The Economy

HC Deb 12 July 1995 vol 263 cc971-1062

[Relevant document: The Minutes of Evidence taken before the Treasury and Civil Service Committee on Wednesday 5th July and Thursday 6th July (House of Commons Papers Nos. 650-ii and iii.]

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

I have to inform the House that Madam Speaker has selected the amendment standing in the name of the Leader of the Opposition.

4.51 pm

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I beg to move, That this House welcomes the publication of the Government's latest forecast, which shows growth continuing at a steady and sustainable rate, inflation remaining low, exports rising and Government borrowing falling; and recognises that this favourable outlook for the economy is a result of the Government's firm commitment to the healthy and sustainable recovery of a modern and competitive industrial economy. On Monday, Welsh Labour and Liberal Members failed to turn up at Welsh Question Time. I can only assume that they could not think of anything that they wished to say or ask. I am rather surprised that the hon. Member for Dunfermline, East (Mr. Brown) has turned up this afternoon, because he can never think of anything to say that resembles an economic policy. In fact, he comes to debates only when he has to. Once a year at the Budget, and once a year for the summer economic forecast, he hears me describe the progress of the recovery and I set out the encouraging framework for the year ahead. The hon. Gentleman gets up, tells us a few jokes, gives us a few grumbles and platitudes and then he is away again.

All the parliamentary days that the Opposition have allocated to them during the year are problems for the Labour party. It has to cast around for subjects that it wishes to raise. Never once in my time as Chancellor of the Exchequer has it asked for a debate on the British economy. This is a debating Chamber, but so far I have had two years of debating with a tartan Trappist monk.

Why can that be? Why has the hon. Gentleman suddenly become such a diffident shadow Chancellor? The summer forecasts, which we are debating because they are statutorily produced at this time of year, show why. They show that the British economy is doing well and that it will carry on doing well. Anything that is good news for Britain is very bad news for the Labour party.

With every quarter that goes by, this country creates more wealth and more jobs and wins more export markets. The day steadily gets nearer when most people will appreciate from their daily lives that this healthy recovery is delivering rising living standards, more secure employment and more secure family finances.

How can the hon. Gentleman make a speech as shadow Chancellor when he cannot even say whether he agrees with me on interest rates? How can he face the House when he does not have an inflation target? How can he criticise the public finances when he will not say whether public borrowing is too high or too low? He only sets himself a borrowing target that is about as rubbery as an elastic band.

Mr. Alan Milburn (Darlington)

Will the Chancellor give way?

Mr. Clarke

It is a little early. I usually give way frequently and shall do so in due course if Mr. Deputy Speaker allows it.

Mr. Gordon Brown (Dunfermline, East)

On the precise matter of the borrowing target, given that the Prime Minister said in 1988 that he would balance the Budget every year, will the Chancellor tell us the first year when he will be able to balance the Budget—is it this century or the next?

Mr. Clarke

There is a forecast which shows that we are well on course to balance in the medium term. Recalling the Red Book, I think that we show balance in about 1998–99, or something of that kind. We are certainly on course towards balance in the medium term.

Mr. Brown

rose—

Mr. Clarke

I shall give way again in a moment. In the two years in which the hon. Gentleman has failed to raise the subject of the British economy in the House, he has seen us cut the forecast borrowing requirement, from £50 billion when I took office, to £23.5 billion next year. We have halved it. We are reducing public borrowing and controlling public spending despite all the hon. Gentleman's votes against us. We are well on course to balance in the medium term.

Mr. Brown

Given that the Government have broken all their promises on tax and are now breaking their promises on spending, will the Chancellor confirm that he is breaking the promise made on the balanced Budget? The Prime Minister said that the Budget would balance every year. Will the Chancellor tell us in which year the Budget will balance, and confirm that in 1998–99 there is a deficit of £5 billion in the Budget forecast and that he is wrong?

Mr. Clarke

It is my recollection that the Government's policy—in contrast to the Opposition, who have not had one—is to move towards balance in the medium term. That is all I can recall. I do not recall the 1988 quotation and I do not rely on the hon. Gentleman's recollection of it. We have always made it clear that we believe in balancing the public finances over the medium term. It has always seemed to me obvious that public finances go into deficit in times of recession and recover at the top of the cycle. We are on course for that. Indeed, we have been controlling public borrowing very effectively for the past two years in the teeth of the votes and opposition of the hon. Member for Dunfermline, East.

Mr. Milburn

Will the Chancellor give way?

Mr. Clarke

No, I must press on to the summer economic forecast, which is what we are debating and which the hon. Member for Dunfermline, East must have forced himself to read. No doubt he read it through tears and while concentrating ground his teeth, because the summer economic forecast shows that 1994 was an excellent year for the British economy. Output grew by around 4 per cent., which was faster than in any other major European economy; inflation had its best run since the early 1960s; exports grew by more than 8 per cent.; and unemployment fell by more than a third of a million in 1994 alone.

The combination of healthy growth, low inflation, strong exports, rising incomes and employment and a falling budget deficit is set, as the forecast shows, to continue in the years ahead. These are the best economic prospects for future growth and prosperity that I have seen in my career in politics.

Partly due to the policy measures that I have put in place, growth has slowed to a more sustainable rate this year. That is deliberate and desirable. The British people want greater economic security and they want to be sure that this time growth will last. The Government are working hard to deliver an economic recovery on which the public can rely—[Interruption.] I shall return to the amendment signed by the hon. Member for Bolsover (Mr. Skinner) and his economic policy in a moment. I was delighted to see it on the Order Paper and I shall give it its fair measure of attention when I get there.

The hon. Member for Bolsover has far more by way of clear economic policy than members of the shadow Front Bench. The contrast between the two is interesting and enlightening. Although it was not called, I propose to speak to the hon. Gentleman's amendment if I can do so and remain in order.

Mr. Tony Marlow (Northampton, North)

rose—

Hon. Members

Give way to him.

Mr. Clarke

I shall give way to the hon. Gentleman— my hon. Friend—in a moment. Surrounded by a range of opinions on this subject, the Government are delivering a healthy economic recovery, which will not be derailed by inflation, as it so regularly has been in the past.

Mr. Marlow

My right hon. and learned Friend knows that the list of wonderful and desirable things he is talking about could well be affected by whether at some stage the United Kingdom joins the single currency. There was a vote last week in the Conservative party and 89 of his colleagues signified their support for a platform of no single currency. Does not that mean that there is no possibility in the near future that a Conservative Government could ever seek to put a single currency before the British people? If so, would not it be wise to advise the Europeans that there is not going to be a single currency in Britain? [Interruption.]

Mr. Deputy Speaker

Order. Before the Chancellor answers, the House must settle down. I remind hon. Members that interventions are supposed to be brief and to the point.

Mr. Clarke

I shall stick to the summer economic forecast. We have come here to debate the summer economic forecast, yet those on the Opposition Front Bench have nothing to say, Opposition Back Benchers wish to put forward a very socialist programme and my hon. Friend the Member for Northampton, North (Mr. Marlow) brings up one subject, regardless of what we are debating, on each and every occasion. Judgments about the single currency will be made in the interests of the British economy and in the best judgment of the House if and when the issue arises. At the moment we have a strong, steady recovery, which must be sustained.

The Treasury summer economic forecast shows that we remain on course to deliver sustainable growth. There is no need to react too strongly to the recent slowdown in activity. The reason why I am confident that this is merely a change of pace on a continuing running recovery is that the fundamentals of the economy are now in such sound shape. We expect the economy to grow by around 3 per cent. this year and by 2¾ per cent. next year. That growth will continue to be led by exports, supported by business investment. We expect the current account balance to continue to narrow from £2 billion in 1995 to £1 billion in 1996.

One important feature of the recovery has been that inflation has stayed low as the recovery has matured. Underlying inflation has now been below 3 per cent. for the past 20 months. That is the best performance on inflation that this country has seen since 1961. We expect underlying inflation to rise temporarily to around 3 per cent. by the end of this year, as some of the effects of the recent depreciation of sterling and the worldwide increase in commodity prices feed through into the price change. We then expect inflation to fall back to 2½ per cent. by the end of 1996.

The forecast also shows that Government borrowing is on a clear downward path. We expect the public sector borrowing requirement to have halved between 1993–94 and 1995–96 and to fall to £16 billion—just 2 per cent. of gross domestic product—in 1996–97.

Mr. Malcolm Bruce (Gordon)

rose—

Mr. Clarke

Britain's budget deficit is falling faster than that of any other major European country.

Several hon. Members

rose—

Mr. Clarke

I think that the hon. Member for Gordon (Mr. Bruce) was first

Mr. Bruce

I appreciate the fact that the Chancellor wished to finish that point. Does he believe that the forecast of a public sector borrowing requirement of £16 billion for next year would be a favourable background against which to cut taxes, or that he should be continuing to fulfil the golden rule of achieving a balanced budget?

Mr. Clarke

I have always refused to set a figure at which we would cut taxes and a figure at which we would increase them. Budget judgments are far more complex than that. However, it is absolutely essential that public sector borrowing is on course to achieve the balance over the medium term, which is the Government's clear target. Other than that, it is not as straightforward as the hon. Gentleman states, or merely a matter of saying that the PSBR is a particular figure this year and that taxes go up or down.

Mr. Milburn

Will the Chancellor explain why the summer forecast has revised the PSBR upwards from £21 billion to £23 billion? Will he answer the question asked by my hon. Friend the Member for Dunfermline, East (Mr. Brown), the shadow Chancellor: on which date does he expect there to be a balanced budget?

Mr. Clarke

I have explained to the Treasury and Civil Service Committee why we have revised the figure up slightly. The tax take is somewhat lower than we expected for a variety of reasons, including our success with inflation. When wage inflation and other inflation is kept down, the tax take is reduced. It is an irony that, on the margins, low inflation is bad for the PSBR. Our taxes are affected by a low level of inflation, but we set the spending budgets of the Departments in cash so that they spend up to the cash figure set on higher estimates of inflation. That is why we have changed the figure.

Mr. Milburn

What about the target?

Mr. Clarke

The target is to move towards balance over the medium term. I do not believe that, some time in 1988, we made a different promise. I seriously doubt that, but I shall check.

Mr. Gordon Brown

On balancing the budget and tax cuts, will the right hon. and learned Gentleman confirm the following statement in the Conservative party economic brief for this debate? It states: The Prime Minister has announced that it is his objective to reduce capital and inheritance taxes, and if possible, abolish them altogether. Is it the Government's policy to abolish capital gains tax and inheritance tax at a cost of £3 billion?

Mr. Clarke

I heard the Prime Minister last give that long-term objective in a recent speech. In the longer term, I know that the Prime Minister believes that it should be reasonable to get rid of capital gains tax and inheritance tax as well. Inheritance tax is extremely uneven in the way that it falls. Capital gains tax in this country bears quite heavily on some forms of investment, but the Prime Minister has given no sort of commitment about when we might achieve such an ambitious objective. [Interruption.] I heard the speech, unlike the hon. Member for Dunfermline, East. The Prime Minister set out those objectives as a long-term aim for the Conservative party.

Mr. Brown

It is becoming very revealing that the Prime Minister is announcing the Chancellor's decisions in advance of the Chancellor, but will the right hon. and learned Gentleman further confirm that it is now the Government's policy to tax executive share options as income? Having resisted it in three separate Budget statements, but given that it is now being supported by the Tory members of the Employment Select Committee and—I understand—by the Deputy Prime Minister, will the right hon. and learned Gentleman admit that he has been wrong and that it is now the Government's policy to tax executive share options as income and get millions of pounds into the Exchequer as a result?

Mr. Clarke

For a shadow spokesman who has not got a tax policy and cannot even say whether he thinks that taxes are too high or too low, the hon. Gentleman really must not mess about with his press cuttings in that way, trying to find interventions to make in a debate such as this. On share options, he must wait for the Greenbury committee report. [Interruption.] It was this Government who invited the setting up of the Greenbury committee and this Government who invited it to make recommendations. At the right time, we shall respond to Greenbury. Today, we are talking about a summer economic forecast, about which, for all the reasons that I have just been setting out, the hon. Gentleman does not want to talk. He is trying to change the subject from the British economy.

Several hon. Members

rose—

Mr. Clarke

No, I am not giving way.

Mr. Brown

rose—

Mr. Clarke

I will of course give way to the Opposition Front-Bench spokesman, but not for faffing about trying to get soundbites out of this morning's newspapers. I would like him eventually to address the strong and healthy economic recovery on which he has no comment and for which he has no alternative policy.

Mr. Brown

It appears that the Government's tax policy has been handed over, not only from the Chancellor to the Prime Minister, but to the Greenbury committee. Does the right hon. and learned Gentleman support the principle of taxing executive share options as income? Has he now changed his mind?

Mr. Clarke

The Government are a low-taxation Government. We believe that the economy is more efficient as a low-taxation economy. We have already introduced the lowest corporate taxes in the world, we have a long-term aim of tackling inheritance tax and capital gains tax, we have committed ourselves to considering the Greenbury committee's response and everybody knows that we shall continue to reduce taxation as and when we can afford it and when it is in the best interests of the economy, which is in stark contrast to the total silence on the subject from the hon. Gentleman.

Mr. Doug Henderson (Newcastle upon Tyne, North)

Will the Chancellor give way?

Mr. Clarke

I have given way far too often. I shall be criticised shortly for having given way too much.

Sir Michael Grylls (Surrey, North-West)

Will my right hon. and learned Friend give way?

Mr. Clarke

I shall in a moment. This debate is becoming a dialogue with a man so unwilling to give a speech on the subject before us that he is praying for 10 o'clock tonight and trying to find other things to talk about.

I have just described an extremely healthy economy. Why are we having this debate, except for an opportunity for the hon. Member for Dunfermline, East to try to follow up his morning's reading of the newspapers? One of the curious complaints that some people make about this recovery is that it is too virtuous. They say that, because it is led by manufacturing and exports, the British people have not felt any immediate impact on their spending pattern, and they say that because it is free of inflation, people with heavy debts are not seeing their debts eroded by a fall in the value of the pound.

