The Economy

HC Deb 18 July 1994 vol 247 cc38-127

[Relevant document: The Minutes of Evidence taken before the Treasury and Civil Service Committee on Tuesday 5th July (House of Commons Paper No. 561-ii).]

Madam Speaker

I have selected the amendment in the name of the Leader of the Opposition, the right hon. Member for Derby, South (Mrs. Beckett). Also, I have had to impose a ten-minute limit on speeches between 7 pm and 9 pm; I hope that those speaking at other times will exercise voluntary restraint.

4.25 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I beg to move, That this House welcomes the publication of the Government's latest economic forecast, which shows growth continuing at a steady and sustainable rate and inflation remaining within its target range; and congratulates the Government on its economic policies which have laid the foundations for the non-inflationary growth, rising industrial production and falling unemployment that is now being seen. I tend to agree with you, Madam Speaker, that many of the old ways are the best, but this summer economic debate is an innovation. It is the first so-called summer debate on the economy held in the House and it is intended to be an annual event, although I have no doubt that we have all attended the first annual dinner of organisations that have never held another. I think that this debate will last, however, as it is a sensible procedural consequence of moving to the unified Budget in November of each year.

As we have not debated the economy for some time, it also usefully fills the gap left between the Budgets that we now hold in November each year. In former times, during Labour Governments those gaps were filled by frequent Budget statements throughout the year, each correcting the Budget judgment in the previous statement. Those were a feature of Labour's mismanagement of the economy in the 1970s.

Mr. Robert Sheldon (Ashton-under-Lyne)

rose—

Mr. Clarke

With respect to the right hon. Gentleman it is a little early in the debate to give way. [HON. MEMBERS: "He was a Minister]. A very long time ago, at the time about which I was complaining.

This debate will give hon. Members the opportunity to discuss the outlook for the economy now. We shall certainly relish the opportunity, for the same reason that the Opposition will not do so. The Government have a coherent economic strategy—the Opposition do not—and our strategy has delivered what are, potentially, the most favourable set of economic circumstances that Britain has enjoyed for more than a generation.

Mr. Sheldon

I will be very brief.

Mr. Clarke

The right hon. Gentleman is a very respected former Minister. May I contrast my situation to the one that he faced so many years ago. At this stage of recovery from recession, no Government since the war have produced an economic climate that combines steady growth with falling unemployment, rising productivity and low inflation of the type that we now have.

Mr. Sheldon

I am sorry to interrupt, but many people do not realise that it is seven months since we last had an economic debate, in December last year. As the right hon. and learned Gentleman pointed out, there was a time when we had frequent economic debates—perhaps too frequent —but we must move somewhere between the two extremes and that is worth mentioning at the beginning of his speech.

Mr. Clarke

During Labour Governments, we had very frequent economic debates and statements. I remember one occasion when a Labour Government made a fresh Budget statement before they had even finished debating the Finance Bill that flowed from the previous statement. I was pointing out that we have moved rather a long way from that—

Mr. Stuart Randall (Kingston upon Hull, West)

My right hon. Friend made a serious point.

Mr. Clarke

On the serious procedural point, I agree that it is surprising that the House has got itself into a position in which there is a long debate on the Budget in November and a one-day debate in the summer. It is not for me and the shadow Chancellor to decide, but for the usual channels. I have suggested to my opposite number on at least one occasion that we might drop one day from future Budget debates and transfer it to the summer economic debate. That is a matter for the Select Committee on Procedure, the usual channels and others.

There have been many Supply day debates since the Budget. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) is correct. It is extraordinary that the Labour party, which at times has had to scrape the barrel to find something to fill its allocation of Supply day debates, has kept away from economic policy and the state of the economy. I repeat my allegation: it is because the British economy is doing well, and because Labour has absolutely no alternative policy to put forward.

I have described the extremely good combination of circumstances which we have at present.

Mr. Gordon Brown (Dunfermline, East)

rose—

Mr. Clarke

I shall give way in a moment.

The circumstances that I have described, which are confirmed by most outside observers of our economic situation, mean that we have grounds for cautious optimism at present. I regard that as a beginning. We must stick to the Government's successful economic strategy and deliver the increased prosperity and secure jobs which it should now be possible for us to deliver over the next few years, if international conditions allow. I believe that we are now poised for success. I do not believe that the Labour party has any alternative to our policy, but I am content to give way to the hon. Member for Dunfermline, East (Mr. Brown) if he wishes to put me right.

Mr. Gordon Brown

To put the record straight, will the Chancellor tell the House which of the Labour debates on education, housing, health and the Child Support Agency he regards as scraping the barrel? Which debate is irrelevant to the public spending needs of this country?

Mr. Clarke

The debate on the Child Support Agency covered a policy which had been supported by the Labour party and which had already been considered by a Select Committee. Is the hon. Gentleman claiming that at shadow Cabinet meetings he has been demanding time on the Floor of the House to put Labour's alternative economic strategy but unfortunately he has been fought off by his colleagues who found desperate matters to bring before the House? Of course he has not.

I have had a lot of jobs in government, as people always point out. I have never held a ministerial post where I have taken part in fewer debates on the Floor of the House. Even when I was the Parliamentary Under-Secretary of State for Transport, my opposite number used to challenge me on more occasions than the hon. Gentleman does. That is because he knows that what I have just said is right: things are going very well and the outlook is very promising. That is the result of the Government's policies. The hon. Gentleman has absolutely no alternative to them which he is prepared to put forward.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my right hon. and learned Friend give way?

Mr. Clarke

I shall give way once more and then I must be allowed to get on.

Mr. Budgen

As so many members of the public look for a less adversarial approach, would it not be generous to remind the House that support for the exchange rate mechanism, which was the feature of most hon. Members in the House, came particularly from Labour Members, and it is their embarrassment at having abandoned the official role of Opposition and having supported the Government in that disastrous policy which now prevents them from either criticising the present policy or, indeed, mentioning the past?

Mr. Clarke

I shall touch on my hon. Friend's favourite subject during my speech. He and I have never agreed, but he is right to point out that we always had the complete support of the Labour party on every aspect of our membership of the exchange rate mechanism. Indeed, I believe that Labour is still committed to signing up to the Maastricht treaty, including the timetable for the exchange rate mechanism, despite the fact that no other member state is following that course at present.

Turning to mainstream economic policy and the economic situation—I did not intend to be too combative in my introductory remarks, which I thought were non-controversial—growth looks set to continue at its current healthy rate. Independent forecasters and the Government now expect growth to be higher than we were forecasting at the time of the Budget. They also expect growth to exceed the rate of inflation in 1994. That sounds as though growth in the economy exceeding inflation should be the norm. In fact, it has happened in the United Kingdom on only four occasions since 1960, and usually only because growth has been unsustainably high at times of boom, rather than inflation being low.

We now have a healthier situation. Growth is becoming increasingly balanced and the recovery is spreading throughout the economy. Exports and investments are strengthening, and export volumes from this country are now growing at an annual rate of 9 per cent., despite some continuing weaknesses in our most important European markets.

Investment looks set to grow faster than consumer spending in this year. As we say repeatedly and without any fear of sensible contradiction, Britain is now leading Europe out of recession. The European Commission, the International Monetary Fund and the Organisation for Economic Co-operation and Development expect our growth rate to be the fastest of any major economy in Europe this year.

We have the fastest rate of industrial production and the fastest increase in retail sales of all major European countries. Ours is the only major European economy where unemployment has fallen in the past year, and it has now fallen by 330,000 since the last cyclical peak. Despite that pick-up in growth and the welcome fall in unemployment, the outlook for inflation also remains favourable.

Our inflation rate is well below the European Union average and it is at historically remarkable low levels for the United Kingdom. Sound money has been complemented by sound public finance. I am pleased to say that the Budget deficit remains on track to return to balance in the medium term. The combination of steady growth, healthy public finances and low inflation is the result of the Government's economic policies. It has not happened by chance, and it most certainly would not have occurred if we had followed the advice of any of the Opposition parties.

Sound money, sound finances and supply-side reform of the economy are the principles that guide our economic policy. We in government understand that, to achieve growth in living standards and to sustain rising industrial production, one needs low inflation and low public sector borrowing. One cannot have prosperity without sound policies.

This time last year, I said that Labour's economic strategy had about as much content as the average telephone directory. A year on, things have changed. A telephone directory now seems like a good read in comparison. The last time I addressed an audience of any size, a Socialist Worker demonstration burst in upon me, and there were rather more people involved than there are Labour Members in the Chamber at the moment. More to the point, they were the first people from a left-of-centre movement who appeared to have at least a clear idea of what they wanted and what alternative policies they had whom I had met for a long time.

The hon. Member for Dunfermline, East has yet another chance to put forward alternative policies, and he needs to do the House the courtesy of addressing them. He needs to address the fundamentals of policy which, as the Chairman of the Public Accounts Committee has said, we should talk about on the rare occasions when we debate the issues.

The least that we could expect from the shadow spokesman of the principal Opposition party is for him to say whether he would do anything that the Government are not currently doing with regard to public borrowing, public spending or monetary policy. In my opinion, if he suggested anything which deviated significantly from the course upon which the Government are set, it would only threaten our sustained economic recovery.

Mr. Randall

Probably everybody in the House would accept that the right hon. and learned Gentleman's notion of steady growth is laudable. What some of us are genuinely worried about is the rate of that steady growth; whether it will ever be sufficient to reduce unemployment to a reasonable level and the social impact of that. What does he have to say on that?

Mr. Clarke

That is an important subject, to which I shall, if I may, return later. We are forecasting at the moment growth of 2.75 per cent this year. Nobody knows exactly what the trend growth is, but beyond that it comes to a point where it is not sustainable without risk and without a threat to inflation.

Fortunately, we already see that present levels of unemployment are falling as a result of that growth, and 330,000 was the figure which I have cited. But I agree that there is also a structural problem and, as we achieve sustained growth, we must take measures to make sure that we do not have a strong recovery with unemployment stuck at 8, 9 or 10 per cent. I shall return to that in a few moments. The Government have, in my opinion, coherent policies on that matter, which are gaining favour in international discussions.

Mr. Peter Hain (Neath)

rose—

Mr. Clarke

I thought that the hon. Gentleman was rising to answer on behalf of his hon. Friend the Member for Dunfermline, East the questions I asked about spending, borrowing and monetary policy. I do not believe that the Opposition have got a policy on unemployment either. They would do well to follow our own.

Mr. Hain

Will the right hon. and learned Gentleman give way?

Mr. Clarke

I should like to make some more progress, but I will give way steadily.

On inflation, upon which I face silence, as always, from the Opposition, only the Conservative party, Madam Speaker, is the party of low inflation.

Mr. Deputy Speaker (Mr. Michael Morris)

Order. I am sorry to interrupt the Chancellor, but Madam Spealcer left the Chamber 15 minutes ago, and I should be grateful if he adjusted his script.

Mr. Clarke

Mention of transvestites in politics, Mr. Deputy Speaker, caused a disturbance at the LSE, and I do not intend to make any similar reference today. I apologise to you for addressing you as Madam Speaker.

As for low inflation, the record is extremely clear. Only the Conservative party is the party of low inflation and the figures speak for themselves. Under the previous Labour Government, inflation averaged 15.5 per cent.; inflation is now 2.5 per cent. and underlying inflation is 2.4 per cent. Since we came to power in 1979, the average rate of inflation has been 6.6 per cent.

Those low levels of inflation are not some abstract matter, because they have a real effect on people's lives. Let me give some obvious examples. The fierce competition between supermarkets has resulted in many food prices falling. Competition in the high street has meant that the prices of many goods, such as clothing and footwear, have hardly increased in the past year. Competition between manufacturers means that factory price inflation is at the lowest level we have seen for 25 years. All that low inflation brings real benefits to the shopping bags of real people at every level of income in our society.

The Conservative party also recognises the wider benefits that low inflation can bring. It brings the stability that our business leaders need if they are to invest with confidence in the future of our country. It provides stability for savers, whose resources finance investment and wealth creation. We do not support low inflation for economic reasons alone, although there are good economic reasons for achieving it, but because inflation is worse than a tax on those with fixed incomes, and is particularly hard on the weak and the poor. Inflation randomly redistributes wealth from that group to those with the economic muscle to withstand its debilitating effects, as we saw only too clearly in the late 1970s.

Let us never forget that, under the Labour Government of the 1970s, inflation was higher than interest rates on many occasions, so the real value of the savings of retired people fell. That is not the case now and I trust that it never will be again. Let me reaffirm that the Government have set themselves a target to keep inflation within the 1 to 4 per cent. range and to reduce it to the lower part of that range by the end of the current Parliament. We are determined to stick to that target, but what of the Labour party? Does it have a target for inflation? How does it propose to control inflation? The Opposition certainly will not do that by caving in to demands from their friends in the trade union movement, but their reaction to an 11 per cent. pay claim, which has come out of the blue at the moment, has hardly given anyone any grounds for assurance.

I hope that the hon. Member for Dunfermline, East will set out some policy. What does he think of our inflation target? Is it too high? Is it too low, or is it about right? Would he accept that target? I am sure that all hon. Members would like to hear that answer.

Mr. Tam Dalyell (Linlithgow)

On the issue of competition, is there any unease in the Government about the circumstances in which William Low, which is, after all, a large grocer retailer in Scotland, is about to be swallowed up by either Tesco or Sainsbury? Is there any unease about what might happen further to competition in the retail trade as a result of that? All I am asking is whether this matter is being looked at in government, because it surely should be.

Mr. Clarke

We have an extremely clear competition policy. We seek to stimulate competition for the reasons that I have given, but that does not include all takeovers and all reorganisations of businesses. As the hon. Gentleman knows, that is a matter for the Department of Trade and Industry, which considers it in the normal way. It is for my right hon. Friend the President of the Board of Trade to decide whether any particular merger should be referred to the Monopolies and Mergers Commission. I have no views on a particular takeover, including that named by the hon. Gentleman.

Mr. Bernard Jenkin (Colchester, North)

I should like to congratulate my right hon. and learned Friend on his remarkably successful record of keeping inflation down, despite, incidentally, the 15 per cent. devaluation of sterling since coming out of the exchange rate mechanism, which bears out the monetarist analysis. What does he make of the state of the markets, particularly the high levels of long-term interest rates? When does he think that the markets will take on board the fact that we are serious, as I believe, about defeating inflation?

Mr. Clarke

I am glad to say that the markets have strengthened slightly from the worst situation encountered. As my hon. Friend is aware, there have been international fluctuations in the marketplace ever since the Federal Reserve bank first moved its short-term rates a few months ago. It is arguable that it over-reacted to a situation that had built up in the previous year. As my hon. Friend the Member for Colchester, North (Mr. Jenkin) said, the best reassurance that we can give the markets is that we are committed to our inflation target. We have an extremely good record of moving towards it, despite all the pressures of the past few years. I am quite sure that we can sustain confidence in that policy. I am glad to see that long-term rates have eased in the past few days.

Mr. Gordon Brown

rose—

Mr. Clarke

I will give way in a moment.

One of the steps that I have taken to reinforce our inflation policy has been to start publishing the minutes of my monthly meetings with the Governor of the Bank of England. I have done that to make it quite clear that the monetary authorities in this country should take their decisions on sensible judgments of the economic priorities of the moment, not give way to short-term political pressures. The result is that we are more open and we are discussing such matters more than we have ever done before.

We are certainly more open than the Labour party, so I hope that the hon. Member for Dunfermline, East will at last contribute to the debate on monetary policy by getting up and telling me what he thinks of our target for inflation. Is it too high, too low or about right?

Hon. Members

Answer.

Mr. Gordon Brown

But why are the Government's inflation forecasts completely different from those of the Bank of England? Why are the Government predicting that inflation will just be 2 per cent. at the end of next year, but the Bank of England is now predicting that it will be as high as 3.5 per cent., far beyond the Government's target range? Is that not because the Government are assuming now that interest rates will rise? Will the Chancellor now answer the question that was put to him by his hon. Friend the Member for Colchester, North (Mr. Jenkin): why have British long-term interest rates risen faster than in any other country except Canada?

Mr. Clarke

The hon. Gentleman knows that forecasts have a wide range of accuracy. [Interruption.] Of course they do. He will also know that every forecaster has been reducing inflation forecasts since the end of last year—they are all bringing down their forecasts of inflation for the future. At the moment we are plainly on course. Every recent forecast that I have seen stays well within the Government's inflation target, upon which the hon. Member for Dunfermline, East declines to make any comment.

I have already dealt with the recent behaviour in the markets. It is true that, at first, our bonds fell further and our long-term rates went up somewhat higher than did the rest in western Europe. That is because of our country's history of high inflation, which goes back in particular to those irresponsible years when the Labour party was in office. Then, as I have cited, we were a byword for high inflation and poor economic performance. Our current policies are restoring confidence. We have a monetary policy; the Labour party does not. We are staying in power and we will ensure that our inflation targets are hit.

Mr. Gordon Brown

Will the Chancellor just answer the question? Why are long-term interest rates in Britain higher than they are in France and in Germany?

Mr. Clarke

They always have been since the war, but we are very much more in line with the rest of Europe than we have ever been before, and the confidence that this country will achieve sustained growth and low inflation is very much higher than it has been for a generation. A return to a Government of the Labour party and a move to the Treasury by the hon. Member for Dunfermline, East, if that were ever seriously contemplated, would shatter the confidence that we have built up. I am quite sure that it would have an extremely adverse effect on bond markets, long-term interest rates and business confidence as well.

Low inflation is not an optional extra. We have achieved our present low inflation—well below the forecast that people were making this time last year and even at the time of the Budget—as a result of the disciplines of, first, the exchange rate mechanism but, secondly, the tight monetary framework which my predecessor, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), so promptly put in place after we had been forced out of the exchange rate mechanism. Low inflation is the necessary condition for the sustained economic growth that the Government now wish to see as we approach the next century and beyond.

The Conservative party does not believe that there is a trade-off between growth and inflation, as so many Opposition Members still seem to believe. We shall not try to boost growth artificially by stoking up demand and thus jeopardising our inflation performance. We believe that sound public finances are necessary for sustained growth, which is why action had to be taken in the past two Budgets to improve public finances. Our borrowing was increasing by too much as a result of the prolonged recession, which was experienced, to varying degrees, by all western countries.

Every major country in the west must now tackle Government indebtedness. All the G7 and European Union countries are taking painful action to restore their public finances to order. I could almost claim that no other European Union member state has taken such decisive and effective action to reduce its fiscal deficit as this country has, but that may be unfair to my German colleagues, who are also taking rigorous action. Many countries that have not taken that action will have to do so.

Because we have acted so decisively, promptly and effectively, there is now high confidence in the British economy in both the business and financial worlds. When we debated the economy only 18 months ago, we all agreed that confidence was the missing factor needed for our recovery to take off. The following two necessarily tough Budgets were an important part of restoring the confidence that was so vital for recovery.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley)

If the economic indicators are as good as the Chancellor says, why does not he end the anguish for the poor and elderly by saying that he will not increase VAT on fuel to 17.5 per cent? Will he make that statement now?

Mr. Clarke

I give the House a presentation on the fiscal prudence necessary to maintain confidence and keep the recovery going, and a Labour Member gets up and suggests that we should abandon one of the tax increases. A few moments ago, my right hon. Friend the Member for Ealing, Acton (Sir G. Young) made a statement on housing policy, and rows of Labour Members agreed that there should be a massive increase in spending on public housing. The Labour party's lack of policy and its instinct to abandon sound fiscal policies and controls on public spending pose a great threat to the recovery.

Labour Members have the nerve to claim that taxes would somehow be lower under a Labour Government. That is preposterous, as history and their current behaviour demonstrate. Taxes would have to be increased to pay for the never-ending list of spending demands revealed by every exchange in this House; otherwise, public borrowing would rocket to unsustainable levels and high interest rates and inflation would return.

I do not understand why the Labour party has got into such a knot about this. The Labour movement is going through an identity crisis. Clearly, Labour is the party of high Government expenditure—higher than its opponents in the Conservative party. Members of the Labour and trade union movement believe that more state spending is required to solve many of the country's problems. Labour Members nodded in assent when my right hon. Friend the Member for Acton accused them of wanting to spend more on public housing only a few moments ago. If they no longer believe in socialism, surely they must still believe that they are the party of higher public spending.

Mr. Tony Benn (Chesterfield)

Will the Chancellor give way?

Mr. Clarke

I shall give way to the right hon. Gentleman in a moment because he has the courage to agree with me.

To what has the Labour and trade union movement been reduced if it now cringes in shame at the suggestion that it wishes to increase public expenditure, compared with a Government whose Ministers served under Lady Thatcher? Of course a Labour Government would increase spending dramatically, but Labour Members are no longer prepared to say that they believe that. It would happen as a result of their negligence if they ever came to power. I give way to a man of principle.

Mr. Benn

Will the Chancellor deal with two questions about taxation: what is it for; and who pays it? Why should pensioners pay VAT to buy a Trident? Why should not better-off people pay more to provide for the education and health that the whole community needs?

Mr. Clarke

Of course we all accept that certain expenditure is necessary, and we have hugely increased expenditure on key public services like the national health service, education and social security, including a greatly increased take-up of improved benefits for the disabled. We have delivered all those policies. In the real world, however, a balance must be struck between a sustainable level of growth in a successful enterprise economy, and the efficient delivery of public services. We are striking that balance. We can improve the quality of many aspects of people's lives while reducing the state's total take from gross domestic product to allow the private sector to flourish further.

That is not and never has been the Opposition's policy. When they were last in power, they took the state's take up to higher levels than we have ever taken it. Last week, we saw their reaction to defence expenditure, which was to say that it would be approached on the basis of how many public sector jobs it provides in the administrative back-up to forces, whereas we prefer to spend the money on the front line's kit, training and weaponry, while running our defence forces efficiently.

Our spending proposals are clear. Keeping public expenditure under control is the key to healthy public finances and lower taxes. Because we believe that lower taxes help incentives, we will lower taxes when the opportunity occurs—we will and we have—but only when it is prudent to do so. The Opposition's spending proposals would not do that—[Interruption.] If Opposition Members disagree, I wait to hear their spending proposals. Our public expenditure ceilings have just been agreed by the Cabinet. Are they too high or too low? I have no idea of the view of the hon. Member for Dunfermline, East. I hope that he will enlighten us.

The third pillar of our economic strategy is on-going reform to the supply side of the economy. Since 1979, we have put in place a raft of measures designed to improve the performance of our businesses and to attract business from abroad. Successful macro-economic policy gives us an opportunity to take that forward. Privatisation and private finance are key factors in the British economy's steadily improving performance.

When we started our privatisation programme, it was the most ambitious programme of its kind in the world, but privatisation is now the norm everywhere, except in the British Labour movement. Forty-seven companies have now been transferred from public to private ownership. We used to spend nearly £2 billion a year—£35 million a week —propping up those state-owned industries. They now contribute more than £2.5 billion a year—£50 million a week—in taxes to the Exchequer. The main difference is that they have changed beyond recognition. As corporate entities, they now provide better quality for their customers and many are now strong international companies.

Britain also has better industrial relations now than it has had in its industrial history. Co-operative attitudes between management and work force are better than I can remember in the history of British industry. We have achieved all that by sweeping away many of the legalised institutional divisions between what people on the continent still call "the two sides of industry", which many would like to reintroduce in the name of the European social chapter. As a result of our reforms, industrial stoppages are now at their lowest level since records began almost 100 years ago.

However, improved industrial relations are only one plank of our labour market reforms.

Mr. Mark Wolfson (Sevenoaks)

Will my right hon. and learned Friend give way?

Mr. Clarke

I shall give way later.

We fought in Europe, and we shall continue to do so, against the imposition of unnecessary labour market regulations, which impose additional costs on employers, and ultimately destroy jobs. We understand that job creation is the key to improving the fortunes of the low paid. Placing burdens on employers only prices the low paid out of work and creates more misery, not less.

Our approach to labour market flexibility—to deregulation of those markets—is being followed increasingly throughout the world. It was endorsed at the job summit in Detroit; it was endorsed at the recent Corfu summit in Europe; it runs all the way through the Organisation for Economic Co-operation and Development report that we recently discussed in Paris.

The Labour party is out of step. We have one of the most modern, flexible labour markets in the western world, and that is one of the principal reasons why we attract 40 per cent. of all the inward investment into the European Union, and why we continue to be such an attractive place for investment to create new jobs.

Mr. Wolfson

rose—

Mr. Roger Berry (Kingswood)

rose—

Mr. Clarke

I give way to my hon. Friend.

Mr. Wolfson

I am grateful to my right hon. and learned Friend, and I am delighted that he has emphasised the improvement in industrial relations. Does he agree that one of the things that that has achieved is that it has enabled our managers to concentrate on production and marketing, rather than on dealing with the bush fires that absorbed so much of their useful time in the past?

Mr. Clarke

I wholly agree. It was a feature of management of any major company—private or public —in this country in the 1960s and 1970s, that most of the time of the most senior management was taken up with industrial relations problems, whereas now it hardly features at that level in the crucial decision-making in most of our companies.

I agree with the hon. Member for Kingston upon Hull, West (Mr. Randall) that unemployment will be, and should be, the major preoccupation of economic policy-makers in the 1990s in the western world. However, it is a combination of sound macro-economic policy, sustained growth, low inflation and supply side policies that create flexible labour markets, improved training and education —I could address the House at length about what we have done there—and active labour market measures that keep unemployed people close to the world of employment, giving them the incentives to get into employment, giving them the support to do so, that will enable us to get ahead, and which are attracting so much international support.

Mr. Berry

rose—

Mrs. Teresa Gorman (Billericay)

rose—

Mr. Clarke

I think I have taken quite a long time, with apologies to my hon. Friend, Mr. Deputy Speaker.

The deregulation initiative will cut through a lot of the red tape and bureaucracy that burdens industries in this country; the private finance initiative is bringing private sector finance, management and expertise into the capital programmes of the public services; and the recently launched White Paper on competitiveness outlines several initiatives to improve the supply side of our economy.

That builds on what we have achieved since the Conservatives came to power. Since 1979, our manufacturing productivity growth has been the highest of the major European economies. We are closing the productivity gap. One recent study showed our manufacturing productivity to be greater than that in Japan. That was a National Institute report in its May "Economic Review", making comparisons on a per hour basis. A recent study by the German chamber of commerce showed that two thirds of German-owned factories in the United Kingdom achieved productivity levels at least as high as those of their counterparts back home. That is why, as I have said, we attract so much of the global investment when it is seeking a base in the European Union.

The outlook for the British economy is continued growth and low inflation. It is the most favourable that the country has enjoyed since I first entered the House, almost 25 years ago. It is the result of the coherent economic policy that Conservative Governments have put into place over many years. Some of those policies were not popular at the time that they were introduced, but by sticking to our principles, the present Government have laid the foundations for lasting economic success. We will certainly fight to keep those foundations in place, and to ensure that they deliver the prosperity and the secure jobs that we require.

The public are still hesitant. Only for three months have they had consistent reports of good economic news. I share the public view that that must be sustained, not just for months, but for years ahead, so that sustained growth with low inflation means higher living standards, lower unemployment and more secure jobs. I believe that it is now in our gift to deliver that, and I do not believe that the Labour party has the slightest clue how to contribute to that. Its members merely watch it happen before their eyes, with no alternative policies of their own to put forward.

5.4 pm

Mr. Gordon Brown (Dunfermline, East)

I beg to move, to leave out from `House' to the end of the Question, and to add instead thereof: 'notes the publication of the Government's latest economic forecast and the continuing tax rises-including the two new taxes in the autumn-and cuts in public services forcing down the living standards of millions of people; calls on the Government to reconsider the plan of raising VAT to 17.5 per cent. on fuel; notes the Governor of the Bank of England's remark that interest rates may rise, so hitting homeowners, mortgage holders and investment yet again; and condemns the appallingly high level of unemployment under this Conservative Government and the absence of a long term economic strategy for Britain—itself essential to both the achievement of long-term high growth and the reduction of inflation—which tackles under-investment in people, industry and the social and economic fabric with a new industrial training and employment policy for the country.'. For all the Chancellor of the Exchequer's complacency and self-satisfaction—perhaps because he hopes that he will retain his job in the reshuffle while all around him others are losing theirs—the reality for millions of people throughout the country is that living standards are falling; that poverty is once again on the increase; that public services are being cut; and that tax bills are increasing.

