significant feature of the roads example is that there is a private stream of revenue that the firm operating the road can enjoy. The significant challenge or test for the Treasury is whether it is prepared to bring private finance into schemes where services will be sold to the public sector.

I am rather troubled to see that such schemes are described by the Treasury in the autumn statement as leasing arrangements. I regard leasing as financial engineering to get around a public expenditure constraint. I would not support leasing fiddles where something impossible under normal public expenditure disciplines was allowed simply because of a change in the financial structure. That is not what we are looking for. We are looking for Treasury recognition that, if the private sector is free to build and operate a private prison or hospital and sell its services on a long-term contract to the public sector, that arrangement may release new ideas for better management, use of labour and maintenance of capital and achieve improvements that, sadly, have not been realised in the public sector.

Hitherto, Departments have not registered the fact that, if the public sector is to run a hospital in a different way—possibly by saving staff or using them differently —it wants to be able to design the hospital so that the physical plan matches the way in which it wishes to use staff. In other words, if I may slip into the jargon of economics, it wants the physical capital for which it is responsible to embody working arrangements that it can achieve but which have not proved possible in the public sector.

The ultimate argument in favour of private finance and private management for such projects is that they are better managed and more efficient and innovative than if they remain in the public sector. They are far from being leasing fiddles. I therefore very much hope that the Financial Secretary will be able to assure us of the energy with which he will approach his exciting remit.

The Chief Secretary should be congratulated on the way in which he has conducted the Treasury's negotiations. He has at last been able to get the message home that, if public expenditure negotiations are to be responsible, they should be on priorities within an agreed total rather than attempt to overturn financial discipline. I welcome the new public expenditure control arrangements, which seem to have achieved that conspicuous success.

I welcome the statement's focus on the medium term. Too often, public expenditure negotiations have degenerated into horse trading about next year, with years two and three in the survey largely being ignored; they are left for next year's negotiations. This time, we had serious negotiations on years two and three, and the Treasury achieved new figures for growth in years two and three of 0.75 per cent. real growth and 1 per cent. real growth. That is a conspicuous achievement, on which I congratulate the Chief Secretary.

Having achieved those marvels of public expenditure control under the new Cabinet Committee arrangements, I am surprised that the Treasury is further considering more institutional change next year. My right hon. Friend the Member for Worthing (Mr. Higgins) spoke about that. I am worried about the change in the timetable for economic decision-taking, so that expenditure and tax announcements are brought together in the autumn.

There are three reasons for my concern. First, I hope that my hon. Friend the Financial Secretary will accept that I am truly concerned about the work load that is falling on him and other Treasury Ministers. I am sure that being a Treasury Minister is a tough job. Between September and December, there will be the major international conferences, the tough public expenditure negotiations in the Committee that is now chaired by the Chancellor, with the Chief Secretary actively involved; and at the same time the Chancellor and the Financial Secretary will be considering Budget starters and trying to reach tax decisions. That is a heavy burden.

My second concern is an operational one. Many public sector bodies such as local authorities and district health authorities need to know as soon as possible what their budget will be for the following year. After the autumn statement, Departments spend weeks working out what the overall expenditure figures mean for local authorities, health authorities, the remaining nationalised industries and other public bodies. Next year's autumn statement may be a month later than this one, so there will be less time for public bodies to take important operational decisions.

Finally, there is a risk of the Treasury, having established control over public expenditure this year, sacrificing control over taxes next year. If public expenditure negotiations and tax negotiations are being conducted together, spending Departments may be tempted to press for tax increases to finance higher departmental expenditure or at the very least to undermine the Treasury's wider fiscal position. I therefore hope that Treasury Ministers will be able to make it clear that the new arrangements to be implemented next year will avoid those pitfalls.

8.39 pm
Mr. Roger Godsiff (Birmingham, Small Heath)

When the Chancellor of the Exchequer made his statement last week, there were scenes of wild delight on the Government Benches and much shouting in parts of the Tory press that the economic recovery had begun.

There may have been wild delight on the Tory Benches, but if Ministers had cared to visit Birmingham and the rest of the west midlands—the real world outside this place —they would have found no wild delight. On the contrary, they would have found disbelief, anger, bitterness and real frustration among the people of Birmingham and the rest of the west midlands who have no jobs or spending power, and who have seen their industries destroyed in the past 13 years. Those people were saying, "Why have the Government missed their opportunity yet again? Why have we gone through all that, and seen the Government make so many U-turns? Why, even in the autumn statement, which takes half a step forwards towards a Keynesian policy, are the Government still not prepared to admit the mistakes that they have made in the past and do something to regenerate British industry?"

Let us see how good the autumn statement was, and how much it will do for British industry. What will it do for GDP and growth? The forecast is for 1 per cent. growth in 1993—and that will follow a drop this year. What will the statement do about unemployment? Unemployment now stands at 2.8 million, but everyone in the House knows that the unemployment figures are massaged and that 2.8 million is not the true figure. Everyone knows that the true figure is nearer 4 million. What will the statement do for those 2.8 million-plus people who are unemployed? By 6 o'clock this evening, anyone who cared to look at the ticker tapes of news coming in could see that in one day a further 10,000 jobs had disappeared. What did last Thursday's statement do for those people?

Will investment increase? On the contrary, it is still falling. Will the balance of payments improve? Will we suddenly see a great narrowing of the gap? That will not happen. We have only to examine the Government's own forecast.

What about public borrowing? In 1988 the Prime Minister said that public borrowing of £25 billion was unacceptable. He asked why we should pass on to the future the burden of the follies of the present. The figure was £25 billion then; it is £37 billion for 1992; and it will be £44 billion for 1993. Why should we pass on to future generations the burden of the follies of the present Conservative Government? That is what the Prime Minister asked in 1988.

The Chancellor told us that from now on we could spend some of our capital receipts, that the money received for every public asset—every council house, school playing field or piece of land—which local authorities sell between now and the end of 1993 could be used for new capital projects. Local authorities throughout the country are saying, "Thank you very much, Mr. Chancellor of the Exchequer. That is very kind of you. That will really solve our problems. Here we are in the middle of a massive recession, property prices have collapsed, and for everything that we can sell—if there is anything that we have not already been forced to sell, and if we get a decent price for it—we shall be able to use the money for new capital projects."

What about the £5 billion which is locked away and which the Chancellor will not allow local authorities to spend? Why will he not allow them to spend that money to build desperately needed houses, to improve roads which are falling apart, to improve the infrastructure of the inner cities, to improve people's quality of life and make some amends for the follies of the past 13 years? "No," says the Chancellor, "You cannot spend that money—you must use it for debt repayment."

Outside in the real world, the Chancellor's statement was greeted as a nonentity. In my constituency, 26 per cent. of the population is unemployed. There was one small cheer for the Chancellor's statement: my constituents were grateful that their social security benefits would not be cut. Most of them are on social security. They do not have jobs—their jobs have disappeared—and they were thankful that the Tory Government who destroyed their jobs did not intend to victimise them again by cutting their social security.

That small debt of gratitude was more than outweighed by a feeling of despair and anger. In Birmingham, four out of 10 people have been unemployed for longer than a year. That may be of little concern to certain hon. Members, and to others it may be an irrelevance, but it means a lot to the people who have experienced it.

I do not know how many Conservative Members have ever joined a dole queue and waited to sign on. I am sure that some of them have, but I think that most of them have not. I wonder if many of them have even gone to see what the process is like. As somebody who experienced unemployment, although for a relatively short time, I can tell them that it is not a pleasant experience, and certainly not an experience that we should want to pass on to others. The present Administration seem impervious to that.

The west midlands used to manufacture cars and export them all over the world; it was the hub of the British car industry. The motor manufacturers were pleased that the car tax was abolished last week. Hon. Members may think that throughout Birmingham people will stampede down to the car showrooms with £10,000, £12,000, £15,000 or £20,000 in their pockets wanting to buy brand new cars and save £400 in car tax. I must enlighten them: anyone with that sort of money who wanted to buy a new car could go into any showroom in any part of the country and name his price. Hon. Members will know that my point is valid because many of them will have done just that. One can get any discount now, because the car salesmen are so desperate to unload their cars. The idea that £400 will suddenly provide a massive boost to the British car industry amounts to sleight of hand.