All that tedious political chat about the feel-good factor at the end of last year has not made anybody believe the sort of rubbish that I have just been describing. The well-being of the people depends on wealth being created by a successful and competitive industrial economy. Secure prosperity cannot be created for families by short-term fiscal gimmicks or by letting prices and incomes rip. First, we must allow the economy to create the wealth and then the economy will distribute it. It is a virtuous recovery and virtue brings its rewards in confidence, security and prosperity for people once they are satisfied that the Government will deliver sustained performance.

The strength of the British economy at the moment has not come about by chance. We now have the potential to enjoy the elusive goal of sustained, low-inflation growth because the Government have followed a determined and purposeful path. We have pursued the long-term interests of British industry and therefore of the British people.

The decisions that we have taken are now beginning to deliver real benefits to more and more people. Living standards are forecast to grow by £5 a week for households on average this year, and we forecast that they will rise by rather more than that the following year. Sticking to the policies that have pulled us out of recession can now ensure that living standards will rise not only this year and next year but the year after that and the year after that, and, I trust, for many years to come. That is economic security of the best kind. That is what families, pensioners, home owners, business men and everybody else in Britain today want.

Right hon. and hon. Members have the opportunity today to debate the latest Treasury forecast, and the excellent prospects for the economy and for our people, who expect to benefit from it. But of course forecasting is difficult, and the Government do not claim a monopoly of wisdom in that activity.

The hon. Member for Dunfermline, East used to come to the House with different forecasts of his own. Hon. Members will remember the unemployment forecast that he made in the House following the March 1963 Budget—[HON. MEMBERS: "When?"] I mean, the 1993 Budget. The hon. Gentleman must wish that it had been so long ago, but it was only two years ago that he said: I make one Budget forecast—that after the Budget, unemployment will rise this month, next month and for months afterwards."—[Official Report, 17 March 1993; Vol. 221, c. 289.] What happened? Unemployment fell that month and the next month, and it carried on falling for months afterwards. It has fallen by more than 600,000 since the hon. Gentleman made that disastrous forecast on behalf of the shadow Treasury team.

It is not fair to say that the hon. Gentleman is never cheerful. He used to smile a little when giving his very gloomy forecasts of disaster for the British economy. In September 1993, even more recently, he said that the balance of payments deficit would worsen over the next two years. What happened? The balance of payments improved; export growth outstripped imports.

The shadow Chancellor can make extremely cheerful forecasts. He was most optimistic about the economic prospects for Mexico. Only last September, in a speech at the National Film Theatre—a suitable setting—he singled out Mexico as a country that had pursued the right kind of economic policies". Only three months later the peso collapsed, the economy went into crisis and the International Monetary Fund was called in to stump up the biggest loan in its history. Perhaps the Mexicans, like the British, appreciate today's silence, the absence of forecasts and of any serious economic commentary by the hon. Gentleman.

However, the hon. Member for Dunfermline, East is capable of being clear about some things. In September 1994, he entirely dismissed his political party's principles and past. He said: The Old Labour Language—tax, spend and borrow, nationalisation, state planning, isolation, full-time jobs for life for men while women stay at home—are equally inappropriate to the demands of the future as they were to the needs of the past". So much for the 1983 manifesto, on which the hon. Gentleman and the present leader of the Labour party were first elected to the House.

New Labour language is all platitudes and gobbledegook, and it is no longer I alone who says that. On the Order Paper there is an alternative amendment, tabled by the right hon. Member for Chesterfield (Mr. Benn) and 15 other Labour Members. They have set out an alternative Labour party economic policy. [Interruption.] I am sure that that amendment can be spoken to later within the rules of order. It talks about the gap between rich and poor …and the damage being done …under capitalism". It says that we are controlled by market forces which transfer power from the electors and their governments to unaccountable bankers and speculators", and calls for … the maintenance of universal benefits at a dignified level, and reforms to restore the rights of local authorities and trade unionists and to liberate the people"—

Mr. Deputy Speaker

Order. That amendment is not the amendment that we are to debate.

Mr. Clarke

I accept your judgment, Mr. Deputy Speaker, but that amendment has a lot more content than the one that we shall debate.

Mr. Tony Benn (Chesterfield)

rose—

Mr. Clarke

I shall give way in a moment— [Interruption.] I usually describe Labour Members in the House as sitting in baffled silence like stuffed ducks behind the hon. Member for Dunfermline, East, but now some of the ducks are quacking, and they are setting off in different directions.

I shall give way to the right hon. Member for Chesterfield; he and I are conviction politicians in our different ways. Labour Back Benchers and I agree on one thing: new Labour is a hollow sham—empty, vacuous and devoid of any principle or purpose. Hon. Members on both sides of the House want to hear no more lists of strategies and no more endogenous growth theory. They wish to know what is the economic policy of a party that wants to form a Government.

Mr. Benn

rose—

Mr. Clarke

I give way to the right hon. Gentleman, with his distinctive views on the matter.

Mr. Benn

If the Chancellor of the Exchequer reads the book that Harold Macmillan published in 1938, he will find that Macmillan called for a planned economy to deal with unemployment. It is a sign of the change in the Tory party that it should have abandoned some of those principles that drew it in with the Labour party behind the idea of full employment, a national health service and a huge house-building programme after the war. The Chancellor should look at his own past and find out how far he has moved from it.

Mr. Clarke

I have read "The Middle Way" by Harold Macmillan, and I know that what the right hon. Gentleman says about it is true. But between 1938 and 1995, the Conservative party has evolved its policies. At the moment, a modern industrial economy is best managed as we are managing it, producing growth, falling unemployment, rising employment and low inflation.

The right hon. Gentleman's party has also evolved since 1938, but not in the same way. He would not espouse all the positions held by the Labour party in 1938, but at least he has a core of conviction and principle behind his policies. He saw those policies evolve all the way to the late 1980s, when suddenly they stopped. The people elected with him on the 1983 manifesto now spend their time denouncing those principles to academic audiences. The right hon. Gentleman and I agree that what is before us now is a public relations creation with absolutely no content.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my right hon. and learned Friend give way?

Mr. Clarke

No, I shall press on for the moment, before I am in danger of being brought back to the single European currency. I do not believe that the hon. Member for Dunfermline, East has ever expressed any views on that, either, but he may have some; there may be more hope for him there than I thought.

The hon. Member for Dunfermline, East knows perfectly well what my questions to him are. Are interest rates too high or too low? Is the Government's inflation target too high or too low? Is public spending too high or too low? Are public borrowing and taxation too high or too low? Those are my questions, and we cannot have a serious debate with such a formidable Opposition unless they answer them. Until the hon. Gentleman can answer any of those questions, his party has no official policy on the economy and is not fit to be regarded as an alternative Government.

It may help the hon. Gentleman if I set out some of the basic principles behind the Government's economic policy, upon which the recovery so far has been based. First, we are the only party in the House that believes in the economic benefits of being a low-taxation economy. We also know that low taxation depends on firm control of public spending and borrowing. In my two Budgets, public spending projections have been reduced by about £45 billion, and as a result the budget deficits are on a clear downward path.

When we can afford it and when the economic conditions are right, we shall return to our tax-cutting agenda. The hon. Member for Dunfermline, East has no right to criticise our tax history when he opposed all the spending reductions that I have described.

Secondly, we believe that firm control of public borrowing is essential because public borrowing is actually taxation deferred. Under the Labour Government, the public sector borrowing requirement reached 9.4 per cent. of gross domestic product, and averaged almost 7 per cent. of GDP every year between 1974 and 1979. Since 1979, the PSBR has averaged 2.5 per cent. of GDP and, as I said, it remains back on course to move back towards balance over the medium term.

Thirdly, low inflation is necessary for growth to be sustained. Last week, the Labour leader made a speech marking the 50th anniversary of the Attlee Government. Today I shall make a brief reference to inflation, to mark the 20th anniversary of the time when inflation reached 26.9 per cent. under the last Labour Government.

The hon. Member for Dunfermline, East claims to be committed to low inflation, and says that a Labour Government would set an inflation target—he simply is not minded to say what that target is. He refuses to say whether he agrees with the Government's inflation target. I write to him—he will not speak to me—but he has still not replied to my letters of 12 May and 14 June, which asked him for his views on interest rates and inflation.

The fact is that the hon. Gentleman has nothing to say at all on the substance of monetary policy. He has no view on inflation, so he has no view on interest rates. I cannot recall any shadow Chancellor expressing no opinion on interest rates. That is quite an important subject, but I have not heard him express an opinion upon it for at least six months.

I am anxious to make our monetary framework and anti-inflationary policy one of the most open and transparent in the world. The hon. Gentleman is now saying that he agrees with my changes in procedure and openness. His only suggestion is to form a committee to which he will appoint all the members as, he claims, that will somehow reduce the political influence on the Bank of England. I do not quite understand that.

As a result of my changes, the hon. Gentleman now has all the information he requires. He has the minutes of a meeting that I had a few weeks ago, at which I had a difference in judgment with the Governor of the Bank of England. It was a matter of finely balanced judgment. The Governor and I have no difference in aim, and we share a strong personal commitment to making the British economy a low-inflation economy. The Governor and I must weigh the balance between the activity data on one hand and price pressures on the other. The Governor inclined one way; I inclined another. I decided that there would be no interest rate rise that day.

The shadow Chancellor has had weeks to study all the data that were before the Governor and me when we took that decision. He has even been able to read the minutes, see the arguments and read and consider the Governor's advice. He even has the benefit of hindsight, and he can look back now and say what his opinion might have been. Can this aspirant to high Government office say today whether he agrees or disagrees with my decision? The hon. Gentleman may be a slow decision maker, but if he is posing as a would-be Chancellor, he must show that he is capable of making a decision or having an opinion. But he is not capable. The hon. Gentleman does not have a view at all.

Let us hear it. Interest rates—too high or too low? What about my judgment on interest rates? The hon. Gentleman is meant to shadow my decisions. He is meant to say when he agrees with me and criticise me when he does not. He is a tartan Trappist monk with nothing to say on the key features of economic policy.

Most importantly, we believe that businesses, and not Government, create prosperity and jobs. The supply side reforms that the Government have put in place in the past 16 years have transformed the British economy for the better. All those reforms were opposed by the Labour and trade union movement when it held to its old principles.

During the 1980s, Britain moved from the bottom to the top of the international league table for growth. There are now 50 per cent. more active businesses in Britain than in Labour's last year in office. Last year and the year before that, Britain had the fastest-growing major economy in Europe, and this year we look set for a repeat performance.

The hon. Gentleman and his party are still wedded to some old-fashioned approaches that would saddle British business with Government-imposed costs and make it more expensive to create jobs in this country. The minimum wage would cost thousands of jobs and would add billions of pounds to businesses' costs. The social chapter would destroy Britain's reputation—a reputation that matters to us—as the best place in Europe in which to invest and do business in the European single market.

The Government have set out clear objectives for our economic policy. We have an inflation target, a public borrowing target, clear plans for public spending and a longer-term commitment to reduce the basic rate of income tax to 20 per cent. Those are clear and decisive policies that are delivering the goods, and a forecast today shows that the economy is in the best shape for decades.

The British public want an economic recovery which lasts, which is for keeps and on which they can rely to bring rising living standards to them and their families to the end of the decade and beyond. Only modern Conservative economics can deliver that goal, and the summer forecast shows that, between now and the next general election, we can take the message of growth and hope from house to house and town to town in this country. Ours is a clear message, a Conservative message, and a message that is succeeding in making Britain an economic success story again, and I commend it to the House.

5.24 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 not only the Government's forecasts but the recent White Paper on competitiveness showing Britain lagging behind its major competitors in its preparations for the challenges of the future; regrets that living standards are still falling for millions of people as a result of the biggest tax rises in Britain's history and the recent rise in the costs of being a home owner; deplores the levels of long-term unemployment and youth unemployment still prevalent in Britain today; calls for an end to complacency over the levels of investment in technology, employment, training and skills and a recognition of the importance of higher levels of investment in new employment opportunities and in long term sustainable growth consistent with low inflation; and calls for a fairer Britain, including immediate Government action to tackle the excesses in the boardrooms of the privatised utilities.'. Let me begin by welcoming the three new members of the Chancellor's Treasury team, and congratulating the Chancellor of the Exchequer on—how should I put it— holding on to his job. He is now confirmed as the Chancellor of the Exchequer; one of the second Secretaries of State.

The starting point of the debate is that the country needs real policy changes to prepare it for the great technological, global and financial changes that were barely mentioned in the Chancellor's speech. To bridge the investment and prosperity gap with our competitors, we need these changes.

First, we need detailed measures for new investment in the economy and for stability, including the new monetary framework that I have set out. Secondly, we need measures to ensure that there is a revolution in skills, with new policies—not just a new Department—for education, training and employment. Thirdly, we need measures to tackle long-term youth unemployment and to encourage a fiscal regime and policy with rewards and incentives that are fair and seen to be fair, and that means tackling many of the abuses in the privatised utilities.

We are faced with those great new challenges, and we are faced also today with unacceptably low levels of investment in the economy. The Government's own competitiveness White Paper said only a few weeks ago that an enormous task was yet to be faced, and there were more reports this morning of difficulty in the housing market and the labour market, and a report that manufacturing output is down yet again.

Given all that, the complacency of the Chancellor's speech—and, indeed, his whole attitude and approach— is breathtaking. It is remarkable that the Conservatives talk to the country about change when they are trying to occupy Labour's ground. They talk of intervention in training and education, and suggest that they will act to stem boardroom pay abuses.

The Chancellor was incapable of bringing anything new to his speech. He did not even have scant recognition of all the implications for his economic policy of his new next-door neighbour at No. 10a Downing street.

Sir Peter Hordern (Horsham)

The hon. Gentleman has mentioned a matter to which he has referred in a number of his sound bites—investment in training and education. That will require more money. Will the hon. Gentleman now say whether that money will be raised through higher taxes or through higher borrowing? If, as is inevitable under all Labour Governments, it is through higher borrowing, in what way will the hon. Gentleman's Government differ from the experiences of every Labour Government since the war—borrowing too much, spending too much and finally collapsing into the arms of the IMF in abject surrender?

Mr. Brown

First, I would stop talking about new initiatives for training and education while cutting the budgets of training and enterprise councils, as the Government have done, in such a way as to downgrade the importance of training. Secondly, I would say yes, we need a statutory framework for training—not the voluntaristic approach adopted by the Government—and yes, I do believe that employers will have to contribute more to the training of the work force if we are to have a successful economy in the future.