Increased poverty is accompanying tax increases, with VAT hitting people this spring; more tax increases in the winter with the two new taxes already announced; cuts in mortgage relief and personal allowances next spring; and tax increases throughout the next year and the year after that. The problem is that the tax increases that have dominated this year and will dominate next year are not, as people would want them to be, investments to build for the future; they are simply paying off the Government mistakes of the past.

The tragedy for Britain is that, as the Chancellor had to admit when pressed on the issue of long-term interest rates and when he came to the section of his speech dealing with high levels of unemployment, all the problems that brought about the last recession are apparent now. They are lack of investment in manufacturing, which is still 13 per cent. less than in 1979; excessive dividend payments, which the Government have yet to come up with any proposals to tackle; worsening manufacturing trade deficits, mys-teriously increased in the summer statement from £6.5 billion to £8.5 billion this year; and skill and capacity shortages throughout the economy.

For skill shortages to exist when 2.6 million people are unemployed represents a complete failure of free market dogma, and it is the ultimate failure of leadership to cut the training and employment budget when there are millions of unemployed people in need of training and thousands of companies in need of trained people. All the problems—skills shortages, lack of investment, worsening trade deficits—that brought about the last recession are already apparent even at this stage of the economic cycle, and without the Government being prepared to take action.

Mr. Tony Marlow (Northampton, North)

The hon. Gentleman set out a catalogue of what he would call reasons for the recession. What about the United Kingdom's adherence to the exchange rate mechanism? The hon. Gentleman has been criticising the free market. The ERM had very little to do with the free market.

Mr. Brown

It was the failure of the Government's economic policies that drove us out of the exchange rate mechanism. As everybody—[Interruption.] As all Conservative Members understand—indeed, the Financial Secretary to the Treasury made a speech about it—the stop-go economics that were pursued by the Conservative Government throughout the 1980s are responsible for the fact that, every time the British economy grows, we run into problems of bringing in imports, pressures on inflation and pressures on interest rates, and we are incapable of achieving sufficient growth to keep unemployment down and improve our public services.

Mr. Jenkin

rose—

Mr. Budgen

rose—

Mr. Brown

I give way to the hon. Member for Colchester, North (Mr. Jenkin).

Mr. Jenkin

I am grateful to the hon. Gentleman. On the matter of long-term interest rates, what can he do to contribute to the stability in the financial markets? Will he publish an inflation target? Will he say how he will reduce Government borrowing? Will he say how he will control public expenditure? Or will he, as I suspect, say none of that, and carry on contributing to the instability with which we have to cope?

Mr. Brown

I do not see why I have to continue to listen to the hon. Member for Colchester, North. After all, he was the Member of Parliament who said to his constituency at the general election: Ten good reasons to vote Conservative: Low taxes". That is what the hon. Gentleman said. [Interruption.]

Mr. Jenkin

rose—

Mr. Budgen

rose—

Mr. Brown

The hon. Member for Colchester, North is clearly not trying to catch your eye alone, Mr. Deputy Speaker; he is trying to catch the Prime Minister's eye in a succession of interventions. I may say that his chances of promotion after that intervention are rather less than they were before it.

Mr. Budgen

rose—

Mr. Geoffrey Dickens (Littleborough and Saddleworth)

rose—

Mr. Brown

I give way to the hon. Gentleman.

Mr. Dickens

This is quite a straightforward question to which the nation is most anxious to know the answer: does the hon. Gentleman favour an increase in the top level of taxation? Yes or no would be quite acceptable.

Mr. Brown

The hon. Gentleman is good at asking questions. In his election manifesto, he gave as the third reason for voting Conservative, "Taxes Down". Who will ever believe anything that he says again? Incidentally, in the same election manifesto, he said that whenever he stood up to speak, Members of Parliament rushed into the Chamber to hear him.

I give the hon. Gentleman the assurance that there will be a fair taxation system under a Labour Government. We will end the practice under this Government that allows millionaires to end up paying no income tax because they use the allowance system—something that even the hon. Gentleman could not defend.

Mr. Kenneth Clarke

The hon. Gentleman is replying with abuse to the perfectly sensible questions asked by my hon. Friends. He has expressed an interest in taking this country back into the ERM. It is therefore perfectly sensible of my hon. Friend the Member for Colchester, North (Mr. Jenkin) to ask him what his inflation target is. Does he have one? Is the Government's too high or too low? What is his view of public spending? Is it too high or too low? What is his view of the monetary framework? Does he agree with it or does he have a framework of his own? The hon. Gentleman cannot get away with light-weight stuff and not answer fundamental questions.

Mr. Brown

The first person to whom the right hon. and learned Gentleman should address those questions is the Chief Secretary, with whom he is in fundamental disagreement over economic policy. Should anybody believe what the Chancellor says? In his election manifesto he said: Only the Conservatives believe in keeping taxation down. Only the Conservatives will keep the country's finances on a sound footing. Who will believe him when this country has a £50 billion borrowing requirement?

Mr. Nigel Forman (Carshalton and Wallington)

Before the hon. Gentleman becomes too cavalier and entertaining with the truth, will he take his mind back to a point that he made at the beginning of his speech—something that he said rather hurriedly? He claimed that real personal disposable income was falling. If he had read the background document to the debate, he would know from paragraph 1.26 that in fact it is rising by 1 per cent. this year and is forecast to rise by 2.5 per cent. next year. Would he kindly get his facts right?

Mr. Brown

The fact is that the majority of taxpayers will be hit by an average £500 tax increase as a result of the Government's policies. Millions of people will find that their wages are held back and their living standards will fall because of the Chancellor's economic policy. The hon. Gentleman may think that he can deny that, but he should have listened to his constituents during the local and European elections because they said that they were not prepared to accept that.

Mr. John Butterfill (Bournemouth, West)

When the hon. Gentleman looks at long-term interest rates, does it ever occur to him that the closer we get to a general election, the closer seems to be the correlation between long-term interest rates and levels of support for the Labour party in the opinion polls?

Mr. Brown

I shall refresh the minds of hon. Members on what the hon. Gentleman said in his election manifesto — [Interruption.] The country deserves to be reminded of what he said at the general election, which was: Reduced taxation gives choice and provides the vital boost our economy needs. What is the boost to the economy from the biggest tax rises in history? Perhaps that is why no one took the hon. Gentleman seriously when he said: Everyone knows someone who has been helped by John Butterfill.

Mr. Anthony Coombs (Wyre Forest)

The hon. Gentleman is fond of quoting other people. Would he like to quote one of his own prognostications on the economy? On 17 March last year, just before the Budget, he said that he had only one Budget forecast—that unemployment would rise this month, next month and for months thereafter. Since that time, unemployment has fallen by no less than 250,000. Was his forecast just incompetence or are his economic policies divorced from reality?

Mr. Brown

I remind the hon. Gentleman that I was quoting the Government's Budget forecast of what would happen to unemployment— [Interruption.] Yes, I was. I was quoting the Budget forecast in the Red Book, which I shall be happy to quote again any time the hon. Gentleman wishes to raise the matter with me. I ask him one question: if things are so good, why do the latest unemployment figures show 73,000 fewer people in employment in the first three months of this year? Why, during the past six months, have there been more than 100,000 fewer people in the working population? Does not that make the hon. Gentleman think that he should look rather more carefully at the figures that he is given by the Government?

Several hon. Members

rose—

Mr. Brown

I shall give way just once more and then I must get on with my speech.

Mr. Rod Richards (Clwyd, North-West)

The hon. Gentleman's policy is one of full employment. What minimum wage rate is consistent with his concept of full employment?

Mr. Brown

The hon. Gentleman cannot have studied the research done in both Europe and America. The research from America shows that a minimum wage can actually help employment prospects in the economy. A minimum wage makes firms more efficient. It means that there is less turnover of labour. Indeed, the American Labour Secretary—the Chancellor would be well advised to listen to him rather than simply suggesting that the policies pursued in America are hostile to those pursued in Britain—is considering raising the minimum wage, so confident is he about the employment prospects created by doing so.

Mr. Budgen

rose—

Mr. Brown

I am sure that hon. Members will agree that I have been generous in giving way. I have given Conservative Members a chance to put across their wares in advance of the reshuffle. I have given them an opportunity to sell themselves to the Prime Minister. The fact that they have failed to do so is no fault of mine.

Mr. Budgen

rose—

Mr. Brown

No—[HON. MEMBERS: "Give way".] As HON. MEMBERS ARE SO INSISTENT, I SHALL GIVE WAY.

Mr. Budgen

Would the hon. Gentleman be good enough to answer one question in an untrivial way? What would an incoming Labour Government do about the ERM? Do they intend to go back into it as quickly as possible?

Mr. Brown

The difference between the Conservative party and the Labour party—

Mr. Budgen

Answer the question.

Mr. Brown

I am answering the question. Of course, it is one that the hon. Gentleman should ask the Chancellor and the Chief Secretary, who hold completely different views.

The difference between the Conservative party and ourselves is that we believe in the principle of managed exchange rates. We do not see any virtue in a free-floating exchange rate with speculative forces being left to decide the fate of the economy. As for our eventual policy on the ERM, we have always proposed necessary changes to its operation. There needs to be a far better means of dealing with the problems of speculation; a regional industrial policy throughout Europe; joining at the right rate; and a growth policy pursued by the European Community. That is completely different from the policy pursued by the Conservative Government, to the detriment of the British economy.

Mr. Ian Taylor (Esher)

rose—

Mr. Brown

I am aware that many hon. Members want to speak. I have been generous in giving way, to Conservative Members.

Mr. Taylor

Give way.

Mr. Brown

Is the hon. Gentleman simply trying to interrupt my speech? I have given way, and if he was too slow in getting up to make his point, that is his own fault.

At the heart of the debate is one central truth that the Chancellor has failed to acknowledge—that Britain's growth rate throughout the 1990s will average only 1.6 per cent., which is lower than in the first 15 years of Conservative government. It will be Europe's lowest, with the exception of Turkey and Greece. We have a long-term growth rate that is just half what we achieved in the 30 years after the war.

If the test of the success of Conservative policies that the Chancellor tried to promote in his speech is to be met, there would have to be a far higher sustainable growth rate over the longer term than the right hon. and learned Gentleman's policies will produce.

I shall argue that the Government's policies are not only inefficient but unfair—that the Government are not only incompetent but unjust. They have done nothing to rectify the huge investment, technology and skills gaps in our capacity, which caused the last recession and will undoubtedly cause the next. They are the Government of unfairness and injustice.

Not only is the gap between those at the top and those at the bottom growing substantially, and faster, than at any time this century; not only have the bottom 10 per cent. in our country seen, according to the Government's own statistics, a fall in their living standards; not only are 4 million children in our country, according to figures issued last week, condemned to poverty under this Government: the whole burden of sacrifice under the Government's policies is being borne by low-income and middle-income Britain—those least able to afford it.

The Government have already shamefully misled the blind, the deaf and the handicapped over the Civil Rights (Disabled Persons) Bill. The target for further savings—and I appeal to the Chancellor— should not be the poor and their housing benefit, the unemployed and their mortgage relief, or those injured or disabled at work who are to lose Government help with industrial injury benefit. It should be the tax loopholes, the anomalies, the evasions and the avoidances that the Government have tolerated over the past 15 years.

If the Chancellor wants to take a measure of his competence in economic policy, let him re-read what he said in the Budget statement only a few months ago—that the test of the credibility of his framework on economic monetary policy would be what would happen to long-term interest rates, which were at their lowest for 25 years.

Within a few weeks of his making that statement, long-term interest rates had risen by 22 per cent. They are 4 per cent. in Japan and 6 per cent. in America but 8 per cent. in Britain. If the Chancellor has decided that his credibility comes from low long-term interest rates, as he told us in the Budget, where is his credibility now that our long-term interest rates are just about the highest in Europe? The Chancellor is condemned by his own words, and he is never to be trusted begin.

Of course, credibility and consistency was never the Chancellor's strongest suit. Let us remember what he said at the election: Great cuts in public spending on the vital services or higher rates of personal taxation, that is not necessary. There was a cut of some 50,000 in the civil service last week; there have been tax rises, which he himself estimates are the equivalent of 7p in the pound; and despite all his promises, there have been the biggest cuts in public spending for years.

The Government promised in their election manifesto that they would increase transport spending. They are now cutting it by 24 per cent. in real terms. They promised that they would continue to increase police numbers and wage a war on drugs, but are freezing police numbers, axing drug strategy teams, cutting Home Office spending by £70 million a year and betraying the law-abiding citizen.

The Government said that their commitment to the environment was not to be doubted, yet they cut environmental spending by 18 per cent. They said that the railways could play a bigger part in responding to Britain's growing transport needs, yet they cut the external financing limit by 20 per cent.

Perhaps the biggest humiliation of all is the channel tunnel, which will operate from September. But the channel tunnel rail link was first announced in 1987, reannounced in 1989 and repromised in 1991. While the French now have their rail link open, ours has not even begun. It is not even at the planning stage. It is not even a route. There is not even the legislation to make it happen. The best chance that we have of completing it is not this century but the next, in 2003.

As President Mitterrand said, the channel tunnel opens up two worlds of travel: high-speed rail from Paris to Calais at 200 mph, then a chance to have a leisurely look at the English countryside. Now we know what the Prime Minister means when he talks about a multi-speed and multi-track Europe—not the wrong kind of leaves on the track, but the wrong kind of Government in office. That is the problem.

Sir Anthony Grant (Cambridgeshire, South-West)

rose—

Mr. Brown

I am not giving way any more.

What does the Prime Minister say to all that? I happened to hear from journalists what he was telling the 1922 Committee at its usual rallying meeting for the summer. It was a speech that even had the hon. Member for Luton, North (Mr. Carlisle), the potential rival in a leadership contest, saying that it merited a stay of execution. There is no question—for the moment at least —of the Prime Minister having to close the stable door after the stalking horse has bolted, because the stalking horse is in the stable for now. But it might still get angry and break the door down.

What did the Prime Minister say in a few trenchant phrases, each one characteristically hitting the nail firmly on the thumb? He said that much of the past two years have been memorable for the wrong reasons. He said: We have missed a few tricks in recent months and years. Our message has been too diffuse. We need to concentrate better. Missed a few tricks," he said: Iraqi guns, Pergau dam, Asil Nadir, BCCI, tax rises, the Civil Rights (Disabled Persons) Bill, Post Office privatisation, "back to basics", black Wednesday, the small matter of a few parliamentary questions. Or is he thinking of other disasters that have not yet come to light? I think that Our message has been too diffuse is a euphemism for virtual civil war in the Conservative party. I think that We need to concentrate better is probably a reference to fewer consultancies, no more inscribed gold watches, more time in research—less time with one's researchers—tabling more parliamentary questions, but only for constituents, and free at the point of delivery.

As the Prime Minister said, the message needs to be repeated and repeated so that when people hear the word "Conservative" they know what his party stands for and why. I have a message for the Prime Minister. The message has got across. The country knows only too well what Conservatives stand for, they know why, and they know what they want to do with them.

So what does the Prime Minister do now? Is there to be a shift in policy after the disasters of their European campaign, which started badly then fell away? Not a change in direction; heavens no! That would involve a choice of direction on the part of the Prime Minister. What we have is the ritual annual reshuffle, where the choice of talent is so limited that even the Secretary of State for the Environment looks secure and passes, in these sorry times, for a safe pair of hands.

It is a reshuffle in which not even the President of the Board of Trade, only Lord Archer, wants to be Conservative party chairman—in which nobody wants the only man who wants the job that nobody wants. I feel sorry for Lord Archer. He is the victim of a new and strange discrimination, for when has the talent for fiction and the knowledge of the wilder shores of finance ever been a disqualification for the post of Conservative party chairman? It is a reshuffle that brings the Chancellor a huge dilemma, which he must be turning over in his mind as he sits next to the Chief Secretary to the Treasury.

Mr. Kenneth Clarke

rose—

Mr. Brown

I shall wait. I have a question for the Chancellor at the end.

What is the consequence of the Chancellor driving the last monetarist out of the Treasury temple? Would he prefer to see him as a departmental head, in a stronger position, ready to take him on for the eventual succession? Or would he rather keep him where he is, to keep an eye on him and what he is doing? The Chief Secretary—the last standard bearer of the new right inside the Treasury; the ghost of monetarism past; the still, small voice of Thatcherism; the insistent, insidious, whispering voice of the new right's agenda, for ever one pace behind the Chancellor wherever he goes, hissing his own message behind his back. Would the Chancellor prefer him inside the Treasury hissing out, or outside the Treasury hissing in?

The Government can change Ministers, the Cabinet, the Conservative party chairman, the presentation, the front men and the ad men, but those changes will add up to nothing, because the Prime Minister is incapable of giving this country the change of direction and strategy that it needs.

Mr. Kenneth Clarke

The debate began with the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) suggesting that we should have two days of economic debate, because we had not discussed the economy since November. The hon. Member for Dunfermline, East (Mr. Brown) went through the motions of pretending that he had been champing at the bit to talk about the British economy since Christmas. He spent 10 minutes not talking about the subject at all. Our monetary policy is clear. Can we take it that he has confirmed this afternoon that he has no views on the British economy, no economic policy, and no interest in debating the subject at all?

Hon. Members

Answer.

Mr. Brown

I will give hon. Members an answer. What this country needs is a long-term strategy for the renewal and rebuilding of the economy. That strategy involves rebuilding the capacity of the British economy. That demands four things.

Lady Olga Maitland (Sutton and Cheam)

How?

Mr. Brown

The hon. Lady asks how. I am about to tell her. The first of the four is investment in people and employment opportunity. That is why Conservative Members should accept Labour's proposal for a university for industry as one of a number of measures for the training revolution. Secondly, the strategy involves solving the long-term problem of investment in industry. The Chancellor himself cannot be happy with a situation in which, as he had to report in the spring statement, there are few signs of investment in business picking up in the way that it should.

We must consider three measures to solve the problem of business investment. The first is action to reduce the cost of capital for small businesses. The second is to set up a regional development agency that will work with the banks and financial institutions in helping medium-sized businesses. The third is long-term investment agreements that will enable financial institutions and industrial companies to make decisions on a long-term basis instead of being forced to respond to the short-term speculative needs of the City.

The third thing—

Mr. John Sykes (Scarborough)

Will the hon. Gentleman give way?

Mr. Richard Ottaway (Croydon, South)

Will the hon. Gentleman give way?

Mr. Brown

Conservative Members ask me to set out the guidelines of the policy and then try to interrupt. They do not like what they are hearing because it is what they should have done long ago.

The third thing that the strategy involves is solving the problems of low investment in our social and economic fabric, as instanced by the failure not only to build the channel tunnel rail link but to deal with the problems of the London underground and the train system up and down the country. That is why our task force for private-public partnership takes the issue far beyond what any Treasury Minister is prepared to contemplate.

Lastly, we need action in Europe as a whole to keep interest rates down and co-ordinate measures for growth and investment. Our economic agenda for Britain, unlike the Government's, is an agenda for fairness and opportunity for millions of people. Our fairness agenda is about employment opportunity. It is about an emergency employment programme to get people back to work and end the self-satisfied complacency of a Chancellor who talks about action and then refuses to take the action that is necessary. It is about increasing people's earning power by giving them the skills to enable them to get the best job that they are capable of doing.

Our fairness agenda is about rebuilding the welfare state so that people have the financial independence that is necessary, particularly to women, who can be given the opportunity to work if they are provided with child care. It is about tackling vested interests—entrenched private interests in our community such as banks, financial institutions and the privatised utilities, which often overcharge people for excess profits that cannot be justified. It is about a system of progressive taxation. It is about opportunity for millions that the Government have had 15 years to offer and have failed to give the people of Britain.

When we come to this debate in the House, it is right that we should put the Government on trial. The question that people are asking throughout the country is why the Government have failed in their election promises—why they have failed to offer the prosperity that they promised would come the day after the election was over.

I shall deal now with the specific matter of Conservative policy on the future of taxation. What is the Chancellor's policy for tax cutting, as he calls it? The average family is paying £500 more in taxes—the biggest tax rise in history. After all the evidence of tax rises, does the Chancellor admit that he misled and betrayed people? Does he apologise? Does he confess the mistakes he made? Will he try to do better?

No longer able to say that they are cutting tax; no longer even promising to cut tax and with no record in achieving cuts in tax—taxation is higher now than it was when Labour left office—with no specific Budget proposals to cut tax; and with the Chancellor unable even to repeat the promise that he used to make that the Conservative party was a low-tax party in the medium term, what do the Conservatives say now? All they can say is that they have an instinct for low taxes.

Mr. Kenneth Clarke

The hon. Gentleman asked me a question. He quoted me saying things at the election that were remarkably similar to what I said in my speech today. Of course we will cut taxation, but the key is to get public spending and borrowing under control. The hon. Gentleman shows no sign that he recognises that. Which taxes would he cut? What would he spend while he was cutting taxes? He comes out with a lot of waffle that might have beaten the hon. Member for Sedgefield (Mr. Blair) in the leadership contest but would not beat anyone else in terms of content of economic policies.

Mr. Brown

The Chancellor is now trying to rewrite history. He tries to give the impression that he went to the electorate saying that taxes would go up and then he might bring them down. He actually said: Only the Conservatives believe in keeping taxation down. Only the Conservatives will keep the country's finances on a sound footing. What happened after that? We had the highest public sector borrowing requirement in Britain's history. The Chancellor knows very well that he should apologise to the electorate, admit the mistakes that he made and say that the Government will try to do better. The Chancellor cannot say those things, because he is personally committed to raising VAT.

I have always wondered about the Chancellor's vote in favour of VAT on children's clothes. I have always wondered about the Walden interview in which he said that it would have been far better to put VAT at 17.5 per cent. on fuel in the first year rather than waiting and imposing it at 8 per cent. in the first year. I have always wondered about that strange by-election statement a few months ago in which he said that not to impose VAT on food and fuel was anomalous. Now I know why.

Last summer one of the Chancellor's constituents wrote to him to ask his views on VAT on fuel. The constituent has kindly sent me the letter. In the long letter—the Chancellor tends to elaborate where it is sometimes unnecessary or inadvisable—he said: I have always thought that we exempt too many goods and services from VAT in this country… VAT is still imposed on little over half of all sales, which is much more restrictive than the sales tax in most other countries. No wonder the Chancellor does not sound convincing when he talks about taxation. No wonder the Chancellor's instincts are regarded with suspicion. He does not want to lower taxation. He wants to extend VAT. The issue from now to the next election is whether he will honour or disown his stated commitment to the principle of extending VAT. I think that he will have an uncomfortable few months with the electorate in the run-up to the election.

Mr. Kenneth Clarke

In all the hours of research carried out by Labour headquarters, no one has ever found a quotation from me which is inconsistent with what I have been saying about VAT for years. I repeat that the Conservative party is the only party that believes in low taxation. We believe in achieving it by controlling public spending.

As the hon. Gentleman is making his speech, will he say what are his policies on taxation? If he would reduce taxation, which taxes would he reduce? What are his views on public spending? What are his views on the public spending targets that we have set? It is utterly pathetic to come out with constituency letters in which I merely state my long-stated and well-known view that, if we were starting again, we might have a lower rate of VAT and fewer exemptions. As he knows, that is not policy now. Does the hon. Gentleman have any policy at all on anything of current concern?

Mr. Brown

The Chancellor has made it clear that he is in favour of fewer exemptions on VAT. Will he now confirm for the benefit of the House that he is in favour in principle of extending VAT? Is it to food? Is it to transport? Is it to children's clothes? Is it to books and newspapers? This is a serious question. Is he in favour of extending VAT to those items?

Mr. Kenneth Clarke

The hon. Gentleman could find countless occasions on which I have said, as I have probably said ever since that vote 20 years ago which he always cites, that other countries have lower rates of VAT and fewer exemptions. The hon. Gentleman knows that that is not to be taken as a statement of policy intention now. Will he please stop flannelling around in this Blair-like fashion and tell us his views on tax, public spending, borrowing, monetary policy or anything that has anything to do with the debate this afternoon?

Mr. Brown

The Chancellor of the Exchequer has created the context for many debates that we shall have during the next election campaign. He cannot tell us that he is against the principle of extending VAT to food, to children's clothes, to books and newspapers or to public transport. The record will show that he told the House that he believed that there were far too few exemptions in this country. If that is the case, the Chancellor will live to regret what he wrote to his constituent and what he has said this afternoon.

Ministers have recently discovered instincts not only for what they call low taxation, but, if the Chancellor's speech of last week is to be believed, for community, for social cohesion and for full employment. We are asked by the Secretary of State for Employment to believe that the Conservative party, which for 15 years has never had less than 1.5 million people unemployed, and under which 1 million young people are unemployed today, is somehow the party of full employment. Having told us for 15 years that Government could do nothing to affect the employment level in this country, the Conservative party now asks us to believe after 15 days that it is somehow the party of full employment. Having told us for 15 years that there is no such thing as society, it now asks to us believe that it is the party of social cohesion and community.

Even though there is evidence, which we heard about earlier this afternoon, that 135,000 people are homeless under this Government; even though there is evidence to show that 13 million people are on low incomes as a result of this Government's policies; even though all the evidence tells us that there is more poverty, worse poverty and worsening poverty, the Government refuse to do anything about it.

This is the dilemma for Conservative Members as they go away for the summer recess. They do not know whether to attack the Labour party for its support of social cohesion, community, collective action and full employment, or to attempt to occupy the territory themselves. They do not know whether to attack the Labour party for its goal of full employment, or, in the face of evidence, to try to claim it as their own.

I have some sympathy for Conservative Members. What are they to think? Do they cheer the new cry for full employment, or do they cheer the right wing when it says that full employment is not the responsibility of the Government? Do they wave their Order Papers at Ministers' appeals for community and collective action, or do they still wave their Order Papers when the right repeats that there is no such thing as society?

On Europe, do Conservative Members say, "Hear, hear" when the Chancellor supports the principle of economic and monetary union, or do they say "Hear, hear" when the Chief Secretary to the Treasury says that he opposes it? Do they applaud when the Chancellor champions a single currency, or when the Chief Secretary questions the very principle? On the welfare state, do they wave their Order Papers when the Chancellor says that he opposes more health charges and opting out of the basic state pension, or do they wave their Order Papers when the Chief Secretary says, "These are just some of the things that have got to be looked at"?

When they get to the Conservative party conference in the autumn—Conservative Members had better face up to this problem—do they rise for a standing ovation when the Chancellor says that he does not believe in the minimalist state, or do they give a standing ovation to the Chief Secretary and his No Turning Back group friends when they call for the minimalist state to be implemented? Do they get to their feet when the Chancellor says, as he has before, "I have always opposed vouchers," and when he admits that we still lag behind our competitors in education, or do they get to their feet for the Chief Secretary when his friends say that they favour vouchers and when he doubts whether so many graduates are needed?

Do they stand and cheer for some and sit on their hands for others? In the interests of party unity, does everyone receive a brief, crouching ovation, or do Conservative Members wait for instructions from the new chairman of the Conservative party, whoever may accept that job or from whatever faction he may come? Will the Prime Minister have to appoint two chairmen of the Conservative party to ensure that all factions are represented?

What about the Prime Minister in all this? His one constant desire is to appease whatever faction holds sway, presiding over a rabble of divided factions and appeasing the right. In Churchill's words, the Prime Minister is resolved to be irresolute, adamant for drift, solid for fluidity, all powerful for impotence". Bonar Law said on his leadership of the Conservative party that he was their leader and had to decide which faction to follow. That applies to the Prime Minister.

No amount of hypocrisy on social cohesion, full employment and community, no instincts for taxes, and no amount of papering over the cracks can save the Conservative party from its ultimate destiny—Opposition. It is clear that the party which runs an economy with 2.5 million unemployed, which still cuts the number of people on training schemes and the training and employment budget year after year, and which then tries to pretend that it is the party of full employment, will never be seen by the electorate as anything other than the party of mass unemployment.

The party which pushed up taxes faster and higher than any other Government in history, which has imposed 20 tax rises in two years and which then tries to tell us that it is the party of competence in the running of the economy, will never again be trusted with government. The Conservative party is not only unfit to govern because of its record: it is never to be trusted because of its hypocrisy.