The abolition of the car tax is welcome—anything is welcome when one is lying flat on one's back—but it will not regenerate the British car industry. Why not? Why did I begin by saying that most people greeted the Chancellor's autumn statement as a nonentity? I said that because our problem is one of confidence. The hon. Member for Havant (Mr. Willetts) referred to confidence. Yes, there is a crisis of confidence. That is what it is all about. People do not have confidence in the Government or in their policies. They are not going to dash out and spend money—

Madam Deputy Speaker (Dame Janet Fookes)


8.49 pm
Mr. Michael Fabricant (Mid-Staffordshire)

I congratulate the Chancellor on the autumn statement. Despite what the hon. Member for Birmingham, Small Heath (Mr. Godsiff) might think, I am from the real world. I will indulge the House, if I may, in the sense that, for the past 10 years, I was in manufacturing, and may be a small microcosm of the British economy. I have always maintained that it is manufacturing that made this country great and put the great into Great Britain.

My own firm—I am indulging myself and I declare an interest—moved to Cornwall. We set up a factory in the constituency of my hon. and athletic Friend the Member for Falmouth and Camborne (Mr. Coe). We established the factory there because it is a pleasant area. More importantly, there are a willing and able work force. There were investment grants from the Government and there were economic wage rates in that part of the United Kingdom.

Opposition Members continue to espouse the minimum working wage. The Organisation for Economic Co-operation and Development has identified the minimum working wage as the single most important factor which is creating unemployment in France. A minimum working wage in Cornwall for our factory would have driven us out of Cornwall, would have driven us out of business and, more importantly, would have put those Cornish workers out of work. That cannot be to the advantage of anyone who wants manufacturing to get on.

I fully appreciate that it is the Opposition's job to oppose, but there are times when opposition is destructive. There are times when it is a good thing to blow the nation's trumpet. Manufacturing output went up from around 1982 onwards by 3.7 per cent. each year on average in the 1980s. That is something to blow our trumpets about. Export manufacturing went up by 6 per cent. each year on average. That is a triumph of which we can feel proud.

Opposition Members say that there has been a decline since 1990. I can see that thought in their faces. There has been a decline, but there has been a greater decline in Germany. The Opposition must recognise that fact.

I spoke to a group of industrialists from the midlands yesterday. They said that it is the lack of confidence that is creating the economic difficulty in which we find ourselves given that we now have the lowest rates of interest in Europe. It is a fear of losing jobs which is preventing people from spending money in the shops. I was pleased to see in last night's Evening Standard that spending has gone up: it is 1 per cent. higher than it was in the summer and 1.5 per cent. better than it was a year ago. At last we are beginning to see some improvement in spending patterns.

Simply talking down the economy does nothing to encourage confidence in this country. We now have everything to be confident about. We are now top, whereas we used to be bottom, of the G7 productivity league. We have one of the lowest interest rates in Europe. We have the lowest taxation in Europe, as other hon. Members have said.

What is the bottom line of all this? The bottom line is that we are seeing huge amounts of inward investment into the United Kingdom. Some 40 per cent. of investment from outside the European Community comes into the United Kingdom, with the remaining 60 per cent. being scattered among the other 11 E.C. countries. In Mid-Staffordshire, that means more jobs for people in places such as Lichfield, who will work in the Toyota plant which is not far down the road.

I will focus on two specific aspects of the autumn statement which I welcome. The Chancellor will know that I have nagged him consistently since I became a Member of Parliament for the introduction of greater capital allowances. As I am in business, I have always felt that unilateralism was nonsense. I believe that, just as it was crazy in the 1980s that, when the Russian SS20 missiles moved across the Urals and across eastern Europe to the borders of the then West Germany, the Opposition said that they wanted us unilaterally to disarm and that the Russians would disarm if they were asked nicely to do so, so it is equally nonsense for us unilaterally not to have capital allowances when our competitor countries have capital allowances.

We have increased capital allowances for plant and machinery from 25 per cent. to 40 per cent., and we have increased the capital allowances for industrial and agricultural buildings to 20 per cent. I welcome that increase, although I believe that it is overdue. France, Germany, Japan and the United States have accelerated capital allowances, and capital allowances work there because they improve investment.

The second aspect that I will focus on is interest rates. Although I have not been known for my great enthusiasm for Maastricht, I have never felt that being a member of the exchange rate mechanism per se was necessarily a bad thing. As a business man, I welcomed our entry into the ERM. After all, although we were manufacturing broadcasting equipment in Cornwall, we imported equipment from countries within the EC. We had to quote for large contracts abroad in foreign currencies. To get our costings right, we either had to buy currency forward or we had to build in a sufficient amount to allow for fluctuations in the exchange rate. I welcomed our entry into the ERM.

Being in the ERM is worth while only if the mechanism works. It is far better not to be in a mechanism than to be in a mechanism that is flawed. I am pleased that the Prime Minister has said that we shall not re-enter the ERM until our currencies converge. I go further and agree with my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) who said that our currencies should all be synchronous. Only in that way will the ERM work. In the unlikely event of such a situation arising, then, and only then, would I welcome our going back into the ERM, because it would then help British businesses. Sadly, I can see no circumstances in the next few years in which any currencies in Europe will be synchronous.

I must say that some of the comments from the Opposition have been quite incredible. We have heard the hon. Member for Dunfermline, East (Mr. Brown) make three impossible statements together. Constantly he said: keep us in the ERM; keep us in the ERM and do not devalue; and keep us in the ERM, do not devalue, but cut interest rates by half the current rate. That is absolutely impossible. It is like saying let us free-wheel on a bicycle uphill: an impossibility; economic innumeracy.

Our interest rates, thank God, have fallen. I would have preferred bolder reductions, but the rate is 7 per cent., the lowest in Europe. In Germany and France the rates are running at 9 per cent., in Spain at 13 per cent. and in Italy at 15 per cent.

I join the chorus of hon. Members on both sides of the House asking my right hon. Friends the Chancellor and the Chief Secretary to keep up the pressure on the banks. It is one thing to reduce interest rates but, if the banks do not follow suit, there is very little point to this. Moreover, overdraft facilities that can be withdrawn at almost no notice are not helpful to small businesses. There must be some permanence.

The Opposition say that the Government should be an engine for growth. Nothing is that simple. If Governments could make engines for growth, all economies would be growing. They are not. It is not that simple, and when they talk—

Madam Deputy Speaker


8.59 pm
Mr. Michael Stephen (Shoreham)

I welcome the opportunity to make a short contribution—very much shorter than I had intended—to this debate.

I very much welcome the autumn statement, and I agree that it is a turning point in our economic affairs. Listening to speeches on the economy, and particularly those from the Opposition Benches, I sometimes think that we tend to dwell on the present and forget the lessons of the past.

One of the obvious lessons of the past is that there is no such thing as sustained economic growth, except for a few short years. History tells us that after every upturn there is a downturn, and after every downturn, mercifully, there is an upturn. As surely as the sun will rise tomorrow, our economy will improve.

I believe that successive Governments have deluded the people into thinking that Governments are all-powerful. History ought to tell us that Governments are certainly not all-powerful. There is very little that Governments can do to affect the economic cycle. Let us look very briefly at a few years of our own economic history.

The years 1965 to 1980 were an unmitigated disaster, and it is not unworthy of note that for 11 out of those 15 years the Labour party was governing this country. Those years convinced me that Socialist economics do not work. Inflation averaged 15 per cent.; income tax rose to 83 per cent. and, if one had what the Labour party called "unearned income"—that is, income from one's life savings—one was taxed 98 per cent. There were strikes almost every day, and that more than anything killed the car industry in the west midlands, to which hon. Members have referred. Average earnings rose by a miserable £2 per week, nurses' pay was cut in real terms and so badly did the Opposition mismanage the economy that they could not even pay pensioners their Christmas bonus.

I searched the speeches of Opposition Front-Bench Members in vain to find any new ideas. What I did find was constant carping and criticism, with the benefit of hindsight, but no constructive attempt to explain to the British people how they would get the country out of its problems—except, of course, their traditional three policies: spend, spend, spend.

In 1981–89, before the world economy was blown off course by the present economic hurricane, which is affecting every developed country, our economy grew by more than 3 per cent. per year—faster than that of France or Germany—and average incomes were up 35 per cent. More families in this country today have a car, a television set, a telephone and central heating than at any other time in our history.

We have cut inflation dramatically and, despite the recession, nine out of 10 of our citizens in the work force have jobs. We have 1.8 million more jobs than we had in 1983, and a higher proportion of the population are in work than any other country in the European Community except Denmark. Strikes are now a thing of the past, and this was so even before unemployment began to rise. Even though repossessions are very bad, fewer than 1 per cent. of owner-occupied houses are being repossessed.

What caused the world recession? I have asked economists this question many times, and the consensus seems to be the bubble economy in Japan and the enormous deficit in the United States. [Interruption.] Opposition Members laugh. Of course they do. It is very inconvenient for them; it would suit their purpose very much better if they could fix the blame for the world recession entirely on the British Government., but I am afraid it will not wash.