The whole theme of the Chancellor's speech—if I heard him correctly—was that we have the best prospects that he has seen in 30 years. He said that we have "excellent prospects—the best in a generation." Tell that to the millions of home owners in the country; tell that to thousands of small business men who are worried about what is happening in the retail market; tell that to the construction industry, which reported only yesterday that it is in its worst position for three years in terms of new orders; tell that even to some members of the Conservative party, such as a well-known Tory fund-raiser who has lent the Tories thousands of pounds. He has not said that we have the best prospects for 30 years—he has said that conditions are as tough as anything he has experienced in 26 years of business.

If the Chancellor wants to give home owners better prospects, having forced up their bills by 20 per cent. by cutting mortgage tax relief, why does he not agree that on Monday he will withdraw the proposal that will remove help for homeowners on income support when they are unemployed?

Sir Teddy Taylor (Southend, East)

I appreciate the brilliant speeches that we have heard, but will the hon. Gentleman give some guidance to the people of Britain who want to know whether it is the basic aim of the Government, and the Opposition as an alternative Government, to seek to rejoin fixed exchange rates? May we have a brief answer to that question from the Government and the Opposition, as it would be of immense value and help to people outside?

Mr. Brown

We have no such proposal. The Government talk about a strong pound, but they should consider what has happened since 1979. Set against the deutschmark, the pound is now worth half what it was in 1979. The Chancellor told the Treasury Select Committee that economic conditions were bound to be reflected in what was likely to happen to the pound over time. It is a sad indictment of Government policy that the pound is now worth half what it was when the Conservative party came to office.

The Chancellor says that we face the best outlook for 30 years and that prospects are the best for a generation. I recall another statement that he made: We face the best economic outlook that most people of today's working generation have ever faced in their lifetime."—[Official Report, 20 March 1986; Vol. 94, c. 424.] Today he makes the same claims with the same confidence, complacency and certainty, but when he made it in 1986, it was just before the Conservative party let inflation get out of control and interest rates rise, causing the worst recession for 60 years.

The Chancellor asks whether growth will last, and answers by telling us that this time of all times it will. Does he recall telling the Welsh Conservative party conference: There is no doubt we are now enjoying quite extraordinary growth. The real question is: will it last? "Yes," he said, "it can last." That was in 1988, just before the Conservatives drove the economy into recession. He praised, not the current Prime Minister but the work of Lady Thatcher, for all those achievements. Inside a year, that growth was to develop into a recession.

We have heard all the Chancellor's predictions and statements before. They are familiar boasts. The reason why they do not make sense is that the Chancellor and his colleagues have failed to tackle the underlying weakness of the economy.

Mr. Kenneth Clarke

We were enjoying a strong recovery in 1986–88, of a kind that was utterly unprecedented, as it was a recovery from the Labour years. Monetary policy and inflation went wrong in the late 1980s and the whole recovery was brought to an end.

I am now taking interest rate decisions to ensure that this recovery is combined with low inflation and that it lasts. Does the hon. Gentleman agree that monetary policy is crucial to that? Does that therefore mean that interest rates are crucial? What are his opinions on the interest rate decisions that I have taken in recent weeks?

Mr. Brown

It is because we think that monetary policy is important that we have made proposals for a new approach to monetary policy. Does the Chancellor support, as we do, the creation of a monetary policy committee within the Bank of England? Does he support, as we do, strengthening the Bank of England's advisory function? Does he support opening up the Bank of England to greater scrutiny of the advice that it gives, as many Conservative Members do? I see that the majority of Conservative Back Benchers present in the Chamber are supporters of the right hon. Member for Wokingham (Mr. Redwood), so the Chancellor should listen.

Does the Chancellor support, as we do, widening the scope of the group of independent advisers to the Treasury? Does he support the changes in monetary policy that would make it far more stable and consistent and end the uncertainty that occurs every time he meets the Governor of the Bank of England, which creates an unstable framework for the future of monetary policy?

While he is answering my questions, will he say which is his inflation target: 2.5 per cent.; 3 per cent., which he said is a triumph; or 1 to 4 per cent., which he announces to the public? Or would he, as he said to Conservative Back Benchers, reach 1 to 4 per cent. only on some but not on all occasions? Which is the Government's inflation objective?

Mr. Kenneth Clarke

It is no good the hon. Gentleman appointing a committee of his friends and cronies with the idea that that will tell him what to do about monetary policy. He says that I must make advice from the Bank of England more open. I have made it more open. The hon. Gentleman can read the advice of the Governor of the Bank of England. Were the hon. Gentleman ever Chancellor, he would have to decide whether he agreed with it. My inflation target is 2.5 per cent. or less. I set policy month by month to deliver that target until the end of this Parliament and beyond.

What is the hon. Gentleman's inflation target? He does not have one. His list of procedural changes is vacuous rubbish to try to cover the fact that he has no policy. He has just conceded on the critical policy judgment at the end of the 1980s.

Mr. Brown

The Chancellor has not answered my questions: what is the status of the 1 to 4 per cent. range? What is the status of the paper that he sent to Conservative Back Benchers saying that 1 to 4 per cent. was applicable most of the time but not all the time? What is the status of his statement that 3 per cent. would be a triumph? What is the Governor's advice on whether the Chancellor will meet the inflation target of 2.5 per cent.?

Mr. Kenneth Clarke

The target is 2.5 per cent. or less. As my speech made clear, it is not possible in the real world to hit the same figure month by month, because inevitable variations take place, so setting policy at 2.5 per cent. or less will in practice lead to inflation of between 1 and 4 per cent. The Governor and I agree on pursuing that target, which is set by the Government, and he advises me on monetary decisions that I must take to deliver it. That could not be clearer. It is ridiculous for the hon. Gentleman to make comments based on getting hold of a central office brief, which is perfectly open, and then to say that that somehow alters the absolutely clear text of the speech that I had made, which the document simply purports to describe.

My inflation target is clear. What is the hon. Gentleman's? What is his current policy? How dare he come here and talk about monetary policy and interest rates when he has not a serious word to say on the subject?

Several hon. Members

rose—

Mr. Brown

I shall deal with interventions from both sides of the Conservative party in a moment.

The Chancellor says that he is setting policy to reach an inflation target of 2.5 per cent. He has refused to answer my question as to what advice the Governor has given him.

Mr. Kenneth Clarke

The hon. Gentleman can read the Governor's advice for himself. Thanks to the changes that I have made, the Governor's opinions on this matter will appear at monthly intervals, but the hon. Gentleman will say nothing in response. He can read the minutes that I have published. [HON. MEMBERS: "Where are they?"] I do not have them with me, but hon. Members can read them. One can take a horse to water but one cannot make it drink. For the guidance of Opposition Members, I have published an accurate account of the Governor's advice. What does the hon. Gentleman do but come along and ask me what it is? He should go away and read it and then tell me whether he agrees with it.

Mr. Brown

The Chancellor will not tell us what the Governor's advice, is because the Governor has said that he will not meet the Chancellor's inflation target of 2.5 per cent. The reason he will not meet his inflation target is because the Chancellor has not addressed the underlying weaknesses of the British economy.

Mr. Budgen

Will the hon. Gentleman explain a little further his proposals for extra committees within the Bank of England? Is he really proposing that there should be some form of independence in the Bank of England, or is that just a bit of window dressing? Does he agree with the Government that, ultimately, any Government must take political responsibility for interest rates and be responsible to the House for them?

Mr. Brown

No, I do not propose independence for the Bank of England. But the demerits of the personalised system of the Chancellor meeting the Governor, which is the basis of setting monetary policy, without strengthening the advice to both the Chancellor and the Governor, has been exposed this afternoon by the Chancellor's failure even to remember what the Governor said to him.

Mr. Kenneth Clarke

Let us have a little clarity and common sense. The hon. Gentleman has just said that he believes that the Governor does not think that we shall hit our target and has implied that he agrees with the Governor. That means, I take it, that he would have put interest rates up.

Mr. Brown

What I said was that, under existing policies, the Chancellor would not meet his target. The reason that I said that he would not make his target—and the Chancellor should not try to misrepresent what I said—is that the Government have not tackled the underlying weaknesses of the economy, which are the barrier to long-term sustainable growth.

If the Chancellor—[Interruption.] Every time that is mentioned, the Chancellor laughs, but investment in manufacturing is 25 per cent. less than it was in 1989. Investment in the real economy is 10 per cent. less than it was in 1979. The Chancellor says that we are making an excellent recovery from the recession, but investment has increased by only 3 per cent. in the first years of what he calls a recovery, whereas it increased by 30 per cent. in the 1970s and by 20 per cent. in the 1980s.

We have a lower increase in investment out of recession than even in the 1930s. What some countries achieve by way of investment in a recession, we cannot even achieve in this country in a recovery. The failure to tackle the underlying weakness of manufacturing and general investment in the economy is the reason why, every time we expand as an economy, we run into inflationary pressures, we have to increase the amount of imports and interest rates have to be raised; and we are reaching that point at an earlier stage of the economic cycle than previously.

The idea, therefore, that the Government can offer the country the best prospects for 30 years based on a failure even to acknowledge the underlying weaknesses of under-investment in the economy is a myth that will be exposed cruelly as events take their course in the next few years.

Mr. Nigel Forman (Carshalton and Wallington)

rose—

Mr. Peter Ainsworth (Surrey, East)

rose—

Mr. Brown

I give way to the hon. Member for Carshalton and Wallington (Mr. Forman), after which I shall move on.

Mr. Forman

I seem to remember, having attended several of these debates in which the hon. Gentleman has sought to make these rather vacuous speeches, that his policy rests essentially on increasing public investment in education and training and other forms of human capital. Indeed, the Labour party waxes lyrical about that. The hon. Gentleman goes on to say—he said that last year and he said it recently—that he would finance that by increasing public borrowing. How can he possibly come to the House and claim that he would increase public borrowing without taking a risk on interest rates and the likelihood that, under Labour, interest rates would be higher?

Mr. Brown

It is the Chancellor who has increased the amount of borrowing in his forecasts, from £21 billion to £23 billion—from £12 billion to £15 billion next year— and still tells us that he will achieve tax cuts. I want borrowing to be cut, and the first way to cut borrowing is to cut unemployment in the national economy.

The reason that the Conservatives cannot solve those long-term problems of an economy that generates inflation as it expands and of an economy that requires higher interest rates as it moves forward is that they have not tackled those underlying weaknesses, which require an investment-led recovery. That is what the people of the country need.

Nothing has changed under the Government. Nothing has changed since the Prime Minister said that he had to have his re-election guaranteed by his party. Nothing has changed in the policies for education and training, for manufacturing, for investment and for the infrastructure of the economy. All that has changed is that we have the Prime Minister's announcement of what he calls a reconstruction of personnel in his Government.

It is not a reshuffle. It is not the refreshing of the Cabinet that took place last year, although the two members that he brought in then—the Chief Secretary and the Conservative party chairman—have now gone. It is what he advertised as a reconstruction of his Cabinet—a reconstruction, I suspect, only in the crudest motor trade sense, an attempt to salvage one passable vehicle from the wreckage of two.

What does that reconstruction add up to?

Mr. Quentin Davies (Stamford and Spalding)

rose—

Mr. Peter Ainsworth

rose—

Mr. Brown

I am not giving way again.

It adds up to a new Minister in charge of presentation, a new Minister in charge of information, a new Minister in charge of competitiveness—and those are only a few of the titles that the deputy Prime Minister has insisted on for himself.

What is that new job of Deputy Prime Minister all about, and what is its connection with the economic policies that the Chancellor must now make? How will the new Deputy Prime Minister define the purpose of his job? What will be his rallying call at the Conservative party conference in October in the new slot that must be taken away from the Chancellor for the Deputy Prime Minister?

Remember that famous conference speech that followed his ascent to the presidency, when he promised that he would intervene and intervene and intervene? When he stands up at Blackpool this year, will he echo that famous speech with a new promise of his purpose more in keeping with his new role, a new pledge to delegates of what he will personally do—interviews before breakfast on the "Today" programme, interviews before lunch on "The World at One", interviews before tea on "PM", interviews before dinner, and get up next morning and start all over again on an interview on the "Today" programme, complaining about bias against the Conservative party by the BBC? In spite of all the new titles that he has, the most important of his new responsibilities is as the Minister for keeping up appearances.

The Deputy Prime Minister is the new man at No. 10a and, to the Chancellor, Downing street looks a bit more crowded this week. We have that great new triumvirate of neighbours in Downing street, at Nos. 10, 10a and 11; the most powerful men in the country forming the new Downing street residents association.

There are some difficulties for the Chancellor and a distinct risk to his position in what is happening at No. 10a. Look at the remit for the work of the new man at No. 10a. He now chairs the Cabinet Ministerial Sub-Committee on Public Sector Pay—it sounds as though that should be the Chancellor's job. He chairs the Civil Service Employers Group—it sounds like the Chancellor's job. He chairs the Senior Civil Service Group—it sounds like the Chancellor's job. When Professor Peter Hennessy said that the Deputy Prime Minister would reach for the parts that no previous deputy had managed to reach, he presumably meant encroaching on the Chancellor's job at No. 11.

Mr. Peter Butler (Milton Keynes, North-East)

On a point of order, Mr. Deputy Speaker. I am as happy as anyone else to enjoy a joke for a minute or two, but may I invite you to consider whether this has anything at all to do with the motion?

Mr. Deputy Speaker

That is a bogus point of order, and the hon. Gentleman knows it. If it had been out of order, it would have been ruled out of order.

Mr. Brown

I am talking about the conduct of economic policy and the way in which it will be managed in future.

I know that the Chancellor did not read works as trivial as the Maastricht treaty, but perhaps he should read the book that was written by the new Deputy Prime Minister entitled "Where There's a Will"—his clearly stated ambitions laid out as early as 1987—for the First Secretary is now doing everything that he signalled in that book.

The new Deputy Prime Minister said in his book that his ambition was to preside over what he now calls a transgovernmental machinery, chaired, naturally, by himself. What are the tasks? The promotion of Britain's strategic wealth-creating interests—it sounds remarkably like the Chancellor's job to me. The flow of incentives— it sounds a bit like the Chancellor's job to me. In his book he then says: This committee must also deal with another important issue— the tax system. It sounds remarkably like the Chancellor's job again. What is the Deputy Prime Minister trying to do? It sounds remarkably like the Chancellor's job to me.