The party which has multiplied the number of people in poverty, which has widened the gap between rich and poor to the worst point this century, which has consigned 4 million children to poverty, which has done nothing and said nothing against the excesses that characterised the privatised board rooms in some of the affairs of the City, and which then tries to pose as the party of community and social cohesion, will be seen by the electorate for what it is: not the party of values but the party of sleaze. It can offer no direction, no strategy and no purpose to this country. It has failed, and it has compounded that failure by its hypocrisy over taxation and the community For 15 years, its failure has diminished this country and its failure to go simply prolongs the agony. To end the failure, we must soon end the Government.

5.45 pm

Sir Cranley Onslow (Woking)

That was a very noisy speech from the hon. Member for Dunfermline, East (Mr. Brown), but it told us damn all about Labour party policy. It told us a lot about the hon. Gentleman. It showed how frustrated he is not to be a participant in the leadership campaign, and it proved that we shall receive no answers from him during either the leadership or election campaigns. The hon. Gentleman is an ambitious young man. He puts me in mind of another Brown, George Brown. The hon. Gentleman's long-term economic strategy is very much an echo of George Brown's national plan and it is about as much use to the British economy.

I do not want to speak at length and I rise to draw attention to two matters that have not been covered in speeches or that are not directly covered in the motion or the amendment. The first involves the need, if the economy is to be successful, for the whole of Government to focus on all the issues that are in Britain's long-term interests. My first point is addressed as much to my right hon. and learned Friend the Secretary of State for Defence—who is not present—as to Treasury Ministers, who I hope will take note of what I say.

There can be no doubt about the importance of the defence industry to the United Kingdom economy and to the aerospace industry in particular. Since the end of the cold war, markets have become even more competitive, but the importance of the aerospace industry has not diminished. That makes it all the more important that national defence needs and national industry needs should be weighed together. It means that we should think even more carefully before committing ourselves to defence procurement programmes that run counter to long-term economic considerations.

The RAF's problem on the Hercules replacement is a case in point. The short-term argument may favour buying American. The long-term advantage must lie with a European solution. The American company Lockheed's campaign to sell its C-130Js to the RAF is not an altruistic one. Some of its advertising claims are so far-fetched that they sound almost desperate. Let us take an example from a newspaper that I am sure you study, Mr. Deputy Speaker, the Evening Standard. Last Thursday, an advertisement boasted that the C-130J carries all military equipment required to be air transported for the British Armed Forces. Anyone who knows what the requirements of the British armed forces are likely to be knows that that statement is a gross exaggeration.

Lockheed says that the C-130J means £7 billion in revenue for UK companies and re-affirms UK leadership in key aerospace technologies". One might calculate that the Hercules C-130J would bring us £7 billion if one believed that every one of the 2,100 Hercules flying all over the world would be replaced by a C-130J, but all hon. Members know that that is hardly likely to happen. As for reaffirming key technologies— a phrase that means nothing to me in English; it may mean something in American, but we are not told what— the C-130J has nothing significant in the way of air-frame innovation about it.

The House must remember that an alternative is on the horizon—the future large aircraft, or FLA, which is a European joint venture. It really would meet our defence needs in the next century and would bring great benefits to our industry and our whole economy. It is important that we should weigh that in our minds when that decision is made.

Where do the true interests of our economy lie when such a decision is made? Can defence factors alone, especially when we remember that future British operations are most likely to be as part of a joint or allied United Nations force, outweigh the country's long-term economic interests? In this case, and no doubt in others, I am sure that economic considerations must come first and that the British economy cannot remain strong, whatever the broad sweep of policy, unless such considerations are borne in mind. We cannot fight Britain's corner, and we cannot have a healthy economy, if we reduce ourselves to the status of sub-contractors to the American defence industry, at the cost of destroying our own.

My second point is about another area where urgent Government action is needed—the threat to various sectors of our industry from state aids given by other European Governments to their own inefficient and uncompetitive industries. I could cite the steel industry as a case in point, where our interests are threatened by state aids to state-owned European companies. I could cite the airline industry, where Air France is a notorious example of a bankrupt operation being propped up by the French taxpayer at the expense of competition from airlines such as ours, where private enterprise and private investment rule the day. Instead, I want to focus briefly on a different industry—the aluminium industry, which is an important feature of our economy.

The British aluminium industry faces over-supply in a fiercely competitive market, for two reasons: imports of aluminium from the Commonwealth of Independent States following the collapse of internal demand and the activities of several loss-making state-owned companies, principally in Austria, Spain, Italy and France. All those companies have severe trading losses, coupled with an outflow of funds. AMAG—Austria Metal—recorded the country's largest-ever corporate loss on 14 July of £755 million, following what the company described as a catastrophic loss in 1993". The company has apparently cost the Austrian taxpayer £15 billion in the past decade. However much all of us may welcome the probable accession of Austria to the European Union, it cannot make sense that we should tolerate such state subsidy to an industry that is being run so catastrophically.

Inespal of Spain lost £158 million in 1992, and suffered similar losses in 1991. The position has since worsened. Alumix of Italy lost £220 million before extraordinary items in 1992, and 1993 is not likely to show any improvement.

The aluminium interests of Pechiney of France, which is 80 per cent. state-controlled, recorded a loss before extraordinary and finance items of £35 million in 1993. Part of the state's share is invested in the nationalised Electricité de France, which granted concessionary power rates for Pechiney's Dunkirk smelter. That is a typical example of the state aids that continue within the framework of the EU, with Brussels apparently unable do anything to prevent it. It is vital for the British economy that the Government act to ensure fair competition and an end to distorting state aids.

Our aluminium industry is entirely in the private sector. It employs an estimated 40,000 people, and has a turnover of £3 billion. It is a strong exporter. In 1992, it exported goods to the value of £608 million; in 1993, the figure was £615 million. The industry has suffered badly in the recession, losing many thousands of jobs, and this, again, is a factor that must be borne in mind by a Government who want to see a strong economy with strong industries.

I make those points not to criticise Government policy; indeed, I wholly support it. I thought that the Chancellor of the Exchequer was quite restrained in his failure to quote the Governor of the Bank of England on the state of our economy. The Governor is on record as saying that never in his professional life of 30 years has he known a time when the conditions for sustained non-inflationary growth were more favourable in the British economy. That is due to the skill and persistence with which the Chancellor and his colleagues have pursued their policies. They have my full support, and they deserve that of the House.

5.54 pm

Mr. Tony Benn (Chesterfield)

If this debate is to be intelligible to people listening to it, or to those who might read it, it would be helpful if we tried to relate what is said here more directly to what is happening outside.

I do not believe that this is an incompetent Government. I have been in the House for 44 years. I think that the situation that confronts our people is exactly what the Government wanted. I shall come to the details of that —the applause that greets every statement, such as the Chancellor's statement and the statement on homelessness, proves it.

I do not think that they are an uncaring Government. That may surprise you, Mr. Deputy Speaker, but a Government who give such massive tax cuts to the rich must care for somebody. Clearly, they do not care for the majority, who have been loaded down with the highest increase in tax on the poorest people. I met a ticket collector on the train last weekend—I have known him for some time—who came from Aden and who lives in a house with five children and his mother. That household paid £8,000 a year in poll tax. It was a big house with a number of adults, but that was the figure he gave.

The point that I am putting to the House is that I do not believe that the Government have an economic strategy. I think that they have a political strategy, and everything that has happened is intelligible to me if I realise what that political strategy is. How could a Government who inherited the enormous revenues of the North sea have spent every penny on unemployment? I do not know whether hon. Members ask unemployed people what they did before—ships' captains, ships' engineers, tool makers, draughtsmen—but the other day I was driven in a minicab by a doctor.

We are the only country in the world that could have used the North sea oil revenues to de-industrialise instead of to re-equip, or to have allowed our social fabric to be destroyed. I am talking about the infrastructure, the state of our public services. To close the pits, with 1,000 years of coal under our territory, was not an economic act in favour of nuclear power, which costs three and a half times as much as coal, but an act of vengeance against the trade union movement.

The sale of the Rover Group to a widow in Bavaria who owns 66 per cent. of all BMW shares is regarded as a triumph. What logic is there in saying that it is wrong for Britain to own the Rover Group but all right for a widow in Bavaria to do so? It is a political strategy.

I am trying to explain as best I can, because I have been here many years and have seen many Governments in power, that I think that the policy of the Government is to reverse the balance of wealth and power back to where it was in Victorian times. There certainly was a different breed of Conservative after the war: Winston Churchill, after all, was an old liberal. Harold Macmillan wrote a book in 1938, "The Middle Way", for which he might now be expelled from the Labour party because of its radicalism.

What happened under the surface was the creation of a new breed of Conservatives—I do not want to attach them to the name of a particular Minister— who greatly resented the growth in the strength of labour, the growth in local government and the development of democracy because they believed that it created a welfare state that threatened their wealth and power.

In fairness, when the Government were elected, they made many statements along the lines that the unions and local government were too powerful and that the welfare state was too big. The Government have been determined to break that political advance and to reverse it and they have done that by various well-known methods. First, they have legislated to make effective trade unionism virtually illegal. Legal safeguards for trade unions in Britain are now less than those provided by the International Labour Organisation.

Trade unions cannot defend their members. They are forced to hold ballots before they take industrial action. However, there is no ballot in respect of capital. If the foreign owner of a British company wishes to close a factory for ever, he does not have to ballot anyone. If a trade union wishes to defend the wages and conditions in a factory by way of industrial action for a single day, it must hold a ballot. The Government's action was deliberate.

Local authorities have been virtually destroyed. In addition to the terrible sight across the river of county hall with a Japanese flag flying over it and a sign saying, "Removal", the destruction of local government has been a conscious policy because local government had been a means by which people could band together to buy collectively what they could not afford individually in terms of housing, health and so on.

Unemployment is the Government's major policy. Unemployment is deliberate. That is why I did not say at the beginning of my remarks that the Government are incompetent. They know exactly what they are doing. Unemployment performs essential functions in a capitalist society.

Mr. Julian Brazier (Canterbury)

Will the right hon. Gentleman give way?

Mr. Benn

I will give way in a moment after I have finished my point. I hope that we will not have a lot of knockabout.

Unemployment undermines the trade unions and it lowers wages. If one goes to an employer and says, "I can't live on that money," he will say, "Well, there are 2 million or 3 million people who will take your wage." There are people on disgracefully low wages in Britain today. People with no trade union protection are earning less than £2 an hour. Such wages are advertised.

Because unemployment lowers wages, it boosts profits. It also performs the very valuable function, from the point of view of the Chancellor of the Exchequer, of limiting imports. We do not see an unemployed person in a Honda car, with a camcorder, on his way to a holiday in Spain. Unemployment is a weapon.

Reference is made to days lost as a result of industrial disputes. I wonder whether the Chancellor has ever asked his economists to add up the number of days lost in industrial disputes and to compare it with days lost through unemployment. Every day we lose 3 million days through unemployment. Unemployment is a Government policy.

Homelessness is also a Government policy. Whenever one sees someone in a cardboard box, that is a warning: "Don't quarrel with your employer because if you do, and he sacks you, you will be dispossessed and made homeless as well." I listened to the statement about homelessness that was made earlier today. The homeless, like the beggars, are now the victims of that policy. Homelessness is the warning: "Don't cause trouble." When the Government say that they want to encourage home owners, they really mean home buyers. There is an enormous difference between a home buyer with a mortgage and a home owner who does not have one.

The dependency culture—which is a phrase that should be redefined—to which the Government are committed means that one is absolutely dependent on one's employer, and has to take the wages, conditions and short-term contracts that he offers because if one does not, one is likely to lose one's job and mortgage and be thrown out onto the street.

Mr. Brazier

Will the right hon. Gentleman give way now?

Mr. Benn

I will give way quickly, but I am making a serious point.

Mr. Brazier

I am most grateful to the right hon. Gentleman. He said that unemployment fulfils certain purposes in a capitalist society and he went on to give some examples. What role does 23 per cent. unemployment fulfil in socialist Spain?

Mr. Benn

I am addressing the situation here. Felipe Gonzalez is not someone with whom I find myself in very close ideological contact. The hon. Gentleman should address himself to the Chief Secretary to the Treasury because Felipe Gonzalez follows the Chief Secretary's policies and was properly rejected by the Spanish electorate.

I hope that the House will listen to me. My point is that legislation, unemployment, homelessness and the erosion of democracy are Government policies. All the quangos that have been set up are designed to replace elected people. We heard much talk about giving the unions back to their members, but by God, when it came to the real centres of power, power was handed over to the quangos. To coin a phrase, Maastricht is the last quango in Paris. It is the last quango in Brussels. Maastricht is a huge unaccountable body with enormous power over us.

As I have said, I have been paid to watch the Conservative party for 44 years. I know what it is up to. What amazes me is why the rest of the people accept a policy that is so manifestly unfair and damaging to them and to the country. The answer is that the policy was put across with considerable skill, using language which misled people about what it was.

For example, we were told that the Government would reduce state power. I have never known a state so powerful as ours is now: there were some 10,000 policemen at Wapping, police were used in the miners' dispute, the police are controlling everyone, and huge MI5 and MI6 buildings are being constructed and used. State power has simply been transferred from attempting to protect the public against exploitation to protecting the people who support the Government against any challenge to their power.

I have referred to the word "customer" in the House on several occasions. To be a customer, one must have money. If one has no money, one cannot be a customer. The people in cardboard boxes are not customers. They desperately need houses, but they do not have the money to turn their need into a demand. Therefore, a word has been devised and injected into the citizens charter, which is all about depersonalising and dehumanising a huge and growing section of society—those who are so poor that they cannot get what they need.

I am afraid that the result of all that—this is where the politics comes into it—has been to widen the group of people who have totally rejected the philosophy of the 1980s. One could make the miners out to be unpopular if one had the Daily Mail or the Daily Express on one's side. One could attack the print workers. However, the Government have now turned on the public servants.

The Chancellor of the Exchequer is making a great mistake if he thinks that civil servants and local government workers believe that market testing has anything to do with efficiency. Not only has a huge layer of bureaucracy been set up to carry out that artificial market testing, but if better value for money is achieved, it is on the basis of lower wages and poorer conditions for those performing the services, and rocketing incomes for the managers who favour privatisation because that is how they double, treble and quadruple their incomes.

We should not underestimate what the Government have done to the prison service. I went across to Westminster Central hall the other day with my hon. Friend the Member for Bolsover (Mr. Skinner), who received a standing ovation from the prison officers. He asked me afterwards what he had said wrong. I told him, "You said nothing wrong, Dennis. You spoke of the prisons as a public service."

We should not think that the police are not concerned. When I was at the Durham miners' gala 10 days ago, a sergeant said to me, "Mr. Benn, 10 years ago I thought you were dangerous. Now I agree with everything you say." The police are also being attacked. I welcome them on the picket line now because I say, "Next year it'll be Group 4 Security and you will be on our side." The police know that that is the case.

I believe that there is a widespread rejection of the Government's policy. Although we tend to speak in the House in economic debates in the jargon of economics, most people know what it is all about. It is about the return to Victorian conditions when the country was run by a handful of wealthy and powerful people and the rest of the people were on the floor.

Mr. Wolfson

Will the right hon. Gentleman give way?

Mr. Benn

No, I will not give way. I am making a point. I hope that hon. Members will listen because I want to keep within the 10-minute limit, although we have not yet reached 7 pm.

The answer to all this is repression. The Government introduced the Criminal Justice and Public Order Bill because they know that they are sitting on an explosive situation. Therefore, the police are to be used to prevent matters from getting out of control.

As to the economy, the Chancellor controls nothing. In respect of my hon. Friend the Member for Dunfermline, East (Mr. Brown), who I hope will soon succeed the Chancellor, the Chancellor made much of the point that the economy is controlled by international capital. That is the way it was intended that it should be controlled. Capital has been wholly liberated to move where it likes, and labour and Parliament have been restricted.

I do not want to reopen the argument about the ERM, which I voted against when the Labour national executive met before the last election. Nor I do not want to raise the question of the central bank. However, if there is a central bank—my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) has often pointed this out—a future Chancellor will have no power. Indeed, at the moment, if sterling drops three decimal points, the Secretary of State for Health pops up and closes three hospitals and confidence is restored.

It is a facade to pretend that the Chancellor is running the economy. The Chancellor is responding to forces that he has helped to liberate because he himself does not really believe that an elected Chancellor should have any control over the world economy. We can add to that GATT and the World Trade Organisation, a wholly undemocratic body accountable to nobody, which will have the power to force nations which sign GATT to abandon certain environmental protections and other matters because they interfere with free trade. GATT and the central bank are part of that mechanism, and little scope for action is left.

I hope and believe that, with the new Leader of the Labour party, whoever he or she might be, on Thursday, and with the new Government after the next election, we shall adopt totally different objectives. Governments should be judged by their objectives and not by their techniques, playing a game that they do not control. Everybody in Britain should have useful work available at a living wage throughout their lives. That should be an objective of policy.

When I was 17, the then Government had a marvellous employment policy. When one was 17, one received a very nice letter from the Government, saying, "Will you turn up on your birthday? You will receive free clothes, free accommodation, free food and free training. All that you have to do is to kill Germans." They had a lovely youth training scheme in Germany, too. The Germans were asked, "Will you join the German army? You will receive free accommodation, free food, free clothes and free training if you will kill the British."

If we can do that in wartime for destructive purposes, nobody will persuade me that we cannot have full employment in peacetime, to build the infrastructure, to clean the rivers, to print schoolbooks, to reduce the size of classes and so on—of course we can, but it is not profitable to do it, and that is why it is not done.

People are entitled to a home. Why should there be a rat race between the really homeless and the temporarily homeless for a little bit of housing? We should build houses—there are 500,000 building workers. What I have discovered is that it is so long since the case for socialism was made that people have forgotten the argument against it. When I say, "There are 500,000 building workers, so why do we not use them?" people say, "What a marvellous idea. What is the reason? There must be some reason." Of course they have forgotten the reason because that case has not been put, but, if it is put, it will have enormous political support.

People are entitled to lifelong education. I am for raising the school leaving age to 95—I always have been. When I first spoke in favour of raising the school leaving age to 90, I had a letter from a pensioner from Liverpool who said, "I have just received an Open university degree at 92. Tony, will you raise the school leaving age?" Education should be alongside one throughout one's life. One goes into education just as one goes into a library to learn what one wants, when one wants, and comes out when one has learned it. That is education, not stuffing people like turkeys to get into selective schools to obtain better jobs.

People are entitled to health care that is free at the point of use. We have never had a free health service. Aneurin Bevan did not introduce a free health service. He introduced a health service that was free when one needed it and which one paid for when one was well. For those who are doubtful about socialism, it was the most socialist and most popular thing we ever did, and we had the resources to do it.

People should have dignity when they retire. I say "dignity" rather than "a quiet life" because many old people have much to offer. We should spend less on the means of war and more on the means of life. Hon. Members do not comment that the Japanese and Germans are so strong because they make civil goods. We can sell a few missiles to a sheikh, while the Germans and Japanese pour out civil production, but we have to plan if we are to do that, just as at the end of world war 2 Beaufighters stopped coming out of the Bristol Aircraft Corporation in Bristol, and about six weeks later prefabricated houses started to be built. That had to be planned; it did not happen as a result of market forces. I am in favour of an incoming Government committing themselves to such matters.

Do not tell us that public expenditure is evil, because we dealt with unemployment by public expenditure before the war. We took people off the dole and put them into factories producing tanks, guns and ships. They did not receive dole money: they received wages, and they paid tax and paid for the war. There were no market forces. My granny never bought a Spitfire. I never saw a tank in the back garden. My auntie never had a sten gun. The Government bought those things. If we can do that for defence, we can do it for civil and manufacturing reconstruction.

The one absolutely basic national interest in this country is that one should be able to earn a living—that applies to farmers but not to manufacturing industry—and pay fair taxation. I do not know why people are so worried about our tax argument; I mentioned it in an intervention on the Chancellor.

There are only two questions about taxation: what is it for and who pays? If the Government tax a pensioner VAT on fuel, even on his standing charge, and use it for a Trident, that is mad. I go around Chesterfield, where a family of four pays £32 a week on weapons before they have paid the rent. I ask, "Aren't you spending a bit too much on weapons?" They say, "No, we're not." I say, "Oh yes, here is your share." Do they feel more threatened by vandalism due to unemployed lads on their housing estates or by a nuclear attack by Kim I1 Sung's son in North Korea?

The balance is absolutely wrong. If we put forward the argument with credibility and conviction, there will be enormous support for it, and I hope that it is noticed where the voices are louder than mine. If we are to do that, we must have more democracy and we must seek the powers to do so.

I do not know how the next Labour Government will cope with the Brussels Commission. However, I do know that my right hon. Friend for Islwyn (Mr. Kinnock), who I gather has moved to an office of profit in the Commission —whether it involves his immediate resignation is a matter for the Clerks, not for me—will tell us that we cannot take action to deal with those matters because that would involve interfering with market forces. That is what Maastricht is all about.

Therefore, when we present the argument—I shall have to do so in Chesterfield, if I am reselected, which I hope I am—there must be an element of truth about it. We can talk about objectives, but, as old Clem Attlee used to say, and it was in our 1945 manifesto, the test is not one's aspirations but rather whether one has a workmanlike plan for dealing with the matter.

A workmanlike plan for dealing with unemployment, which would be the greatest thing that we could do for this country, for men and women and for old and young, would involve intervening in the economy to prevent our future being handed over to the speculators and the gamblers who now control it. The people listening to the debate might be more interested to hear that issue discussed, rather than to hear the exchange of quotations, of which many are to be found in Hansard.

It will be terribly difficult to return to full employment in a technological age. We shall not do it by raising the school leaving age, and we shall certainly not do it by raising the retirement age for women by five years. We must have, perhaps, a shorter working week and we must make all sorts of changes, but people want to know how it will be done, because their vote and support will be determined by that rather than by the false idea that somehow in this House we can so manipulate the world economy as to create the conditions that we want.

We live under the control of international capital and, until that is in some way discussed, challenged and altered, our discussions may be no more relevant than municipal discussions when a council is faced with a standard spending assessment imposed by the Department of the Environment.

6.17 pm

Sir Terence Higgins (Worthing)

It is always a pleasure to hear the right hon. Member for Chesterfield (Mr. Benn). If time allows, I should like to answer many of his points, but there is one matter about which I am deeply concerned, so I shall concentrate my remarks on that.

I greatly enjoyed the speech of my right hon. and learned Friend the Chancellor of the Exchequer, not least because the summer forecast contains much good news and provides a firm basis for further progress. However, I am bound to say that my enjoyment was tinged by the old adage, "Absence makes the heart grow fonder." I think that I am right in saying that my right hon. and learned Friend has not spoken in a debate in the House since 9 December. I cannot, in only 30 years—not 40 years, like the right hon. Member for Chesterfield—remember an occasion when a Chancellor has gone so long without addressing the House. He has made many speeches outside, but he has not made a single speech in the House since then.

As my right hon. and learned Friend the Chancellor rightly pointed out, we have had an enormous number of Supply days, none of which was devoted to the economy. Perhaps that is understandable, given the satisfactory general management of the economy that forms the background to today's debate; nevertheless, it is extraordinary that there has been no Opposition day debate on the economy for such a long time. lb/> My right hon. and learned Friend suggested that the shadow Chancellor was not anxious to debate such matters. I had the impression that perhaps it was only every six months that he managed to cook up enough jokes to conceal the fact that he was not going to give any answers to questions about the Opposition's real policy on central issues of economic management—although, of course, we hear plenty of talk about peripheral matters.

Mr. Alan Milburn (Darlington)

What about VAT?

Sir Terence Higgins

As I was responsible for the original zero-rating of fuel, let me say a word about that. In practice, the taxing of fuel has proved to be an appalling socialist measure: we are now taxing the entire country's fuel, and redistributing almost half the money to the lowest paid and pensioners. I am surprised that Opposition Members have not cottoned on to that.

What worries me is this. We have not heard from my right hon. and learned Friend the Chancellor in more than six months because we now have a so-called unified Budget. The question was debated for many years—for instance, by the Armstrong committee back in 1978, and by the Procedure Committee which I chaired in 1983. All were certain of one thing: if a unified Budget was to be introduced, the procedural aspects would have to be examined very carefully.

Before the last general election, a White Paper was finally produced. Its publication, however, was overlooked because of the election itself. The next thing we knew was my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) telling us, in his 1993 Budget speech, that there would be a unified Budget in the autumn.

I feel bound to say that, in procedural terms, the move was pretty disastrous. Because the procedural aspects had not been thought out properly, we had to guillotine two Bills on the same day. The Opposition—rightly, in my view—were very concerned. The usual channels broke down, the operation of Select Committees was inhibited and the general work of the House was disrupted. We must not let that happen again this year, but it is far from clear how we are to avoid it.

In particular, as a result of that change, opportunities to debate the most important area of policy—economic policy—have been seriously eroded.

Mr. Butterfill

Will my right hon. Friend give way?

Sir Terence Higgins

No; I want to develop this point.

In recent years, the normal pattern has been for the autumn statement to take place—understandably—in the autumn, followed by debates on the White Paper just after Christmas and debates on Budget measures until this time of year. The Chancellor of the Exchequer has appeared at various points in the sequence, and on each occasion has also appeared before the Treasury Select Committee. The introduction of a unified Budget has greatly reduced the amount of time available for the House to debate such matters, which has important implications in terms of accountability.

It is astonishing that the Opposition have not kicked up a row, but it is not just a question of what they think; it is a question of the House and its future. Sooner or later—in 20 years, perhaps—we shall change sides. We may suddenly find that there are very few occasions on which to debate the economy, with which the Conservative party has always been passionately concerned.

It is doubtful whether we should return to the old arrangement, although in some respects it might be better than what we have now. We must examine the possibilities carefully. The Government have saved a good deal of parliamentary time; in a sense, today's debate is a mere sop. I believe that we should keep the detailed debates that take place on estimates days, but that we should also have more time in which to debate Select Committee reports on expenditure, because Select Committees are responsible for examining the policy, administration and expenditure of their Departments.

Since we reformed the system 12 or 15 years ago, it has been very difficult for Select Committees to examine expenditure because of the form of the estimates. Following the reform of the estimates procedures, much of the data are now in the annual reports of the Departments: for the first time the Committees can really look at them, and for the first time the House has an opportunity to examine the expenditure of individual Departments in detail. I believe that the time that has been saved should be devoted to a number of days on which the expenditure details of the reports can be debated, on the basis of the Select Committee reports.

Mr. Butterfill

Will my right hon. Friend give way?

Sir Terence Higgins

No. I am about to make a point that is related to what I have just said, and I do not want to interrupt the flow of my argument.

Ithough we are told that we have a unified Budget, in fact it is no such thing. In the autumn statement and Budget debates, we have always discussed both sides of the equation—public expenditure and taxation—and there has never been a problem. Now the two have been brought together. Last year, the amount of public expenditure detail that was presented at the time of the autumn Budget was not very great, and I doubt whether it will be this year either.

The unified Budget means that we now have far less time in which to debate public expenditure. We have lost the White Paper debates, which, although they were never very satisfactory, at least gave us some time in which to discuss that subject. We do not have a truly unified Budget, in the sense that a proposed increase or cut in public expenditure is balanced against a proposed increase or cut in taxation. The House, of course, is inhibited from proposing increases in either tax or expenditure—that is reserved for the Government—but, in a unified Budget, a trade-off between the two would be necessary.

It is also true, however, that there is no real unified Budget within Government. I suspect that the Secretary of State for Health, for example, does not go along to the Chancellor and say, "I must spend another £2 billion on the health service; please put 2p on income tax." It does not work in that way. As we know, there is an expenditure round which is debated bilaterally; it may be dealt with by a Committee, and, if the matter is in dispute, it may go to the Cabinet. The Chancellor then decides what to do about taxation.

I believe that it is very dangerous to take such action without considering the procedural aspects. I suggest that the estimates days should be retained for more expenditure debates, and that more of the time that has been saved should be devoted to debating Select Committee reports more generally.

One of the Chancellor's remarks gave me considerable cause for concern. He said that the policy of countries across Europe, and his own policy in particular, was to cut the deficits incurred during the recession; he implied that the right approach was to increase taxation, against the present level of unemployment. I think that that is rather a dangerous concept. We still do not know the extent to which our deficit is cyclical and the extent to which it is structural; but, unless the Chancellor was implying that there has been a huge increase in the structural deficit which he needs to cover by increasing taxation, I am very doubtful about his proposals. He is in danger of slowing down the recovery and affecting the balance in such matters. Even in 1995, the deficit is forecast to be about £28 billion and there will be some problems funding that.

