HC Deb 06 May 1993 vol 224 cc269-70
2. Mr. Ian Bruce

To ask the Chancellor of the Exchequer if he will make a statement on the latest figures on the ratio of savings to gross domestic product.

The Economic Secretary to the Treasury (Mr. Anthony Nelson)

The latest figures show that the personal sector saving ratio was 11.4 per cent. in the fourth quarter of 1992. Last year, personal saving was at its second highest level in the post-war period.

Mr. Bruce

In 1988, when I last asked that question, personal sector savings were in the region of £17 billion. Since then, they have risen three times in 1992 to more than £50 billion. It appears that while it has been raining in the recession, it has been raining pennies into people's savings accounts. Will my hon. Friend say what that means for the future of the recovery, given that people have been saving so strongly in the past few years?

Mr. Nelson

My hon. Friend is right to point to the importance of the high level of savings. We expect savings to remain high as economic recovery picks up. This is mainly because the full effects of cuts in mortgage interest rates, worth £160 per month on the average mortgage, are feeding through in the form of a significant rise in real disposable income.

Dr. Marek

Does the Minister agree that the hon. Member for Dorset, South (Mr. Bruce) ought to have asked about the indebtedness of the nation—[Interruption.] The hon. Gentleman has had his turn. He ought to have asked about the indebtedness of the nation rather than about savings ratios. It is the indebtedness of the nation that is stopping the recovery that the Chancellor wants. If the Minister agrees with that, what proposals does he have to reduce indebtedness in the United Kingdom?

Mr. Nelson

It is true that the private sector is saving, but the public sector is borrowing heavily. As a result, total saving as a percentage of gross domestic product is low by historical standards. However, Government borrowing is currently high because of the recession. My right hon. Friend the Chancellor spelt out in the Budget a determined programme to tackle the deficit without hindering the recovery, and that is the right approach.

Mr. Butterfill

Does my hon. Friend agree that it is very encouraging—notwithstanding the high level of savings—that retail spending is recovering and that the retail sector generally is doing better? Does not that show that the improvement in the economy is advancing on all fronts?

Mr. Nelson

It does, indeed. We are seeing not only a pick-up in retail sales of record levels but a continued high propensity to save. Both are being delivered through higher disposable incomes arising from the much lower interest rates that people are paying. This is brought out clearly in the fact that last month some 1.2 million households with annual review mortgages saw their interest payments cut by more than £60 a month. This has very important and beneficial implications for the level of spending and for savings.

Mr. Nicholas Brown

What would further increases in indirect taxation do for private sector savings? Will the Minister give an assurance that the Government will not increase the rate or broaden the scope of value added tax?

Mr. Nelson

I refer the hon. Gentleman to what my right hon. Friend the Chief Secretary has just said on that subject. As far as the Budget proposals are concerned—

Mr. Nicholas Brown

The Minister is being evasive.

Mr. Nelson

There has been no evasion; the position has been made absolutely clear. As to the future, the Budget proposals set out increases in the rate of VAT, which apply not this year but next year. The reason for that is to ensure that we tackle the deficit about which the hon. Member for Wrexham (Dr. Marek) asked.