Indeed, if the book is pursued, the criticisms of what has gone wrong in the British economy are laid at one door by the Deputy Prime Minister—the door of the Treasury. He says: The weakness is that there is not sufficient challenge to Treasury judgments", which may frustrate the strategic industrial objectives of the Government. Therefore one may expect some action in Downing street about that.

Of the Treasury, he says: What is interesting is how often the Treasury can fail to see the big defect in its conduct of affairs". Is that not a formula that the Prime Minister has invented for serious conflict—indeed disorder? Already this morning, we had the divergence of opinions on executive pay.

What can we expect during the summer and the autumn? How will things settle down? What can we expect from this new Downing street residents association? Let me draw the Chancellor's attention to some of the problems that his new neighbour is likely to bring; the new hazards that threaten the once respectable residential cul-de-sac and have just been dumped on his neighbourhood.

Is the Chancellor prepared to put up with a neighbour giving loud radio and television interviews at all hours of the day and night? Is he aware of his neighbour's insatiable ambitions, which he is showing already, for home improvements, with a succession of new extensions at No. 10a encroaching on No. 10 and No. 11?

How will the Chancellor feel when he looks nervously out of his back window each morning and sees yet another unannounced Portakabin, so much so that the Downing street garden is at risk of being so encroached on that there will be standing room only for the press the next time that the Prime Minister resigns as Conservative leader?

How will the Chancellor feel when he walks out, that November day, with his Budget red box and finds his parking space blocked by the Deputy Prime Minister's Jaguar, and his own car cannot come in because the entrance is blocked by the media because the First Secretary is giving yet another interview in front of the cameras?

It is the familiar formula for trouble on the street—the build-up of tensions, noise, pushy and aggressive behaviour, territorial disputes, the long hot summer ahead in Downing street and aggressive men with not enough to do, men whose future employment prospects are bleak, with no long-term stake in society. Even the constant police presence will not provide reassurance. Appeals from senior community leaders, such as the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), Lord Archer or the chairman of the 1922 Committee, will not be able to restore calm. As the Chancellor will discover in Downing street, two's company and three's none. By the autumn, he will become a convert to Labour's new solutions for curbing persistently anti-social neighbours.

I am glad that the Deputy Prime Minister is now in post, because the former President of the Board of Trade was far less complacent and he had a far greater appreciation of what is fundamentally and structurally wrong with the economy. The Chancellor will know that, in his previous works, the Deputy Prime Minister proposed a statutory approach to training—about which I was asked this afternoon—development agencies for England, which the Conservative party brief now criticises; signing the social chapter; new monopolies and merger legislation; and an industrial policy for the country.

The Government cannot implement those policies— even though they are right for the country—because they are so divided, from top to bottom, between right and left, about what must be done that there is paralysis at the centre of Government. They cannot adopt the industrial policy because the right oppose it; they cannot privatise the Post Office because the left oppose it; they cannot reform the City because Lord Hanson has threatened to withdraw his money; and they cannot stop the mad policy to privatise the railways because of the right wing.

People will remember that the big case made in support of the Prime Minister only a few days ago was not that he could lead the country and prepare us for the future, but that he was the only person who could unite the Conservative party. He was the least worst option, as the Minister of State for Transport said when putting his case. The Prime Minister has not introduced any new policies except for the one revealed by the Chancellor this afternoon when he failed to answer properly the question that I put to him.

The Prime Minister issued a manifesto, in that desperate period between wobbly Monday and wobbly Tuesday when he returned from Cannes, which is simply a group of uncosted spending promises. That is what the Conservative party has been reduced to in order to encourage its members to vote for the Prime Minister. The abolition of capital gains tax—one of the Prime Minister's objectives, as stated in a fax to the Evening Standard when it carried an article listing what the Prime Minister believed in—will create £1.6 billion, rising to £3 billion. The Chancellor should know that 50 per cent. of that will go to only 2,000 people in this country. It is a straight handout from people who are poor to people who are very rich.

Another aim of the Prime Minister is the abolition of inheritance tax. The Chancellor will know that, while there is a strong case for raising the threshold, the abolition of inheritance tax will create £1.4 billion, of which 50 per cent. will go to only 2,000 estates in the country. I can well understand that the Prime Minister is embarrassed. At the last election, he promised to do something about inheritance tax, but he never did. He broke his promises not only to the living, but also to the dead; such was the Government's failure to honour their tax promises from the election campaign.

There are other uncosted spending promises, such as the promise of tax relief for home owners—which has been signalled today in the press—and the promise of tax relief for community care. The Conservative party made £11 billion of uncosted spending promises in 11 days— that is £1 billion a day just to secure the Prime Minister's re-election as leader of the Conservative party. That is not a failure of Government; it is a failure of opposition. As the Chancellor prepares for opposition, he will have to learn the importance of not making uncosted spending promises.

The Prime Minister's proposals are targeted: they will target all the wealth on a privileged few. When a choice must be made about spending priorities in this country, it should not be in favour of tax cuts that are geared to the very wealthy, based on the abolition of inheritance tax and capital gains tax. If any Government are to be serious about justice and fairness, they must deal with the problems of education, health and our public services, while providing a proper tax deal for middle and lower income Britain.

The Chancellor must also realise that the case for taxing executive share options as income—the one proposal that the Prime Minister did not mention, but which is apparently favoured by the Deputy Prime Minister— should be accepted now. When everyone else pays income tax on all their income, apart from personal allowances, how can the Chancellor justify top executives in privatised utilities having the privilege of escaping paying income tax on their earnings and simply paying capital gains tax? How can the Chancellor justify the millions of pounds that have been lost to this country through his refusal to implement our policy in the past few years?

The Government have broken their promises on tax and on spending. They have broken all the promises that they made at the last election. The Conservatives said that they were committed to the biggest investment in transport infrastructure in our history; that promise was broken. They promised to invest in the railways, but that promise was broken. They promised to invest in housing, but that promise was broken. They promised to invest in law and order and environmental protection, but those promises were broken.

The Government promised substantial assistance in the area of heritage, but instead they cut 5 per cent. from the budget. They promised to invest in the railways, but they cut the railway investment budget. They are now having to subsidise the franchise companies, not to improve the rail stock, but in order to make them saleable. The Conservatives have betrayed their promises on tax and spending, and this afternoon they betrayed their promise of a balanced budget.

Despite the Prime Minister's claim in 1988 that the Government would balance the Budget, the Chancellor cannot tell us the year in which he will do that. The Conservatives promised an economic miracle and they did not deliver it. They promised us zero inflation and they failed. They promised that the pound would replace the deutschmark, but that did not happen. They have broken promises everywhere.

The debate puts on record the fact that all the Chancellor's central economic promises have been broken, and the electorate will draw their own conclusions. The Conservatives can talk all they want about what the Prime Minister calls "reconstruction", but the trust that has been thrown away with 16 years of broken promises can never be reconstructed. People will never trust the Conservative party again. After 16 years of broken promises, while other countries move ahead and prepare for the future, the Chancellor must recognise that, along with the devaluation of our currency, we have seen a devaluation of the office of Chancellor and the integrity of the Government. The only way to ensure that there are no more broken promises is for the Government to go, and to go soon.

Several hon. Members

rose—

Mr. Deputy Speaker

Order. Before I call the next hon. Member to speak, I remind the House that Madam Speaker has placed a limit of 10 minutes on all speeches by Back Benchers during the debate.

5.57 pm

Sir Peter Lloyd (Fareham)

The speech by the hon. Member for Dunfermline, East (Mr. Brown) contained some very good jokes, but the content was extraordinarily thin. At one stage, it seemed that he was about to relaunch Harold Wilson's white-hot technological revolution, but even that went rather cold.

Time is short and many hon. Members wish to speak in the debate, so I shall confine myself to making only one major point. Many of my hon. Friends and some distinguished commentators have urged the Chancellor to make dramatic cuts in the Budget this autumn. They argue that it is essential to provide an extra stimulus to the economy, which, after a period of impressive growth, has recently begun to show some signs of sluggishness. They also believe that the policy would prove popular with electors, who need to be reminded that the Conservatives are on the electors' side when it comes to their take-home pay.

I do not know how much room for manoeuvre the Chancellor will have in November—I do not suppose that he is sure himself yet. However, I hope that he will view the advice about the sure-fire economic and political efficacy of tax cutting with the same shrewd scepticism that he displayed some months ago in response to Mr. Eddie George's recommendations that interest rates should rise.

I hope that the Chancellor will find that he can safely reduce some taxes and, if he does, I hope that he will use the opportunity judiciously, and remove impediments to economic growth and job creation. I hope also that he will remedy particular unfairnesses in the system, rather than spread largesse thinly and promiscuously across the board in an attempt to please everyone. But it does not appear that he will have very much scope for tax reductions in the autumn, unless he finds a way of reducing public spending much more thoroughly and speedily than any of his predecessors ever managed to do.

Public sector borrowing is still too high; what is more, it is higher than my right hon. and learned Friend the Chancellor forecast last year. Some of my hon. Friends might point out that that is because tax and other receipts are lower than forecast. Some of that may be due to lower inflation, but clearly there is an argument that economic activity is less than expected and needs some stimulus.

We have, however, had three years of tax increases, and it is easy to under-estimate the novel and tonic effect on the public of not being hit over the head with another round of tax increases. Unemployment continues to fall, and wage increases are in the pipeline. There are also some building society flotation windfalls that will add to consumer purchasing power.

It seems to me that the chief impediment to consumers actually spending more remains a lack of confidence in the future, and I do not believe that that will be alleviated by tax cuts this year. It will certainly not be by tax cuts trumpeted loudly as a spectacular break with the past three years. With the overshoot in public borrowing last year, this year and next year, I fear that any tax cut, large enough for the Chancellor to boast about it, would rightly undermine confidence in the City and abroad in his consistency and good housekeeping, and would leave taxpayers thoroughly unimpressed to boot.

The latter would no doubt willingly put the money in their pockets; they might even spend some of it, but they would certainly assume that it was a tacit admission that the Government had got it wrong again when they raised taxes last year. They would note that the election was getting closer, and they would ask whether it would not have been easier all round not to have hiked up taxes last year just to lower them this year. They would conclude simply that the Government did not know their own mind.

I believe that that conclusion would be confirmed when interest rates had to go up, as they surely would. Higher interest rates would not be good for investment, and the historically low rate of investment is probably our most persistent economic problem and the greatest threat to economic growth in the longer term.

Higher interest rates would not be good for consumer confidence, which has to be fortified if recovery is to continue. Keeping interest rates as low as possible is the one major piece of assistance that the Chancellor can give home owners who are caught in negative equity and first-time buyers who are keen to take advantage of comparatively low house prices. Avoiding higher interest rates is far more use to them than any of the expensive, ineffectual schemes that are being pressed upon the Treasury. Ill-timed and unjustified tax reductions will do them no service.

The Chancellor is an entertaining and interesting man, but I hope, that when he presents his Budget in November, he will have the courage to be boring. I also hope that his colleagues in government have the nerve and wisdom to support him in that. If he presents a Budget that is consistent with what he said last year and the year before and that is quite clearly not constructed with the next general election in mind, he will do much to sustain the healthy, export-led, low-inflation growth of the economy that we have managed to secure since we were liberated from the ERM. He will also have begun to restore in the public mind the Government's tattered reputation for good economic management, which they will need to recover if they are to win their next election.

6.4 pm

Mr. Robert Sheldon (Ashton-under-Lyne)

The last time that the Chancellor debated economic matters before the House was 13 December 1994. It is quite disgraceful that we have just two economic debates a year. [Interruption.] It is no use the Chancellor protesting that it is up to the Opposition. We used to have debates on the Budget and the Queen's Speech, the expenditure debate, the Finance Bill debate and the regulator, as well as the summer forecast. All those debates were in Government time, and it is a scandal that we no longer have them.

Not only can we not question the Chancellor and find out his thinking, but we do not have the benefit of understanding what hon. Members have in mind and their views on economic matters. Many newer Members of Parliament have never made a proper economic speech. It is a major scandal, and it has to be put right by next year.

I start with our obsession with the one-club approach. I am sorry that the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) is not here. He used to advocate the need for having rather more weapons at our disposal than the one club that is now a standard feature of economic policy. In the 1960s, we had the one club of the exchange rate. In the 1970s, we had the one club of sterling M3. Now we have the one club of interest rates. It is peculiar that so many of the cleverest people in the Government and the City have tunnel vision, and seem able to concentrate only on one variable at any one time.

In practice, the Chancellor has to balance many claims. Growth, unemployment, the balance of payments, inflation and investment are all important factors. The Bank of England can afford the simplicity of concentrating on one variable, whereas politicians cannot. If the Governor of the Bank of England is proved wrong, he can always say that the position is not yet known. He can say that the jury is out, and that next month will prove him right, or that we will have to wait a few months or even until next year. The jury can stay out until the patient dies, but any Chancellor of the Exchequer has to make a proper decision.

The prime consideration of economic policy cannot be just inflation, inflation, inflation; the prime consideration of any Chancellor of the Exchequer must be growth and the long-term improvement in living standards. Everything else involves the means of bringing that about. Any Chancellor is right in asserting his vision of the requirements of economic policy. In any standoff with the Bank of England, he needs to assert the concern for the accountability of Government, in which we all have an interest.

It is a pity that the Chancellor's meetings with the Bank of England are not copied in meetings with industry. Why does he give such priority to the Bank of England and the view of bankers, without being able to compensate for that view with those of the people who are actually producing the goods and the real wealth of our economy?

Our prime economic task is to rebuild our industrial capital and our manufacturing industry, so much of which was shamefully destroyed in the first dogma-driven years of the Thatcher Administration. The most important means to long-term growth are investment in manufacturing, education and training, which has been put out repeatedly by my hon. Friend the Member for Dunfermline, East (Mr. Brown).

There are differing time lags involved. Investment in plant and machinery is necessary to improve the efficiency and capacity of our industry. That can be encouraged within the lifetime of a Parliament. Training can be achieved on a similar time scale if the will is there. Education, however, is for the longer term.