The issues are complex and I do not have time to deal with them now. One passage in the Chancellor's speech contained a dangerous statement. It could have been an off-the-cuff remark, but if it was drafted in advance, it needs to be re-examined closely, perhaps by the Treasury Select Committee.

The introduction of the unified Budget has eroded the ability of the House to hold the Government to account and that is a dangerous state of affairs.

6.30 pm

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

I share the reforming zeal of the right hon. Member for Worthing (Sir T. Higgins) and his desire to make the unified Budget what it should have been and what he intended it to be when he played his part in introducing some of the reforms. It should have been a process through which we would have more effective Budget-making, with tax and revenue reviewed together, and more accountability. That is not yet the result of the change and I very much agree with the right hon. Gentleman about that matter.

I can understand the Chancellor wanting to dwell on the good indications contained in the present economic figures, but that is no excuse for the staggering complacency of much of his speech. It was the equivalent of the Italian fans getting out the champagne bottles when the whistle blew and the score was still 0–0. In the case of the British economy, there is more than a penalty shoot-out still to come. To make matters worse, we know more than the Italians about what could go wrong in the next stage.

From experience and our knowledge of the British economy's weaknesses, we have a pretty fair understanding that the favourable signs that we have had so far will not, by themselves, see us through the next crucial stages of recovery from a very deep recession. We shall face severe pressures. It is a known fact that the United Kingdom economy has scarce capacity in transport, skills, housing and industrial investment and that those become pressure points when growth begins again.

Growth is apparently buoyant, which I welcome, and it has been less affected by the scale of the tax increases than I feared. That fact is a significant feature in the political debate—indeed, it qualifies what the right hon. Member for Worthing said concerning his fears about what would happen if the Chancellor relied too heavily on tax increases to deal with the continuing deficit next year. So far, the evidence shows that the tax increases have had less effect on growth in the economy than some of us might have expected.

Present growth is stimulated by consumption, however, and not investment, which is what many of us feared. The risk is that inflation will develop again. It is all very well to point to the statement in which the Governor of the Bank of England described the favourable features of the present economic situation. It would also be easy to point to his warnings that interest rates may have to rise if inflation starts to increase again.

The Chancellor has ratcheted taxes to an all-time high and now has the political objective of cutting them again. If growth restores public finance sufficiently to allow tax cuts, those very cuts may over-stimulate the economy. If it is prudent to cut taxes because revenues have been sufficiently boosted by growth, the Chancellor will face the danger that the sort of stimulation that Nigel Lawson was fond of giving the economy will have precisely the same effect again and the remedy will be interest rate rises.

The more the Chancellor's Back-Bench supporters talk about the possibility of tax cuts, the more they are likely to push interest rates up in the coming months. The markets will fear that fiscal policy will not take sufficient account of inflationary dangers and that monetary policy will have to do so.

Whichever way he turns, the Chancellor is caught. If the circumstances appear to be favourable for tax cuts—disregarding for the moment what we could and should be using taxes for—he may well find that he has to protect his back with interest rate rises. The price for political talk of tax cuts may well be further pressure for increased interest rates.

The real indictment of the Conservative Government goes much further than that. They allowed the recession to be longer and deeper than it need have been. The Chancellor keeps saying that Britain is leading Europe out of recession, but that clearly implies that Britain led Europe into recession. If being the first out is a mark of some virtue, being in so early, so long and so deep is a curious virtue for the Government to proclaim. The artificial boom that preceded Britain's recession—the work of Ministers in this Government—was the reason for the depth and length of our recession and for much of the hardship that it caused.

The Government will continue to pay the price for that in many parts of the country. My hon. Friends the Members for Eastleigh (Mr. Chidgey) and for Christchurch (Mrs. Maddock), who are sitting beside me, won their seats in Parliament partly because people were so angry about the way in which the Government had mismanaged the economy.

Mr. Wolfson

The right hon. Gentleman is arguing that the recession was unnecessarily long. With hindsight, does he think that the fact that we were members of the exchange rate mechanism for so long directly contributed to the depth of the recession?

Mr. Beith

No. I accept that our membership became unsustainable for a combination of reasons, some of which were related to the way in which British economic policy had been conducted and others to pressures outside the United Kingdom. I agree with the Chancellor that the fact that we were in the ERM for that length of time was fundamental in the battle against inflation. Had we not been in the ERM, inflation would have been far worse now. As the Chancellor pointed out, other mechanisms had to be put in place fairly quickly once we left the ERM. The exchange rate mechanism is not the best way to reach a single currency and when we eventually reach one it will be by a different mechanism, but that is a subject for another debate and another day.

One reason why we were so long coming out of recession was that the Government failed to invest in a counter-cyclical way during the depths of the recession, so the weaknesses with which we are all familiar persisted. In the latest report by the World Economic Forum, Britain came last out of all 22 Organisation for Economic Co-operation and Development countries in the number of qualified engineers, in engineering sciences and in the quality of the work force, and second from last in the standard of compulsory education.

In the United Kingdom, 25 per cent. of the work force have vocational qualifications, compared with 40 per cent. in France and 63 per cent. in Germany. In 1991, 62 per cent. of 16-year-olds in Germany and 66 per cent. of 16-year-olds in France had the equivalent of a GCSE in three core subjects—mathematics, science and the national language—while only 27 per cent. had gained those qualifications in England. We were 19th out of the 22 OECD countries in real growth in total expenditure on research and development, 20th on public funding for research and development and 22nd on private funding of non-defence research and development. We came last out of the 22 OECD countries for investment in infrastructure. Despite all that, the Government plan to chop another 10 per cent. off their capital expenditure programme for 1994–95.

During the recession years, we could have been filling some of those gaps. We could have engaged in investment that would have put people back to work, reduced the burden on the welfare benefit system, brought through income in taxes paid and shortened the agony of recession, while equipping us for the future. It will become increasingly difficult to carry out some of that investment when Government activity on physical infrastructure, for example, starts to compete with intensified private activity in the economy. In economic terms, it would have been much easier to engage in that investment then.

We are paying for the lost years of recession, which have left us between 6 and 8 per cent. below trend growth. One could say that that amounts to a £50 billion bill for the years wasted in the depths of recession. Meanwhile, in a consumption-led recovery, public borrowing is financing a trade deficit—73 per cent. of national income is spent on personal consumption, which is higher than during the Lawson years. That is a remarkable fact, which illustrates the way in which our economy has become geared to personal consumption and has moved away from business investment. The Government are not putting in place measures to boost investment or small businesses.

Mr. Nigel Forman (Carshalton and Wallington)

Does the right hon. Gentleman recognise that one implication of his critique of the policy during the recent recession is that, if his party had been influential in any way, it would have increased both public expenditure and public borrowing during those years over and above the levels which took place? Is that the case?

Mr. Beith

Yes, except for the last phrase. When the hon. Gentleman says "over and above the levels which took place", he ignores the effect of expenditure during a recession. One of the features of that which Keynes managed to convince people about, which no one has fundamentally denied since, is that expenditure taking place during a recession leads to economic activity and the payment of taxes; it reduces the payment of welfare benefits; and it could have increased the speed at which we got our public finances back to a sensible position.

A further criticism of the Government, in listing this indictment, is that they have at the same time forfeited our lead role in Europe to the detriment of London as a financial centre. The possibility of London being the centre for a European financial institution is destroyed by the opt-out position in which we have placed ourselves. We now have the Government in the absurd position of being willing to accept as President of the Commission someone about whom the best that can be said is that he is a federalist, but a less competent federalist than the last federalist whom they vetoed.

If there are any challenges to the competence of the proposed President—and I make none because I do not know whether there are any—they are extraordinary grounds on which to prefer him to another candidate. That is another illustration of a Government who, for the purposes of satisfying those on their own Back Benches who are in fundamental disagreement with their views, are prepared to take steps in Europe that are damaging to Britain's economic position.

One must add that the Government's tax policies have been deeply unfair as well as dishonest. They knew before the election that there would be a £28 billion public sector deficit, and they had the full opportunity to tell the nation if they thought that the only way to deal with that was by substantial tax increases—perhaps even not quite on the scale that they eventually turned out to be. We could have given them the credit for underestimating the scale of increases required. But there were not to be any tax increases—it was tax cuts that would be on the agenda at the moment the ballot boxes closed and the Conservative Government were returned. That was dishonest.

There has also been the unfairness of the tax policies. According to the Institute of Fiscal Studies, the income of the richest 10 per cent. has increased by £30 a week as a result of tax changes in the past decade, while that of the poorest 10 per cent. has gone down £3 a week as a result of tax changes over the same decade.

It is a long charge sheet and the plea in mitigation will not get much off the sentence. The acceptable part of labour market reforms, the publishing of the minutes of the Governor's meetings with the Chancellor on monetary policy and the apparent toughness on inflation—I welcome all that, but it does not add up to much in comparison with the huge damage that has been done.

One is bound to ask, as did the Chancellor, especially this week: where would Labour take us? Are Labour Members really committed to economic stability and a fight against inflation? Will they act to encourage labour market flexibility? Will they ever get over their readiness to accept monopolies—a characteristic where I think they have too much in common with the Government—usually, in their case, in the public sector and, in the Government's case, in the private sector? The Government transfer monopolies from the public to the private sector with too great a willingness. Such questions will need to be answered in the coming weeks.

It is clear to us that certain crucial things still need to be done. We must improve our education system. We must invest in our infrastructure. We must promote research and development and small business. We must take a much tougher line on the effect of monopolies on our economy. We must take a lead in Europe. We must take wider measures than the Government have attempted to deal with long-term unemployment. We must invest in the people. They need long-term competitiveness, not another short-term boom with the inevitably deep collapse that would follow it.

6.43 pm

Mr. John Townend (Bridlington)

The three main economic objectives of any Conservative Government should be low inflation, sound public finance and reducing the overall burden of taxation. If any of those objectives conflict, clearly low inflation and sound public finance must take precedence over reducing taxation. The Government's record on inflation has been successful. Since 1990, inflation has reduced from 9.5 per cent. to 2.5 per cent. Looking at wage increases, factory gate prices and spare capacity, inflationary pressures are subdued.

As for public sector finances, while I would be the first to admit that the Government can be justifiably criticised for letting the Budget deficit rise so quickly and so high, they have now grasped the nettle and are courageously sticking to a policy which will broadly balance the Budget by the end of the decade. It is encouraging that recent forecasts show that the deficit is coming down more quickly. I strongly support the Government's policy of financial rectitude.

As a result of that success, the economy is growing, and unemployment is coming down. Despite the fact that long-term interest rates have risen slightly recently, the immediate prospects and, indeed, the medium prospects look favourable. But it is when we come to reducing the level of overall taxation that we see that the Government have not achieved their objectives; indeed, the opposite is the case.

Unless we are prepared to take some tough decisions, that will not be achieved in this Parliament. If we stick to the policies laid down in the Red Book, as the Chancellor said, the overall increase in the burden of taxation will be more than £16 billion in this Parliament, which is equivalent to 8p on the standard rate. To fight the next election with that scenario is not acceptable to me or to many of my colleagues on these Benches.

It is highly hypocritical of Labour Members to attack the Government for increasing taxation when, in every economic debate, they always want us to spend more. Whenever we suggest cuts in spending, they are opposed to them. They even criticised the defence review announced last week for being Treasury-led. That is hypocrisy.

We must ask ourselves how we got into that situation. In the autumn of 1992, after we were swept out of the exchange rate mechanism, it became clear that the deficit would rise by £1 billion a week, to some £50 billion in the ensuing financial year. At that time, the Government decided not to reduce spending, despite pressure from many of us on the Back-Bench finance committee suggesting that they should cut spending. At the same time, Labour was opposing any cuts in spending.

In the 1993 Budget, the Government decided that they had to deal with the deficit, but they were not yet prepared to cut spending. Once again, Labour opposed any cuts in spending, and demanded more spending. In the last Budget, I was delighted that the Government at last decided to cut spending, and we had the first reduction in my lifetime of the control totals. That was done by the strategy of not allowing Departments to spend the contingency reserve.

I welcome that start, and I congratulate the Chancellor on being the first to have the courage to grasp the nettle. However, he must be even tougher and concentrate on fulfilling our manifesto commitments, because we have seen from Labour today what we can expect if we do not do so.

That means that we will not be able to cut taxes before the next election unless we are prepared to make substantial cuts in public expenditure. At least an additional £5 billion should be cut from the existing control totals this year, and another £10 billion next year, so that we are in position and have the window of opportunity to bring taxes down at least to the overall level that they were at the 1992 election.

Naturally, Labour Members ask where we should make the savings. If they sit back for the next few minutes, I shall tell them. First, we should reduce the Government's overheads. Wherever one looks in the public sector, whether it is at Government or local level, one still sees overmanning, waste and inefficiency. Whereas the recession forced every private company, however large or small, to cut its overheads to survive, the public sector has been almost immune. The civil service White Paper introduced this week is a start, but it is too little, too late. I have a feeling that it has been watered down by the mandarins.

The scope for manpower savings is illustrated by what has happened in the nationalised industries which have been privatised. British Telecom has reduced its work force by 29 per cent., British Gas by 18 per cent. and Powergen by 35 per cent. The public sector, like the private sector, has invested a lot of money in computerisation and information technology, but it has never squeezed out the manpower savings that the private sector has done in that area.

Wherever we look, there are examples of waste. The Inland Revenue has just built a new training centre. Perhaps it needed a training centre, but did it need an indoor heated swimming pool? The NHS offices in Leeds, with their pools and fountains, are the most expensive and extravagant offices in the city, and were opened when there was a surplus of office space at knock-down prices. The British Library has already cost £450 million. Even in this building, secretaries' desks and filing cabinets will be sold at auction next week and new ones brought in.

Mr. Brian Wilson (Cunninghame, North)

Will the hon. Gentleman give way?

Mr. Townend

No, because many hon. Members want to speak.

The Government spends £20 billion on overheads. If they cut that by 5 per cent. for each of the next three years —that is very reasonable when compared with what has happened in the private sector—they will save £3 billion a year.

It is the same in local government. One has only to compare the cost of services per head in Islington with those in Wandsworth, or look at what my local Labour county council does, to see that there is an enormous amount of waste and overmanning. Salary costs of local government—excluding teachers and police—are £20 billion. If we cut those by 5 per cent. for three years, we will save £6 billion.

In Scotland, we are still spending far more per head of population than in England. The figure for local government grants in Scotland works out at £1,020 per person, while in England it is £691. In the NHS, £800 is spent per person in Scotland and £635 in England—26 per cent. less. The figures for education are the same. It is not fair and not necessary, and those costs should be reduced to the English level by the next election.

Overseas aid has a budget of £2.3 billion. We all agree about giving money away when we have it, but we are in debt as a Government and as a country because of the balance of payments deficit. We could quite fairly save £0.5 billion a year for three years in that area.

There has been an explosion in legal aid. We have taken some action, but my constituents were appalled when they read that Iraqi business men have been getting more than £1 million in legal aid. We should abolish legal aid for anybody who is not a citizen of this country.

The fastest growing cause of expenditure is without doubt social security, yet there is enormous abuse and fraud. Last year, we discovered £558 million in social security abuse. Anybody who knows anything about what is happening in this country and who talks to ordinary people knows that that is just the tip of the iceberg. Greater effort must be made to reduce fraud.

In my view, too much of the social security budget is going to dishonest people who are working in the black economy, to the workshy who have elected to live off benefits instead of getting jobs, and to those who irresponsibly have children knowing that they can expect the State to house and keep them. Not enough of the budget is going to those who are really in need—the old, and particularly old-age pensioners who are just above the income support level. They cannot get housing benefit, which includes rent and repairs, because they are living in houses which their spouses have left them, and the cost of repairs is bearing down heavily on them.

I welcome the initiatives by the Secretary of State for Social Security to stop abuse as he has done in the past couple of weeks, and to close loopholes whereby foreigners coming here on holiday can claim benefit. I cannot for the life of me understand why we excluded visitors from the Republic of Ireland from that. Ireland is just as much a member of the Community as France or Germany, and I detect the malignant hand of the Foreign Office.

Many millions of pounds could be saved by contracting out and more market testing. For example, we could save about £80 million a year if we abolished the NHS stores department, except for a small unit which could do all the negotiating and buying, and left the warehousing and the handling of stock to the private sector. It is interesting that the Welsh Office is progressively doing this, and there is no reason why the rest of the country should not do the same. Just because we are talking about the health service, it does not mean that savings cannot be made, and that there is not inefficiency and overmanning.

As public sector wages are the biggest element in our costs, it is vital that we keep a firm hand on them. I urge the Government to stand firm in the dispute with the signalmen, because numerous public sector unions are looking out for what will happen.

The statement on defence last week was very heartening

Mr. Wilson

Will the hon. Gentleman give way?

Mr. Townend

I am sorry, but many hon. Members want to speak. I must get on, because I might be asked to sit down if I am not finished by 7 o'clock.

It was heartening that the Secretary of State for Defence could find so many areas of waste and overmanning that he was able to provide the Treasury with initial figure savings without cutting the front line. When I heard my right hon. and learned Friend say that it was costing £300,000 to train a musician, and that there were many other examples of savings which could be made without any detriment to the armed forces, I asked myself why the savings could not have been made before.

People such as myself have been making speeches in Budget debate after Budget debate about the bloated overmanning and waste in the public sector. I found it a little disappointing that, at a time when communism has collapsed, the Ministry of Defence made more savings than it was asked for, and then went on a little spending spree. I should have thought that, in view of the size of the Budget deficit, the whole lot should have gone back to the Treasury.

I accept that there are considerable cultural problems to overcome if the Government are to be successful in their endeavour to cut spending. By and large, senior civil servants and heads of Departments are not likely to help Ministers to cut the size of their Departments because their status in the mandarin hierarchy depends on the size of their budget and of their work force. Indeed, many Ministers have no wish to see their Departments slimmed down.

Many Ministers do not have the will to fight their civil servants, and some of them do not have the ability—not having had business experience—to force through savings and cuts in the work force against the wishes of senior civil servants who are trying to protect their bureaucratic empire.

Last year, I was lobbying Ministers to reduce spending, and I was told several times, "You have to appreciate that it is politically more difficult to cut spending than to increases taxes." Having seen the results of the local elections, the by-elections and the European elections, I hope that my right hon. and hon. Friends realise that that is not true. The Tory party is nothing if it is not the party of low taxation.

Market testing and contracting out have not been applied with the same enthusiasm throughout the public service, and that must be done. To achieve that cultural aim, we must look to the Prime Minister. In the Cabinet, only three people have no vested interest in keeping their budgets up—the Chancellor, the Chief Secretary and the Prime Minister.

I hope that my right hon. Friend realises the political danger we face on taxation, and I hope that he will launch a crusade to cut waste, inefficiency, fraud and overmanning throughout the public sector, including local government. He should receive the maximum support from Ministers. It should be made clear that those who succeed in the endeavour will be promoted, and those who do not succeed will be asked to make way for others.

It must be made clear to permanent secretaries that those who do not co-operate will not get the traditional knighthood. The Prime Minister should consider appointing a Minister in every Department whose sole job would be to improve efficiency and cut waste and spending. If the civil servants are not prepared to co-operate, those Ministers should be able to bring in accountants and company doctors from the private sector, who have had experience of cutting overheads in this terrible recession, which industry has survived so well and so efficiently.

It is not too late for us to achieve our manifesto commitment on taxation if we act this year, but it will be too late if we wait for another 18 months.

Several hon. Members

rose—

Madam Deputy Speaker (Dame Janet Fookes)

Order. Before I call the next hon. Member to speak, could I point out that between the hours of 7 and 9 there will be a limit of 10 minutes on speeches.

6.59 pm

Mrs. Helen Liddell (Monklands, East)

I am very grateful to you, Madam Deputy Speaker, for calling me to speak in this debate, especially as it is such an important one and falls in the final week of the Session.

This has been a tragic Session, marred by the death of my predecessor, John Smith. I am extremely conscious of the eloquent tributes that have been paid to him from both sides of the House at the time of his death and at his subsequent funeral and memorial services. I, of course, remember him as a constituency Member, and the people of Monklands, East made it very plain that they saw John Smith very much as their own Member.

They were extremely conscious of the fact that they had in their midst the man who they believed was going to be the next Prime Minister. They too are conscious, as I am, of the unfinished business of John Smith, not least of which was the establishment of a Scottish Parliament within the framework of the United Kingdom, and that even more important unfinished business—the election of a Labour Government at the next general election. When that day comes, it will be our lasting tribute to John Smith.

When John Smith made his maiden speech before the House, he asked hon. Members to take into account the diffidence which I feel in attempting to follow in the footsteps of so fine a predecessor."—[Official Report, 10 November 1970; Vol. 806, c. 243.] I am sure that hon. Members recognise that my diffidence is even greater, as I must follow in the footsteps of someone who went on to lead my party.

Throughout the communities of Monklands, East, John Smith was respected and admired. The side of John Smith that came out so strongly after his death was the warmth, commitment and enthusiasm that he felt towards ordinary people. It is in that spirit of dedication that I wish to continue to work for the people of Monklands, East.

The parliamentary by-election that I have just come through was a bruising affair, which concentrated on one issue—the local council. That concentration offers a lesson to all of us politicians, be we in government at local or national level or elsewhere, because it demonstrated the importance of taking into account the fears and the sense of grievance of local electors. Now that the by-election is behind us, it is important to take into account the need for a time of healing within the communities of Monklands, East.

Many in the constituency felt besmirched by some of the negative publicity that attached to them. I say to the House that they are decent, honourable and hard-working people. The constituency spans a number of small communities, 12 villages, the town of Airdrie and a substantial part of Coatbridge. Those communities were the cauldron of Scotland's industrial heritage.

The men and women of those communities went to work in the textile industry, in coal mining, the iron and steel industries, shipbuilding and in motor manufacture. In the past 15 years, those industries have disappeared. Those communities, which measured themselves by the contribution they could make to the wider economy, now suffer from a lack of morale and of no longer feeling wanted.

It is incumbent upon all of us who are concerned about the future of our economy to take into account the real needs of such small communities, where there was a great emphasis on acquiring skills and education. I know that only too well, having been educated there, as was my husband. The people of those communities want their children to go out into the world with the best possible background, be it obtained in the formal educational structure or through the acquisition of skills.

One in four people in Monklands, East are out of work, and young people account for one third of them. One in five are on benefits. It is also a tragedy that, in all the statistical analysis of health and sickness in Scotland, Monklands, East breaks all the records. It is a constituency that has been visited by poverty and unemployment.

Much can be done by the House and the wider community to help encourage the regeneration of such communities—there are many like them, not just in Scotland but throughout the United Kingdom. I want to see more jobs brought to those communities, bearing in mind their strong, proud heritage. A number of small industrial sites are located within the constituency, but not too many large ones, although a number of such sites throughout north Lanarkshire would be very attractive to inward investment—not least, of course, the former steel plant at Ravenscraig.

The constituency offers a number of opportunities for the siting of small businesses. My hon. Friend the Member for Dunfermline, East (Mr. Brown) mentioned the need to encourage small businesses, and I have a particular interest in that, because I have a particular desire to see new skills and new opportunities brought to the constituency that was good enough to elect me on 30 June.

Many opportunities for small businesses in Scotland are not taken up. In the 1980s, for example, if Scotland had had the same level of business start-up as the south-east of England, where we are today, we would have created 195,000 more jobs. Even if we had imported the death rate from that decade, which was all too apparent in the south of England, Scotland would still have been 36,000 jobs ahead of the game. That is an attractive statistic to those who are concerned about attracting jobs to Scotland, and in particular to communities such as Monklands, East.

We must do more to encourage small businesses and put fewer obstacles in the way of establishing them. Many men and women who are now seeking an opportunity in their middle years, who have perhaps lost their jobs as a consequence of the recession, wish to put their skills and expertise to much greater use in the small business sector.

Other communities in other parts of the world attract such small business most effectively. The state of Massachusetts, for example, has become the hotbed of new business start-up in the United States because of the marriage between its business community and academic institutions. I would like to see that same partnership developed in the west of Scotland and throughout it.

In Bavaria, the banking system has changed banking arrangements to make the raising of capital for small businesses that much easier. Many people who wish to start up small or medium-sized enterprises in Scotland are confronted with the traditional Scottish bank manager, who is scared of risk. Risk is endemic to small businesses. We must recognise that, before we achieve success, we may have to take into account the possibility of failure.

We cannot brook too many failures in a community that so desperately needs jobs and hope. It has so much to offer. The skilled artisans, who made sure that there was a future for people like me by offering us educational opportunities, as well as offering other opportunities to everyone, regardless of their background, are entitled to pass on to the next generations the kind of communities that they worked hard to build.

Those are the communities among which John Smith worked, and they are the communities that I dedicate myself to serve. I am very grateful to the House for its courtesy in listening to my maiden speech. I hope now to go on and continue my parliamentary career in serving the people of Monklands, East as John Smith did.

7.8 pm

Mr. Mark Wolfson (Sevenoaks)

It gives me particular personal pleasure to follow the maiden speech by the new hon, Member for Monklands, East (Mrs. Liddell). It was an impressive introduction to the House. The hon. Lady talked eloquently and movingly about the people of her community, their hopes and their aspirations. She linked what she said about their desire for new skills and new opportunities with her own experience. We know from the election that she is a bonny fighter and we wish her well in the House. I hope that we shall hear much more from her in the years to come. It is appropriate to mention that, for several years, John Smith was my pair in the House. All my contacts with him were a pleasure due to his humour, integrity and friendship and I, too, felt a sense of real loss at his tragic death.

I firmly support the motion before the House and congratulate my right hon. and learned Friend the Chancellor on his approach since taking on that difficult and important job. In his speech, he dealt in a pragmatic and sensible manner with the current position of the British economy, its outlook and forecasts on it. By comparison, the performance of the shadow Chancellor was disappointing. He told us nothing of the Labour party's policies but simply made broad generalisations. I genuinely wanted him to say how, for example, the Labour party intends to enable, encourage or command the City to take longer-term decisions about industry. I accept that that problem exists, but changing it needs a concrete approach and we heard no concrete arguments from the shadow Chancellor.

The position of the British economy today bears no relation to the picture painted in the shadow Chancellor's speech. We have achieved good results: low inflation, low interest rates and a mortgage lending rate of less than 8 per cent., which is the lowest for more than 25 years. Those achievements have a positive effect on individuals' home budgets.

I agree that there are areas of difficulty and deprivation. Much has already been said about unemployment, which is and will remain a key economic and social issue in the years ahead. In national terms, it continues to be important and I appreciate that it can be a personal tragedy for individuals who are directly affected. I agreed with hon. Members who focused on the concerns of young unemployed people at the start of their working lives.

However, the right hon. Member for Chesterfield (Mr. Benn) pushed out some unreal proposals to deal with unemployment. He described how unemployment had been dealt with during the second world war, when we took measures to provide the armaments that the nation needed and, in doing so, ran up an enormous national debt. Thank goodness that America was there to assist us in dealing with that problem. We could not run the economy like that today and it was unrealistic to argue that we could.

The only way in which we can safeguard jobs is to ensure that we have a thoroughly competitive economy. That is why I firmly support the Government's actions to ensure that we are not burdened with the paraphernalia of the social chapter, which would only increase costs for British industry struggling to compete with the vigorous and ever-growing economies of the Pacific rim. High costs of manufacturing are now a growing problem for Europe. It is a major benefit to Britain that we have a lower-cost economy than the rest of our European partners. We need to keep it that way.

My view on the exchange rate mechanism has been changed by hindsight. I accept that there were benefits in our membership, particularly its effect on inflation. It ensured that we squeezed inflation down to levels that have not been experienced for many years. I am pleased, however, that the Government have said that they do not expect to rejoin the ERM in the foreseeable future. We should not lose the control which we now have over our economy as a result of being out of the ERM. The effect on Britain of a future ERM-type organisation, let alone a single currency, would be much more damaging in a larger Europe. I strongly support the enlargement of the European Union but it must mean that the opportunity to get all convergence criteria moving in the same direction at the same time, with the measurements necessary to achieve a single currency, is much less likely to happen.