We made a serious mistake in trying to shadow the deutschmark and entering the exchange rate mechanism. As a result, we have had interest rates much too high for much too long. Interest rates at a very high level have been the most important factor in the present economic downturn in this country. Joining the ERM was doomed to failure from the beginning, and had I been in the House at the relevant time I should not have voted to do so. The Labour party and the Liberal Democrats must share responsibility for that mistake, because they were as enthusiastic to go into the ERM and stay in it as we were —if not more so.

The venture was doomed to failure from the start, because all the money in all the central banks of the world together is equal to the sum traded on the foreign exchanges almost every working day. Had King Canute been alive today, he could have told us that the ERM was doomed to failure from the beginning. The fact that he was a Dane is not without interest.

The value of a nation's currency is simply an indication of what millions of economic decision makers around the world think of its economy. Trying to fiddle the exchange rate and put it into an artificial straitjacket is like fiddling with the oil pressure gauge on one's motor car instead of attending to the engine. Fortunately, we are now at liberty to attend to our own engine.

I am glad that interest rates have come down, although I would point out to my right hon. Friend the Chancellor that, although low interest rates are good for borrowers, we must also consider the interests of lenders. The retired people in my constituency who invest their money in the economy through the banks and building societies deserve a decent return on it.

The speeches by Labour and Liberal Democrat Members have been wholly negative—not a single constructive idea has been produced. The Opposition have an investment in gloom and doom because no one votes for them when things are going well—indeed, if the last general election is any guide, no one votes for them even when things are not going particularly well. We do not need lectures from them about the problems; we see the distress caused by repossessions and redundancies in our own constituencies. I have set up an employment action group in my constituency to tackle this matter locally.

Opposition Members have had a lot of fun referring to predictions made in the past, and, with the benefit of hindsight, crowing that those predictions were wrong. I felt like reminding all of them that they predicted that they would win the election! They have had a bit of fun with the Chancellor's reference to the green shoots of recovery, but I would rather hear the Chancellor trying to talk our economy up than to listen to the dismal Jimmies and moaning Minnies on the Opposition Benches constantly trying to talk it down.

Labour Members vaguely talk about "industrial strategy", "investment strategy" and "training strategy". Of course such strategies are desirable, but we know that there is no crock of gold at the end of the rainbow from which their schemes can be paid for. They talk about Government intervention. Intervention in De Lorean cars and Meriden motorcycles? Was that not a wonderful success?

The economic problems of today have nothing to do with lack of investment, lack of training or lack of housing, and everything to do with lack of demand. The Government have maintained their capital spending programme, and that is a good thing. In my area, £3 million is being pumped into the economy by the excellent Conservative-controlled West Sussex county council. However, any Government can only do so much, and this Government have done it. Thereafter, it is up to industry and the consumer. At £37 billion, borrowing is much too high. What do the Opposition say? "Put it up still higher."

Let me conclude with a comment about what is generally described as Thatcherism. We think that the best thing to do is to give the British people freedom. Unfortunately, freedom to make good decisions also means freedom to make bad decisions. The British people, like any other people in the world, will not work for medals or for public approval. They will work for money so that they can support themselves and their families. Some may think that that is selfish. I remind the House that, in the 18th century, John Wesley, that famous preacher, said to his congregation:

  • "Gain as much as you can,
  • Save as much as you can,
  • Give as much as you can."
That is equally relevant to the conditions prevailing today.

9.9 pm

Mr. Nicholas Brown (Newcastle upon Tyne, East)

After seeing the hon. Member for Shoreham (Mr. Stephen) being passed a note to tell him to sit down, I understand how the Government overshot their public spending targets.

I sense a certain nervousness on the Government Back Benches. I do not want to appear unsympathetic. I certainly do not want anyone to think that I am not taking a constructive approach. I understand that Conservative Back Benchers are nervous about the ERM fiasco. Indeed, several of them mentioned it. Some of them are nervous about devaluation, although I noticed that some of them welcomed it.

Of course, there is nervousness among Conservative Members about the loss of the previous Heritage Secretary, about the pit closure programme, about the Bank of Credit and Commerce International and about the confidence vote a few weeks ago when only the Liberals kept the Government in office. Now they are bound to be nervous about the sale of armaments to Saddam Hussein.

My hon. Friend the Member for Sheffield, Attercliffe (Mr. Betts) was right to point out that, as the Chancellor sat down at the end of his statement last Thursday, Conservative Back-Bench Members cheered with sheer nervous relief that they would not have to defend large-scale state benefit cuts as well as deal with every other problem that currently confronts them.

In order to put these matters into context, and in an effort to keep the whole House cheerful, perhaps I can take a leaf from the lead given by my hon. Friend the Member for Wrexham (Dr. Marek) and remind Conservative Members of some of the points which they enthusiastically cheered in last year's autumn statement.

On 6 November 1991 the Chancellor boasted that he had reduced the ratio of public spending to national income by over 5 percentage points. A year later, half of that reduction has disappeared. I see that the cheers have disappeared, too. The Chancellor told the House that his careful and responsible approach had enabled the Government to reduce public borrowing. Yet we have moved from a repayment of 2 per cent. of GDP to a borrowing requirement of 7.5 per cent.

At Budget time the Red Book forecast for the PSBR was £28 billion or 4.5 per cent. of GDP for 1992–93. Now we have a PSBR of £37 billion or 6.25 per cent. of GDP. How can there have been such a large move in such a short period? Is not the answer that the first forecast was given before the general election and the actualité has come home to roost substantially after the general election?

As my hon. Friend the Member for Birmingham, Small Heath (Mr. Godsiff) astutely pointed out, future generations will now have to fund the tax cuts of which the Chancellor was so proud only a few months ago. Back in November 1991 the Chancellor told the House that it remained the Government's policy to balance the budget over the economic cycle. I suspect that that is now completely unsustainable and that we can expect a massive PSBR until the end of this Parliament. Borrowing currently accounts for 14 per cent. of Government spending. However, the greatest difference —several Conservative Members referred to it—is with the Chancellor's comments on inflation last year. He told the House: we have followed a prudent and cautious monetary policy whose credibility has been underscored by our firm commitment to the ERM. The success that we have achieved on inflation has allowed us to cut interest rates without jeopardising sterling's position in the ERM. Conservative Members have rejoiced during this debate that we are no longer in the ERM. Let me remind them that at the general election the Conservative party manifesto pledged that the policy was not merely some peripheral matter but a centrepiece of the Government's economic policy. Conservative Members cheered the Chancellor when he said: it has become increasingly clear that we are emerging from recession."—[Official Report, 6 November 1991; Vol. 198, c. 449.] The end of the recession has been announced even more times than the Jubilee line extension.

As for the famous green shoots of economic recovery, there is only one possible remaining explanation. It is that the Chancellor has pulled them up and is smoking them. He sees the recovery. No one else sees the recovery. He believes that others see the recovery, too. He comes to the House of Commons and tells us about the recovery. Truly, the Chancellor is now the Keynesian that my hon. Friend the Member for Durham, North (Mr. Radice) made him out to be. The Chancellor is truly a child of the 1960s. Last year, the Chancellor went on to say that he expected personal consumption to rise by 2.5 per cent. in 1992, to provide the impetus for recovery. As we know from the autumn statement, personal consumption is down by 0.25 per cent. for 1992.

My hon. Friend the Member for Rossendale and Darwen (Ms. Anderson) told us that questions of trust and confidence were at the heart of this debate. Can I, my hon. Friend or any hon. Member have confidence in a Chief Secretary whose idea of reading around the debate on the autumn statement is to study thoroughly, "Thomas the Tank Engine"? I see that the hon. Member for Bridlington (Mr. Townend), who chairs the Conservative Back-Bench committee on such matters, thinks that that is a laudable way to prepare for a debate, and that may tell us how Conservative Members prepare for them—[HON. MEMBERS: "It was his copy."]—or, as my hon. Friends suggest, perhaps he lent his copy.