The need for training and vocational education has been urgent for a long time. We have been down that road repeatedly from the last century, when the skills gap was discerned, to the third tier of the Education Act 1944 and the technical schools that were devised by Rab Butler, to more recent developments. Our weakness is well documented. The education establishment does not like it, and by a long process of inactivity it has repeatedly hijacked proposals to produce technical and engineering skills that other countries regard as normal. So long as we were wealthy, we were able to tolerate that bias against industry. We cannot under-estimate it now.

I note the merger of the Department for Education and the Department of Employment. I very much regret the Government's declining interest in unemployment. We have to do something about that. Meanwhile, in other areas, there is now an opportunity to bring about a coalescence of education and training, where 150 years of effort have produced one of the greatest failures of Government over that long period.

There needs to be a seamless transition from academic to vocational education to training. Vocational training does not mean the nonsense thought up by those who are trying to recreate in technical education the academic theories, which have only a limited role to play.

I am surprised at the decision to have two permanent secretaries as the joint heads of the new Department. Sir Tim Lankester at the Department for Education and Michael Bichard at the Department of Employment are two civil servants who have much impressed the Public Accounts Committee, but we need to take seriously the concern of Sir Geoffrey Holland, a recently retired, most distinguished, public servant who calls for the new Department to be properly integrated.

That is a task that must be undertaken. A Department with two heads will not produce the integration between education and training for which we have waited too long. Having taken the decision, it is essential to get it right.

The involvement of Government in industry has similarly been disappointing. From the Department of Economic Affairs under George Brown to the efforts of Denis Healey, we have been faced with failure after failure. Faced with those failures to understand industry rather than the City, Denis Healey appointed within the Treasury Alan Lord, a very able second permanent secretary. He had it in mind to give greater prominence to industrial matters.

Alan Lord left the Treasury somewhat saddened. The ethos of the Treasury was against such involvement. The control of public expenditure is the one area of expertise where the Treasury is, understandably, dominant. Other considerations fall well behind that.

We must have a stronger involvement with industry. The City of London is valuable, but it does not properly represent industry, on which we all ultimately depend. The high profile that is given to discussion with the Governor is not mirrored by discussions with industry, which should have even greater prominence. We cannot solve these matters just by dealing with the Governor on a monthly basis. There are much wider issues than that.

We need to recall what the Labour Government did about investment incentives. I had been a strong supporter of investment grants for plant and machinery, which were introduced later in 1966. I believe that they were a major encouragement to investment. The time may have passed when such measures could be reintroduced, but I am a firm believer in a high level of investment allowances.

At 25 per cent., investment allowances are, in many cases, a disincentive. Plant and machinery is rarely worth 75 per cent. at the end of the first year. As far as the loss to the Revenue is concerned, it is a question only of delayed payment of corporation tax. If we are serious about investment, about replacing the capital stock in our industry, about capacity constraints, clearly some sensible investment incentives need to be introduced.

I look forward to resource accounting, which I strongly support. The PAC has examined progress, and work is proceeding on the expectation that, at the end of the century, it will be in place. Our declining infrastructure is concealed by the failure to take note of the capital depreciation in our national accounts.

It is possible to ignore the deterioration of our roads, our housing stock and part of the railway network by ignoring the depreciation of these fundamental parts of the economy. For the past 50 years and more, we have been living off so much of our capital. These decisions should have been recorded and quantified, and open to everybody to criticise.

On economic and monetary union, I note the vital precondition of convergence of real economic performance of the entire European Community. My own view is that a satisfactory convergence between such disparate countries is unlikely to happen. Countries do have differing customs and different traditions. Attitudes do vary.

I have known politicians who have pointed to the way in which those attitudes should be changed. If someone asked me how I can change attitudes, I would hold up my hands. If one said that billions of pounds are required, then there are certain conditions that might be acceptable. Changing attitudes will be more difficult.

If the Chancellor of the Exchequer really wants to make an impact on the future of our economy, he must turn to investment.

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

Order.

6.15 pm

Sir Peter Hordern (Horsham)

I am pleased to follow the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who, if I may say so, made a much better speech than his colleague on the Front Bench.

The hon. Member for Dunfermline, East (Mr. Brown) referred to the underlying weakness of the economy, but there was a certain underlying weakness in his speech, too—notably his absolute failure to pronounce on anything to do with the economy and what he would do about it in respect of interest rates, spending or anything else.

Ms Hilary Armstrong (Durham, North-West)

The right hon. Gentleman was not listening.

Sir Peter Hordern

I did listen, and I was greatly entertained by the amusing parts of the hon. Gentleman's speech. Now perhaps the hon. Lady might listen.

I wish to say a word or two about investment, since it plays such a large part in the Opposition's terminology. What the right hon. Member for Ashton-under-Lyne said about the importance of training and education is, of course, absolutely right, but, in parentheses, it is astonishing that, in the United States, where there is no federal system of training, more money is spent on training by individual companies than any of the Organisation for Economic Development countries, so far as I am aware, and without any form of Government investment or attraction.

There is one important question to which the Opposition will have to address themselves, and I believe that it underlines the weakness of successive Labour administrations over many years: the double meaning that is given to the word "investment". There is, of course, investment in the sense of a rapid return, but there is also long-term investment, to which the right hon. Gentleman was referring, in education and training. The difficulty lies in the fact that that investment must be paid for.

The Opposition believe in public investment. They are talking here not about private sector investment, but about education and training and public sector involvement in it. The difficulty they have to face—just as they always have to—is that the money has to be raised, either through taxation, and they are reluctant to say how that money should be raised, or through borrowing. The further difficulty they have is that they are notorious borrowers.

My right hon. and learned Friend the Chancellor referred to the previous Labour Government's record on borrowing. I think that I am right in saying that, in 1976, the share of gross domestic product occupied by the public sector borrowing requirement was 9.5 per cent. It has never been higher under a Conservative Government than it was three years ago, when it was 7 per cent., and that, I have to say, was far too high. It was, however, the 9.5 per cent. that brought in the International Monetary Fund.

Whatever the Opposition say about the merits of training and education, they have to say how it will be paid for. It is no use thinking that the markets, people in this country or electors will be satisfied with the general appreciation of the word "investment". They will want to know, rightly, how it will be paid for.

We shall go on asking how that money is to be raised. I believe that the Opposition have a duty to say how it will be raised. It is no use their talking about the merits of investment, as though there has been no public investment in training in this country: the record on higher education is excellent, with more young people going into it. They must now come clean on how they propose to pay for the investment, which no doubt is worthy.

There is one thing of which I am quite certain: the position today is very different, so far as the capital markets are concerned, than it was when the Labour party was last in office. Everybody in the House knows the speed at which money goes across the exchanges. There is no question about it: if the Labour party was ever in government and pursued a large investment programme without spelling out how it was going to be paid for, there would be a run on the pound, as has always happened.

Mr. Benn

indicated assent.

Sir Peter Hordern

The right hon. Gentleman nods in agreement. There would be a run on the pound, and it would have to be met by higher interest rates. That is the problem that the Opposition face.

Dr. Jeremy Bray (Motherwell, South)

Will the right hon. Gentleman give way?

Sir Peter Hordern

The hon. Gentleman will have to forgive me, because I want to complete my brief speech.

All I would say is that there is another aspect to investment, and that is the aspect that my right hon. and learned Friend the Chancellor and the Government are pursuing—attracting foreign investment into this country. They are able to do so because we have low tax rates. The right hon. Member for Ashton-under-Lyne referred to investment incentives, but I recollect a corporation tax of 52 per cent. under a Labour Government. It is very much lower now. That is what brings in investment: not only particular incentives but the fact that we are a low-tax country, with no difficulties about labour costs.

The hon. Member for Dunfermline, East, in perhaps an unguarded moment, said of training that he would make companies pay by means of a statutory training scheme. If one adds to that the cost of the social contract, the training levy and the minimum wage, will Britain be such an attractive country to invest in for overseas countries? I have to say that I do not think that it will be.

That again will reverse an important factor in the success of the economy to which my right hon. and learned Friend rightly alluded—the attraction of substantial funds from abroad. We shall obtain improvements by attracting investment and the further progress of the technological revolution which has occurred in the United States and many other countries, not least Britain.

The Opposition talk about large public sector investment. One has only to consider the motor industry and its export record now to see what a transformation has come about because of the attraction of investment into Britain. That is the right way to go about the matter. Any suggestion that there will be massive public sector spending for any reason, no matter how worthy, will cause great difficulties in the capital markets. If the Opposition were ever to win an election and come into government, they would shortly find that difficulty spelled out for them.

I simply add that it is essential to have a low public sector borrowing requirement. That is what dictates low interest rates. It is interesting how some people say that the great thing is to have the sovereign right to manage one's own currency. Yes, I regard it as a sovereign right to devalue. They say that that is what helps manufacturing industry. If that were so, we would be the richest country in the world, because we have tried if often enough.

Look at the Germans. When I first entered the House, there were DM12 to the pound. Now there are two point something or other. What is the basis of German wealth if it is not manufacturing industry? Why have the engineering companies not suffered from the depreciating deutschmark? They have managed because of the quality of their investment, and that quality is there because of low long-term interest rates. They can borrow easily for 10 or 20 years ahead. Contrast that with Britain's oscillating interest rates and the difficulty of ever making any long-term investment.

I remain an optimist. I am sure that, if my right hon. and learned Friend pursues his policies, we shall have the benefit of extra capital investment in Britain and the fruits of that investment which we so thoroughly deserve.

6.23 pm

Mr. Malcolm Bruce (Gordon)

I am a little disappointed that the Liberal Democrats, who are allowed only one contribution to this major debate on the economy, should be confined to just 10 minutes, especially as, unlike Her Majesty's official Opposition, we have a distinctive economic policy.

Mr. Deputy Speaker

Order. I hope that the hon. Gentleman is aware that the Liberal Democrats are not limited to 10 minutes.

Mr. Bruce

I am grateful, Mr. Deputy Speaker. I had not been advised of that fact. I should have appreciated it if I had been so advised. Nevertheless, I shall not detain the House unduly.

The Chancellor of the Exchequer has an opportunity to decide whether he will be a consistent, coherent, disciplined Chancellor who sets out a policy and follows it through, or whether, as seems to be becoming apparent, he has to trim it according to the pressures of political expediency and the requirements of his party to have something to offer the electorate in times of desperation. That is how he will be judged, not just by his colleagues but by outside commentators over time.

The salient point of this year's summer forecast is that every economic indicator projected from last November has turned out to be less favourable. Inflation and public borrowing have been revised up, growth has been revised down and the investment growth estimate has had to be more than halved. In just six months, the Government's forecasts have moved in the wrong direction.

I share with the Chancellor a genuine welcome for the better economic news that we have had in the past 18 months. I agree that low inflation is necessary and needs to be sustained in the long term if it is to create the long-term investment climate that Britain needs. The upturn or recovery in the economy is welcome, as is the rise in exports and the decline in unemployment, despite the fact that it is from a high base and that there is a question mark about the quality of the jobs being created compared with those that have been lost.

Mr. Forman

The hon. Gentleman has just said that he welcomes the Government's determined approach to controlling inflation and keeping it low. If that is so, how does he defend the important phrase in the Liberal Democrat amendment, which has not been selected? That amendment deplores the recent moves by the Government to relax its fiscal and monetary disciplines". That can only be taken as a plea for a tightening of policy.

Mr. Bruce

As a matter of fact, the hon. Gentleman is correct. We have criticised the Chancellor, as he is aware, for having two inflation targets rather than one inflation band and for creating confusion by insisting on the one hand that his policy is to keep inflation below 2.5 per cent. while on the other hand implying that it might rise above 4 per cent. The Liberal Democrats' policy is to have one inflation target of between 0 and 3 per cent., agreeing with the Chancellor that variation must be accommodated, but suggesting a simple and clear target without the element of confusion which creeps in when there are two targets.

There is common ground here. There is recognition of the need to be disciplined and to stick to the broad policy. My question, as I am sure that the hon. Gentleman will appreciate, is whether the Chancellor will have the courage of his convictions as political expediency beckons.

It is also interesting—the circumstances of the Chancellor's elevation to his present post will not be lost on him—that the success over which he has presided has been a direct result of the failure of the Government's previous policies. The boost to our exports, to which reference has just been made, has come as a result of the devaluation of sterling following our ejection from the exchange rate mechanism. There has also been a suppression of domestic demand and a need for record tax rises. That has kept growth under control and helped to keep the Chancellor's inflationary objectives under control.

Mr. Nigel Waterson (Eastbourne)

The hon. Gentleman spoke of tax rises—I do not find any answer to this point in the Liberal Democrats' amendment—but does he stand by the remarks that he made only on 3 July in a speech, I believe, to Liberal Democrats in the City, when he spoke approvingly of a 50 per cent. higher income tax rate?

Mr. Bruce

As is our party's policy, I made it clear in that speech that, in the interests of fairness and justice, we believe that people earning more than £100,000 a year should pay a 50 per cent. tax rate. I also said that the yield on that money should be used immediately to take 500,000 people at the opposite end of the scale out of the tax bracket. I know that Conservative central office will conveniently edit that reply to include the first half but not the second half, because, objectively, fairness, justice and balance are not a distinguishing feature of the scriptwriters at Conservative central office. However, the answer is on the record.

We cannot claim that what has happened in the past few years, or the recovery that we are seeing, is the economic miracle that some members of the Government seem to wish to adduce from it. Last year's improvement in the balance of trade was based mostly on a one-off surge in oil exports and net property income from abroad. Manufacturing investment is up—a little—but it has only just passed the peak of five years ago, and the figure is not much higher than it was 21 years ago when Denis Healey was Chancellor of the Exchequer. Manufacturing investment as a percentage of gross domestic product is currently at an all-time low.

There is no room for talk of an economic miracle. There is a basis for improvement on which success can be built, if the current position can be sustained, but we have not reached that stage yet. Even after an active life in politics, I am still astonished that we can now find politically acceptable unemployment levels twice as high as the rates that would have brought down Governments 15 or 20 years ago.

We are currently enjoying a temporarily benign set of economic circumstances, brought about by the failure of the Government's own policies. The Chancellor has recognised that fact and has told the Treasury Select Committee and others that according to his advisers the sustainable growth rate of the British economy is only about 2 to 2.5 per cent. After 16 years of economic experimentation, 16 years of putting British industry through the mangle, the Conservative Government cannot hold out the hope of sustainable growth at a rate of more than 2.5 per cent.—exactly the rate which obtained before they came to power.