If we decided to go for a single currency, we would endanger the unity of individual nations and put the European Union under a strain that might lead to its break up. Some of my hon. Friends might welcome that, but I would not. I want a European Union that gives us the benefit of a wide market but it must be loosely organised on the basis of a strong market rather than tying member states too closely to each others economies.

It is important that the electorate appreciates that, although the Government have embarked, quite properly, on a ever-tighter control of public spending, we have none the less continued to increase spending on social security, education and the national health service. As last week's statement spelled out, we are attacking areas of bureaucratic overspending, such as those in the back-up to the armed services. Dealing with those is long overdue.

I applaud the Government's actions in that respect and encourage members of the Treasury Front Bench to continue the line that they are following. I see and hear positive responses from many people in my constituency, which suffered heavily during the recession, that the outlook and opportunities for them are improving week by week and month by month.

7.17 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

It was with a great deal of pleasure that we heard the maiden speech of my hon. Friend the Member for Monklands, East (Mrs. Liddell), who took over a seat from an hon. Member whom we held in the highest regard. The way in which he departed from us made us feel even more poignantly the loss that we suffered. The fact that we could give my hon. Friend such a clear vote of confidence in taking over from him means that we shall listen to anything that she has to say to us in future with great care and interest.

The Government have committed three disastrous errors. Many of us expect Governments to take a certain amount of time to learn the problems of government. But this Government have been in office for 15 years and still have not learnt much. The first disastrous error was on monetarism; the second was to waste North sea oil; and the third was the introduction of the poll tax, which did so much to assist the decline of local government.

We suffer from the problem that the growth of monetarism did much damage to manufacturing industry. My hon. Friend the Member for Dunfermline, East (Mr. Brown) was right repeatedly to point out the need for that type of investment.

Conservative Governments have obviously had contempt for manufacturing industry, especially Nigel Lawson, when, in a speech at the Mansion house, he scorned the valuable work done by the House of Lords Select Committee in pointing out the importance of manufacturing industries. The service industries were held to be the great wave of the future—they were going to provide the great prosperity.

However, service industries are not alternative to manufacturing industry; they are a natural consequence of manufacturing industry. One needs efficient operations to service machinery and so on, but, less obviously, the City of London owes its eminence to manufacturing industry.

What are the big financial centres of the world? They are London, New York, Tokyo and Frankfurt, and they became financial centres only as a result of their manufacturing industry. It was because Britain in the last century was a manufacturing nation that London was created as a financial centre; it is only because America became the next big industrial power that New York was created as a financial centre; and it is only because of their industries that Frankfurt and Tokyo have become financial centres.

Whoever heard of Tokyo as a financial centre before its industry, in the post-war world, became the power that it subsequently became? Whoever heard of Frankfurt before it became an industrial centre? But Frankfurt will now be the main Community centre for our financial institutions, and we are losing the battle for financial centres in a number of ways, because our manufacturing industry is unable to support them.

I strongly welcome the existence of our City of London; it is very important, but we must understand the underlying strength that comes from manufacturing industries.

As for the service industries such as health, education and transport, they rely on the wealth creation that comes from manufacturing industry. Manufacturing industry is the substratum of all those other advantages that we obtain from service industries.

That wealth creation comes from our factories—from the skills and abilities of those people who work in them.

I accept that, when jobs are needed, only some of them will be found in those factories. There will not be an enormous increase in employment opportunities as a result of the greater concentration on, and the greater understanding of the need for, manufacturing industry. I accept all that. However, the output from manufacturing industry is all-important. That output creates, not so much the jobs as the wealth, and from that output, from that wealth, we can create the service industries—we can create educational opportunities, health services and all the other facilities that we require.

Services rest on the backs of manufacturing industry. We want a sensible acknowledgment of the wealth creation possibilities. That will provide the means for us to employ many more people in the public and the private service sectors. That is the principal way that we shall get people back to work—through the service industries, by getting people to work in restoring our infrastructure and repairing the decay in our cities, in a sensible programme of reconstruction, paid for by a new, firm industrial policy.

Our recent productivity increases have resulted mainly from investment for efficiency rather than from investment for efficiency and the expansion of output. If one invests simply to obtain efficiency, one will reduce employment. One needs to invest both for efficiency, which is important, and for an expansion of output. That is why our manufacturing base has not expanded in the way that those of other countries have. We need today a new understanding of the importance to our country of manufacturing investment. That should take place in this country and in our industries.

Many years ago, in 1961, there was the bank rate investigation of a Governor of the Bank of England who had advised the sale of sterling and commented: It may not be patriotic but it makes sense. My hon. Friend the Member for Livingston (Mr. Cook) has commented on one aspect of patriotism today. The wish to invest in our country is an aspect of patriotism. Of course there is a need to invest overseas in certain areas, but patriotism means that we should try to improve our manufacturing processes, our manufacturing industry and our employment opportunities here in Britain. Those matters should be paramount.

We need to encourage people to invest. The Government can do something about that immediately, by increasing capital allowances. The present 25 per cent. rate for capital allowances is ludicrous. I have argued repeatedly that is not an investment incentive but with with an investment disincentive.

Everyone knows that many items of capital equipment actually depreciate by more than 25 per cent. a year. That is especially true in the first year. The profit made by the sellers of a piece of capital equipment means that it will not be worth 75 per cent. at the end of the first year—that may be the profit that is made on it. If one buys a piece of capital equipment for £1,000, there are not many cases when, if one tries to sell it, one will receive £750 for that piece of capital equipment at the end of the first year.

So we are dealing, not with an investment incentive, but an investment disincentive. That is something that the Government can change straight away.

The other great error was over North sea oil. It was a great pity. We had a wonderful opportunity. I minuted the Chancellor of the Exchequer, Denis Healey, in 1977 and told him, "If you do nothing with this money, it will just be spent on consumption. If we do something for manufacturing industry—that is not the best way to invest, I grant that—it is better than using it to increase our consumption, which we shall not be able to maintain over a long period."

That was the case then for doing something with our North sea oil. It is a great pity. We missed the one opportunity that we had, which has now gone, because now it is part of our current basis of consumption.

Speaking of consumption, a consumption-led boom is not the way to spend our way out of recession. We want an investment-led boom, an investment-led recovery, and we should be working towards that. I do not think that the way to proceed is to try to increase the levels of consumption to bring an improvement in the economy.

The third great disaster was the poll tax. The poll tax was not just a foolish tax—of course it was—it was difficult to collect, in many cases easy to avoid, and very much more unfair than the old rating system. The specific problem that has resulted is that we have diminished the role of local government, and the position of local government is now far worse as a result of the introduction of the poll tax than ever it was.

I remember—I was only a small player in those days —that we created Manchester airport in the spirit of the old Manchester ship canal, whereby 95 per cent. of the ships of the world could come right into the heart of Manchester. If we were to be worthy successors to those people, we wanted our own airport.

That was the spirit, and we must return to that spirit. We must return to the spirit of local government—the spirit of co-operation between people in different ways. The beginning must be made with industry, and it is to that area of the economy that the Chancellor of the Exchequer must turn.

7.27 pm

Mr. Nicholas Budgen (Wolverhampton, South-West)

I join all those who have recently spoken in expressing my pleasure at the maiden speech of the hon. Member for Monklands, East (Mrs. Liddell). She spoke with fluency and passion, and I felt that she brought to us some of the adrenalin that she plainly felt during a hectic election campaign. One could think, as she spoke, of the sweat and energy as she sat up thinking what she was going to say at that difficult meeting the next day, and as she rehearsed it to herself, perhaps rehearsed it to her husband and then delivered it with passion and energy. Let us hope that she continues to grace the House with the energy and interest that she undoubtedly must have displayed in her successful and difficult by-election.

I should like to start from a slightly different point of view from that of the right hon. Member for Chesterfield (Mr. Benn). He said that the Chancellor did not control anything and that international capital controlled everything.

All Front-Bench spokesmen address the House on the basis that the Government control most things. I diffidently suggest that the Government control few things. The Government govern best when they attempt to create a known and stable framework within which the people may make their own prosperity, both for themselves and for their fellow subjects of the Queen—and, I should add, the citizens of the European Union. It is important to decide whether the rate of growth and the general prosperity at present time are consistent with a stable framework.

One thing that my right hon. and learned Friend the Chancellor did not say about inflation was on the extent to which it inevitably distorts the economy. One of the great distortions of the boom was the housing market. We all recall that in the three years 1986, 1987 and 1988 the value of private housing rose by 20 per cent., 20 per cent. and 30 per cent. respectively. Housing was not bought for shelter or even for the display of personal goods; it was bought for speculation. People of a very young age were trying to get on to the housing ladder as quickly as possible.

As the economy adjusts to about 2 per cent. inflation from about 10 per cent. inflation, young married couples are now buying houses later in life and the rented sector has picked up satisfactorily, not just because of the reduction in inflation but because of the considerable reduction in the stranglehold of rent controls and excessive security of tenure. In addition, the housing market is having to work its way through the negative equity suffered by about 2 million home owners who bought just before the end of the boom.

The economy is now stable and sustainable—mainly, I suspect, because of the delayed advantages of having come out of the exchange rate mechanism on 16 September 1992 and because of the substantial relaxation in monetary policy that followed that.

I do not want to be too technical in this short speech, but for those who enjoy technicalities I commend a good article in the Financial Times of 5 July, which set out what is happening to sterling M0. That means cash in hand, which is now circulating at about the same rate as it was at the top of the boom in 1988. There is every sign that the retail sector is very strong. People are not borrowing to buy big items such as land or housing, but they are spending money on consumer items. One of the best signs of that can be found in that article, which details the extent to which more and more £20 notes are coming into circulation.

There is also anecdotal evidence of the strength of the retail economy—for example, the absolute explosion in car boot sales. I understand that about 1,500 car boot sales take place every week— [Interruption.] All right, it is part of the spiv economy. Hon. Members may laugh at that and say how dreadful it is, but it creates wealth and that is what the economy is about. We should note the strength of M0, the strength of the retail sector and the considerable activity in the new car market.

The hon. Member for Coventry, North-West (Mr. Robinson) nods. He knows a great deal more about the car market than any other hon. Member will ever know. I am sure that a car manufacturer is rather like a farmer, and I have never met a farmer willing to admit that he was doing well. If an hon. Member with a car manufacturing interest agrees that the industry is doing well, car manufacturers must be doing jolly well indeed. Therefore, I contend that we have the basis for sustainable growth.

Sometimes when we talk about general trends, the man or woman in the constituency says, "We don't see much of it in Wolverhampton," or Stourbridge or wherever. I draw hon. Members' attention to two recent reports on how the local economy of Wolverhampton is growing. The first is from the Wolverhampton chamber of commerce. In its quarterly economic survey, published on 11 July, its chief executive says: I find the responses for the first half of the year especially encouraging. The Chamber has always held the view that our emergence from this very deep recession should be moderate and this clearly seems to be the pattern. He then gives details of the way in which he notices sustained and satisfactory growth in all the areas that his chamber covered over the past half-year.

Those of us who have been in the House for some time may remember Mr. Geoff Edge, who is now the chairman of the west midlands economic bureau. In that capacity, each month he provides Members of Parliament and others in the west midlands with what he describes as a labour market briefing. Mr. Edge was a distinguished or, if not distinguished, vigorous supporter of the policies so consistently put forward by the right hon. Member for Chesterfield. Mr. Edge would not easily applaud much of the activity of a Tory Government. However, he says about the west midlands that unemployment among the under-25s has dropped greatly over the past year—

Madam Deputy Speaker

Order. The hon. Gentleman's time is up.

7.37 pm

Dr. Jeremy Bray (Motherwell, South)

It is a great pleasure to follow the maiden speech of my hon. Friend the Member for Monklands, East (Mrs. Liddell), not least to welcome her into the doughty and select company of Lanarkshire Members of Parliament. Our constituents expect a great deal from us and over the many years that we have known her, in her election campaign and, now, in her remarkable maiden speech, she has demonstrated how much she will contribute.

I am sure that the Chancellor will be pleased to hear that I agree with him that there is no reason why we cannot look forward to a long period of sustained growth with unemployment falling, low inflation and the balance of payments and public borrowing coming within sustainable limits.

On macro-economic policy, both the Government and the Opposition have now rejected the argument that one target will do. In the old days it was unemployment, then money supply, then inflation, and then the exchange rate. Now, perhaps, it is unemployment again. It used to be argued that if the one chosen target is achieved and maintained the rest will come right, or at least be accepted that they are outside the Government's influence. But successive targets have been missed and abandoned, because the measures needed to achieve them would have such damaging consequences for other aspects of the economy that they could not possibly be pursued.

All the objectives are affected by all the instruments of policy—tax, public spending and interest rates—and they must be kept in mind. It is not possible to put everything right overnight. It takes years for most of the effects of policy changes to appear. Objectives now satisfactorily achieved cannot be assumed to stay achieved.

The emerging consensus is that all the instruments of policy must be used in the balanced pursuit of all the objectives—not just inflation, unemployment, the exchange rate, the current balance or public borrowing, but all of them together, with one or two more added according to taste, and for several years ahead. I have carried out the exercise of designing such balance-achieving policies with the Treasury's own apparatus of policy optimisation on the Treasury's own model. In successive years since 1987, they were published and sent to the then Chancellor. Had Chancellors followed those analyses, they would have avoided the major mistakes of economic policy, which, in the event, were made. No doubt similar analyses were carried out at the time in the Treasury.

This year, the same analysis of the Treasury model is more or less consistent with the Treasury's summer economic forecast. But it makes it possible to look further ahead, which, of course, the Treasury does internally. It goes into more detail and explores the trade-offs. The prospects are not exciting, but nor are they calamitous. With general Government consumption kept at around its present share of 25 per cent. of gross domestic product, the standard rate of income tax edging above 26 per cent. after 1995, and allowances indexed, the public sector borrowing requirement is still not brought below 3 per cent. of GDP until 1997.

Without a clear exchange rate stabilisation policy, there would be major destabilising swings of the sterling exchange rate. So policy towards the exchange rate and its mode of stabilisation, allowing for rational market expectations, needs to be treated in the policy design process. The expected exchange rate index remains near its current level of 80. The current balance remains in deficit to the extent of 1 to 2 per cent. of GDP. Inflation rises above 4 per cent. for three years from 1996, in mild breach of the Government's target range, as the effect of the increased indirect taxes and public utility charges come through.

The growth of GDP falls below 2 per cent. in the three years from 1997, and the growth of real disposable personal incomes falls by 2 per cent. in the three years from 1996. Unemployment does not fall below 8 per cent. until 2000. All that, of course, will adapt to external circumstances. It will not work out quite like that, but that is the general picture that will follow in response to the external circumstances and internal performance as events unfold.

Such an overall prospect would not be welcomed by Government or Opposition. Can we do better? For the first time this year, the Treasury model contains a genuine supply-side effect. Investment in manufacturing industry is allowed directly to increase manufactured exports. The halt in the fall of the UK share of world exports of manufactures in the late 1980s was seized on and extrapolated in past years, without explanation, to produce hopelessly over-optimistic forecasts of the current balance. Now, a plausible, long-term explanation has been found. It is taken into account in the forecast. Could further supply-side effects be found?

The first report in this Session of the Select Committee on Science and Technology drew attention to recent work, using international comparative data from the Organisation for Economic Co-operation and Development, on the effects of business research and development on total factor productivity, and linked that with other recent work assessing US experience with research and development tax credits. Taken together, those analyses suggest that an R and D tax credit, with supporting measures and within European Union rules, could increase the rate of growth of GDP by 0.8 per cent. per annum within five years.

The place where that would start, because it would act on competitiveness, is in manufactured exports. Putting it in there alone and not into the rest of manufacturing output, which contributes to domestic consumption, and applying the same policy rules to the better-performing economy, we get an improved picture. Of course we do, but how much? Income tax can be kept to 25 per cent., and growth does not fall below 2 per cent. per annum. Unemployment falls below 8 per cent. in 1996 instead of 2000, and to below 5 per cent. in 2002, by the end of the next Parliament. There would be more supply-side effects to go for if hard evidence could be found—as we found with R and D incentives—of the effects of investment incentives and improved training, let alone special employment measures.

Can such results be believed? Do they offer a viable approach to more stable economic growth? Certainly, they need double-checking and cross-checking. Sound judgment will still be needed, and there will, of course, be remaining risk and uncertainty. The macro-economic modelling consortium, consisting of the Economic and Social Research Council, the Treasury and the Bank of England, which finances the academic models, is asking the modellers who are applying for grants this year for the next four years to pursue such policy analyses.

The report of the consortium, referring to my work, says that there is a need for a clearly stated framework for economic policy. It says: The objectives and priorities of policy makers can be established (or at least postulated and, where appropriate, alternatives can be given). The modelling teams can then recommend the actual adjustment of policy instruments which would best serve these objectives and priorities, and present the expected outcomes. This makes it possible for public policy makers and businesses to see how alternative objectives and priorities affect the expected results. Teams could participate in a number of policy advice exercises. Those are not my words, but those of the consortium—the Economic and Social Research Council, the Treasury itself and the Bank of England. Economic policy-makers now have a firmer basis for judgment if they have the wit to use it.

7.46 pm

Mr. Richard Spring (Bury St. Edmunds)

I am most grateful to you, Madam Deputy Speaker, for giving me the opportunity to make a few brief comments this evening.

As we look back over the past two years, it has been clear that we have been slowly but surely in a recovery process. As with all such processes, it has been somewhat patchy. We have seen regions and industries recovering at different rates. But there is no doubt that the economy is recovering for everybody to see. What is somewhat different about this recovery, given that it has now been going for that long, is that the "feel good" factor remains low.

I read in one of the Sunday papers that some 70 per cent. of people believe that we are still in a recession. That is despite the fact that the economy is growing by nearly 3 per cent., unemployment has fallen by some 330,000 and many other indicators look good. Indeed, the OECD and other economic forecasters have made very positive observations about the British economy.

For decades, the "feel good" factor has been linked largely to property prices. Monetary and fiscal policy has been inextricably linked to that process. Since the war, the result has been something of a rollercoaster in interest rates as we have sought to revive the economy by lowering interest rates and encouraging activity in the property market, then cutting down on the revival by jacking up interest rates again and depressing property activity.

Unfortunately, time and again, the "feel good" factor that has resulted has led to a hangover. But what is unique about the economy now is that the recovery is happening with low inflation and low interest rates, without any visible inflationary pressures, without the traditional recovery and, indeed, sometimes, speculation in the property sector. The evidence is very clear. Is that necessarily a bad thing? Is a strong property revival essential to sustain growth? On the contrary, we appear to have healthy economic growth free of all the property shenanigans of the past few years. That bodes extremely well for the future.

The distortions which have undoubtedly been caused by mortgage relief in the past are now withering on the vine. Next year we shall see tax relief reduced to 15 per cent. I hope that that process will continue, except perhaps for first-time buyers, until the tax distortions disappear altogether. They have been part and parcel of the yo-yo in interest rate movements that has paralleled the yo-yo in property prices that has been wholly unwelcome.

So we now have in prospect economic recovery with stability, without the property element involved. I am confident, as we look at the economic indicators and the lack of any inflationary pressures, that my right hon. and learned Friend the Chancellor, in maintaining the course that he is successfully pursuing, will bring about low inflation growth for many years to come.

As other hon. Members have observed, we were hit during 1994 by weakness in the bond market. Traditionally, weakness in the bond market comes about through inflationary expectations. But where, indeed, is the inflation? It certainly does not exist at the factory gate or at the retail level. It has been limited to a number of commodities. The rot started in the United States, where people saw the signs in the US Government deficit and foresaw it increasing yet again as a result of the proposed spending plans of President Clinton.

Another factor has been the illiquidity of world capital markets. Given the volatile nature of the world capital markets and our need to continue to borrow, it is vital that we continue to scale back our deficit. Between 1993 and 1996 we shall cut our budget deficit by some 4.5 per cent. of GDP. Despite that, spending will continue to rise next year and the year after that. We need to support my right hon. Friend the Chief Secretary to the Treasury in the spending round to ensure that we keep public expenditure in check.

The post-war experience of Japan is certainly instructive. The Japanese economy is now maturing and it has its problems, but much of the Japanese success story has been based on access to capital at low interest rates. Low interest rates have attracted borrowers and investors because they have believed in the coherence and stability of Japanese fiscal and monetary policy. Japanese business got its reward because the Government played their part. Low interest rates and low inflation have been at the heart of the Japanese post-war recovery. Now here in Britain we have policies which are taking us along that route. It is already happening and that bodes well for the future.

Under the great welter of macroeconomic statistics there are sometimes good stories to tell. I should like to relay the experience of my constituency. I am happy to relay to the House that unemployment has dropped by some 20 per cent. in the past 12 months. We are seeing a revival in the local economy. Bury St. Edmunds has the lowest unemployment in East Anglia. The agricultural sector is in good shape. The two United States air force bases in my constituency are expanding.

By far the largest employer in my constituency is the horse-racing industry. On Saturday my right hon. and learned Friend the Home Secretary visited the town of Newmarket and saw for himself the increased number of owners, the increased number of horses in training and the rising price of blood stock. That vital part of the economy of west Suffolk is fully in revival as a result of the help of Treasury Ministers, to whom I am enormously grateful, as are my constituents.

Apart from that benign situation in the western part of Suffolk, we have a constellation of good overall economic indicators. I sat here this afternoon and recalled the words some months ago of Bryan Gould. He said that the Labour party had no proposals on macro-economic policies, specifically on interest rates, money supply or any of the key elements of taxation that go to make a coherent economic policy. Nothing has changed. We have certainly heard that today. No serious attempt has been made to present any coherent alternative.

We know one policy of the Labour party. It would be hugely destructive. I have spoken to many employers in my constituency about it. It is minimum wage legislation. We know that in Spain and France, where there is similar statutory wage legislation to that proposed by the Labour party, youth unemployment is tragically high, with all the consequences that flow from that. We certainly do not want to see that here in Britain at any price.

We cannot survive as a nation without exporting. I should like to take this opportunity to welcome the initiatives taken by the Department of Trade and Industry to promote exports for our business men and women. It has also undertaken an initiative to have 100 individuals seconded to the DTI from key British companies. It will help them and the DTI in the spirit of enterprise to enhance our export capabilities. That is welcome.

The Organisation for Economic Co-operation and Development has said that we have made major strides in restructuring our economy. As we survey the current economic scene, we can see that the restructuring is paying off in a truly sustainable way. The Labour party knows in its heart of hearts that that is certainly the case. Therefore, I look forward, Madam Deputy Speaker, after the next general election to continuing to sit on your right hand side.

7.56 pm

Mr. Geoffrey Robinson (Coventry, North-West)

We have heard from the last two Conservative Members who have spoken that the key to our economy is the horse-racing market at Newmarket and car boot sales in Wolverhampton. As the hon. Member for Wolverhampton, South-West (Mr. Budgen) put it, there is no difference for him between a car boot sale and a motor car sale. I am proud to speak for the west midlands and I declare my interest as a chairman of a public limited company that supplies the United Kingdom, European and world motor industry. For us there is a world of difference.

The increased size and rate of growth of the United Kingdom motor industry is much to be appreciated. We are glad to see it take off after the most dismal years in its history, engineered as only the Conservative party could, with that marvellous disregard for the interests of British manufacturing, to give it the worst two years since the second world war. After such a bad period, it is inevitable that things will get better.

I was a little surprised to hear my hon. Friend the Member for Motherwell, South (Dr. Bray) say that his model showed that, if the Government had followed that model, their economic policy would have been better. Anything would have been better than the economic policy of the Government since about 1989 to 1990. Nothing could have been more cack-handed or better conceived to produce exactly the opposite of the Government's stated purposes of policy than the economic and industrial policy that they have pursued.

I pay a personal tribute to the maiden speech by my hon. Friend the new Member for Monklands, East (Mrs. Liddell). Having heard her today, I am sure that she will be a most successful and distinguished successor to the late John Smith. I am sure that all my hon. Friends will join me in saying that, having heard her remarkable maiden speech.

All that we can say about the Government's economic policy is that they have stopped digging a great hole. They have finally started to dig themselves out of it. As is always the case, if one creates a big enough recession, one comes out of it. There is nothing remarkable about that. We saw it back in 1966 when we abandoned the plan for growth and decided to go back to the old Treasury policies of cutting and recession. Sure enough, the balance of payments came right and unemployment increased. Sure enough, two years later in 1970 the economy was booming again. We have always seen that old pattern. The only difference in this case has been the length, depth and frequency of the recessions engineered by the Government since they first came to power 15 years ago. Three recessions in a decade must be a record.

Mr. Oliver Heald (Hertfordshire, North)

Two in 15.

Mr. Robinson

No, there have been three. All were marked by a continual pattern of boom doom, go bust, stop and go. Throughout economic policy, we have seen that pattern under this Government and previous Governments. It has been as simple as that.

Now that we are coming out of recession, the Government display nothing but the usual complacency that all is well. Of course, all is not well. None of the fundamentals in the British economy has changed. All that has changed is that we are at a different stage in the stop-go cycle. Instead of being complacent and thinking, "God, we have got rid of that; we have managed to win an election despite the recession"—a remarkable achievement—the Government should ask what they can do to put right the fundamentals of the British economy and British industry. All that the Government are trying to do is settle their internal differences and divisions in the hope of trying to smooth their way to the next general election.

Nothing is more apparent than the total disdain and mutual incompatibility between the Chief Secretary to the Treasury and the Chancellor of the Exchequer, who put a scarcely credible distance between themselves and could not bear to look each at during the debate. I have not seen that since we had the remarkable spectacle of the occupants of No. 10 and No. 11 Downing street not speaking to each other, but choosing to disagree every time that they did speak. I am pleased to see the Chief Secretary deny it. It has been denied on previous occasions too.

I doubt very much that the Chief Secretary will be operating from his current position in a week or two weeks' time. I am sure that he will not. One of the chief reasons for that is that cohabitation between him and the Chancellor of the Exchequer has become impossible, as it is throughout the ranks of Conservative Back Benchers, who agree about nothing other than some implicit, sordid deal to patch over their differences in an attempt to win the next election. This time, that will not work.

Meanwhile, the job of getting the British economy and British industry right, and the need for investment and a policy on exports and industrial investment, goes by the board. What causes most concern about our recovery is that, unlike the German recovery, it is based on consumption. Although we welcome the growth in the home car market, we need to achieve a massive increase in car output. There has been an increase, but it is nowhere near enough. We need to achieve a massive increase in exports. We have achieved some improvement, but it is nowhere near enough.

The trade balance and the public sector borrowing requirement deficits remain far too high. Although the Government might smooth over the problems for a couple of years, in three years' time, we shall return, as we always have before, to the same old problems of the endemic, structural weaknesses of the British economy and manufacturing industry. They go hand in hand. They are diferent sides of the same coin.

What have the Government got to offer? Nothing except a policy to try to nudge through the next week, the next set of figures and the next problem. They will deal with anything but the real problem, whatever it is.

A few people tell us that Germany is in great trouble. Germany is a massive continental power of 80 million people. It has invested enormously in the former East Germany. In the eastern countries on its border with the former Soviet Union, countries in the far east and in China —where its investment is much higher than our investment —it is emerging as the powerhouse of the European Union. We shall be a tiny island, a sideshow compared with what is going on in Europe.

That is a future that the Chief Secretary may welcome. I happen to share many of his views and reservations about the common currency and the so-called purport of the Franco-German alliance. But running away from the problems will not help our problem; and trying to pretend that we have achieved growth in gross domestic product and in income will not hide the basic problem that the Germans and the French are investing in productive output and in the strength of their economies, but all that we are doing is achieving growth out of consumption.

That is the central problem of the recovery. That problem is bound to come home to roost. That is why in the foreign markets sterling is still so weak. For the moment, the attention is on the dollar, but where will the international currency markets focus their attention next? It is bound to be on sterling, and sterling's weakness will therefore be exposed.

We need a policy for our manufacturing industries, exports and investment. We need a policy that will encourage growth in investment and exports. We must understand net exports. As we all know, exports are not enough if our our propensity to import is disastrously high.

Unless there is a policy for the growth of net exports and for investment in manufacturing, and unless a series of projects are geared towards that, in two years time we shall be back to where we were two years ago. That is the sum total of Government policy. The country deserves far better.