Last year the Chancellor told us that growth would gather pace throughout the year and that output would increase by 2.75 per cent. between the second half of 1991 and that of 1992. The outturn was a fall of 1 per cent. All those predictions look ridiculous with hindsight, but remember that they were the foundation of the Government's general election manifesto. I remind the House that Philip Goldenberg of S. J. Berwen said of that document: If it had been a Companies Act prospectus it would have landed the entire Cabinet in gaol. Well, who knows what the future holds? I do not want to appear destructive, carping or all of the other things that Conservative Members like to pretend that they believe of the Opposition Front Bench. Some manifesto pledges were redeemed, or at least addressed, in the statement: enhanced first-year capital allowances; conceding the principle that local authority capital receipts can be released; allowing the involvement of private sector capital in public sector projects; allowing British Rail to lease new rolling stock; and a reassessment of the Treasury contribution to the national insurance fund. Those go some way towards implementing manifesto pledges and it is nicely in keeping with the consistency of the Government's present economic policy, and the way in which the Conservative party deals with such matters, that the pledges that the Chancellor has been so kind as to bring before the House were from the Labour party manifesto.

My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said that the need was for immediate measures to get people back to work, and I agree. It is doubtful whether local authorities will ever be able to do much with the release of future capital receipts because people do not anticipate very much—

Mr. Stephen

We have heard much about capital receipts from council house sales. Does the hon. Gentleman accept that if he, his hon. Friends and the Liberal Democrats had had their way, there would have been no receipts because there would have been no sales?

Mr. Brown

I do not accept that. We would not need to release them, in any event, because recessionary forces would not be at work in the economy. They are solely due to the Government's unique approach to worldwide crises.

My hon. Friend the Member for Knowsley, North (Mr. Howarth) said in a debate on Monday that the 20,000 house target set for the Housing Corporation was unlikely to be achieved. He felt that one tenth of that figure was optimistic and that may turn out to be the case.

I want to deal with other aspects of the statement: the pay freeze in the public sector; the rise in council house rents, which will be twice the rate of inflation for 1993, at 9 per cent., and 5 per cent. ahead of inflation for the following year; the cut in the Department of Employment's budget; and the legal aid reduction. Free legal aid will now be available only to people who earn the magnificent sum of £2,213 per year or less—the income support level. There has been no discussion of easier or cheaper routes to justice, just a primitive budget cut.

Mr. Brazier


Mr. Brown

I shall give way shortly to the hon. Gentleman, who is one of the intellectual dynamos of the Conservative party.

All those changes fall hardest on the least well off, and those changes are paralleled by changes that have been made to the tax burden in the past 10 years. In 1978–79, a family earning 75 per cent. of average earnings paid 30.9 per cent. of those earnings in tax. By 1990–91, that burden had increased to 34.7 per cent. In other words, regressive changes in public spending are paralleled by a regressive tax system. The burden falls hardest on those least able to afford it, which is manifestly unfair, manifestly unjust, and manifestly Government policy.

Mr. Brazier

The hon. Gentleman referred to what he described as straightforward cuts in the legal aid budget, which has doubled in four years and is projected to go on increasing at the rate of 10 per cent. per annum for the next two years. What does the hon. Gentleman mean by cuts?

Mr. Brown

I mean, when I refer to cuts, a reduction in the annual income level at which people are eligible for support. I am talking about real cuts, because less money will be spent on legal aid next year than is being spent on it this year.

The Chancellor of the Exchequer (Mr. Norman Lamont)


Mr. Brown

The right hon. Gentleman says I am wrong. According to the Law Society, about 7 million people will fall out of eligibility—[Interruption.] I speak for the 7 million and the Government can speak for themselves when the Minister replies to the debate.

The pegging of the wages of 3 million people, and the attempt to peg the wages of a further 2 million, was described by the Financial Secretary as an evolution of policy. It is like describing our leaving the ERM as an evolution of the policy of not leaving it; or calling devaluing the currency an evolution of the policy of not devaluing it; or the Conservatives adopting some of the policies of the Labour party and describing that as an evolution of the policy of rejecting and denouncing those policies outright at election time. So much for evolution. I am not sure what Darwin would have made of it. Nor am I sure what the public sector workers will make of it.

The Chancellor began his autumn statement by pointing to the world recession and claiming it as an excuse. Yet it is clear that this country's recession contains some peculiarly British features. For example, from the second quarter of 1990, Britain's GDP shrank by 4.5 per cent; Germany's rose by 5.25 per cent.; France's rose by 3.33 per cent.; Italy's rose by over 3 per cent.; and the Netherlands' rose by 4.8 per cent. Despite the worldwide recession, our European partners' economies have grown while ours has shrunk dramatically.

The Government obviously feel that some response is needed. Prodded by the Prime Minister, the Chancellor has had to go for growth—just a little growth, and he is not too sure about that—and it is clear that the Chancellor is not entirely comfortable about it all. He claims in his autumn statement that the Government have no intention of engineering a short-lived boom, but then he introduces a supplementary package of time-limited fiscal measures which he clearly hopes will engineer a boom and which, by the fact that they are time-limited, are bound to have a short-lived impact.

Indeed, the Chancellor has managed to do a U-turn from the beginning to the end of his autumn statement, and that must be a record. He has announced a package of measures putting about £4 billion into the economy over the next three years. In the context of an economy of over £600 billion, that is not much, about 0.2 per cent. per annum. In other words, the real impact of the measures will be minimal.

As my hon. Friend the Member for Warwickshire, North (Mr. O'Brien) said, there is a difference between spending money as part of a coherent strategy for recovery and drifting into short-term expediencies for want of a better plan. Perhaps the Government are really saying, "Because everything else has been tried, let's give this a go."

The attempt to give the British economy a short-term fix to get it out of recession comes nowhere near dealing with the scale of the problem. The Chancellor is trying to buy his way out of the slump without spending money. The long-term issues remain unaddressed. The largest single factor inhibiting recovery is the fear of unemployment, yet the Government are still content to let unemployment rise steadily. They even admit that they expect recovery next year to be limp, and forecast growth of only 1 per cent. The measures that they are taking will simply not get us far.

Only by 1995 will output have recovered to what its level was when the right hon. Member for Huntingdon (Mr. Major) became Prime Minister. Today, as this debate began, we heard a further 10,000 job losses announced. The Government may anticipate a recovery in the construction sector, but it is clear that Blue Circle, which supplies the cement, has carried out its own survey on those matters and, with obvious pain and regret, has followed an earlier 700-person redundancy round by making another 500 workers redundant. So much for industry's optimism about recovery in the industrial sector.

In his Guildhall speech, the Chancellor said that he was dressed like a magician, but was only the Chancellor. As with everything else that he has said on economic matters, the reality is the other way round. He comes before us dressed like a Chancellor, but he is only a magician. The children's conjurer has tricks and illusions that convince those in the audience behind him who desperately want to be convinced. He must appear to hit spending targets of £1.2 billion off next year's EC funds. Have Conservative Members been told about that yet? I wonder how it will turn out. Unallocated reserves of £8 billion become unallocated reserves of £4 billion.

The trick for which we are all waiting—the most anticipated conjuring trick of all—is entitled "the disappearing Chancellor". I expect that you, Madam Deputy Speaker, will know how it works. You hear a voice off stage saying, in a south London accent, "Goodbye Norman". There is a flash of light and suddenly the Home Secretary is standing at the Treasury Dispatch Box. It is wholly in keeping with the efficiency and effectiveness of how things are run in the Conservative party that that trick, which would doubtless have been popular in the country, has not come off. We have been treated to smoke screens, illusions, mists and reality obscured, yet behind all the stagecraft, deceits and deceptions, the Chancellor remains. As the hon. Member for South Dorset (Mr. Bruce) so astutely pointed out, he is stil there. It is the only real trick that the Chancellor has pulled off. Some people unkindly suggest that it is the only trick that really mattered to him. If that trick is unworthy of applause, it commands a certain amount of admiration, if only for its breathtaking audacity.

Conservative Members usually ask, "What should we do?" I had five years doing that, so I anticipated it. Before the elections, they stand up and beg Opposition spokesmen to give them advice. Afterwards, they plunder our manifesto and try to take that which they think would be helpful, but during election campaigns they denounce us thoroughly for the programme that we put forward.

The Chancellor shouts, probably with even more relief than Conservative Back Benchers when they cheered him desperately on his autumn statement, "And we win". I am not sure that the country is happy about that, but I am certain that the Chancellor would not want to put the matter to the test tomorrow. I am sure that the Prime Minister would not wish to do so, because for the first time in recent history the Labour party's standing is some 51 per cent. in the opinion polls. If the Chancellor feels that confident, perhaps he would like to test the matter—before Christmas would suit me fine.

May I try to help the Government and be as constructive as Conservative Members urged me to be at the start of my contribution to this debate. What would we do about the problem? We would start by acknowledging that the recession is continuing, that unemployment and bankruptcies will continue to rise, and that investment has fallen substantially and will fall again in 1992. Even in the present slump, we would acknowledge the worsening balance of payments position.