Those of us who have dealt with other economies know that in some of the developing economies—which are no longer backward or primitive, but quite mature—there is talk of a recession when the growth rate falls to 8 or 10 per cent. Slow recovery from a long recession is not an economic miracle. To deliver long-term success, we need sustained investment—and the only way to deliver that is to ensure that we invest in education and yield the goods to ensure that we can maintain the health and public services that people want. Any economic commentator would say that that was necessary, but no British Government—Labour or Conservative—have managed to achieve it.

One aspect of the Chancellor's policy is right. My disagreement with him lies in the fact that he seems to think that only a low inflation rate is required to deliver economic success. He is entirely right to accept that long-term, sustainable low inflation is a precondition of success, but he is wrong to assume that it is the only precondition. The problem is this: is the Chancellor sticking to that objective, which is the only basis for his entire policy? Will he be prudent and resist unjustifiable tax cuts? Then will he listen to the advice of the Governor of the Bank of England, who clearly feels that interest rates need to rise now if the Chancellor's inflation target is to be met?

The Chancellor is currently relying on the short-term view that the markets appear to have taken it calmly, but he knows that today's decisions will affect the inflation rate in 18 months' or two years' time. Short-term factors are irrelevant.

The Chancellor has changed his inflation target. At any rate, whatever his arguments to the contrary, most commentators believe that he has relaxed that target. He is becoming a little more difficult to pin down on his borrowing targets than he was even a year ago. I will remind him of one or two of his statements. In his 1994 Budget, he said: My objective remains the same: to balance the Budget over the medium term. We remain on course to eliminate Government borrowing entirely by the end of the decade."—[Official Report, 29 November 1994; Vol. 250, c. 1082.] At the same time, he stated in the Red Book: The objective is to bring the PSBR back to balance over the medium term. What does the Chancellor say now? I could not find it in the main report, but in the Treasury summary the following words are now used: the objective is to bring the public sector borrowing requirement back towards balance over the medium term. "To" and "towards" are rather different words, as the Chancellor well understands and, no doubt, as the Treasury draftsmen understand. That is a clear indication of a much less rigorous and disciplined approach to borrowing control than the Chancellor's public utterances would suggest.

The PSBR, however, is a fairly crude measure. The general Government financial deficit is, for instance, the measure for convergence for the purposes of economic and monetary union—the benchmark for the 3 per cent. ceiling—because it excludes privatisation receipts. What is the Government's estimate of that? It is fully £21.4 billion for 1996–97, and that is just the Government's current forecast—they have already had to revise their forecasts in the wrong direction over the past six months.

That estimate has been made at what many regard as the peak of the economic cycle, when the Government's estimate of their net investment is £11.3 billion. That means—according to the logic that the Chancellor has expounded during his term of office, and against a discipline that is gaining wider acceptance across the parties—that the Government will be at least £10 billion away from being able to make any responsible tax cuts while maintaining their stance of fiscal prudence and responsibility.

The test is whether the Chancellor has the nerve to do the job of economic policy management, or whether he will succumb to the pressures of political expediency. So far, the Chancellor has ignored the Bank of England's advice that interest rates need to rise. At the Mansion house, he moved the goal posts on inflation; he has left the position more unclear and uncertain than it was before. I speak as one who has admired the stance taken by the Chancellor when his own party has tried to push him off course, as it so often has. As I said in response to an earlier intervention, we suggested a range of 0 per cent. to 3 per cent. No doubt the Labour party will take a view at some point, but thus far it seems reluctant to express one.

Mr. Kenneth Clarke

The hon. Gentleman anticipates me. Would he care to state, on behalf of his party, whether he thinks that we should raise interest rates now, or whether we should have done so a month ago?

Mr. Bruce

I think that the Chancellor will understand my reply. We believe that the Government should set the targets, but that the Bank of England—or the central bank—should implement them. The answer is simple: if the Government believe, or the Bank of England believes, that the inflation target that the Government say should be adhered to requires an increase in interest rates, the Bank should make the decision. We in the House do not know who is right, and we shall not know for 18 months. I do not think that the Chancellor should be smug in the short term. Our position is clear: the Bank should have been allowed to make the decisions that it considered necessary to implement policies set out by Government.

Mr. Budgen

Does the hon. Gentleman not agree that it must always be the Chancellor's duty to decide how quickly the inflation target should be met? He must take into account wider social and economic considerations than the Bank can ever take into account.

Mr. Bruce

That is an argument in favour of political intervention, but too often Chancellors cannot be relied on to take such objective measures, and their decisions have been made for short-term political reasons which cut across the economic requirements of the time. I believe that the fact that the German economy has built itself on the basis of an operationally independent central bank is one reason for the success of Germany's economic policy.

It must be understood that we are not talking about the Bank of England setting policies. The Government set policies and the Bank implements them. The decisions, however, are removed from the political arena. It has been argued that such action would lead to a lower overall level of interest rates, because it would remove the factor of political uncertainty, leading to a cut of between 1, and 2 per cent. on the prevailing rate of interest.

An item that I have raised in the past week has not been addressed by the Government, or even picked up by the commentators: the moves, following the merger of a number of building societies, to offer substantial bonuses to their members, which will feed into the economy over the next 12 to 18 months. According to the press reports that I have read, they could amount to between £5 billion and £8 billion. The Chancellor—and, indeed, the financial authorities—must keep a close eye on that.

It seems extraordinary that we can debate whether tax cuts of £5 billion are justified in terms of keeping economic policy on course, when building societies over which the Government have no control can suddenly inject between £5 billion and £8 billion into the economy, completely altering the Government's inflation forecast. I do not know what the answer is, but the Government should give some indication of how they intend to respond to that issue.

We need a responsible fiscal policy, not just short-term tax cuts, which, as people know from bitter experience after the last election, would have to be reversed immediately after an election. We need a sensible target for inflation and a reformed central bank given operational independence to enable it to pursue those targets free from short-term political interference.

We need a European policy crafted in the country's and not the Tory party's interests, and we need a macro-economy which recognises the importance of investment to create a climate which can sustain public services, at a reasonable taxation level and at a reasonable share of gross domestic product.

The Liberal Democrats have made it clear that education is the single most important investment that this country needs for the long-term success of our economy. Unlike other parties, we have said not only that we will spend more on education, but where we will get the money from. The Labour party has tabled an amendment which continues to say nothing about how it intends to deliver anything. It contains blandishments, statements of good intent and a rosy glow of change, but no substance.

It is necessary to have credibility in economic debate, to be prepared to put some facts on one's proposals, to put some costings to one's commitments and to give some indication as to how one would create the mechanism which would deliver the results that one regards as desirable. The Liberal Democrats have done and are doing that. We shall continue to challenge both the Chancellor of the Exchequer as to whether he has the resolve to stick to his commitments, and the Labour party to demonstrate whether it can put forward a coherent programme that will not finish up putting it in exactly the same position as the Government, who are split from top to bottom.

6.41 pm

Sir Anthony Grant (Cambridgeshire, South-West)

I will say this for the hon. Member for Gordon (Mr. Bruce): unlike the official Opposition, he has just a smidgen of policy but, alas, I fear that it will be purely hypothetical and academic in the extreme.

The prime economic task of any Government must be to control inflation without wrecking the industrial base. We have heard a great deal about investment, especially from my right hon. and learned Friend the Chancellor of the Exchequer. The trouble is that the international market believes that in this country, under our political system and in the way in which we conduct ourselves, the will to control inflation is weak. That is why there is what is called short-termism compared with Germany and Japan.

Investors, usually international ones, suspect that political parties, and particularly Labour, will take a short-term political view, so those investors take a short-term financial view: it is as simple as that. The trouble is that with Labour in power the result would be not short-termism but minuscule-termism. It is to the Government's credit that they have maintained low inflation better than their predecessors.

An encouraging and seldom noticed trend among banks is the tendency to move to fixed-term lending rather than the overdraft system. In that sense, an encouraging sign exists that we are moving more towards the European or German system. That will give us more long-term investment, which industry requires.

The battle against inflation, however, is a continuing one. It is affected by matters entirely outside local control, such as commodity prices. Handling inflation in a modern economy is like sailing a giant tanker: it goes on for about five miles after being put into reverse, by which time the other hazards of recession have swamped the decks. Cool pragmatic judgment rather than obsessional dogma is therefore needed.

The Chancellor of the Exchequer is right to resist perhaps the more orthodox Bank of England view on interest rates. I hope that he will continue to take that pragmatic view as what industry and the economy want more than anything else is some degree of stability. I am glad that he has given stability on the interest rate front so that people can plan for the future.

The other thing that we need is export-led growth. As I have said before, after the 1967 devaluation by the Labour party, on becoming Chancellor of the Exchequer Lord Jenkins of Hillhead—now a member of the party of the hon. Member for Gordon—said, "We must have export-led growth. That is the solution." Unfortunately, he never achieved it, but he was right and my right hon. and learned Friend the present Chancellor has achieved it.

When considering future interest rate policy, I hope that my right hon. and learned Friend will bear in mind two vital sectors: the housing market and construction industry, and the small firms sector. In the 1980s, reliance exclusively on interest rates to curb inflation was catastrophic for both home owners and small firms. I agree with the right hon. Member for Ashton-under-Lyne (Mr. Sheldon), who is Chairman of the Public Accounts Committee, about that. That reliance was the cause of the anxiety, the lack of confidence and the absence of the feel-good factor that everyone is seeking.

Added to that, there was the fear of unemployment and the uncertainty about future employment, which happily is now easing. When considering his Budget, however, I hope that my right hon. and learned Friend the Chancellor will have special regard for that especially unfortunate and burdened sector. In addition, I hope that the wise proposals in the Latham report on the construction industry will be attractive to the Government.

The future does not lie with vast companies or supermarket fat cats. A healthy and flourishing small firms sector is the vital undergrowth for survival in the economic jungle. Bit by bit, much has been done to help small firms, but there is an awful lot more to be done.

I want lower taxation. Decades ago, I advocated a shift from direct to indirect taxation because one is a tax on work and the other is a tax on spending. I am glad that that trend has taken place, but taxes can be reduced only if public expenditure is curbed. The only way in which public expenditure can be substantially curbed is by reducing unemployment. I am delighted at the way in which that is going. Otherwise, as my right hon. and learned Friend says, the solution is a hike in interest rates, which is the last thing that industry, and especially small industry, wants.

We are a parliamentary democracy and we and the public are entitled to know what is the policy of Her Majesty's official loyal Opposition. We shall ask them that again and again and again. What is their policy? As the hon. Member for Gordon said, their amendment is clearly a mass of platitudes. Would they increase or reduce taxation and, if so, by how much and which taxes? Would they increase public expenditure, as their spokesmen nearly always imply, or reduce it? Would they raise or lower interest rates? Or do they really believe, as I do, that the Chancellor has got it about right?

I used to be fond of the previous Leader of the Opposition. I thought that anyone who was keen on rugger could not be all that bad, but I am not sure about the present one. At least one knows where the right hon. Member for Chesterfield (Mr. Benn) stands, even if one disagrees with him. We are not allowed to refer to an amendment which has not been selected, and its non-selection must be a great relief to the official Opposition as it contains two fairly dirty and obscene words which may send a shudder down their spine. It refers to "socialist policies". The terror that that must have struck in the Opposition's hearts is awful to consider.

I will say this about the right hon. Member for Sedgefield (Mr. Blair), the Leader of the Opposition: he has a nice smile—but I question what lies behind it and what policies, if any, lie behind it. He reminds me very much of the Cheshire cat in "Alice's Adventures in Wonderland". Poor little Alice was rather like the electorate. Lewis Carroll wrote: she was a little startled by seeing the Cheshire Cat sitting on a bough of a tree. The Cat only grinned when it saw Alice. It looked good-natured, she thought: still it had very long claws and a great many teeth,"— that is the hon. Member for Bolsover (Mr. Skinner) and his friends— so she felt that it ought to be treated with respect. 'Cheshire Puss,' she began … 'Would you tell me, please, which way I ought to go from here?' 'That depends a good deal on where you want to get to,' said the Cat. 'I don't much care where—' said Alice. 'Then it doesn't matter which way you go,' said the Cat. '—so long as I get somewhere,' Alice added. 'Oh, you're sure to do that,' said the Cat, 'if you only walk long enough.' Alice said 'I wish you wouldn't keep appearing and vanishing so suddenly: you make one quite giddy.' 'All right,' said the Cat; and this time it vanished quite slowly, beginning with the end of the tail, and ending with the grin, which remained some time after the rest of it had gone. 'Well! I've often seen a cat without a grin,' thought Alice; 'but a grin without a cat! It's the most curious thing I ever saw in all my life!"' In 30 years in Parliament, I have sometimes seen a policy without a grin, but a grin without a policy is the most curious thing that I have ever seen. To end with the immortal words of Private Eye, which I hope will get a response from the Opposition, "I think we should be told."

6.49 pm

Mr. Tony Benn (Chesterfield)

I and some of my hon. Friends have tabled an amendment which, in a way, acquits the Chancellor of the main responsibility for what has happened because it says that the problems confronting this country are inherent in a system that puts profit above people. If I distributed the Chancellor's speech to my constituents, they would not believe that he lives in the same world as they do.

There is mass unemployment in Chesterfield because the pits were deliberately closed. Unemployed people come to my surgery and say, "What about a job?" Other hon. Members must have the same experience every week. People say, "My daughter is getting married. What about a house?" Another constituent will say, "My son wants to go to college. What about a grant?" I am told, "My auntie cannot get a hip operation. Granddad cannot live on the pension."

Anyone who thinks that the Chancellor's speech, in which he scored debating points about quotations—an absolute waste of time—will carry any weight, is making a grave mistake. Conservatives boast that the number of days lost in industrial disputes has dropped, but 2.5 million days are lost, every day because of unemployment. Unemployment is the policy. It lowers wages, undermines the unions and boosts profits. Homelessness does the same. Someone who sees a person in a cardboard box on the embankment will say to himself, "If I had a row with my employer and cannot keep my job and am dispossessed of my house, I will be in a cardboard box on the embankment." The Government have not an economic policy but a political strategy to put a handful of rich people at the top and the rest in fear.