8.5 pm

Mr. Richard Ottaway (Croydon, South)

The hon. Member for Coventry, North-West (Mr. Robinson) should have read the Evening Standard—not a paper that traditionally supports the Conservative party—three weeks ago, when it carried the headline "Triple Whammy". The article in question talked about the Government's good economic news of the past few weeks. That headline said it all. It referred to the fact that unemployment and inflation were decreasing and to the fact that productivity was increasing. Perhaps it should have read "Quadruple Whammy" or "Quintuple Whammy", as retail sales and manufacturing output have also risen. Many of the hon. Gentleman's comments did not add up; and, unfortunately, owing to lack of time, I cannot answer the points that he made.

Of the great whammies referred to in the Evening Standard headline, inflation was the most important. If one buys a property, the three most important rules are location, location and location. If one tries to run an economy, the three most important points are inflation, inflation and inflation. Our respective inflation policies illustrate the differences between the Conservative and Labour parties.

The Labour leadership election has been more revealing of Labour party policy than any speech in the House. The right hon. Member for Derby, South (Mrs. Beckett) said that jobs should be a higher priority than inflation—and the fact that the hon. Member for Kingston upon Hull, East (Mr. Prescott) said that low inflation and low employment were mutually incompatible shows the distinction between the two parties. To take a comment by a previous Chancellor of the Exchequer, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), and turn it round, the Labour party is now saying that high inflation is a price worth paying for lower unemployment.

I am pleased that in his Mansion house speech, my right hon. and learned Friend the Chancellor rejected that approach and said that he was not prepared to throw away the hard-won gains of recent years—he did not want Britain to go into a boom that we all knew would be followed by a bust. I must say that talk of a boom takes those hon. Members with seats in London or the south-east a little bit by surprise, as unemployment remains stubbornly high. But the recovery is now stronger than expected.

The first reaction to the Chancellor's Mansion house speech came from Lord Lawson, who disagreed, saying that one could not stop the ups and down of the economic cycle. As he saw a few ups and downs in his time as Chancellor, one has to say. "He would say that, wouldn't he?" Both Chancellors are right. One cannot flatten out the economic cycles but one can do as the United States of America has managed to do and make them less violent. With a different approach to economic policy, the United States had a shorter and shallower recession.

Why should we, as members of the governing party, be believed when we say that history will not repeat itself and that inflation will not run away again? First, we have a clear determination to get public finances under control and to control public expenditure. The defence statement and what I am hearing from the Department of Social Security is encouraging and leads me to believe that we will, indeed, get public expenditure under control. In addition, the public sector borrowing requirement is perhaps now lower than we originally thought.

The second reason why we shall be believed about our efforts to control inflation is that the minutes of the meetings between the Government—the Chancellor—and the Bank of England are now published. It has dawned on everybody what a significant step publication represented: it makes it impossible to abandon the battle against inflation for a quick political fix.

That battle remains finely balanced. The good news is that there is no house-price inflation. House prices are not soaring as they did in the late 1980s, primarily because of the erosion of mortgage tax relief and the rise in fixed-rate mortgages. Buyers are no longer putting their last pound into property, so I hope we shall see an investment-led recovery rather than a housing-boom recovery.

All the indicators are set to green, and the danger is that inflationary pressures will build up. I remind the House that the target for inflation is between 1 and 2 per cent. by the end of this Parliament. The acid test of the Government will be whether, having reduced interest rates for some years, they will be prepared to increase them if circumstances require it. Monetary policy is extremely loose.

Real interest rates are very low, but long-term interest rates are quite high and the gap between the two is quite substantial. The market expects interest rates to rise, and that is confirmed in the Bank of England's inflation forecast. I have no doubt that the tax rises will take some heat out of the inflationary pressures and that the imposition of VAT on gas and electricity has barely started to bite, but we must raise interest rates if necessary—coupled with tight control of public expenditure in the November Budget if appropriate.

My great surprise is that the public are still not aware of the recovery. As my hon. Friend the Member for Bury St. Edmunds (Mr. Spring) said, some 70 per cent. of the country still believe that we are in recession. There is no doubt that unemployment is still a problem, particularly in the south-east, but one of the signs that things are beginning to turn is that skill shortages are appearing.

The disappointment is that the recovery has not led to a rise in confidence in the City. In the past six months, the stock market has gone into substantial slide, which has probably been linked to the interaction between the yen and the dollar and the herd-like instincts of fund managers in the City in following the New York markets. There has been scepticism about the American Government's handling of the economy, and a leading American forecaster said the other day, "Whenever a Government spokesman says something about the US economy, I think, `Sell'."Only two weeks ago, the United Kingdom market finally broke away from the American market and there has since been a 4 per cent. rise in our stock market, which shows that fund managers are placing reliance on our own instincts and our own good results rather than worldwide indicators.

We must remain competitive to sustain recovery. As the President of the Board of Trade is well aware, having just published his competitiveness White Paper, we must change and move on. The City should become more involved in companies' and industries' future and economic well-being.

Everyone must change their attitudes. I believe that the modest proposal from Mr. Alistair Ross-Goobey, chief executive of Postel, one of the largest fund managers in the City, to abandon three-year rolling contracts and replace them with two-year rolling contracts is a step in the right direction, showing that institutions can and should change their attitude to and involvement with the City.

We must aim to be the world's best, but if that is our aim we are already out of date because the world's best have already moved on. We have the ability to be the world's best and I support the motion.

8.13 pm

Mr. Alan Milburn (Darlington)

This debate has been characterised by much false optimism from Conservative Members. According to them, the green shoots of recovery promised so long ago by the former Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont), are finally blossoming and everything in the garden is rosy. I am afraid that most people outside this place probably would not recognise that picture.

The recovery is far from well established, with much uncertainty and lack of confidence prevalent among consumers and industrialists. They know that the Government are promising a false dawn yet again, for they have not forgotten that £7 billion-worth of tax rises are still in the pipeline, with 10 more Tory taxes on the way.

It will take more than a puff of hot air about full employment and a visit to a TUC conference to convince people of the Government's ability to manage their way out of the economic mess that they have created. The public will know that Ministers have been forced to talk the language of full employment not by the misery of 3 million people being without jobs but by the threat to their own jobs from the consequences of their economic and political failure.

The Government's conversion to the merits of full employment is belied by their actions. There is no Treasury forecast for unemployment. I notice that there is a forecast— quite rightly, because these things are significant— for growth, inflation, the trade balance and the public sector borrowing requirement, so why not for unemployment? The answer is simple enough: the projected growth rate of 2.75 per cent. is simply not enough to reduce unemployment to anywhere near its pre-recession levels. Interestingly, while the number of people on the unemployment register is falling, claimants clearly are not going into jobs. The number of people in employment fell by 73,000 in the last quarter and by more than 100,000 in the last half year. No wonder the air is thick with accusations of statistical jiggery-pokery.

The conjuring trick has been given a new slant by documents released to me—or, rather, leaked to me—in the past few weeks from the Employment Service, which show that unemployed claimants are being deliberately offered low-paid, hard-to-fill vacancies in out-of-the-way parts of the country to try to con them out of their benefits. Ex-miners, who have been made redundant through no fault of their own, risk losing their benefit entitlement if they turn down jobs as hairdressers, debt collectors and so on. That seems to be the Government's vision of the future —less concern for unemployed people than for meeting artificial Treasury targets imposed by Ministers and a low-pay, low-wage, low-skill and no-hope economy.

If there was any correlation between forcing down wages and driving up employment, my region would be the boom region of Britain, but the north has the worst of both worlds. We are the low-pay capital and we have had the highest regional unemployment in every month since the Conservatives took office in May 1979. Nor is it just the north that is suffering. Between March 1990 and March 1994, unemployment in the previously prosperous south-east almost trebled. That has been the Government's triumph—the creation of a level economic playing field, where economic dislocation and devastation stalk the whole land from John O'Groats to Land's End. That is why, north and south, the Government's false promises will not be believed.

The Government's record tells its own story: it is a record of low growth and high unemployment; of deceit and broken promises on tax; of a failure to pay our way in the world, with record trade imbalances in the past few years; of casualisation of employment; and of one of the worst levels of investment in skills training, research and development and manufacturing. That record promises no long-term future of sustainable growth for our country or its citizens. Britain will succeed only if we can harness the strength of every part of Britain. If we allow any region to decline, economic and social decay will result and the ability of the whole economy to compete will be weakened.

The structural unemployment that characterises so much of our nation is a symptom of political failure. It is wasteful, inefficient and, most of all, unnecessary. However, it is the direct by-product of a market-driven approach, determined from the centre, which ignores the regional impact of central Government policy. That approach failed in the 1980s and it will fail again in the 1990s.

Mr. Heald

If the hon. Gentleman looks across Europe, he will see far higher unemployment, particularly in countries such as Sweden which have followed the kind of philosophy for which the hon. Gentleman is arguing. Can the hon. Gentleman see other reasons why unemployment is high in Europe but low in Britain? Perhaps unemployment is low here because of the flexibility of the labour market. What does the hon. Gentleman say about that?

Mr. Milburn

I would not call between 2 million and 3 million unemployed a low figure. That is a direct insult to those people who are out of jobs and reflects the complacent attitude that we have seen throughout the debate. The Government seem to be content to sit on their laurels and rest with the achievement—if that is what it can be called—of creating 2.5 million unemployed. I do not know about Conservative Members, but people in my part of the world are not happy to sit back and satisfy themselves with that kind of record.

The current structural unemployment is a disgrace and it is quite unnecessary. During the 1980s, the market-driven approach produced an overheated south and an under-resourced north. Pressure on the green belt, labour shortages and crazy property prices sat side by side with under-utilised industrial sites and unemployment—and that in regions just 200 miles apart.

A sensible Government would have redirected spending to mop up excess supply and to dampen down excess demand by switching investment priorities. Instead, the brakes were slammed on: interest rates were forced up, plunging the whole country into a deep and damaging downturn. The recession, which was born and bred in the south of England, grew into a Frankenstein's monster that stalked the whole land.

Quite simply, Britain's centralised decision-making process could not produce the necessary flexibility to deal with the differing needs of different parts of the country. Instead, it treated the whole nation as though Liverpool and London were exactly the same.

No other industrial nation has such a centralised decision-making and financial system. Indeed, the success of economies such as that in Germany is built on the sure bedrock of decentralisation and devolution. Public banks are organised in such a way that they are embedded in the local and regional clusters that make up the German success story. That approach has been underpinned by a more widespread diffusion of economic and political power to ensure that industrial enterprises across the whole nation and in all regions receive the lifeblood of investment that they need to survive and to compete.

In this country, long-term sustainable growth is dependent on the adoption of industrial and employment policies that place the premium on investment for the long term in all regions of Britain. However, in this country there is no proper annual regional audit of public spending and no regional element to monopolies or mergers policy. There is no attempt to diffuse outwards the centralised financial structures that dominate the United Kingdom economy. Instead, we have the absurd spectacle of a Government cutting regional aid spending during a recession—

Mr. Deputy Speaker (Mr. Michael Morris)

Order. I call the hon. Member for Canterbury (Mr. Brazier).

8.23 pm

Mr. Julian Brazier (Canterbury)

I will not try to follow the hon. Member for Darlington (Mr. Milburn) down his route. I want to begin by declaring an interest. I placed a substantial bet last week, not on one of the horses of my hon. Friend the Member for Bury St. Edmunds (Mr. Spring), but with my bookmakers, the IG Index, on the sterling contract that short-term interest rates would not rise as fast as the market thinks that they will. I did that because I have such confidence in -the Government's anti-inflationary abilities.

Two years ago, I made a speech in which I took the then rather fashionable view that monetary conditions were too tight while the fiscal position was too loose. Since then, the Government have taken several sensible steps to control the fiscal position. However, I may be almost alone tonight in arguing that the monetary position is still too tight. How can that possibly be when short-term interest rates are at their lowest for a generation?

In my speech two years ago, I quoted Professor Tim Congdon's model, but I suggested that he did not include a major factor—the massive one-off impact on the monetary figures that the changes in the housing market were likely to have. Professor Congdon kindly sent me his latest document a couple of days ago, and I was intrigued to see that he devoted all the copy to that subject.

If Professor Congdon's approach is now correct—I argue that he has not gone quite far enough—we should be profoundly interested for three reasons. First, it will mean that our inflationary projections are, if anything, not optimistic enough. We really have beaten inflation in the medium term. Secondly, it will mean that in the medium term our outlook for a healthy economy is even better than impartial observers such as the Organisation for Economic Co-operation and Development are suggesting, but— this is an important and significant "but"—we may have, in getting from here to there, a significant monetary glitch to cross.

The broad money supply today is growing at only 3.1 per cent. Coincidentally, that is almost exactly the rate at which it was growing two years ago. If the one-off surge in money lent to speculators of various sorts is removed, the actual growth in broad money is only about 1 per cent. In other words, for the first time in a generation at least, and as far back as we have a really good record for broad money, there is a sustained shrinkage in the real money supply.

That is backed up by several subsidiary factors. For example, the growth in wages is running at only 3.75 per cent. Given the rapid expansion in productivity at the moment, that is only just a real increase. Most significantly, I want to focus on the workings of the housing market.

The housing market is difficult to measure because there are so many indices. They include the Halifax and the Nationwide and can be seasonally adjusted or not. However, they all show that, as I suggested might be the case two years ago, the housing market has not recovered. I believe that it is right that it should not recover. Lower property prices are healthy.

Why has the housing market not recovered? First, we must consider the inflationary factor. People believed that it was worth spending more money on a house if, because of the fall in the value of money, the debt that they borrowed would erode vis-a-vis the house price. Secondly, we must consider the fiscal factor, in that the real value of mortgage interest relief has declined. However, thirdly and crucially—I believe that all the economists who focus on housing have left this factor out of the picture—we must consider the geographical impact of the collapse in the cost of travel to the continent which occurred at the same time as the introduction of the single market.

The massive disproportion in house prices in northern France and southern England cannot be sustained indefinitely. Some of my constituents are moving across the channel to retire and people are selling second homes in my area, and I am sure in other areas in southern England, and purchasing properties from estate agents advertising their wares in English in northern France.

That factor could, in the 1990s, match in reverse the one-off inflationary impact of the liberalisation of credit in the 1980s, which gave us such problems with the monetary indicators then and which fed through into a most unexpected burst of inflation in spite of apparently high interest rates.

We might appear to have low interest rates now, but they are not as low as they seem. Long-term interest rates at 8 per cent.—that is, a real rate of 5.5 per cent.—are quite high. A short-term base rate of 5.25 per cent. is not as low as it looks, because the banks have widened their margins. It is certainly nothing like as low as the 3 per cent. which the Americans, whose economic experience is much closer to ours than to our European partners, chose to sit at for some time. Even if those rates are as low as many people believe, the impact of that one-off, massive, painful adjustment in the housing market—I am convinced that, it is a good thing in the long run, but it is monetarily painful in the short run—will cause a one-off shrinkage in the money supply, which could give us a bumpy ride over the next year or so.

The reaction to that is easily coped with, and the clear water is on the other side—non-inflationary growth on a major scale, and with the extra bonus that, because money is no longer being channelled disproportionately into bricks and mortar, it will be available for the investment which Opposition Members have mentioned and which we would like to see boosted in industry. It is noticeable that those countries which have been most successful economically are often those in which home ownership levels are not especially high and house prices are not particularly high in terms of the economy. Switzerland is a good example of that.

We must be ready to take swift monetary action if the broad money figures become any lower. That can mean only one of two things—either keeping the base rate down or even lowering it further, in which case I shall make even more money at the bookies than the little bit by which I am ahead already, or being willing to tackle the other end of the interest rate curve, which would be my preferred solution, by reducing the amount to which we fund the deficit so that we get broad money moving again. That course is potentially rocky.

I shall devote the last couple of minutes of my speech to ways in which we can tighten the fiscal position a little further. Like most hon. Members, I believe that a gently expanding money supply and a tightening fiscal position will deliver the non-inflationary growth that we need. First, I firmly believe that we should go the whole hog on social security spending and introduce identity cards and a proper central register, which would be the single most effective way to tackle fraud.

Secondly, as I have proposed in previous debates, and as I have a university in my constituency, we should fund the remarkable growth that we have achieved in higher education by going even further toward student loans. In the long run, grants should be confined only to certain specialist groups such as mature students and those with other special positions.

Thirdly, we must reconsider the scope for legal aid. We have narrowed the group of people who are eligible, but we have not narrowed the type of cases that they can bring. For example, pensioners in my constituency can dispute a garden hedge, and, having spent £20,000 of their own savings, can ask the Treasury to fund the next stage of the dispute—incidentally, the case was brought against a war hero who has lost a leg—at the taxpayer's expense. I find that incredible.

Fourthly, we should look again at home improvement grants, which are frequently paid to people with substantial incomes and which result in a one-off capital gain for those people. Why should not grants be repaid on the sale of the house?

Fifthly, like other hon. Members, I believe that we have to look again at housing benefit, but not by sharpening the taper still further and screwing down still more tightly on those with modest savings. The way to tackle housing benefit is by recognising that we have a largely artificial property market in many areas because most people in rented accommodation in some areas are now on housing benefit. The answer is to limit the amount which councils are allowed to pay, thereby bringing down prevailing rents.

I end where I started. I declared unnecessarily my interest because I thought that it was right to do so. I am betting that we have beaten inflation.

8.33 pm

Mrs. Anne Campbell (Cambridge)

It is rather interesting that no Conservative Member has referred to this as a "feel good" recovery. I refer to it as a "feel no better" recovery, which is certainly an improvement on feeling worse, and probably very much preferred to the "feel good" recovery which ends in inflationary tears. That is not my phrase, it is the phrase of a well- known journalist who writes for The Guardian. As he rightly comments, the real question is whether the "feel no better" recovery will fizzle out or end in an inflationary boom.

The problem that we face is the lack of industrial strategy, which is the worrying aspect of the Government's approach. The Chancellor admitted this afternoon that investment in industry is not increasing as he would like. The recovery is being led by consumer spending, not by investment in industry. Too much of our consumption is of goods that are manufactured abroad, which is increasing our trade deficit and producing longer-term inflationary pressures.

Over the past 15 years, we have seen the decimation of our manufacturing industry. That in itself must have shown some of us at least that it is essential to have an industrial strategy that will help to rebuild the desperately needed manufacturing industry. We need a strategy that will help put our people back to work and help to use our skills and expertise to their best advantage.

People are often surprised when I tell them that unemployment in the Cambridge constituency is about the same as the national average. For some reason, people always think that Cambridge is one southern constituency with low unemployment. Some 3,400 people are registered as unemployed in my constituency. The rate is 9 per cent. overall. One reason why unemployment is not much higher than that is that we have good reason to be grateful for the strong growth of the small high-tech firms which have dominated the industrial scene in my area. That has developed despite the Government, rather than because of Government policies.

I should like to talk about the importance of high-tech firms. Although that is not the only small business sector that we should support, it is extremely important because it provides interesting and satisfying work. It is not part of the low-skill, low-tech economy that the Government are trying to promote, and it is an essential way of capitalising on our skills and expertise and enabling manufacturing industry to benefit. Through the promotion of high-tech industry, we can achieve economic growth and increased employment and, at the same time, ensure that our manufacturing industry improves its competitiveness.

Last weekend, Cambridgeshire county council published a survey of 1,000 companies in Cambridgeshire, which showed that there has been 7 per cent. growth in high-tech jobs in the past two years. In the city, more than one in eight of all employees work in high-tech industry, and in the surrounding villages the proportion is one in five or higher. It is a crucial part of our local economy.

In the past two years, an additional 1,900 high-tech jobs have been created, bringing the total to more than 27,000 in the county, including an extra 500 jobs in research and development. Some of those jobs replace jobs that were lost in other sectors, and many of them are financed by European research and development money. Thirty-two per cent. of those jobs are in the city of Cambridge, the great majority of them in my constituency.

Without those jobs, the unemployment rate would treble, and I would be talking about not 9 per cent. but 27 per cent. unemployment. That is higher than the levels in Tottenham, Liverpool, Hackney and Monklands, East—my hon. Friend the Member for Monklands, East (Mrs. Liddell) referred to the latter in her maiden speech.

I hope that the Government will take due note of an excellent report that has just been published by the Advisory Committee on Science and Technology. The report, entitled "Innovation and the Tax System", makes several recommendations, some of which I hope that the Government will implement, which have been part of Labour party policy for a long time. It suggests, for instance, a detailed study of the relationship between the UK tax system and the innovative activity of UK-based businesses.

The momentum of innovation depends on access to financial and other resources. The tax system is important in determining post-tax profits from which businesses can finance such innovation. A technology-based firm in my constituency, Xaar, has developed an ink-jet printing system and a range of complementary inks. Several million pounds raised from venture-capital organisations in the UK and Europe have been invested in the development of that technology. Xaar has been successful in seeking licences for its technology, and has concluded agreements with major Japanese office manufacturers, IBM Sweden and, most recently, Zeneca Colours Ltd.

Under the terms of the agreement with Zeneca, together with the Xaar chemists, a programme of joint development to produce top-quality inks to service the market being created by Xaar's printhead manufacturing licensees is being embarked on. The key element of that agreement is the joint development programme, and the transfer of Xaar know-how and technical information.

Xaar was shocked and disappointed to find, when the first payment came in under the licence, that a deduction of 25 per cent. had been made to cover tax. The trouble is that Xaar will not be able to recover that amount until it is in a position to pay corporation tax—which, given the accumulated losses arising from the development, will not be for several years.

Xaar's chairman wrote to tell me of those developments, adding: The strangest factor is that had Xaar concluded a deal with an overseas manufacturer then the income would not have been subject to 25 per cent. withholding tax. Even licence fees and royalties from Japan have only 10 per cent. withholding tax. The chairman makes the following plea: We ask the question, why do the UK tax laws seek to penalise companies like Xaar who are engaged in keeping British technology at the forefront of product development. I believe that our tax system could do a great deal to develop small high-tech firms. My hon. Friend the Member for Motherwell, South (Dr. Bray) referred to tax incentives that would help not only high-tech industry but many of our manufacturing industries. We should recognise that not only investment in research and development, and in equipment and machinery, but investment in people is vital to the future of our industries. We need trained people to fill the jobs that will result from the development of high-tech firms, and we need people who are free to work. Many women in my constituency already have the skills, but cannot work because of child care and other care responsibilities.

We need a strategy that will enable such people to work, will help to develop the high-tech firms that will provide the jobs and will help to turn this "feel no better" recovery into a really "feel good" recovery.

8.42 pm

Mr. Barry Legg (Milton Keynes, South-West)

I intend to concentrate on public finances. The Chancellor's summer economic forecast reveals much improvement in our general economy: the first 41 pages show a recovery over the past 18 months which is projected to continue in the medium term—a recovery based on a low-inflation environment.

I agree with my hon. Friend the Member for Croydon, South (Mr. Ottoway), who welcomed the openness initiative in monetary policy to which the forecast refers. The. publication of the minutes of the monthly meetings between the Chancellor and the Governor of the Bank of England are a significant development, in terms of both accountability and the quality of advice on monetary policy that is likely to be presented. More openness in government is likely to strengthen our institutions rather than weaken them.

So much for the first 41 pages of the forecast. The remaining nine, which deal with our public finances, paint a much less sanguine picture. Opposition Members have called for more public spending today, although they have not quantified the increase for which they have asked. Contrary to some of what we have heard from them, however, both the Red Book and the summer economic forecast reveal that public spending is alive and well, and expanding in the British economy. Despite the best efforts of my right hon. Friend the Chief Secretary to the Treasury, the controlled total over the past three years has risen by some 10.9 per cent. in real terms.

Earlier today, my right hon. and learned Friend the Chancellor attributed that increase to the recession, but I suspect that economic historians will not regard all of it as having arisen in that way. They will probably conclude that it is also due to the Government's efforts to offset the over-tight monetary policy that resulted from our membership of the exchange rate mechanism with a more lax fiscal policy.

As a Conservative, I do not support increased state intervention in the form of higher public expenditure 'when Governments follow inappropriate monetary policies. Boosting public expenditure is very easy and apparently popular in the short term, but it is very difficult to bring it down again in a modern democracy. Lobbyists and interest groups will fight to ensure that spending levels remain the same or rise, whatever the national interest demands.

So what of the future? Table 2.2 of the summer economic forecast, on page 43, shows that general Government expenditure over the next two years is set to increase from £278 billion to £310 billion—an increase of some £30 billion; a cash increase of 11 per cent., and a real-terms increase of some 6 per cent. in a low-inflation climate.

The figures show other worrying trends. For instance, cyclical social security is planned to increase further in the coming years. That seems strange when we are experiencing above-trend economic growth: at such a time, cyclical social security would be expected to fall. As for the total social security budget, over the next two years it is due to rise to more than £90 billion. It is difficult to understand the magnitude of that figure; perhaps it would be simpler if it were expressed as the amount of tax that would have to be raised from the average family to pay for it. The average amount of tax levied on the average family to meet that social security burden would be some £4,500 per annum.

I believe that reform of social security spending is now essential. The scope and size of that budget must be reined in. As long as we put off fundamental reform of social security, our reputation for firm control of public spending and our ability to create a low-tax environment will be in danger.

When Beveridge produced his White Paper on social security, he said that the great danger was that men might become comfortable and settle down to benefits. That is the position we are in—men have settled down to benefits. The social security system that has evolved for 50 years has not helped good neighbourliness, but has set neighbour against neighbour. So often, we hear of people complaining about neighours who exploit the benefit system while they pay the taxes.

Too generous a benefit system also stops people from going back to work. The most important ingredient in getting people back to work is net take-home pay after tax, which determines the supply of labour. If people find that they receive more on benefit than they would in net take-home pay, their determination to find work will obviously falter.

In recent months, there has been significant discussion and argument about whether the United Kingdom economy can combine European welfarism and American free-market efficiency. If one accepts such a proposition, it has some inconsistencies. Free-market efficiency requires a low-tax system, whereas welfarism pre-empts the nation's resources. Even in Britain today, the state is pre-empting more than 44p in every pound of private sector resources.

Deregulated labour markets are not enough. Low tax is a necessary prerequisite for a successful free-enterprise economy. High welfare spending is not a part of that virtuous circle. High public spending usually leads to high public deficits and high long-term real interest rates, because the markets want a risk premium for the money they lend to spendthrift Governments.

We have an agenda that we must adhere to during the next two years, and we must ensure that low taxation is at its heart. To achieve such low taxation, firm control of public expenditure cannot be mere rhetoric: it has to be a commitment that we are determined to deliver. A social security budget of £90 billion must be reformed.

Last week, we heard from my right hon. Friend the Chancellor of the Duchy of Lancaster that Government running costs are £20 billion a year, or £1,000 a year for every family in this country. We must focus on reducing these levels of public spending during the remainder of this Parliament, because a low-tax economy must be an obligation that we do not dishonour.

8.52 pm

Mr. Mike O'Brien (Warwickshire, North)

First, I congratulate my hon. Friend the Member for Monklands, East (Mrs. Liddell) on her impressive and forceful debut in this place. I know that my new hon. Friend will be a great credit to her predecessor.

The Chancellor forecast a golden vista of his creation —rising investment, low inflation, reduced public borrowing and lower taxes. To the public, he says, "All this and more can be yours, if only you vote Tory next time." If he thinks that the public will be so easily conned, he is wrong. They know that such forecasts come from the same crew who failed to predict the Lawson boom, ruled out the possibility of a recession, did not foresee sterling's exit from the exchange rate mechanism, and denied the need for tax increases before the last general election. Their record for forecasts is abysmal, and their record on economic management is worse.

It is true that we are climbing out of recession, but that is part of the economic cycle. It would have happened sooner if the Government had got their policies right. We stayed in recession longer than most other countries. The economic cycle meant that we were bound to come out of recession eventually, as we came out of the 1981 recession, but the Government's stewardship has left the economy in a bad state to take advantage of recovery, just as it did after the 1981 recession.

The Government cannot even claim that the recovery is a result of the success of their policies, because it is clearly the result of the failure of the policy that they set out at the last general election. The present Prime Minister was Chancellor when he took us into the ERM at an unsustainable exchange rate. It was an appalling judgment. We entered the ERM at the wrong time, the wrong rate, and for all the wrong reasons.