The solution is for the Government to develop a policy for manufacturing industry that contains something other than neglect of the regions, or what the Chancellor chooses to call the territories or not the south.

We could acknowledge that the economic outlook is so bad and the autumn statement such an inadequate response to the slump that we now need an emergency employment programme to reduce unemployment and remove the fear of unemployment—the largest single factor affecting consumer confidence. We need additional investment measures to boost the construction industry and business in general. We need a long-term industrial training policy. As all those items are contained in the Opposition amendment. We can make a start tonight by voting for it and giving the Government the guidance that they so clearly need.

9.30 pm
The Financial Secretary to the Treasury (Mr. Stephen Dorrell)

During the debate Labour Members have tried to argue that the Government do not have a strategy, but they have ended up by proving that it is Labour Members who do not have a strategy. Even the customary bonhomie of the hon. Member for Newcastle upon Tyne, East (Mr. Brown) failed to obscure the fact that Labour Members are at sixes and sevens with themselves about how policy should evolve. That is in sharp contrast to the autumn statement presented to the House last week by my right hon. Friend the Chancellor of the Exchequer, which set out a clear path for the years ahead and described the mechanisms by which we propose to deliver our objectives.

My right hon. Friend started by making it clear that we intend to safeguard our key achievement of the past two years: delivering a low inflation rate. My right hon. Friend the Member for Worthing (Mr. Higgins) stressed the importance of that in his speech. As he recognised, the success results not from a fetish about numbers, but from a clear analysis of the reasons for the long-term under-performance of the British economy.

A necessary precondition for stable growth—if we do not know now, we never shall—is the establishment of sound control of inflation. There is no trade-off between inflation and growth. We have often sought a trade-off in the past, but failed to find it. Every time we have experienced inflation in this country, we find that, far from creating jobs at the margin, it destroys growth, jobs and hope. That is why we will not jeopardise our achievement of the past two years in reducing the inflation rate to an acceptable level.

Our success in reducing the inflation rate is what creates the opportunity for growth to which my right hon. Friend drew attention in his autumn statement. It is because we recognise that it is success against inflation which creates the opportunity for growth that my right hon. and hon. Friends have been to the fore in celebrating and advertising that achievement.

Producer price inflation is now 2.5 per cent. lower than at any time since 1968. Average earnings rose by 5¾ per cent. in the past 12 months—a lower rate of growth than for a quarter of a century. Those successes have resulted in a retail price inflation figure of 3.6 per cent. We have succeeded in controlling inflation—a goal for which successive British Governments have striven, but only few have achieved. We achieved that control in the 1980s, but regrettably lost it for a short period.

The Labour party has never achieved that objective, and the House would do well to remember that during the last Labour Government the average inflation rate imposed on the British people was 15.5 per cent. —for five years. We shall not return to such statistics while the present Government are in office.

Mr. Robin Corbett (Birmingham, Erdington)

The hon. Gentleman has been lecturing the House about what high inflation costs in high unemployment, but will he explain why unemployment is now at a record level? Given that inflation is now low, why have a further 10,000 jobs gone out the window today? Why are we heading for a real unemployment rate of 4 million next year?

Mr. Dorrell

The hon. Gentleman reminds the House of the cost of losing control of inflation at the end of the 1980s. Inflation is what destroys jobs. That is why we are determined not to make again the mistake that we have too often made in the past.

Having delivered effective control of inflation and sound money, it is now possible for my right hon. Friend the Chancellor to plan for the long term. The plans published last week reflect the choices that he can make because of the success that we have had in controlling inflation over the past two years.

This success explains why we can deliver our manifesto commitment to spend £6.3 billion on the roads programme over the next three years. That continues the Government's record of road building and represents a real terms increase in roads expenditure of 95 per cent. since 1979—a sharp contrast with the record of our predecessors, who cut the roads programme by 33 per cent.

We shall continue our record investment programme in British Rail—up 23 per cent. since 1979. We shall continue to invest in London Regional Transport. My hon. Friends should remember that next year we plan an investment programme in London Regional Transport that is up by 350 per cent. on the figure that we inherited in 1979. For the next three years we shall be investing in London Regional Transport more each quarter than Labour did each year. That is what we mean when we say that we are safeguarding the long-term future in the plans that we published last week.

The health programme used to take up more of my time than it does now, but it is still close to my heart. Health investment has risen by 65 per cent. in real terms since 1979, compared with a cut imposed on health investment by Labour of 24 per cent.

We do not believe that investment is measured only in terms of bricks and mortar or physical capital. The most important investment in this as in any other country is in the skills and inventiveness of our people. That is an investment that we continue to safeguard and expand in the autumn statement. More young people go into higher education in Britain today than at any time in our history: 12 per cent. of the relevant age group went into higher education in 1979—now 25 per cent. do. We are committed to increasing that to 33 per cent. before the end of the decade.

It is not just a matter of universities. Within those figures we plan for a 25 per cent. increase in the number of students going into further education. We also plan for a higher proportion of school leavers to join youth training, with a total training spend two-and-a-half times higher in real terms today than in 1979.

These are real investments, through public expenditure programmes in bricks and mortar and in human capital, to set this country on the path of growth again.

My right hon. and hon. Friends will be the first to recognise that the key investment, if we are to create economic success in the years ahead, is in the business sector—in the private sector, which creates the wealth and the jobs and which improves the living standards of all who live in Britain. Once again, the story of the 1980s was a story of success on which we are well placed to build. Between 1974 and 1979, business investment grew by 10 per cent. Since then, it has grown by nearly 40 per cent., measuring it in today's figures, which are below the peak because of the recessionary pressures with which we are only too familiar.

During the 1980s, not only was there more investment, but the returns that British business earned on that investment were significantly better than they had been in earlier years. Throughout the 1980s, returns from 13ritish business were nearly half as high again as they had been at the end of the 1970s, and by the end of the 1980s those returns were 62 per cent. higher than they had been during the 1970s. The Government are determined to continue to create, as they did during the 1980s, a favourable climate for business investment here in Britain because we recognise that that is the only means by which we shall succeed in delivering our objectives of growth, jobs and improving living standards.

The Opposition continue to run Britain down, but if we look at what is happening out there in the economy which they affect to describe we find that business is voting with its feet and investing in Britain. During the 1980s more than half of all inward investment into Europe came to Britain. Who should we believe about the atractiveness of Britain as an investment location: the hon. Member for Dunfermline, East (Mr. Brown) or those who make the decisions in Toyota, Honda, Nissan, Ford and Bosch—companies which have brought investment to Britain because they believe that Britain is an attractive place in which to do business?

I agree in this at least with Mr. Delors: the Government have created here in Britain an investment paradise. It would be nice to hear the Opposition welcome that fact. That success was reinforced last week by the autumn statement, which was widely welcomed by British business. Let us hear less from the Opposition about what is alleged to be happening in business. Let us believe instead what British business says is happening in British business.

Dr. Marek

Statistics are all very well, but we all know that we can select a particular time from which to calculate statistics and a particular time at which to finish them. Examples are a lot better. The new bridge being built across the River Severn is basically a French affair. Can the Minister give us a few examples of where British companies are investing in France and Italy and building roads and bridges? I suspect that he will not be able to. There is a difference between foreign investment in Britain and the fact that the Government have done nothing to assist British industry to invest abroad.

Mr. Dorrell

The hon. Gentleman has at least one thing in common with the hon. Member for Dunfermline, East —he prefers dealing with words to dealing in numbers. If, rather than measuring the quantum of investment and the return on investment, he wants to move to words and understand clearly the right conditions for British business in the opinions of the people who matter—British business men—let him hear the words of the Institute of Directors, which said after the autumn statement last week: The Chancellor this afternoon has given business the framework needed to begin the recovery. The British Chambers of Commerce said: Businesses have heard the right messages today. The CBI said that CBI members would warmly welcome the autumn statement. Mr. Nigel Rudd, chairman of Williams Holdings, said that it provided a practical and positive … stimulus to the United Kingdom economy. Those are real people working in the real economy, not I he "experts" sitting on the Opposition Benches.

Several of my hon. Friends have expressed concern today about the scale of the deficit. That is a proper concern. Of course we all want to see the deficit held under proper control because we all recognise that it is essential to the delivery of our objective of sound money. But it is also important to be aware of where we stand in relation to the deficit.

Last week, we published a figure of £37 billion for the current financial year. During the debate, there has been a fair amount of speculation about what will happen in later years—all of it based on getting out a ruler and assuming that there will be no changes in the future. The public sector borrowing requirement for next year is not yet predictable, because we do not yet know the contents of my right hon. Friend's Budget. No Government can rule out tax increases. My right hon. Friend the Member for Shropshire, North (Mr. Biffen) was right to draw attention to that, but my hon. Friend the Member for Bridlington (Mr. Townend) was also right to remind us of one of the features which distinguish the Government from our opponents: our clear objective that tax yields should determine expenditure, rather than the other way round.