Has anyone ever asked how many home owners have mortgages? There are a great many home buyers, but not a great number of home owners who have paid off their mortgages. Another term in use nowadays is "customers" and those who have no money are not "customers". They have found a word that dehumanises and depersonalises the poor so that they do not have to think about them. People in cardboard boxes are not on the electoral register. How can anyone say, "Put me down on the register as being in the cardboard box behind Marks and Spencer"? Those people do not vote, and that is part of the political strategy.

The Government should not think that anxiety has not spread up to the middle classes because many professional people are on short-term contracts and many people are on low pay. If the Chancellor ever has a discussion about why there has been a shift in political opinion in this country, he will find that it is because the anxiety of the capitalist society has spread to layers of people who thought themselves exempt. Of course the policy is based on fear.

We hear much about how marvellous is the German economy, but there are 20 million unemployed in the European Union. Does not anybody relate that to what happened before the war? I am old enough to remember Hitler coming to power. I bought "Mein Kampf" when I was 12 years old and I still have my copy. The 6 million unemployed in Germany produced Hitler, and when there is unemployment, people turn on each other. Sir Paul Condon, the Commissioner of Police of the Metropolis, has issued one of the most disgraceful statements that has ever been made. He is building up the feeling that, if there is a crime problem, it is due to blacks. When people are unemployed, they turn on others.

The breakdown of the social fabric is much more important than the feel-good factor. I do not know who feels good or why, but if we break down the social fabric and turn people one against the other, we will pay a much higher political price than we would in dealing with the problem that is before the House or the aspirations in my amendment. The second world war was the cost of monetary policies, which are the same as those that are now being pursued. It cost us 50 million lives and God knows how many billions of dollars.

The right hon. Member for Horsham (Sir P. Hordern) says that, if Labour gets in, there will be a run on the pound. What he told us is what the left has been saying for years—that this House does not decide anything. Decisions are made by international gamblers. Every night, I listen to the world economic news on the BBC and there is mention of the Dow Jones industrial average. I have never met Mr. Dow Jones, but by God I have to give him credit for keeping at it. Night after night, when we are all in bed, he is working on his bloody averages, and they decide what happens.

Sometimes, we are told that sterling has dropped three points of decimals against a basket of European currencies. I have never had such a basket of currencies, but I would not mind taking one on holiday. As a result, the Health Secretary closes three hospitals and the pound rises again because all policies are now determined by international capital demands. That is why my amendment is a little more fundamental. I should like to make fun of the Chancellor's earlier speeches but that would be difficult because I confess that I have not read them. Let us try to face the reality, which is that Parliaments and Governments do not control anything any more.

There was an article in the Financial Times recently by the BBC's economic correspondent in the World Service saying: In Africa it would be better if the countries were run as commercial enterprises rather than Governments. Later, in order to answer a question that might be asked, he said: What room does that leave for democracy? That question can be asked everywhere in a world where bond markets dominate much of the decision-making process in the world. Democracy is in a sense on the way out. Without trying to provoke individual responses, I am trying to say that we must face the fact that the globalisation of world markets has destroyed the value of the ballot box as a link to political and economic power. That will happen to an incoming Labour Government, although I will not go into that. Everybody knows that that will happen. It happened to Healey in 1976. He has now decently written a book saying that he made a mistake about the IMF, but that does not matter.

Wherever we look, the triumph of capitalism is being celebrated, but if it is so triumphant, perhaps we should look at some of the figures. One fifth of the world's population of 5.6 billion live in extreme poverty. The richest fifth in the world have incomes that are 30 times higher than those of the poorest people. Poverty-related diseases claim the lives of 35,000 children every day, and 500,000 women die each year from causes related to pregnancy and inadequate health care. Some 1.3 billion people have no clean water. That is the result of the capitalism that has triumphed. Communism has gone and the capitalist world is not stable: it is inherently unstable.

It is democracy that is being attacked, not socialist ideology. They do not want the common people without the cash to use the vote to buy collectively what they cannot afford individually. The huge achievement of the chartists and the suffragettes was to get some grip on economic policy through the ballot box.

I am not the first person to quote Harold Macmillan. I did so when I intervened on the Chancellor and perhaps I may read the quote to him again. In his book, "The Middle Way", published in 1938, Harold Macmillan said: We have lived so long at the mercy of uncontrolled economic forces we have become sceptical regarding any plan for human emancipation. Such a rational and deliberate reorganisation of our economic life would enable us out of the increased wealth production to establish an irreducible minimum which might progressively be raised to one of comfort and security. The Labour manifesto of 1945 did not attack the Conservative party because in those days we did not have abuse, we had argument. That manifesto stated: The great inter-war slumps were not acts of God or blind forces: they were the sure and certain result of the concentration of too much economic power in the hands of too few men. Gaitskell, one of our more moderate members, when he spoke in the House on 5 December 1945 after Churchill had moved the first motion of censure on the Labour Government, said: We believe … that the present capitalist system is inefficient, that it produces insecurity and that it is unjust. Can anyone deny those things?"— [Official Report, 5 December 1945; Vol. 416, c. 2364.] Therefore, no one should think that my amendment, which, alas, has not been called but which may be studied, contains new ideas. They are rooted in human aspiration and no one can tell me that they cannot be implemented. If there can be full employment in wartime, it can be had in peacetime. If every youngster of 17 could be put in uniform to kill Germans, surely young people could be recruited to build homes or to become nurses or teachers or to clean up the environment or look after old people. Of course that could be done, but it is not profitable, and that is why it is not done.

Until this society—in that I include my Front-Bench colleagues—addresses the question of whether to put profitability above people or people above profitability, these problems will not be resolved. Do not think that the Chancellor, with his triumphalism, is convincing anyone. More and more people are learning what is happening. If they cannot express themselves through the ballot box, do not be surprised if we have the riots. That is not the right way to do it, but a disfranchised nation will not accept the injustice forced on it by a policy of the kind that we have had.

6.59 pm

Sir Thomas Arnold (Hazel Grove)

The current monetary framework has been in place for three years. The inflation rate during that time bears healthy testimony to the wisdom of the policy that the Government have chosen to follow. I support what my right hon. and learned Friend the Chancellor said in announcing the new inflation target one month ago. He said in answer to a written question: Beyond this Parliament I propose that our aim will be to continue to achieve underlying inflation—measured by the RPI excluding mortgage interest payments—of 2½ per cent. or less. Monetary policy will be set consistently to achieve this target. This should ensure that inflation will remain in the range 1 to 4 per cent."— [Official Report, 14 June 1995; Vol. 261, c. 517.] That statement showed confidence in the future and confidence in the present policy.

It is absolute nonsense to suggest that the goalposts have been moved or that policy has become more discretionary or relaxed. On the contrary, the Government have repeated what policy has been for some time now. That has done wonders for confidence. It shows exactly what the Government intend to do in respect of monetary policy.

The monetary framework that the Government put in place three years ago consists of three components: the inflation target, to which I have referred, the inflation report published by the Bank of England and the published minutes of the monthly monetary meeting. I should like to deal with the two latter items in turn.

The great advantage of the inflation report is the transparency that it confers on the decision making within the Bank of England. It shows carefully and clearly the intellectual influences at work. It makes absolutely no attempt to hide any of the forces which are taken into consideration. I was particularly impressed in that regard by the evidence given to the Treasury Select Committee recently by Mr. Mervyn King, the chief economist at the Bank of England. He described in some detail what was taking place in the labour market. The facts and figures are there for all to see in the inflation report.

Mr. King referred to what he called the tale of two cities. Most of us can see what he meant when we consider what is taking place in our constituencies. The sectors directed towards the export or net trade sector are growing rapidly. In those sectors, one can see evidence of capacity constraints. The sectors directed primarily towards domestic retail spending are weak. In housing and construction they are extremely weak. There is no sign of any capacity constraints.

So we are seeing a recovery the pattern of which is very different from anything that we have seen for a long time. Net trade, although volatile, is the main driving force behind the recover. My view is that there is still plenty of capacity in the economy and that we should take account of that fact in deciding whether to raise interest rates. My right hon. and learned Friend the Chancellor has been right to take a robust stand on interest rates and to make a fine judgment which so far has won the backing of the markets. That brings me to the published minutes of the monthly monetary meeting.

The meeting represents a considerable step forward, once again, in the transparency with which economic policy is now made. I hope that the Labour party sees fit to applaud the publication of the minutes, which means that, for the first time ever, it is perfectly obvious to everyone what specific arguments are put forward by the Governor of the Bank of England and by the Chancellor. There can be no doubt whatever how the decision not to raise interest rates at the celebrated meeting on 5 May was reached.

My right hon. and learned Friend the Chancellor made it perfectly clear that there were conflicting pressures which had to be accommodated and conflicting arguments that had to be addressed. There were clearly cost pressures arising from increased commodity prices and a weakening exchange rate. On the other side, there was clear evidence that demand pressures within the economy as a whole were not so great as to warrant an increase in interest rates. My right hon. and learned Friend took the decision not to increase interest rates. I applaud him for that decision. I applaud the transparent way in which he showed to the world his internal thought processes, how he reached his decision and why on that occasion he did not accept the advice given to him by the Bank of England.

The transparency of policy within the new monetary framework is serving both the Government and the country well. I hope that my right hon. and learned Friend will persist in his policy and keep his nerve.

7.4 pm

Mr. Terry Davis (Birmingham, Hodge Hill)

There is no question but that the most important problem that Britain faces today is unemployment. It is important not only because of the direct effect on families whose members are unemployed, with the effects of poverty and everything else that goes with unemployment, but because it represents a waste of resources. Even within the Government's narrow vision, unemployment should be seen as important, because it represents a cost to the Treasury.

My greatest condemnation of the speeches of Government Members this afternoon is that they paid so little attention to the importance of unemployment. All my right hon. and hon. Friends have drawn attention to unemployment and rightly argued that the immediate and urgent priority is to increase investment and training. Of course, the two go hand in hand. They are essential.

To be fair to the right hon. Member for Horsham (Sir P. Hordern), he referred to training. He drew attention to the fact that, in the United States of America, more was spent on training than in Britain. He said that the money was spent not by the federal Government but by private companies. He could have added that more is spent on training in many other European countries than in Britain. I suspect that much of that money is spent by private companies. However, the right hon. Gentleman did not face the logic of his statement. The fact is that, in Britain, private companies are not spending money on the essential training that we need, so it is a job that the Government must undertake.

The right hon. Member for Horsham asked how training would be paid for. The answer is that we certainly cannot pay for it if we take the earliest possible opportunity to reduce taxes. We could provide for investment, through either investment allowances, as my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) suggested, or some system of investment grants, which I personally prefer—we can discuss the details, but the important thing is to boost investment. We could provide training. Yet we cannot do those things at the same time as reducing taxes. We did not get from the Chancellor of the Exchequer any consideration of those points.

Instead, we had a speech which consisted mainly of a series of jokes. The biggest joke was when he described himself as a conviction politician. I wondered whether I heard him right. It seems to me that what we had this afternoon was a complacent politician. His speech had throughout it a thread of complacency about the economy. We have a reduced forecast for growth, a higher forecast for inflation and a lower forecast for investment. If he had given us a forecast for unemployment, which he refused to do, he would have given us in the medium term a higher one than was previously forecast. Yet, against that background, he described the slowdown as a change of pace. I suspect that, when the economy goes into its next recession, the right hon. and learned Gentleman, if he is still the Chancellor of the Exchequer, will say that we have simply gone into reverse gear. He does not understand the effects of the present economic policies and his forecasts.

The Chancellor says that the economy is doing well. He says that it is on course for steady recovery, which will continue in years ahead. He says that living standards will rise this year, in 1996 and in 1997—that sounds to me like a significant year—in the year after that and, the Chancellor trusts, in the years after that, too. However, if he had been more open, if he had given us some of that openness of which he boasted, he would have told us the undisclosed truth, which is that he expects the recovery to come to a stop in 1998 or 1999. It will probably be then, because the effect on employment and living standards always lags behind the rest of the economy.

Indeed, the Chancellor gave it away when he told us that the Budget will be balanced at the top of a cycle, which suggests that the economy will next go into recession. That is the problem in this country: recovery followed by recession followed by recovery followed by recession. It is the business cycle. The Government simply do not want to change that sequence.

Increasingly, people are conscious that recoveries are going to be followed by recessions. That is one of the causes of the insecurity that people feel. They do not expect recovery to last. They know that the economy is going to the top of the cycle and then, as it goes down, unemployment will go up.

Mr. Michael Stephen (Shoreham)

Will the hon. Gentleman give way?

Mr. Davis

I have not got time. There should not be interventions when speeches are limited to 10 minutes.

At the end of each recovery, unemployment is left higher than it was at the end of the previous recovery. Every time that we go into recession, we start with a higher level of unemployment than we had at the start of the previous recession.

The Chancellor of the Exchequer told us that the tax take, as he calls it, was lower than forecast. He blamed that on lower inflation. The fact is that the tax take is lower than expected because unemployment is high. It is employment—people having jobs and paying income tax—that affects the tax take. The Chancellor left that out of his speech.

The Government are concerned about reducing taxes in the next 18 months. They have not even pretended this afternoon that they are using some theory of trickle-down economics. They do not suggest that tax reductions will reduce unemployment. They will reduce taxes to spread the message. The Chancellor of the Exchequer gave it away when he said that they would spread the message of rising living standards and falling unemployment between now and the general election. The issue is what will happen after the general election. We know what will happen: the economy will go into another recession.

The Government should use the money that they will use to reduce taxes for investment, training and creating jobs. That does not mean creating work. There is no need. The need for work is everywhere to be seen around us in our constituencies. It is a matter not of creating work but of employing people to undertake the work in front of our eyes: the housing shortage, the terrible provision of care in the community, social services. They are all labour-intensive. That is what we should use the money for if we are serious about reducing unemployment.

People who are employed pay taxes. The Chancellor of the Exchequer gave no forecast or target for unemployment. He told us that he had a target for income tax—20p in the pound; he told us that he had targets for capital gains tax and for inheritance tax—zero. What is the target for unemployment? A Government worth their salt who justified the confidence of the country would face the fact that it is unemployment that people care about most. The economy is not good enough. We have to a find a better economy. We have to find an economic system that will deal with the problem of unemployment. The biggest condemnation of the Government's complacency is that they do not understand the need for a new economy.