Massive damage was done to our manufacturing base, and a million jobs were lost as the then Chancellor, now the Prime Minister, sought to sustain what was unsustainable. Even those people such as myself, who believed that the principle of the ERM was right, knew that that exchange rate was not sustainable. Once forced to abandon their preferred policy, the Government found that a slow recovery began. Their false judgments created the recession, the damage to manufacturing and now, paradoxically, the recovery.

The budget deficit, which produced value added tax on fuel and car and home insurance, and a new airport tax, was created by the fiscal irresponsibilities of the 1980s and 1990s—primarily, by tax cuts at the wrong time, and again for the wrong reasons. I well remember the forecast that the Lawson boom would lead to prosperity. The reality was boom, bust and job losses, and it will be again, because this Chancellor does not get his judgments right, either.

Value added tax on fuel was introduced because we supposedly had a £50 billion deficit. That was his forecast and his judgment, but he was wrong. The deficit was £46 billion. He did not need to introduce VAT on fuel; pensioners and the poor did not have to be hit in that way.

The Chancellor made the wrong judgment in imposing an unnecessary burden on people, so will he remove it? He would not agree even to fail to impose the second stage of VAT on fuel when he came before the Treasury Select Committee. I suggested to him that there was no more need for the tax. He said, "Well, we're going to do it anyway."

Like his leader, who took us into the ERM at the wrong rate, this Chancellor decides when confronted with realities that the best thing to do is to ignore the pain they cause, and carry on regardless. It is the same sort of attitude that he displays towards the fundamental problems of the economy—he ignores them. The result is that the recovery is not sound.

Yesterday, David Hardisty of the Finance and Leasing Association said: Confidence is still fragile, because there is no feel good factor at the moment. The tax rises, low wage settlements, static house prices and fear of unemployment mean people do not feel their economic situation is improving. Sixty-three per cent. of the association's members were no more confident about their prospects this month than they were in February.

The housing market is a particular problem. In paragraph 3.28 of the Red Book, the Chancellor predicted: Increasing confidence should lead to higher activity and prices in 1994. He got that wrong, too, as he admitted to the Treasury and Civil Service Select Committee.

The failure of the housing market is probably due to three factors: first, confidence in recovery is weak; secondly, the Governor of the Bank of England has predicted that interest rates will rise later this month, which deters borrowers; and, thirdly, taking out a 25-year mortgage is based on the principle of being able to pay for it, and uninterrupted employment.

The new insecurity and uncertainty in the job market caused by the removal of many employment rights means that people are less likely to enter into large loans, because they are not sure that they will be able to pay them. The housing market may not be the same ever again while current Government policies continue. That will affect the need for a mood of confidence which the Chancellor predicted but which, again, has not materialised.

There is also no real evidence that the Chancellor has created one extra full-time job. That was the consensus view not only of the distinguished panel of economists who advise the Select Committee, but of his panel of independent advisers, who said in paragraph 13 of their report on the summer economic forecast: Full-time employment has continued to fall. It is true that people are coming off benefits, but that is for three reasons: first, changes in the benefit rules, especially on invalidity benefit; secondly, more young people are going into education; and, thirdly, the creation of more part-time jobs. However, the statistics show that full-time jobs are still not being created, and, as the Chancellor's advisers said, full-time employment has continued to fall. There are also concerns about the sort of jobs that are being created and the sort of full-time jobs that might be created, hopefully, in due course.

If recovery is to be sustained in the long term, we need an export-led recovery; we need a recovery primarily in manufacturing. The damage to our manufacturing base in the recent recession has been enormous, but as Professor Christopher Johnson pointed out, the damage to manufacturing investment under the Tories has been long-term, rather than only during the current recession. During the period 1982 to 1992, while capital stock in finance and business rose by 107 per cent., in trade and tourism by 57 per cent. and in other services by an average of 38 per cent., capital stock growth in manufacturing industry was only 14 per cent. That has left manufacturing weak over the past decade.

As the Chancellor's economic forecast acknowledges, that has led the Confederation of British Industry, in its measure of capital utilisation, to say that the manufacturing sector is already close to its normal level of utilisation. There is little spare capacity left in manufacturing; spare capacity is in other sectors. That means that, even if we are able to bring ourselves slowly out of recession and into recovery, the manufacturing demand is unlikely to be able to met domestically, and we will have to import products.

If we are not careful, and if there are no changes in policy, we are then looking at a balance of payments problem, certainly in the next year. Manufacturing is fundamentally weak, after years of neglect. That is why my hon. Friend the Member for Dunfermline, East (Mr. Brown) has called for policies to encourage investment in manufacturing, and to tackle the skills deficit in Britain.

Any modern western economy should have managed a sustained growth rate of 2.2 per cent. over the past decade or more. We did that before 1979; we should have been able to do it after 1979. As Professor Johnson has shown, an output gap has grown since 1979. Under the Conservatives, the economy has gone from boom to bust, but throughout that period it has under-performed.

Professor Johnson predicts that the current massive output gap will take five years or more to close, even at the current rate of growth. It will take five years of the current growth rate to take us to where we should have been if there had been prudent stewardship of our economy. It is a miserable record. In the 1990s, the growth rate is likely to be an average of only 1.6 per cent.

We also have the highest taxes on record. The Conservatives like to say that they are the party of low taxation, and argue that the present tax rises are a temporary hiccup. However, that is not true. Recently, my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) gave the Treasury and Civil Service Select Committee statistics from the Library of the House. Their effect was devastating.

In 1978–79, the ratio of tax to gross domestic product was 34.3 per cent. In every year up to 1993–94, it was a higher proportion of gross domestic product than in 1978–79. This year, it is 34 per cent., but it is set to rise to 37 per cent. in 1994––95 and 1995–96. That is not a temporary phenomenon or a hiccup.

If hon. Members think that the statistics for 1978–79 are somehow or other an aberration as far as the Labour Government were concerned, it is the case that the figures for 1975–76, 1976–77 and 1977–78 were also lower than for almost every year under the Conservatives. The data show that it is simply a myth that the Conservatives tax less than Labour. It is true that the Conservatives tax the rich less than Labour, but, for the working class and for middle-income families, Labour's tax policies not only cost less but are more progressive and fair.

A married couple on average earnings with two children in 1978–1979 paid 34.2 per cent. of their earnings in direct and indirect taxation. In only one year from then until 1992–1993 does the proportion fall below that, and that was 1979–1980, following a Labour tax cut. In every single year since 1980, a typical family has been taxed higher under the Conservatives.

That leaves the debatable point about whether Labour would or would not have taxed higher than the Conservatives in the 1980s. But it is not debatable that, since 1979, under Mrs. Thatcher and the present Prime Minister, the Tories have taxed more than Labour Governments.

The Chancellor cannot be relied upon to get it right. His judgment is unsound, and he and his predecessors have made too many bad judgments in the past. He has no clear view of where he is going, he has not addressed the fundamental problems of the economy, and he does not have solutions for those problems. The Conservatives seem to see their only hope in trying to extend the policies of the 1980s—the "me decade"—into the latter half of the 1990s, no matter that tax cutting and trickle-down economics were supposed to lift all the boats, but have instead lifted only the yachts and damaged the harbour in the process.

Labour rejects that. We want to move from the "me decade" policies and to make the 1990s the "we decade". We say that, unless the many prosper, none will. It is for that reason that I say that the electorate will not be conned again by the Chancellor's predictions of prosperity. The Government have got it wrong far too often, and they have got it wrong again. The electorate know that, and they will reject them.

9.6 pm

Mr. Nigel Forman (Carshalton and Wallington)

I am grateful for the opportunity to contribute briefly to this interesting debate. I have sat through virtually all the speeches and I have listened to them with considerable attention.

Speaking at this time of the evening, and looking at the open green Benches, reminds me of the old saying, "If you want to keep a secret, make a Back-Bench speech." There is no doubt that it is somewhat difficult to speak at this time of night.

I was going to make three main points, but I shall confine myself to one, for reasons of brevity. I wanted say some nice things about the growth of the economy, but those points have already been made adequately by my right hon. and hon. Friends. I shall content myself with making one practical suggestion by way of an early Budget representation to my right hon. and learned Friend the Chancellor and to his colleagues on the Treasury Bench.

One of the besetting difficulties in our economy since the war—perhaps for longer—has been the relatively low level, and sometimes also the poor quality, of the investment made in the economy. There has also been rather too low a level of aggregate savings which have been put aside by all sectors of the economy towards that investment. The time has come for the Government, and Parliament as a whole, to try to make a constructive contribution to rectifying that situation, or at any rate to lean against the national malaise of inadequate aggregate savings.

I shall quote one or two figures which relate to the time that the Government have been in office, from 1979 to the most recent available date. Total savings as a percentage of GDP moved from 23.1 per cent. in 1979 to 13.5 per cent. in 1993—a rather depressing decline.

If one looks, for example, at the international figures and compares our record with those of Japan and Germany, one finds that in roughly the same period—in this case, the figures relate to 1979 to 1992—Japan's gross national savings as a percentage of its GDP stayed roughly constant at 31.5 per cent. in 1979 and 33.9 per cent. in 1992. In Germany, the figures were 22.8 per cent. in the first year and 22.7 per cent. in the second year. The United Kingdom's figures were 19 per cent. in the first year and 12.8 per cent. in the second year. I therefore want some measures to be taken not just in the forthcoming Budget but in succeeding ones to help to rectify that situation.

On the personal side, it is very important not to attack the tax regime for institutional savings, because we shall all need the efficiency and positive contribution made by such savings to thrive and grow in order to achieve the other objectives of Government policy in the sphere of occupational pensions. Rather, my right hon. and learned Friend would do well to consider introducing an overall tax incentive for any form of personal savings up to a maximum of, for example, £10,000 in a given tax year, which would be completely neutral as between one savings product and another. In the context of the move towards self-assessment, it could be self-certified by the taxpayer, subject to rigorous spot checks and fierce penalties from the Inland Revenue.

That should increase the aggregate level of personal savings in the economy, reduce the need for savings churning between different novelty products and encourage the old habit of direct equity or bond investments by individuals. If properly channelled by institutions and properly used by companies—obviously it is not just the quantity of investment, but the quality and the direction of it which matters—it should produce a higher level of overall investment in our economy.

If my colleagues on the Front Bench want to learn more about this idea—if they are not already up to speed on it —I commend to them a recent publication by the Institute for Fiscal Studies, which put forward an idea similar to the one that I have outlined. I believe that it would be in the national interest to pursue this idea.

9.10 pm

Ms Harriet Harman (Peckham)

The argument in the debate centres on a fundamental difference of analysis of the state of the economy and a fundamental difference of view about the role of Government in the economy. The Opposition believe that the economy remains fundamentally weak and that the power of Government must be used to address that weakness. The Government tell us that the economy is doing just fine and that all they have to do is carry on as they are.

Rarely during an economic debate can such a contrast have been drawn between the picture that the Chancellor painted of the economic background and the daily reality that faces the people of Britain. Listening to Ministers today is like eavesdropping on the inhabitants of a different world.

The terms of the Government's motion celebrates their victory in the battle against unemployment, but in the real world, and according to the Government's own reckoning, the number of people in employment is actually falling, and still 2.6 million people remain unemployed.

The Chancellor tells us that we have an economic recovery that is the envy of Europe. Britain, of course, went earliest into recession and has, therefore, emerged before our competitors, but the effects of the recession have been far more severe here than those experienced elsewhere. That is why the OECD's forecast predicts that, between 1990 and the end of 1995, the economy of Britain will grow at a slower rate than that of any other G7 country and at a slower rate than that of any other European Union country and that our economy will grow at less than half the average of those of OECD countries. That is why it is only in the make-believe world of Ministers that we are the envy of our competitors.

Ministers trumpet Britain's improved competitiveness, but the reality is that our trade deficit is the worst in the European Union and we are second from bottom in the OECD skills league table. That is the dream world in which Ministers are living—the dream world in which they can talk about tax cuts even as they impose the biggest tax rises in history and ordinary families face 10 more tax rises still to come. No wonder the Chancellor can detect no feel-good factor. People do not feel good about tax increases; they feel betrayed. They do not feel good about their employment prospects; they feel insecure. They do not feel good about economic recovery, because they do not believe it.

Moreover, people know that Britain's current economic weakness is reflected in a history of failures that stretches back to 1979 and embraces every aspect of economic performance. I am not talking the country down, but telling it straight. The Conservatives have failed on key tests set not by their opponents but by themselves.

Mr. Butterfill

If the hon. Lady does not believe the Government's statistics, she may believe those produced by the Library. Page 3 of the research paper that the Library produced for this debate shows the pattern for industrial production. Under the last Labour Government, industrial production fell rapidly between 1974 and 1976, and returned to its original level only in 1979 whereas, under this Government from 1980 to 1990, there was considerable recovery and we are now back to the record levels of 1990.

Ms Harman

The hon. Gentleman should look at what is happening in other countries. Manufacturing output in this country has grown by a mere 4 per cent. since 1979. Compare that with the record in America, where it has grown by 30 per cent. If the hon. Gentleman wants to take manufacturing output as an indicator, he should be extremely concerned about that fact.

The Conservatives have failed their own tests on borrowing, public spending and taxation. The story is one of ignominious retreat from their explicit promises.

Sir Peter Hordern (Horsham)

The hon. Lady specifically mentioned borrowing. Does she remember the great man, Dr. Johannes Witteveen, a director of the International Monetary Fund, who presided over the bailing out of the last Labour Government? I cannot remember the name of the gentleman who presided over the bailing out of the previous Labour Government. However, no Conservative Government have ever borrowed as much, as a proportion of GDP, as the last two Labour Governments. Labour Members are concerned only with increasing Government spending, which must have the same result.

Hon. Members

Hear, hear.

Ms Harman

Ministers say "Hear, hear", but the right hon. Gentleman is absolutely wrong. This Government have borrowed record amounts. Back in 1988, when the Prime Minister was Chief Secretary, he promised a zero PSBR year on year. The people who promised to end borrowing altogether have now become the biggest Government borrowers in history and lamely propose that they may eliminate Government borrowing by the end of the century.

On public spending, which the right hon. Member for Horsham (Sir P. Hordern) also mentioned, the Government made two promises: to protect investment yet, at the same time, reduce overall public spending. But they have done neither. They have cut investment in the economy and public services, but failed to reduce overall spending.

The Government's most notorious and humiliating failure of all is on tax. People now pay more tax than they did in 1979. The Conservatives said nothing equivocal on tax in the general election campaign. They specifically promised income tax cuts. Moreover, they promised them year on year. They ruled out a rise in national insurance and promised not to put VAT on fuel. As we know, all those specific promises have been cynically broken. Now, the best that they can do is offer us, as the Chancellor has today, their instinct to cut tax. They are like a football team that promises to bring home the world cup and, having been humiliated in the qualifying round, comes home and tells the public about its instinct for scoring goals.

The Government's failure on the economy lies at the heart of all their other failures. My hon. Friend the Member for Monklands, East (Mrs. Liddell) addressed that failure in her maiden speech. She showed the strength of character and determination that will clearly make her an asset to her constituents. She spoke of her deference in following in John Smith's footsteps, and I am sure that the whole House will agree that he would have been proud of her speech.

For 15 years, the Tories have tried to present issues of spending, tax and borrowing in isolation from the state of the real economy, but the truth is that economic performance is crucial to performance on borrowing, on spending and on tax. That is why the Government have not succeeded, and will never succeed, even by their own standards.

It is the Government's failure on the economy which has sent the public sector borrowing requirement soaring to record levels. Economic failure has meant that the cost of keeping people unemployed has trebled, and the Government have responded by cutting investment. Economic failure means that, with more people unemployed, everyone has to pay more tax.

My right hon. Friend the Member for Chesterfield (Mr. Benn) asked exactly the right questions about tax. He said, "The question is, what is it for and who pays?" The answers, under the present Government, are, "What is it for? It is to pay the price of economic failure", and "Who pays? Middle and lower income families."

That record of failure obviously was not inevitable. It was not some unfortunate accident. It is the direct result, the product, of an economic dogma that simply has not worked—a dogma which says that the Government can play no positive role in the economy, and says that Britain can compete only as a low-wage, low-skill economy, with a weakened welfare state left to pick up the pieces.

That dogma stands condemned by the Tories' record of failure. It must be replaced by an approach that uses the power of Government to ensure investment for the future, which recognises that some markets need a regulatory framework that will foster economic success, and which has at its heart the commitment, which my hon. Friend the Member for Cambridge (Mrs. Campbell) mentioned, to a high-tech, high-investment, high-skill, high-wage economy to give people economic opportunity, and a welfare state that gives people pathways out of poverty.

Some Ministers, including the Chancellor of the Exchequer, are trying to shift their ground, but remember, his is a party which said that unemployment is a price worth paying, and believed that manufacturing did not matter. My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) reminded the House, with the benefit of his experience, as he always does, that our economy has not prospered without a strong manufacturing base.

Have these Tories really changed? The answer is of course no, because although their words are changing, their actions are not. My hon. Friend the Member for Darlington (Mr. Milburn) made it clear that the Government still believe that unemployment has nothing to do with them, and that their rhetoric on full employment is meaningless.

Mr. Forman

I am grateful to the hon. Lady for giving way; she is very kind. Before she gets too carried away with Labour's prospect of spending its way out of recession, were it ever to be in government, does she recall the memorable words of Lord Callaghan, the last Labour Prime Minister—in perhaps every sense—who said to the Labour party conference in 1976: I tell you in all candour, comrades, you cannot spend your way out of a recession"? He was referring to public spending.

Ms Harman

The Government have failed to cut public spending, although they have cut investment, because they are spending more on the consequences of their economic failure. The history of the Tories' economic policy is failure destined to repeat itself, first as the tragedy of two recessions, followed by the farce of a Government trumpeting their success as they create the conditions for yet more failure.

For the Government, recovery is simply the absence of recession, but recovery, if it is to be sustained, must be more than that. They have not conquered the economic problems that they have created. They have not ended the pattern of boom and bust that my hon. Friend the Member for Coventry, North-West (Mr. Robinson) so excellently described. This fragile recovery is nothing more than an interval between the first two Tory recessions and the one that is yet to come.

Just as the Chancellor is trying to change the mood music on economic policy, so he has tried to change it on social policy. While the Chief Secretary still says that Government action undermines individual responsibihty, the Chancellor has started to speak about a strong welfare system.

The Chancellor has every reason to -be embarrassed by the Government's record on social policy. [HoN. MEMBERS: "Why"?] Conservative Members should look at the Government's own figures, which show that since 1979 the income of the poorest one tenth of the population, in real terms, has actually fallen by 17 per cent. while that of the richest has increased by 62 per cent. That is the direct result of an economic strategy based fairly and squarely on high unemployment and low wages. It is the direct result of a tax policy based on tax loopholes for the super-rich and tax increases for low-paid and middle-income families. It is the direct result of a social policy based on cutting benefits.

Just as the Government's economic strategy remains unchanged so, too, their tax and social policies remain unchanged. It was the Chancellor who insisted on going ahead with VAT on fuel—and still, despite the outcry in the country and despite its obvious unfairness, he refuses to cancel the increase from 8 to 17.5 per cent. He still refuses to end the tax privileges for the rich, such as executive share option schemes that give the richest people thousands of pounds in untaxed income. Meanwhile, the Government's policy of punishing the poor remains unchanged, cutting invalidity benefit and unemployment benefit—and now housing benefit is also on the hit list.

At the heart of Tory economic policy has been the commitment to cut public spending and we heard much about that in the debate. In 1979, the Conservative manifesto asserted: The state takes too much of the nation's income: its share must be steadily reduced. The Government have not done that. Public spending is 44 per cent. of gross domestic product now and it was 44 per cent. of GDP in 1979. It is no lower now than it was when the Tories took office in 1979. That is not because they have been investing in a stronger economy; it is not because they have been modernising the health service or giving us a state-of-the-art transportation system—far from it.

The Tories are not spending less as a percentage of GDP, but what they have done is to change the composition of public spending. More is being spent on the costs of economic failure and less on investing for economic opportunity and success. They pay out income support for the growing number of single parents instead of ensuring the provision of nursery places so that they can go out to work. They pay out unemployment benefit to the unemployed instead of ensuring investment in skills to help them to get a job.

In the face of the Government's inability successfully to manage the economy, Tory public spending, instead of being a springboard for economic success, has become increasingly a palliative for economic failure. It is not that this Tory Government have been short of public money to spend. They have had £118 billion of North sea oil receipts and they have squandered it. They have had £69 billion of privatisation receipts and they have squandered it.

Mr. Butterfill

Will the hon. Lady give way?

Ms Harman

I have already given way to the hon. Gentleman once and I will not do so again.

The Government have lacked not public money, but an understanding of how to use it in the public interest. People are paying tax increases not to invest in success in the future but to pay the price of the Government's past failure. The truth is that the Tories are no more the party of low public spending than they are the party of low tax. Everywhere they turn, they are confronted with the consequences of their failure and their inability to deal with that.

At this time of crisis for them, the message goes forth from Tory central office, "Fellow Conservatives. Ask not what can you do for your country. Ask who in the country you can blame." So they target the victims of their policies. Unemployment, homelessness and poverty, which the Government created, are the fault of the unemployed, the homeless and the poor. Insidiously, they invite the voters, the general public, to blame those groups, to divert anger away from the Government.

The Chief Secretary, however, goes one step further. He does not simply blame the victims for the public dissatisfaction with the Government. He goes beyond the middlemen. He blames the voters themselves. As he put it in a recent interview, the reason why the Tories now trail Labour on tax among the electorate is because their judgment has become clouded". Britain is plagued by a muddled electorate—it is their confusion which is responsible for the Government's unpopularity. At this point, I know that some of my hon. Friends will suggest that the confusion lies not with the electorate but in the Chief Secretary's own head. Undaunted, however, he comes back with more revealing insights.

The voters, he says, are flawed in other ways, too. They are not merely confused. They have also become cynical. According to the Chief Secretary's preachings, voters no longer respect those who lead and manage them. Then, last month, from his speech in Spain, we learned that the voices in his head told him that he must speak out again, this time about a great threat to democracy. Apparently—I shall translate, because by this time he was speaking in tongues— Voters feel they own their government, and since they feel they own it, they believe it should do what they want. In common with the people who walk up and down Oxford street with sandwich boards on their backs proclaiming, "The end is nigh" or that "Protein is the root of all evil" the Chief Secretary believes, I am sure, that the world will one day wake up to his perspective.

But perhaps it is not fair to single out the Chief Secretary, because there are other forms of delusion equally worthy of our attention. Everyone knows, for example, about the worrying influence of computer games and the consequent blurring of fantasy and reality. But an even more ominous phenomenon is emerging—virtual reality headsets. One just puts one on and enters a fantasy world where one can make anything happen.

So now we know why Ministers are so removed from the real world. They sit around the Cabinet table every Thursday morning, and when talk of traffic cones and service station toilets fails to distract them from the mountains of problems that are too painful to be faced, they get out their headsets and enter a world of their own creation. They press their control pads and the unemployed are made to disappear. At the touch of a button, our ailing economy rematerialises—this time as the envy of the world. With a deft swivel of their joy sticks, the law of gravity is reversed and taxes appear to be falling, even as they are soaring upwards.

But the problem for Ministers is that no one else lives in virtual reality. Everyone else lives in the real world: the world of falling living standards, economic failure, social division and rising taxes. [Interruption.] I see that a Conservative Member has such a headset on even now. People bitterly resent a Government who say that everything is fine when, clearly, it is not.

This summer economic debate comes at the end of an historic parliamentary Session. The Government have been exposed on their tax record, exposed for their deceit on tax, exposed for their unfairness on tax and exposed as the perpetrators of the biggest tax rise in history. The Tory's last remaining electoral weapon—the myth of low tax— has been taken from them. They failed on economic policy and social policy. Despite their pretence that everything is fine, they know that they have failed.

That is why some of them are tentatively moving on to Labour's ground. [HoN. MEMBERS: "No."] Yes, they are: all this talk about full employment—not in here, but out there—and about community. But Labour's language will not work for the Tories. Bear that in mind. It will not work because people who are worried about unemployment will not look to the party that has created mass unemployment. People who care about modernising the welfare state will not look to a party that has undermined it. People who want a strong economy will not look to a party that has weakened it.

People have made it clear in local council elections and European elections that they no longer trust the Tories. There has been an historic shift in the allegiance of the British people. They are now ready to entrust their future to Labour.

9.35 pm

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

My right hon. Friend the Member for Worthing (Sir Terence Higgins) and the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) complained that there were too few opportunities to discuss the economy. During the course of the afternoon we have heard a series of interesting speeches on the economy from my right hon. and hon. Friends and, indeed, from some Opposition Members.

Unfortunately, we did not hear any explanation from the Labour Front-Bench spokesmen of what the Labour party's economic policies might be. For the hon. Member for Peckham (Ms Harman), in the dying moments of her speech just before it fizzled out, to talk about the Conservatives wanting to move on to Labour's ground, when it was perfectly clear from the whole debate that there was no ground to move on to, really took the biscuit.

I pay tribute to one speech from the Labour side. The hon. Member for Monklands, East (Mrs. Liddell) made her maiden speech. It was a speech full of personal modesty. The House will have appreciated the tribute that she paid to her predecessor, John Smith. It was a speech of substantial eloquence and she showed her keenness to serve her constituents. I wish her well with her parliamentary career.

The hon. Member for Monklands, East paid a great deal of attention to the need to create jobs in her constituency. She put particular emphasis on the need for small businesses to develop in her constituency and to do well. I would say to her that for that to be the case, there has to be confidence, and confidence is what the Government have been restoring by their economic policies.

I want to make a speech to close the debate which is about principles, specific policies, achievements and a programme to make sure that our economy is strong and that there can be confidence in that economy. I shall contrast our approach at every step with the lack of policy from the Labour party.

I wish to detail the steps that my right hon. and learned Friend the Chancellor and I have worked at to restore confidence in British economic management. We have done it under the headings of monetary policy, public spending and fiscal policy. I want to talk about all three.

Mr. Butterfill

Will my right hon. Friend confirm that one of the things that the hon. Member for Peckham (Ms Harman) said was factually incorrect according to the information from the Library? She said that the Organisation for Economic Co-operation and Development forecasters had said that our growth would be lower than that of other countries. The Library research paper shows on page 19 that our growth will be higher than almost any other OECD country in terms of GDP for both the present year and 1995. Can my right hon. Friend confirm that that is correct?

Mr. Portillo

My hon. Friend is right. The prospects are that we shall have the highest growth rate of any major European Union country this year and next.

Mr. Allan Rogers (Rhondda)

Will the right hon. Gentleman give way?

Mr. Portillo

No. I want to get on.

The reason why we have a monetary policy is that we believe that the basis of economic confidence and stability must be low and sustained low inflation. We believe that it is essential for social cohesion that there should be low inflation. That is why we have set specific targets which say that the underlying rate of inflation will be kept between 1 and 4 per cent. and that we will be in the lower half of that range at the end of this Parliament.

That is why we have laid out the other factors that we shall bear in mind in judging whether monetary conditions are right or whether they need to be tightened or loosened. We have referred to asset prices, to monitoring the money supply and exchange rate, and to watching a range of other factors to identify inflationary pressures. We want to make it clear that interest rates in this country will be set according to economic conditions in this country and not according to economic conditions in other countries. We want to make it clear that interest rates will be set in this country for economic reasons and not for political reasons.

That is why we have embarked on making our monetary policy ever more transparent, publishing the monthly monetary report, setting up the independent panel of forecasters, publishing the minutes of meetings between my right hon. and learned Friend the Chancellor of the Exchequer and the Governor of the Bank of England when they discuss monetary policy. That is why the OECD has paid tribute to the steps that we have taken to establish that monetary policy framework and has described the publication of the minutes as a significant step forward.

That is why my hon. Friends the Members for Canterbury (Mr. Brazier) and for Croydon, South (Mr. Ottaway) made such a point of referring to the importance of low inflation.

Mr. Rogers

Will the Minister give way?

Mr. Portillo

No, I am sorry, but the hon. Gentleman has not been here for the debate.

The second heading under which I want to deal with our policies for creating confidence is public spending. We believe that the Government's control of their spending is critical to confidence in that Government. One cannot have confidence in a Government unless they are able to control their spending.

Conservative Members believe strongly that the Government and the state are there to serve the individual and that it should not be the other way around. That is why we believe that a Government who are spending 45 per cent. of gross domestic product need to reduce that proportion progressively year by year. We believe that the citizen is the customer of the Government and that he must be given good services and good value for money. We recognise that taxpayers, whose money the Labour party would spend with such alacrity, are not well off and may be much less well off than the people to whom the money is being given, which has been removed from taxpayers.