It is also important not to lose sight of the significance of the changes in public expenditure planning which my right hon. Friends the Chancellor and the Chief Secretary to the Treasury introduced in the figures published in the autumn statement. The new control total, as defined in the statement, identifies core expenditure. For that, my right hon. Friend the Chief Secretary is planning average growth of 1.4 per cent. over the three years of this programme. As everyone will agree, that is less than the long-term growth rate of the British economy. The move will have the effect of controlling the share of the national economy taken by core public expenditure, defined through the new control total.

In the rest of Government expenditure are significant programmes which are directly related to the level of activity in the economy. As activity recovers, we can expect those programmes to absorb a smaller share of the resources available. Another factor which is acting to reduce the deficit is the fact that, as activity increases, revenues will increase as well. Within the plans, a three-pointed pincer movement is being directed at the deficit: all three points are deliberately aimed to ensure that, as activity recovers, public sector borrowing takes a smaller share of national income than it does today.

Let me say a word about the use of private capital. My right hon. Friend the Chancellor made an important statement about that last week. The relevant passage in the autumn statement has been widely welcomed, and I personally welcome the task given to me by my right hon. Friend—the task of finding new ways of introducing the ingenuity and the problem-solving capacity of the private sector into what has traditionally been regarded as the heart of the public sector.

This is not a new theme for the Government. After all, a decade ago investment in the electricity, gas, telephone and water industries was restrained by the rules of public finance. The decision made by the Government, with the support of the House, to privatise those industries made possible the investment boom that they are currently experiencing—a boom that is under attack from the hon. Member for Dunfermline, East, who wishes to reward the industries for their investment activity by raising an extra tax on them.

Last week, my right hon. Friend the Chancellor announced further developments in the use of private capital within the public sector. He announced that projects paid for by charges would no longer be tested against a theoretical public sector alternative which there was no realistic prospect of building. That relates directly to the point made by my hon. Friend the Member for Havant (Mr. Willetts). My right hon. Friend the Chancellor's announcement also encouraged joint ventures between the public and private sectors, and a more flexible use of leases.

My hon. Friends the Members for Havant and for Newbury (Mrs. Chaplin) both rightly stressed the fact that questions remain to be answered in relation to the extension of scope for private capital within the public sector. I can assure them that both I and the whole Government are committed to challenging conventional assumptions about how the public and private sectors are defined and what is undertaken in the public and private sector context in order to create new options to improve the public sector services available to the general public.

The purpose of this initiative is to shift emphasis away from an obsession with inputs—with trying to second-guess every element of cost involved in the delivery of a service—to concentrate instead on the services themselves and to insist, in line with the principles of the citizens charter, that what matters in assessing whether a project is right or wrong is the quality of service that we in the public sector provide to the taxpayers who pay our salaries.

My right hon. Friend the Paymaster General said last night that the Labour party finds itself in some difficulty. It has been unable to decide whether to attack everything that the Government have done or to claim credit for the ideas that it believes that it persuaded the Government to adopt. Some Opposition Members have therefore claimed credit for certain ideas and then found themselves targeted by their own colleagues, their arguments being contradicted. It is what in the military context might be described as red on red.

There was a good example yesterday. The hon. Member for Great Grimsby (Mr. Mitchell) said that the exchange rate needs to fall by a further 10 per cent. to 20 per cent. before we can win back the lost ground. Rather to my surprise, he was joined today by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who said that he favoured a rate for the pound somewhat below its current level against the deutschmark. Both of them were taken to task last night by the hon. Member for Oxford, East (Mr. Smith), who made it clear that he did not agree with those whom he called devaluationists and whom he clearly regarded as dangerous bollweevils within his own party. The hon. Member for Oxford, East needs to watch out. In the morass that is today's Labour party he may find himself being hit by the hon. Member for Dunfermline, East, who used to agree with the hon. Member for Oxford, East. It is by no means clear, however, that he still does.

On 11 September the hon. Member for Dunfermline, East, asked about the prospects for deutschmark realignment within the exchange rate mechanism, said: One of the things the Germans may wish to propose is a realignment of the currencies … it is not our policy. It was surprising, therefore, to hear him say yesterday to my right hon. Friend the Chancellor of the Exchequer: We have said to the Chancellor that he had the option of realigning within the exchange rate mechanism."—[Official Report, 18 November 1992; Vol. 214, c. 309.] That is exactly what he did not say at the time when it mattered. At the time when it mattered, he made it clear that that was not a policy that he espoused. What he did say, on the other hand, on the "Today" programme on 14 September was that, although he was in favour of stability within the exchange rate mechanism: The Chancellor should announce now that he is prepared to cut rates. The effective commentary on that statement was provided by his right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore), who said: I do not reveal any new economic law when I say that is simply nonsense. Shadow Treasury spokesmen experienced further difficulty with technicalities last week when they published their campaign for recovery—a document which allegedly set out the alternative path to recovery that they believe we should be following. They espoused "an emergency employment programme." The document told us little about the programme, but we were told one key fact: it was to be built on the programme that they published in April, but that it would be substantially bigger than originally planned. That was the only detail that they volunteered.

They also spoke last week about a new industry policy. I imagine that some Labour Members were interested in what the hon. Member for Dunfermline, East would say because, unlike the hon. Gentleman, some still believe that therein lies the key to economic success. I carefully read what the hon. Member for Dunfermline, East had to say, and the key sentence reads: We call on the government to bring all sections of industry together to discuss the immediate implementation of an industrial strategy. Labour has laboured mightily and brought forth an embryo.

For the first time in my life, I found myself in some sympathy with Labour Briefing. The October edition said: Brown has already proved a disaster as Shadow Chancellor, despite his willingness to make himself available for twenty second TV sound-bites day or night. His recent attempts to score points … by making vacuous demands for economic 'co-ordination, action and competence' have impressed nobody. I could not have put it better myself.

Shadow Treasury spokesmen will not put a figure on their recovery package, but it does not stop them from advocating a new tax on the utilities. I apologise to the hon. Member for Peckham (Ms. Harman) because I realise that this is a sensitive subject for her. She sought to explain to Radio 4 listeners last week that this was not a tax but only a levy. The argument did not convince her interviewer and I do not believe that it will convince any of the staff or customers of the utilities, whose investment budgets would be slashed if the policy of the hon. Member for Dunfermline, East were introduced. It does not seem to have occurred to him that there is inconsistency between using rhetoric about the importance of investment while singling out the utilities—the water industry, for example, with a £30 billion investment programme—for his latest tax increases.

Labour always has trouble with tax; it is its achilles heel. In The Sunday Times on 29 September, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) reminded Labour Members of that. Referring to the right hon. and learned Member for Monklands, East (Mr. Smith), he said: It is, as he well knows, the hurdle over which Labour fell at the last two general elections. He, as Shadow Chief Secretary, and I, as Shadow Chancellor, made a botch of it in 1987. John Smith and Margaret Becket did better last April, but nothing like well enough. We all made the same mistake. It is not surprising that shadow Treasury spokesmen are experiencing difficulty within their own party. The hon. Member for Neath (Mr. Hain) has said that Labour's Front Bench has failed to offer a coherent economic strategy. The hon. Member for Hackney South and Shoreditch (Mr. Sedgemore) says that the hon. Member for Dunfermline, East has no understanding of the "elemental laws of arithmetic." The Labour party lives in a fantasy land, where it does not have to make any choices and does not have to disappoint anybody: which is delivering. Harold Wilson dreamed of turning Labour into the natural party of government; it is the achievement of the present Labour Front Bench to turn it into the natural party of opposition—an achievement that my hon. Friends and I warmly applaud.

Question put, That the amendment be made:—

The House divided: Ayes 267, Noes 322.

Division No. 90] [10.00 pm
Abbott, Ms Diane Campbell-Savours, D. N.
Adams, Mrs Irene Cann, Jamie
Ainger, Nick Carlile, Alexander (Montgomry)
Ainsworth, Robert (Cov'try NE) Chisholm, Malcolm
Allen, Graham Clapham, Michael
Anderson, Donald (Swansea E) Clarke, Eric (Midlothian)
Anderson, Ms Janet (Ros'dale) Clarke, Tom (Monklands W)
Armstrong, Hilary Clelland, David
Ashton, Joe Clwyd, Mrs Ann
Austin-Walker, John Connarty, Michael
Banks, Tony (Newham NW) Cook, Robin (Livingston)
Barnes, Harry Corbett, Robin
Barron, Kevin Corbyn, Jeremy
Battle, John Corston, Ms Jean
Bayley, Hugh Cousins, Jim
Beckett, Margaret Cox, Tom
Beith, Rt Hon A. J. Cryer, Bob
Bell, Stuart Cummings, John
Benn, Rt Hon Tony Cunliffe, Lawrence
Bennett, Andrew F. Cunningham, Jim (Covy SE)
Benton, Joe Cunningham, Dr John (C'p'l'nd)
Bermingham, Gerald Dafis, Cynog
Berry, Dr. Roger Dalyell, Tam
Betts, Clive Darling, Alistair
Blair, Tony Davidson, Ian
Blunkett, David Davies, Bryan (Oldham C'tral)
Boateng, Paul Davies, Rt Hon Denzil (Llanelli)
Boyce, Jimmy Davies, Ron (Caerphilly)
Bradley, Keith Davis, Terry (B'ham, H'dge H'I)
Bray, Dr Jeremy Denham, John
Brown, Gordon (Dunfermline E) Dewar, Donald
Brown, N. (N'c'tle upon Tyne E) Dixon, Don
Bruce, Malcolm (Gordon) Dobson, Frank
Burden, Richard Donohoe, Brian H.
Byers, Stephen Dowd, Jim
Caborn, Richard Dunnachie, Jimmy
Callaghan, Jim Dunwoody, Mrs Gwyneth
Campbell, Mrs Anne (C'bridge) Eagle, Ms Angela
Campbell, Menzies (Fife NE) Eastham, Ken
Campbell, Ronnie (Blyth V) Enright, Derek
Etherington, Bill McCartney, Ian
Evans, John (St Helens N) Macdonald, Calum
Fatchett, Derek McFall, John
Faulds, Andrew McGrady, Eddie
Field, Frank (Birkenhead) McKelvey, William
Flynn, Paul Mackinlay, Andrew
Foster, Derek (B'p Auckland) McLeish, Henry
Foster, Don (Bath) Maclennan, Robert
Fraser, John McMaster, Gordon
Fyfe, Maria McNamara, Kevin
Galbraith, Sam McWilliam, John
Galloway, George Madden, Max
Gapes, Mike Mallon, Seamus
Gerrard, Neil Mandelson, Peter
Gilbert, Rt Hon Dr John Marek, Dr John
Godman, Dr Norman A. Marshall, David (Shettleston)
Godsiff, Roger Marshall, Jim (Leicester, S)
Golding, Mrs Llin Martin, Michael J. (Springburn)
Gordon, Mildred Martlew, Eric
Gould, Bryan Maxton, John
Graham, Thomas Meacher, Michael
Grant, Bernie (Tottenham) Michael, Alun
Griffiths, Nigel (Edinburgh S) Michie, Bill (Sheffield Heeley)
Griffiths, Win (Bridgend) Milburn, Alan
Grocott, Bruce Miller, Andrew
Gunnell, John Mitchell, Austin (Gt Grimsby)
Hain, Peter Moonie, Dr Lewis
Hall, Mike Morgan, Rhodri
Hanson, David Morris, Rt Hon A. (Wy'nshawe)
Hardy, Peter Morris, Estelle (B'ham Yardley)
Harman, Ms Harriet Morris, Rt Hon J. (Aberavon)
Harvey, Nick Mowlam, Marjorie
Henderson, Doug Mudie, George
Hendron, Dr Joe Mullin, Chris
Heppell, John Murphy, Paul
Hill, Keith (Streatham) Oakes, Rt Hon Gordon
Hinchliffe, David O'Brien, Michael (N W'kshire)
Hoey, Kate O'Brien, William (Normanton)
Hogg, Norman (Cumbernauld) O'Hara, Edward
Home Robertson, John Olner, William
Hood, Jimmy O'Neill, Martin
Hoon, Geoffrey Orme, Rt Hon Stanley
Howarth, George (Knowsley N) Parry, Robert
Howells, Dr. Kim (Pontypridd) Pendry, Tom
Hoyle, Doug Pike, Peter L.
Hughes, Kevin (Doncaster N) Pope, Greg
Hughes, Robert (Aberdeen N) Powell, Ray (Ogmore)
Hughes, Roy (Newport E) Prentice, Ms Bridget (Lew'm E)
Hughes, Simon (Southwark) Prentice, Gordon (Pendle)
Hutton, John Primarolo, Dawn
Ingram, Adam Purchase, Ken
Jackson, Glenda (H'stead) Quin, Ms Joyce
Jackson, Helen (Shef'ld, H) Radice, Giles
Jamieson, David Randall, Stuart
Janner, Greville Raynsford, Nick
Jones, Barry (Alyn and D'side) Reid, Dr John
Jones, Ieuan Wyn (Ynys Môn) Robertson, George (Hamilton)
Jones, Jon Owen (Cardiff C) Robinson, Geoffrey (Co'try NW)
Jones, Lynne (B'ham S O) Roche, Mrs. Barbara
Jones, Martyn (Clwyd, SW) Rooker, Jeff
Jones, Nigel (Cheltenham) Rooney, Terry
Jowell, Tessa Ross, Ernie (Dundee W)
Kaufman, Rt Hon Gerald Rowlands, Ted
Keen, Alan Ruddock, Joan
Kennedy, Charles (Ross.C&S) Salmond, Alex
Kennedy, Jane (Lpool Brdgn) Sedgemore, Brian
Khabra, Piara S. Sheerman, Barry
Kilfoyle, Peter Sheldon, Rt Hon Robert
Kinnock, Rt Hon Neil (Islwyn) Shore, Rt Hon Peter
Kirkwood, Archy Short, Clare
Leighton, Ron Simpson, Alan
Lestor, Joan (Eccles) Skinner, Dennis
Lewis, Terry Smith, Andrew (Oxford E)
Litherland, Robert Smith, C. (Isl'ton S & F'sbury)
Livingstone, Ken Smith, Rt Hon John (M'kl'ds E)
Lloyd, Tony (Stretford) Smith, Llew (Blaenau Gwent)
Llwyd, Elfyn Snape, Peter
Loyden, Eddie Soley, Clive
McAllion, John Spearing, Nigel
McAvoy, Thomas Spellar, John
Squire, Rachel (Dunfermline W) Watson, Mike
Steinberg, Gerry Wicks, Malcolm
Stevenson, George Wigley, Dafydd
Stott, Roger Williams, Rt Hon Alan (Sw'n W)
Strang, Dr. Gavin Williams, Alan W (Carmarthen)
Taylor, Mrs Ann (Dewsbury) Wilson, Brian
Taylor, Matthew (Truro) Winnick, David
Thompson, Jack (Wansbeck) Wise, Audrey
Tipping, Paddy Worthington, Tony
Turner, Dennis Wray, Jimmy
Tyler, Paul Wright, Dr Tony
Vaz, Keith
Walker, Rt Hon Sir Harold Tellers for the Ayes:
Wallace, James Mr. Alan Meale and Mr. Eric Illsley.
Wardell, Gareth (Gower)
Wareing, Robert N
Adley, Robert Colvin, Michael
Ainsworth, Peter (East Surrey) Congdon, David
Aitken, Jonathan Conway, Derek
Alexander, Richard Coombs, Anthony (Wyre For'st)
Alison, Rt Hon Michael (Selby) Coombs, Simon (Swindon)
Allason, Rupert (Torbay) Cope, Rt Hon Sir John
Amess, David Cormack, Patrick
Ancram, Michael Couchman, James
Arbuthnot, James Cran, James
Arnold, Jacques (Gravesham) Currie, Mrs Edwina (S D'by'ire)
Arnold, Sir Thomas (Hazel Grv) Curry, David (Skipton & Ripon)
Ashby, David Davies, Quentin (Stamford)
Aspinwall, Jack Davis, David (Boothferry)
Atkins, Robert Day, Stephen
Atkinson, David (Bour'mouth E) Deva, Nirj Joseph
Atkinson, Peter (Hexham) Devlin, Tim
Baker, Rt Hon K. (Mole Valley) Dickens, Geoffrey
Baker, Nicholas (Dorset North) Dicks, Terry
Baldry, Tony Dorrell, Stephen
Banks, Matthew (Southport) Douglas-Hamilton, Lord James
Banks, Robert (Harrogate) Dover, Den
Bates, Michael Duncan, Alan
Batiste, Spencer Duncan-Smith, Iain
Beggs, Roy Dunn, Bob
Bellingham, Henry Durant, Sir Anthony
Bendall, Vivian Dykes, Hugh
Beresford, Sir Paul Eggar, Tim