We believe that controlling public spending is vital for the competitiveness of this country. Although the Government are spending about 45 per cent. of our national income, the Governments of the great competitors—the United States of America and Japan—are spending no more than about a third of their national incomes. That is why we have embarked on a process for the complete control of public spending. That is why, despite the comments by my hon. Friend the Member for Bridlington (Mr. Townend), I believe that we have achieved considerable successes.

In the Budget, my right hon. and learned Friend the Chancellor was able to announce that the plans for this year had been reduced by £3.5 billion. That came on top of the reduction in the previous autumn statement and it means that the plans for this year are £8.25 billion below the level at which they were set in the 1991 public expenditure survey. We have taken £15 billion off the plans for the three years of the public expenditure survey.

I have set out the Government's belief in low inflation. I have set out our monetary targets. I have set out our inflation targets. I have set out achievements in public spending. I would like to know from the Labour party whether it believes that inflation should be higher. Does it believe that the monetary targets are wrong? Does it believe that we are following the wrong inflation indicators? Does it believe that publication of the minutes of meetings between the Governor of the Bank of England and my right hon. and learned Friend the Chancellor should not be published? Does it believe that public spending is too high? Does it believe that it is too low? Will the Labour party please tell us what its principles are?

I can tell the House specifically what our principles, our goals and our achievements are. That is why I say to my hon. Friends who are concerned about the level of public spending that they should remember that we are planning for a rate of growth of only 0.25 per cent. per year in real terms for the three years of the public expenditure survey.

We have been able to find, however, more money for health, more money for education and more money for pensioners. That is because the Government have, as my hon. Friends, including my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg) have been urging us to do, controlled the growth of the social security budget and turned our attention in particular to social security fraud. It is because we have reformed the social security system to ensure that it is better targeted, because we have put great emphasis on increased efficiency in public services and because we have tightly controlled our own costs in government that we shall reduce the proportion of national income taken by the Government to 42.5 per cent.

Mr. David Shaw (Dover)

rose—

Mr. Portillo

My hon. Friend has not been here, but I shall give way to him.

Mr. Shaw

I am grateful to my right hon. Friend for giving way. Does he agree that public expenditure control is paramount and that when decisions are taken in government, such as to remove the Royal Marines school of music from Deal, a proper investment appraisal should always be undertaken first? Does he agree?

Mr. Portillo

Of course a proper appraisal should be made. If my hon. Friend has any point to pursue about that, he should do so with my right hon. and learned Friend the Secretary of State for Defence.

Mr. George Howarth (Knowsley, North)

Will the right hon. Gentleman give way?

Mr. Portillo

No; the hon. Gentleman has not been here.

Ms Harman

Before the right hon. Gentleman leaves the point about public spending, will he explain why in 1979 public spending as a percentage of GDP was 44 per cent. and yet, after 15 years of Tory government, it is still 44 per cent. of GDP? Can he explain that to his colleagues?

Mr. Portillo

The hon. Lady should be ashamed to remind the House that she offered us 44 per cent. as a proportion of national income at a time when the economy was in recovery, at the end of a boom period. We are at 44 per cent. following a recession. The average figure under the Labour party was 46.5 per cent. During the 1980s, when we had a period of strong recovery for a number of years, we got it down to 38 per cent. Would the hon. Lady now like to commit herself to getting it down to 38 per cent., or to any figure at all? Is she saying that 44 per cent. is too high, or that, as it was the figure under Labour, it is the figure that she supports? I am prepared to tell her that I think that the figure is too high, and we are determined to reduce it. What is her policy, please?

Ms Harman

Too much public expenditure in this country goes on mopping up the consequences of this Government's economic failure. We see spending on unemployment, on poverty—on income support—and on housing benefit because of their failures on economic policy and their failure in housing policy. We see investment being cut. Is that the pattern of public spending that the right hon. Gentleman expects us to applaud as a success? I think not.

Mr. Portillo

If the hon. Lady believes that unemployment is too high and if, as I understand it, she is saying that she would cut unemployment and that that would solve all her problems, why is it that a country like France, which has a minimum wage—the policy that she advocates—has a rate of unemployment higher than Britain's? Why is it that Sweden, which spends 72 per cent. of national income through government—a country that follows the policies advocated by the right hon. Member for Chesterfield (Mr. Benn)— has a high rate of unemployment? Why is it that Spain, which has a socialist government, has a rate of unemployment of 25 per cent. and a rate of youth unemployment of 40 per cent.? I will tell her why. It is because Spain has had 10 years of socialist government, and the only reason why there is any hope for the people of Spain is that the leader of the Spanish Opposition is charismatic, is 41 years old, was born in 1953 and is a Conservative.

I now want to deal with fiscal policy. We believe in controlling the rate of Government borrowing because we are aware that the borrowing that we pass on from this Parliament is a burden that must be paid for by our children. That could lead to permanently higher rates of taxation or fewer choices for our people. We have taken decisive action—more decisive action than, I believe, any other Government, to control our rate of public borrowing.

As a consequence, the PSBR as a proportion of our national income will reduce from 7.25 per cent. last year to 5.25 per cent. this year and to 4 per cent. next year.

Most importantly, the ratio of the debt that we have accumulated over the years to our GDP will not pass 50 per cent. whereas in Greece it is now 104 per cent., in Italy it is 116 per cent. and in Belgium it is 145 per cent. The only EC country which has a lower ratio of debt to GDP than we have is Luxembourg. That point may be of interest to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) who was interested in the appointment of Mr. Santer.

All the policies that I have described, policies which are backed by principles and which are very clear, have been endorsed recently by the Organisation for Economic Co-operation and Development. In its voluminous report, one policy after another followed by this Conservative Government has been vindicated, upheld, praised and underpinned by the OECD.

We remember perfectly well that, under the Labour Government, the British economy was run by the International Monetary Fund. Under this Conservative Government, the economy and its economic management are praised by the OECD. That is the difference between the two.

We now have the fastest rise in retail sales of any major European Union country. We have the fastest rate of growth of GDP of any major European Union country. We have the fastest growth in industrial production of any major European Union country.

In the European Union this year, only in this country is unemployment falling. Inflation is below the European Union average. Interest rates are among the lowest in the European Union. Manufacturing output is up 3.2 per cent. this year, car production is up 3 per cent. and export volumes are up 9 per cent.

I can tell the hon. Member for Peckham (Ms Harman) that there is no fantasy in all that. They are solid achievements brought about by sound economic policies. They are solid achievements which could be brought. about only by a Government who have principles and the courage to stick to those principles and the policies that are derived from those principles.

We have established the stable economic conditions and the conditions of low inflation that enable unemployment to be reduced and employment to be increased. Over the years, we have shown the courage to tackle the vested interests, including the trade unions, in order to create flexible labour markets.

Against what the hon. Member for Dunfermline, East (Mr. Brown) said, the winter labour force survey shows that there are 150,000 more jobs in the United Kingdom than there were a year ago and that the number of people in employment is rising. He knows perfectly well that the proportion of our working age population in work is now the highest of any major European Union country. Those are facts to which the hon. Members for Dunfermline, East and for Peckham should pay tribute. If they cannot do that, at least they should say what their policies are.

My hon. Friend the Member for Sevenoaks (Mr. Wolfson) described the speech of the hon. Member for Dunfermline, East as disappointing. I believe that it was closer to being disgraceful. I read in The Daily Telegraph this morning a comment of Mrs. Blair. She was paying tribute to her husband, the hon. Member for Sedgefield (Mr. Blair) and, in paying tribute to her husband, she said that he was able to cook, change nappies and discuss economic policy over the telephone with the hon. Member for Dunfermline, East all at the same time.

Having listened to the hon. Member for Dunfermline, East today, and on the principle that it is garbage in, garbage out, it seems to me that the cooking, the nappies and the economic policy somehow were confused during the course of the hon. Gentleman's speech. His speech today was characterised by a refusal to answer questions and by a reversion to platitudes. I put it to the hon. Gentleman that it is not fair and it is not honest with the people of this country to try to fool them about serious matters such as unemployment and economic recovery.

The new leader of the Labour party would be proud of the hon. Member for Dunfermline, East. His speech today was vacuous and fatuous. It was airy-headed, it was full of guff, and it was full of blah. Labour Members are about to elect a leader of the Labour party whose very name is a combination of blah and of air. It was a disingenuous, deceitful and dishonest speech. It was half-thought out, half-baked and less than half true. All the way through the hon. Gentleman's speech there was the hint of a planned economy re-emerging.

The electorate know that the only way that more jobs will be created is by having stable economic conditions and low inflation. That is what we have created. The people of this country know that the only way in which more jobs will be created is the way that has been followed around the world.

Over the past 10 years, 1.5 billion people have gone from dictatorship to democracy. All around the world, people see the strong connection between political freedom and economic freedom. All countries that have recently achieved political freedom are now following a policy of flexible labour markets, low tariffs, deregulation, privatisation and competition—all the policies which are espoused by the Government. It cannot be that only in Britain and only in Europe should those policies be tossed aside. The Government will follow those policies and carry them to fruition.

The leadership contest in the Labour party has been characterised by sound bites and hooey, signifying nothing. The Labour party contest has been a no-score game which has had to be settled on penalties. The hon. Member for Kingston upon Hull, East (Mr. Prescott) and the right hon. Member for Derby, South (Mrs. Beckett) have had to pay the penalty. The hon. Member for Kingston upon Hull, East once admitted that the social chapter would destroy jobs. He has paid the penalty for having sometimes been right, and the right hon. Member for Derby, South has paid the penalty for having sometimes been left.

As always, when games are settled by penalties, people are left feeling that they have been cheated, and the people who have been cheated in this instance are the British public. The British public want to hear from the Labour party a serious exposition of an alternative economic policy. [Interruption.] Labour Members have had all afternoon to do that, but they have put forward not one serious idea. [Interruption.] I tell Labour Members frankly that they will not be able to go from now until the general election without answering the serious questions that arise. [Interruption.]

Sir Cranley Onslow (Woking)

On a point of order, Madam Speaker.

Mr. Portillo

Labour Members will not be able to reply to every question by referring to—

Madam Speaker

Order. I have a point of order.

Sir Cranley Onslow

You must be aware, Madam Speaker, that it has become extremely difficult for right hon. and hon. Members to hear the debate because of the noise that is coming from the Opposition. Will you persuade the House to be quieter?

Madam Speaker

I have speakers beside me, so the debate is very clear for me, but I wish that the House would come to order so that we might hear the final two minutes of the winding-up speech.

Mr. Portillo

It will not be sufficient for the hon. Member for Dunfermline, East to reply to every question between now and the general election by referring to what people said in their election addresses. One cannot smile one's way to an economic policy, one cannot grin one's way to competitiveness, and one cannot build a stronger economy out of platitudes. No—one needs principles, convictions, policies, determination and courage. The Labour party has none of those. We demonstrate every day that we have those qualities, and that is why the British people will place their confidence in us.

Question put, That the amendment be made:—

The House divided: Ayes 261, Noes 302.

Division No. 297]	[9.59 pm
AYES
Abbott, Ms Diane	Byers, Stephen
Adams, Mrs Irene	Caborn, Richard
Allen, Graham	Callaghan, Jim
Alton, David	Campbell, Mrs Anne (C'bridge)
Anderson, Donald (Swansea E)	Campbell, Menzies (Fife NE)
Anderson, Ms Janet (Ros'dale)	Campbell, Ronnie (Blyth V)
Armstrong, Hilary	Campbell-Savours, D. N.
Ashdown, Rt Hon Paddy	Canavan, Dennis
Ashton, Joe	Cann, Jamie
Austin-Walker, John	Carlile, Alexander (Montgomry)
Banks, Tony (Newham NW)	Chidgey, David
Barnes, Harry	Chisholm, Malcolm
Barron, Kevin	Church, Judith
Battle, John	Clapham, Michael
Beckett, Rt Hon Margaret	Clark, Dr David (South Shields)
Beith, Rt Hon A. J.	Clarke, Eric (Midlothian)
Bell, Stuart	Clarke, Tom (Monklands W)
Benn, Rt Hon Tony	Clelland, David
Bennett, Andrew F.	Clwyd, Mrs Ann
Benton, Joe	Coffey, Ann
Bermingham, Gerald	Cohen, Harry
Berry, Roger	Connarty, Michael
Betts, Clive	Cook, Robin (Livingston)
Blair, Tony	Corbett, Robin
Blunkett, David	Corbyn, Jeremy
Boyes, Roland	Corston, Ms Jean
Bradley, Keith	Cousins, Jim
Bray, Dr Jeremy	Cox, Tom
Brown, Gordon (Dunfermline E)	Cummings, John
Brown, N. (N'c'tle upon Tyne E)	Cunliffe, Lawrence
Bruce, Malcolm (Gordon)	Cunningham, Jim (Covy SE)
Burden, Richard	Cunningham, Rt Hon Dr John

Dalyell, Tam	Kirkwood, Archy
Darling, Alistair	Lestor, Joan (Eccles)
Davidson, Ian	Lewis, Terry
Davies, Bryan (Oldham C'tral)	Liddell, Helen
Davies, Rt Hon Denzil (Llanelli)	Livingstone, Ken
Davis, Terry (B'ham, H'dge H'I)	Lloyd, Tony (Stretford)
Denham, John	Llwyd, Elfyn
Dewar, Donald	Lynne, Ms Liz
Dixon, Don	McAllion, John
Dobson, Frank	McAvoy, Thomas
Donohoe, Brian H.	McCartney, Ian
Dowd, Jim	Macdonald, Calum
Dunwoody, Mrs Gwyneth	McFall, John
Eastham, Ken	McKelvey, William
Enright, Derek	Mackinlay, Andrew
Etherington, Bill	McLeish, Henry
Evans, John (St Helens N)	McMaster, Gordon
Ewing, Mrs Margaret	McNamara, Kevin
Fatchett, Derek	MacShane, Denis
Faulds, Andrew	McWilliam, John
Field, Frank (Birkenhead)	Madden, Max
Fisher, Mark	Maddock, Mrs Diana
Flynn, Paul	Mahon, Alice
Foster, Rt Hon Derek	Mandelson, Peter
Foster, Don (Bath)	Marek, Dr John
Foulkes, George	Martin, Michael J. (Springburn)
Fraser, John	Martlew, Eric
Fyfe, Maria	Maxton, John
Galloway, George	Meacher, Michael
Gapes, Mike	Michael, Alun
Garrett, John	Michie, Bill (Sheffield Heeley)
Gerrard, Neil	Michie, Mrs Ray (Argyll Bute)
Gilbert, Rt Hon Dr John	Milburn, Alan
Godman, Dr Norman A.	Miller, Andrew
Godsiff, Roger	Mitchell, Austin (Gt Grimsby)
Golding, Mrs Llin	Morgan, Rhodri
Gordon, Mildred	Morley, Elliot
Grant, Bernie (Tottenham)	Morris, Rt Hon A. (Wy'nshawe)
Griffiths, Nigel (Edinburgh S)	Morris, Estelle (B'ham Yardley)
Griffiths, Win (Bridgend)	Morris, Rt Hon J. (Aberavon)
Grocott, Bruce	Mowlam, Marjorie
Gunnell, John	Mudie, George
Hain, Peter	Mullin, Chris
Hall, Mike	Oakes, Rt Hon Gordon
Hanson, David	O'Brien, Michael (N W'kshire)
Hardy, Peter	O'Brien, William (Normanton)
Harman, Ms Harriet	O'Hara, Edward
Harvey, Nick	O'Neill, Martin
Hattersley, Rt Hon Roy	Orme, Rt Hon Stanley
Hendron, Dr Joe	Parry, Robert
Heppell, John	Patchett, Terry
Hill, Keith (Streatham)	Pendry, Tom
Hinchliffe, David	Pickthall, Colin
Hodge, Margaret	Pike, Peter L.
Hoey, Kate	Pope, Greg
Hogg, Norman (Cumbernauld)	Powell, Ray (Ogmore)
Hood, Jimmy	Prentice, Ms Bridget (Lew'm E)
Hoon, Geoffrey	Prentice, Gordon (Pendle)
Howarth, George (Knowsley N)	Prescott, John
Hoyle, Doug	Primarolo, Dawn
Hughes, Kevin (Doncaster N)	Purchase, Ken
Hughes, Robert (Aberdeen N)	Quin, Ms Joyce
Hughes, Simon (Southwark)	Radice, Giles
Hutton, John	Randall, Stuart
Illsley, Eric	Raynsford, Nick
Ingram, Adam	Redmond, Martin
Jackson, Glenda (H'stead)	Rendel, David
Jackson, Helen (Shef'ld, H)	Robertson, George (Hamilton)
Jamieson, David	Robinson, Geoffrey (Co'try NW)
Johnston, Sir Russell	Roche, Mrs. Barbara
Jones, Barry (Alyn and D'side)	Rogers, Allan
Jones, Lynne (B'ham S O)	Rooker, Jeff
Jones, Martyn (Clwyd, SW)	Rooney, Terry
Jones, Nigel (Cheltenham)	Ross, Ernie (Dundee W)
Jowell, Tessa	Rowlands, Ted
Keen, Alan	Ruddock, Joan
Kennedy, Charles (Ross.C&S)	Salmond, Alex
Kennedy, Jane (Lpool Brdgn)	Sedgemore, Brian
Khabra, Piara S.	Sheldon, Rt Hon Robert
Kilfoyle, Peter	Shore, Rt Hon Peter

Short, Clare	Tyler, Paul
Simpson, Alan	Vaz, Keith
Skinner, Dennis	Walker, Rt Hon Sir Harold
Smith, Andrew (Oxford E)	Walley, Joan
Smith, C. (Isl'ton S & F'sbury)	Wardell, Gareth (Gower)
Smith, Llew (Blaenau Gwent)	Wareing, Robert N
Snape, Peter	Watson, Mike
Soley, Clive	Wicks, Malcolm
Spearing, Nigel	Williams, Rt Hon Alan (Sw'n W)
Spellar, John	Williams, Alan W (Carmarthen)
Squire, Rachel (Dunfermline W)	Winnick, David
Steel, Rt Hon Sir David	Wise, Audrey
Steinberg, Gerry	Worthington, Tony
Stevenson, George	Wray, Jimmy
Strang, Dr. Gavin	Wright, Dr Tony
Straw, Jack	Young, David (Bolton SE)
Sutcliffe, Gerry
Taylor, Mrs Ann (Dewsbury)	Tellers for the Ayes:
Thompson, Jack (Wansbeck)	Mr. Jon Owen Jones and Mr. Dennis Turner.
Timms, Stephen
Tipping, Paddy

NOES
Ainsworth, Peter (East Surrey)	Couchman, James
Aitken, Jonathan	Cran, James
Alison, Rt Hon Michael (Selby)	Currie, Mrs Edwina (S D'by'ire)
Allason, Rupert (Torbay)	Curry, David (Skipton & Ripon)
Amess, David	Davies, Quentin (Stamford)
Ancram, Michael	Davis, David (Boothferry)
Arbuthnot, James	Day, Stephen
Arnold, Jacques (Gravesham)	Deva, Nirj Joseph
Arnold, Sir Thomas (Hazel Grv)	Devlin, Tim
Ashby, David	Dickens, Geoffrey
Aspinwall, Jack	Dorrell, Stephen
Atkins, Robert	Douglas-Hamilton, Lord James
Atkinson, Peter (Hexham)	Dover, Den
Baker, Nicholas (Dorset North)	Duncan, Alan
Baldry, Tony	Duncan-Smith, Iain
Banks, Matthew (Southport)	Dunn, Bob
Banks, Robert (Harrogate)	Durant, Sir Anthony
Bates, Michael	Dykes, Hugh
Batiste, Spencer	Eggar, Tim
Bellingham, Henry	Elletson, Harold
Bendall, Vivian	Emery, Rt Hon Sir Peter
Beresford, Sir Paul	Evans, David (Welwyn Hatfield)
Biffen, Rt Hon John	Evans, Jonathan (Brecon)
Blackburn, Dr John G.	Evans, Nigel (Ribble Valley)
Body, Sir Richard	Evans, Roger (Monmouth)
Booth, Hartley	Evennett, David
Bottomley, Peter (Eltham)	Faber, David
Bottomley, Rt Hon Virginia	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
Blight, Graham	Forsyth, Michael (Stirling)
Brooke, Rt Hon Peter	Forth, Eric
Brown, M. (Brigg & Cl'thorpes)	Fowler, Rt Hon Sir Norman
Browning, Mrs. Angela	Fox, Dr Liam (Woodspring)
Budgen, Nicholas	Fox, Sir Marcus (Shipley)
Burns, Simon	Freeman, Rt Hon Roger
Burt, Alistair	French, Douglas
Butcher, John	Fry, Sir Peter
Buttertill, John	Gale, Roger
Carlisle, John (Luton North)	Gallie, Phil
Carlisle, Sir Kenneth (Lincoln)	Gardiner, Sir George
Carrington, Matthew	Garel-Jones, Rt Hon Tristan
Carttiss, Michael	Garnier, Edward
Cash, William	Gill, Christopher
Channon, Rt Hon Paul	Goodson-Wickes, Dr Charles
Clappison, James	Gorman, Mrs Teresa
Clark, Dr Michael (Rochford)	Gorst, Sir John
Clarke, Rt Hon Kenneth (Ruclif)	Grant, Sir A. (Cambs SW)
Clifton-Brown, Geoffrey	Greenway, Harry (Ealing N)
Coe, Sebastian	Greenway, John (Ryedale)
Congdon, David	Griffiths, Peter (Portsmouth, N)
Conway, Derek	Grylls, Sir Michael
Coombs, Anthony (Wyre For'st)	Gummer, Rt Hon John Selwyn
Cope, Rt Hon Sir John	Hague, William
Cormack, Patrick	Hamilton, Rt Hon Sir Archie

Hamilton, Neil (Tatton)	Mitchell, Sir David (Hants NW)
Hampson, Dr Keith	Moate, Sir Roger
Hanley, Jeremy	Molyneaux, Rt Hon James
Hannam, Sir John	Monro, Sir Hector
Hargreaves, Andrew	Montgomery, Sir Fergus
Harris, David	Moss, Malcolm
Haselhurst, Alan	Nelson, Anthony
Hawkins, Nick	Neubert, Sir Michael
Hawksley, Warren	Newton, Rt Hon Tony
Hayes, Jerry	Nicholls, Patrick
Heald, Oliver	Nicholson, David (Taunton)
Heath, Rt Hon Sir Edward	Nicholson, Emma (Devon West)
Heathcoat-Amory, David	Norris, Steve
Hendry, Charles	Onslow, Rt Hon Sir Cranley
Hicks, Robert	Oppenheim, Phillip
Higgins, Rt Hon Sir Terence L.	Ottaway, Richard
Hill, James (Southampton Test)	Page, Richard
Horam, John	Paice, James
Hordem, Rt Hon Sir Peter	Patnick, Irvine
Howard, Rt Hon Michael	Patten, Rt Hon John
Howarth, Alan (Strat'rd-on-A)	Pattie, Rt Hon Sir Geoffrey
Howell, Rt Hon David (G'dford)	Pawsey, James
Howell, Sir Ralph (N Norfolk)	Peacock, Mrs Elizabeth
Hughes Robert G. (Harrow W)	Pickles, Eric
Hunt, Rt Hon David (Wirral W)	Porter, David (Waveney)
Hunt, Sir John (Ravensbourne)	Portillo, Rt Hon Michael
Hunter, Andrew	Powell, William (Corby)
Hurd, Rt Hon Douglas	Rathbone, Tim
Jack, Michael	Redwood, Rt Hon John
Jenkin, Bernard	Ronton, Rt Hon Tim
Jessel, Toby	Richards, Rod
Johnson Smith, Sir Geoffrey	Riddick, Graham
Jones, Gwilym (Cardiff N)	Rifkind, Rt Hon. Malcolm
Jones, Robert B. (W Hertfdshr)	Robathan, Andrew
Jopling, Rt Hon Michael	Roberts, Rt Hon Sir Wyn
Kellett-Bowman, Dame Elaine	Robertson, Raymond (Ab'd'n S)
Key, Robert	Robinson, Mark (Somerton)
Kilfedder, Sir James	Roe, Mrs Marion (Broxbourne)
King, Rt Hon Tom	Rowe, Andrew (Mid Kent)
Kirkhope, Timothy	Rumbold, Rt Hon Dame Angela
Knapman, Roger	Ryder, Rt Hon Richard
Knight, Mrs Angela (Erewash)	Sackville, Tom
Knight, Greg (Derby N)	Sainsbury, Rt Hon Tim
Knight, Dame Jill (Bir'm E'st'n)	Scott, Rt Hon Nicholas
Knox, Sir David	Shaw, David (Dover)
Kynoch, George (Kincardine)	Shaw, Sir Giles (Pudsey)
Lait, Mrs Jacqui	Shepherd, Colin (Hereford)
Lamont, Rt Hon Norman	Shepherd, Richard (Aldridge)
Lang, Rt Hon Ian	Shersby, Michael
Lawrence, Sir Ivan	Sims, Roger
Legg, Barry	Skeet, Sir Trevor
Leigh, Edward	Smith, Tim (Beaconsfield)
Lennox-Boyd, Mark	Soames, Nicholas
Lester, Jim (Broxtowe)	Speed, Sir Keith
Lidington, David	Spencer, Sir Derek
Lilley, Rt Hon Peter	Spicer, Sir James (W Dorset)
Lloyd, Rt Hon Peter (Fareham)	Spicer, Michael (S Worcs)
Lord, Michael	Spink, Dr Robert
Luff, Peter	Spring, Richard
Lyell, Rt Hon Sir Nicholas	Sproat, Iain
MacGregor, Rt Hon John	Squire, Robin (Hornchurch)
MacKay, Andrew	Stanley, Rt Hon Sir John
Maclean, David	Steen, Anthony
McLoughlin, Patrick	Stephen, Michael
McNair-Wilson, Sir Patrick	Stem, Michael
Madel, Sir David	Stewart, Allan
Maginnis, Ken	Streeter, Gary
Maitland, Lady Olga	Sumberg, David
Malone, Gerald	Sweeney, Walter
Mans, Keith	Sykes, John
Marland, Paul	Tapsell, Sir Peter
Martow, Tony	Taylor, Ian (Esher)
Marshall, John (Hendon S)	Taylor, John M. (Solihull)
Marshall, Sir Michael (Arundel)	Taylor, Sir Teddy (Southend, E)
Martin, David (Portsmouth S)	Temple-Morris, Peter
Mates, Michael	Thompson, Patrick (Norwich N)
Mawhinney, Rt Hon Dr Brian	Thornton, Sir Malcolm
Mellor, Rt Hon David	Townend, John (Bridlington)
Merchant, Piers	Townsend, Cyril D. (Bexl'yh'th)
Mitchell, Andrew (Gedling)	Tracey, Richard

Tredinnick, David	Whittingdale, John
Trend, Michael	Widdecombe, Ann
Trotter, Neville	Wiggin, Sir Jerry
Twinn, Dr Ian	Wilkinson, John
Vaughan, Sir Gerard	Willetts, David
Waldegrave, Rt Hon William	Wilshire, David
Walden, George	Winterton, Mrs Ann (Congleton)
Walker, Bill (N Tayside)	Winterton, Nicholas (Macc'f'ld)
Waller, Gary	Wolfson, Mark
Ward, John	Wood, Timothy
Wardle, Charles (Bexhill)	Yeo, Tim
Waterson, Nigel	Young, Rt Hon Sir George
Watts, John
Wells, Bowen	Tellers for the Noes:
Wheeler, Rt Hon Sir John	Mr. David Lightbown and Mr. Sydney Chapman.
Whitney, Ray

Amendment accordingly negatived.

Main Question put and agreed to.

Resolved,

That this House welcomes the publication of the Government's latest economic forecast, which shows growth continuing at a steady and sustainable rate and inflation remaining within its target range; and congratulates the Government on its economic policies which have laid the foundations for the non-inflationary growth, rising industrial production and falling unemployment that is now being seen.

It being after Ten o'clock, MADAM SPEAKER put the Question which she was directed to put at that hour, pursuant to Standing Order No. 53 (Questions on voting of estimates, &c.).