Biffen, Rt Hon John Elletson, Harold
Blackburn, Dr John G. Evans, David (Welwyn Hatfield)
Body, Sir Richard Evans, Jonathan (Brecon)
Bonsor, Sir Nicholas Evans, Nigel (Ribble Valley)
Booth, Hartley Evans, Roger (Monmouth)
Bottomley, Peter (Eltham) Evennett, David
Bottomley, Rt Hon Virginia Faber, David
Bowden, Andrew Fabricant, Michael
Bowis, John Fenner, Dame Peggy
Boyson, Rt Hon Sir Rhodes Field, Barry (Isle of Wight)
Brandreth, Gyles Fishburn, Dudley
Brazier, Julian Forman, Nigel
Bright, Graham Forsyth, Michael (Stirling)
Brooke, Rt Hon Peter Forsythe, Clifford (Antrim S)
Brown, M. (Brigg & Cl'thorpes) Forth, Eric
Browning, Mrs. Angela Fowler, Rt Hon Sir Norman
Bruce, Ian (S Dorset) Fox, Sir Marcus (Shipley)
Budgen, Nicholas Freeman, Roger
Burns, Simon French, Douglas
Burt, Alistair Fry, Peter
Butcher, John Gale, Roger
Butler, Peter Gallie, Phil
Butterfill, John Gardiner, Sir George
Carlisle, John (Luton North) Garel-Jones, Rt Hon Tristan
Carlisle, Kenneth (Lincoln) Garnier, Edward
Carrington, Matthew Gill, Christopher
Carttiss, Michael Gillan, Cheryl
Cash, William Goodlad, Rt Hon Alastair
Channon, Rt Hon Paul Goodson-Wickes, Dr Charles
Chaplin, Mrs Judith Gorman, Mrs Teresa
Clappison, James Gorst, John
Clark, Dr Michael (Rochford) Grant, Sir Anthony (Cambs SW)
Clarke, Rt Hon Kenneth (Ruclif) Greenway, Harry (Ealing N)
Clifton-Brown, Geoffrey Greenway, John (Ryedale)
Coe, Sebastian Griffiths, Peter (Portsmouth, N)
Grylls, Sir Michael Mills, Iain
Hague, William Mitchell, Andrew (Gedling)
Hamilton, Neil (Tatton) Mitchell, Sir David (Hants NW)
Hampson, Dr Keith Moate, Roger
Hanley, Jeremy Molyneaux, Rt Hon James
Hannam, Sir John Monro, Sir Hector
Hargreaves, Andrew Montgomery, Sir Fergus
Harris, David Moss, Malcolm
Haselhurst, Alan Needham, Richard
Hawkins, Nick Nelson, Anthony
Hawksley, Warren Neubert, Sir Michael
Hayes, Jerry Newton, Rt Hon Tony
Heald, Oliver Nicholls, Patrick
Heath, Rt Hon Sir Edward Nicholson, David (Taunton)
Heathcoat-Amory, David Nicholson, Emma (Devon West)
Hendry, Charles Norris, Steve
Heseltine, Rt Hon Michael Onslow, Rt Hon Cranley
Higgins, Rt Hon Terence L. Oppenheim, Phillip
Hill, James (Southampton Test) Ottaway, Richard
Hogg, Rt Hon Douglas (G'tham) Page, Richard
Horam, John Paice, James
Hordern, Sir Peter Patnick, Irvine
Howarth, Alan (Strat'rd-on-A) Patten, Rt Hon John
Howell, Rt Hon David (G'dford) Pattie, Rt Hon Sir Geoffrey
Howell, Ralph (North Norfolk) Pawsey, James
Hughes Robert G. (Harrow W) Peacock, Mrs Elizabeth
Hunt, Rt Hon David (Wirral W) Pickles, Eric
Hunt, Sir John (Ravensbourne) Porter, Barry (Wirral S)
Hunter, Andrew Porter, David (Waveney)
Jack, Michael Portillo, Rt Hon Michael
Jackson, Robert (Wantage) Powell, William (Corby)
Jenkin, Bernard Rathbone, Tim
Jessel, Toby Redwood, John
Jones, Gwilym (Cardiff N) Renton, Rt Hon Tim
Jones, Robert B. (W Hertfdshr) Richards, Rod
Key, Robert Riddick, Graham
Kilfedder, Sir James Robathan, Andrew
King, Rt Hon Tom Roberts, Rt Hon Sir Wyn
Kirkhope, Timothy Robertson, Raymond (Ab'd'n S)
Knapman, Roger Robinson, Mark (Somerton)
Knight, Mrs Angela (Erewash) Roe, Mrs Marion (Broxbourne)
Knight, Greg (Derby N) Ross, William (E Londonderry)
Knight, Dame Jill (Bir'm E'st'n) Rowe, Andrew (Mid Kent)
Knox, David Rumbold, Rt Hon Dame Angela
Kynoch, George (Kincardine) Ryder, Rt Hon Richard
Lait, Mrs Jacqui Sackville, Tom
Lamont, Rt Hon Norman Sainsbury, Rt Hon Tim
Lang, Rt Hon Ian Shaw, David (Dover)
Lawrence, Sir Ivan Shaw, Sir Giles (Pudsey)
Legg, Barry Shephard, Rt Hon Gillian
Leigh, Edward Shepherd, Colin (Hereford)
Lennox-Boyd, Mark Shepherd, Richard (Aldridge)
Lester, Jim (Broxtowe) Shersby, Michael
Lidington, David Sims, Roger
Lightbown, David Skeet, Sir Trevor
Lilley, Rt Hon Peter Smith, Sir Dudley (Warwick)
Lloyd, Peter (Fareham) Smith, Tim (Beaconsfield)
Lord, Michael Smyth, Rev Martin (Belfast S)
Luff, Peter Soames, Nicholas
MacGregor, Rt Hon John Speed, Sir Keith
MacKay, Andrew Spencer, Sir Derek
McLoughlin, Patrick Spicer, Sir James (W Dorset)
McNair-Wilson, Sir Patrick Spicer, Michael (S Worcs)
Madel, David Spink, Dr Robert
Maginnis, Ken Spring, Richard
Maitland, Lady Olga Sproat, Iain
Major, Rt Hon John Squire, Robin (Hornchurch)
Malone, Gerald Stanley, Rt Hon Sir John
Mans, Keith Steen, Anthony
Marland, Paul Stephen, Michael
Marlow, Tony Stern, Michael
Marshall, John (Hendon S) Stewart, Allan
Marshall, Sir Michael (Arundel) Streeter, Gary
Martin, David (Portsmouth S) Sumberg, David
Mates, Michael Sweeney, Walter
Mawhinney, Dr Brian Sykes, John
Mayhew, Rt Hon Sir Patrick Tapsell, Sir Peter
Mellor, Rt Hon David Taylor, Ian (Esher)
Merchant, Piers Taylor, John M. (Solihull)
Milligan, Stephen Taylor, Sir Teddy (Southend, E)
Temple-Morris, Peter Wardle, Charles (Bexhill)
Thomason, Roy Waterson, Nigel
Thompson, Sir Donald (C'er V) Watts, John
Thompson, Patrick (Norwich N) Wells, Bowen
Thornton, Sir Malcolm Wheeler, Sir John
Thurnham, Peter Whitney, Ray
Townend, John (Bridlington) Whittingdale, John
Townsend, Cyril D. (Bexl'yh'th) Widdecombe, Ann
Tracey, Richard Wilkinson, John
Tredinnick, David Willetts, David
Trend, Michael Wilshire, David
Trimble, David Winterton, Mrs Ann (Congleton)
Trotter, Neville Winterton, Nicholas (Macc'f'ld)
Twinn, Dr Ian Wolfson, Mark
Vaughan, Sir Gerard Wood, Timothy
Waldegrave, Rt Hon William Yeo, Tim
Walden, George Young, Sir George (Acton)
Walker, A. Cecil (Belfast N)
Walker, Bill (N Tayside) Tellers for the Noes:
Waller, Gary Mr. Sydney Chapman and Mr. Tim Boswell.
Ward, John

Question accordingly negatived.

Main Question put and agreed to.


That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 12th November; welcomes the Government's continuing commitment to the firm control of public expenditure; supports the new expenditure plans, which honour the Government's commitments and provide protection of capital spending; applauds the specific measures the Government has taken to encourage confidence and foster recovery; and congratulates the Government on achieving a substantial reduction in underlying inflation, which has laid the foundations for sustainable growth.

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