7.12 pm

Mr. John Townend (Bridlington)

Ever since Mr. Soros blew us out of the exchange rate mechanism, our economic situation has got better and better. In retrospect, even most members of the Government would admit that he did us a good turn. To their credit, the Government have taken full advantage of that opportunity. Despite the fact that the value of the pound has dropped by nearly 15 per cent. and that everyone forecast that that would feed through into inflation, the Government have kept inflation consistently down. We should congratulate the Government on the skill with which they have operated monetary policy and which has made that possible.

Despite the gloom of the Opposition, the economy has been growing for three years. What has been so pleasing is that it is the first export-led recovery in my lifetime. I believe that the prospects for non-inflationary sustainable growth are very good. Because of the success of our exports, the balance of payments deficit has dropped dramatically. The hon. Member for Birmingham, Hodge Hill (Mr. Davis) talked about unemployment. That has also dropped dramatically—in the last fiscal year by no less than 372,000. That is a pretty good record. The budget deficit is also falling.

Why then is there a feeling among much of the public that things are not getting better? I think that my hon. Friend the Member for Hazel Grove (Sir T. Arnold) put his finger on the main problem. It is that we have almost got two separate economies: the successful manufacturing export industry, which is doing very well indeed, and what could be classed as the home-based industries. The housing market in many places is still drifting downwards. The construction industry is flat. Consumer spending is weaker than we expected. The leisure, hospitality and drink industries are not doing well. I speak from some experience of those industries. The figures in June were generally very poor. The retail trade has undoubtedly been affected by the enormous amounts of money being spent on the national lottery and the fact that the draw is held on a Saturday night.

In many areas, business confidence is falling. After a very buoyant last quarter in 1994, in the first quarter of this year growth slowed. I expect that, in the second quarter, as a result of the Budget, it will slow down further. Inflationary pressures are almost all imported due to high raw material prices. There has been no upward pressure on wages during this recovery. Indeed, I believe that at long last we are moving slowly into a low-inflation culture. While increased raw material prices have forced up manufacturers' costs, manufacturers have not been able to pass those costs on to wholesalers and retailers. When retailers have tried to pass them on, the public have refused to buy, and discounting and sales have followed.

Manufacturers have undoubtedly been much helped by our supply-side reforms and increased productivity and efficiency. In the private sector, strikes are virtually unknown. I think that the large increases in raw material prices will now ease off. Indeed, in the past few weeks there has been a significant drop in the price of coffee.

Investment has been somewhat disappointing overall, but if we consider the figures carefully, we see that investment in buoyant manufacturing industry is quite good. All the factors that have caused pain and lack of confidence in the non-exporting sector have a bright side, in that they make the necessity or likelihood of raising interest rates much less, especially taking into account the lead of the United States, which has recently reduced interest rates. It was followed by France, and I think that other countries will follow. It seems likely that the United Kingdom is near the top of the interest rate cycle.

I congratulate my right hon. and learned Friend the Chancellor on not putting up interest rates last month. He had the right feel. A further rise now would be bad for the Government, the housing market and the internal economy. I would like to see the second and third quarter figures before any change was made.

There is one factor which, more than anything else, has prevented the Government from getting the feel-good factor from that outstanding economic performance. Increases in taxation are, without doubt, the Government's Achilles' heel. Last week, my right hon. Friend the Prime Minister said that he wanted to lead his party from the centre-right and reduce taxes as soon as possible. In the spirit of reconciliation and unity that is sweeping our party, which was illustrated by the Cabinet reshuffle, it behoves us all on the Back Benches to help the Prime Minister achieve his aim to reduce taxes and fulfil his election commitments.

The task before us is very demanding. Since the previous election—we cannot deny it, it is in the Red Book—the tax burden has risen enormously, almost to the level that it reached under the last Labour Government. The Chancellor told the Treasury and Civil Service Select Committee that his tax increases were equivalent to roughly 7p on the standard rate. Under the present plans in the Red Book, we can cut taxes only if one or more of three things happen. First, the economy could grow faster than planned in the Red Book. This year's forecast for growth was 3.25 per cent. and has already been downgraded to 2 per cent., so that is not likely.

Secondly, we could slow down our budget deficit reduction programme, which the summer book shows will be £16 billion in 1996–97. I would personally not be prepared to cut taxes by increasing the level of borrowing. I do not think that my right hon. and learned Friend the Chancellor of the Exchequer or my right hon. Friend the Prime Minister would want to either, because it would cause the pound to come under pressure and be likely to force us to increase interest rates.

We are therefore left with the final option, which is to cut public spending. We should aim to cut the control total this year by some £10 billion. If we manage to cut it by only £7 billion, we can reduce by half the burden that we have imposed on the taxpayer since 1979.

Anyone who has to make cuts in industry and has done so in a recession knows that, to make cuts, one has to be tough and courageous, have the will power to force through one's cost reduction programme and pay attention to detail. One rarely achieves the objective with a few big cuts in a few areas; what is needed are thousands of small reductions in every area. I hope that events prove me wrong, but I sometimes—only sometimes—doubt whether the Government have the will power to take the action required.

I could talk for an hour about ways to cut public expenditure, but I know that you would not let me, Madam Speaker. However, I shall run through a few ideas. According to the Red Book, we are aiming to increase—not cut—real expenditure next year by 0.5 per cent. If we said that there would be no real growth, we would save £1.3 billion. I have mentioned the reduction in unemployment. That would save us around £800 million and, in addition, the extra people in work would be paying tax and national insurance contributions. We could cut half a billion pounds off the overseas aid budget. We have the sixth largest overseas aid budget in the world, but we are certainly not one of the six wealthiest countries.

We could cut £200 million from the heritage fund, as the lottery is pouring more money into sport and the arts. We should declare war on waste in the public sector— wherever we look, there is waste and overmanning. There should be a recruitment freeze on all staff except police, teachers, nurses, doctors and the armed forces. To be fair, some Departments have made savings, but in the past, any savings have not gone back to the Treasury but have immediately been re-spent by the Departments in question. Those savings should be used to cut taxes.

We should remove the cap on local authority spending, but cap the funds provided by national Government and go back to the old definition of public spending. We should put the squeeze on local authorities and force them to address the problems of waste and overmanning. My hon. Friend the Member for Dartford (Mr. Dunn) has a very good suggestion: we should penalise local authorities that do not collect council tax and rent arrears. Some local authorities have millions of pounds outstanding. We should reduce those councils' grant by a certain percentage, which they could make up by being more efficient.

If inflation comes down faster than forecast, instead of the Departments being allowed to spend the money saved, it should be clawed back. We should abolish the national health service's stores department, apart from the buying office, and thus save £50 million. We should also cut down on consultancy expenditure, advertising and glossy brochures. Personally, I do not think that we are achieving anything in Bosnia—we should bring the troops home.

The cost of illegal immigration is very high—45,000 immigrants are costing us £210 million a year. There should be quicker repatriation, so that people who have no right to be here are not able to string out the procedures and draw social security while they are here. We should make further savings in the social security budget, and I am pleased that the Government are making moves in that direction.

One of the most disturbing results of our generosity with social security is the fact that the number of young girls—not widows or divorcees—who have just left school and caught on to the idea of gaining benefits by having a baby, although they are without a proper relationship or a husband, has increased threefold.

I could go on—

Madam Speaker

I know that the hon. Gentleman could go on for a long time, but his 10 minutes are up.

7.22 pm

Mr. Geoffrey Hoon (Ashfield)

I was somewhat relieved when the hon. Member for Bridlington (Mr. Townend) embarked on his usual diatribe and called for public expenditure cuts, because until then I had agreed with some of his analysis of the British economy, especially his comments about the two economies. I am surprised, however, that, given his analysis, he does not draw the obvious conclusion, which is that the two economies—the export-led economy and the domestic economy—are clearly products of the one policy that the Government have pursued since September 1992— devaluation.

The reason why the export economy is relatively successful is that it has benefited from something like a 20 per cent. cut in the value of the pound since September 1992. There is no evidence that any of that benefit has fed through into the domestic economy. That is precisely what the hon. Gentleman was describing and precisely why I suspect that Opposition Members will agree with such an analysis.

Any assessment of the Government's abject economic performance shows clearly how they have failed to tackle the central weakness of the Conservative-controlled British economy. We have low growth combined with high unemployment. Since 1979, Britain has had the lowest growth rate of any European Union or G7 country. The Conservatives' record means that we are firmly in last place in the growth table. That is the longer-term perspective but, even in the short term, there is precious little sign of improvement.

The Treasury's summer forecast for growth, inflation, borrowing and investment reveals that the outlook for the economy has worsened since the November Budget. The forecast implies that the average growth for 1988–98 would be no higher than 1.7 per cent., which is the average growth rate in the United Kingdom since 1979. It is the slowest rate among all EU and G7 countries combined.

The forecast for underlying inflation has been revised upwards from 2.5 per cent. at the end of 1995 in the Budget to 3 per cent. in the summer forecast. The Treasury hopes that inflation will fall to 2.5 per cent. by the end of 1996, but the City and the Bank of England anticipate underlying inflation in the range of 2.5 per cent. to 4 per cent. The public sector borrowing requirement is forecast to be £2 billion higher, at £23.5 billion for 1995–96.

In the Budget, the Treasury forecast that business investment would increase by 10.7 per cent. in 1995, but that forecast has now been halved to 4.75 per cent. It is a doubly depressing picture—a significant reduction in the level of investment combined with some pretty poor forecasting. If we cannot rely on Treasury assessments of the performance that we can expect in the economy, it is difficult to rely on other Government statements.

The deteriorating position of the British economy requires action that only a Labour Government can offer. We have repeatedly heard Conservative Members complain that Labour has no economic policy, but we have debated the fundamental principles of our economic policy in public. It is not often that the new clause IV has been quoted since we had our debate to change Labour's constitution, but we set it out for all to see. It states that we believe in a dynamic economy, serving the public interest, in which the enterprise of the market and the rigour of competition are joined with the forces of partnership and cooperation to produce the wealth the nation needs and the opportunities for all to work and prosper. [Interruption.] I am sorry that Conservative Members are scoffing at principle. One needs principles to start with, and principles are precisely what the Government's economic policy lacks. We have no idea where it is going because the Government simply switch from one principle to another as the need arises.

In my opening remarks, I mentioned the devaluation that has occurred since September 1992. Before then, we were told that the Government's economic policy was based entirely on maintaining our position within the exchange rate mechanism. Miraculously, since September 1992, Ministers have been boasting about the success of their economic policies, success achieved only because the Government were forced out of the ERM. There was no principle involved, so to accuse Labour of lacking policy is to miss the point. We have principles, and it is on those principles that we have built an economic programme aimed at high investment, high growth, high skills and high productivity in order to rebuild our economy, raise living standards and promote the creation of a fair and just society. That is our objective, and I have outlined the starting points.

Labour is committed to the goal of the 1944 White Paper, which stated: The Government accept as one of their primary aims and responsibilities the maintenance of a high and stable level of employment". Is that one of the present Government's primary aims? Is it something that they see as one of the important features of their economic policy? If so, why have they so singularly failed to achieve it over such a long period?

We have specific policies aimed at tackling the problem of unemployment which, as my colleagues have rightly said, is crucial to the success of our economy. Our first priority will be to tackle the problem of job creation. To increase the number of jobs in the short term, we have talked about the phased release of capital receipts, so that local authorities can build homes. We have proposals for public-private partnerships, at national and local level, to boost infrastructure investment and create jobs. We have called for environmental initiatives to create jobs through a nationwide programme of energy efficiency, to provide better insulation and improve household energy conservation standards. All those proposals would create employment. We have also talked about an expansion scheme for small businesses, to enable them to invest and meet the needs of a modern economy.

Alongside those proposals, we believe that central to the task of promoting employment in the last part of this century will be our determination to invest in the skills of our people. We are committed to a programme of lifelong learning for all. We can achieve that only by raising standards in our schools and by improving access to colleges and universities. We want every young person to be encouraged to remain in mainstream education and training. We want to develop a system of training and education for 16 to 19-year-olds, which will combine academic and vocational qualifications.

We have talked about specific training schemes for women and the ethnic minorities. We have talked about introducing a national skills audit, to identify skill shortages and to target resources to provide training, which will lead to employment. [Interruption.] Conservative Members are scoffing, but they should not simply rely on their Conservative central office briefs telling them that Labour has no policy. The things that I mentioned are Labour's policies. They have been set out and debated in public. Conservative Members should consider them before they simply repeat the chorus that central office wants them to repeat in such a debate.

We want to establish a university of industry. We shall provide new opportunities for retraining, to ensure that the skills that companies already have are improved to meet the challenges of the modern economy. Those are published policies that Conservative Members can read instead of relying on the material supplied to them by central office.

The strategy that I have outlined is crucial, because the Bank of England's February inflation report pointed to Britain's lack of capacity and the slow response of investment in the recovery as a threat to that recovery's sustainability. There is not any significant evidence— again, this is pretty much what the hon. Member for Bridlington was saying in his analysis of Britain's economy—that the recovery is being sustained. We shall sustain that recovery only if we recognise that the Government have an important role to play in encouraging higher levels of investment.

Government cannot second-guess commercial judgments of investors and managers, but we can change the system of corporate governance to give greater incentives to longer-term finance and opportunities for business to secure start-up capital. We must look at the ways in which we can adjust the corporate tax and financial system to encourage that longer-term investment.

We have talked about encouraging the capital gains tax system to promote that longer-term investment. What has been the Government's response to that? The Prime Minister announces that he wants not only to abolish inheritance tax but to eliminate capital gains tax. No Conservative Member has offered an explanation of how that would be achieved; or where the £3 billion—the cost of such abolition—would come from. If any Labour Member made such a commitment, there would be hysterical outrage on the Conservative Benches about where the money was to come from. We need a Minister to answer that question. Where will the £3 billion cost of the abolition of inheritance tax and capital gains tax, which the Prime Minister announced, come from?

In stark contrast to the Government's laid-back, laissez faire policy, we have a specific series of policies designed to meet the needs of the British economy in the last part of the 20th century. We believe that, by investing in our future and by investing in the skills, training and talents of all our members of society, this country can face up to the difficulties of an increasingly competitive global economy, to ensure that Britain and its people can prosper in the next century.

7.32 pm

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

We have just heard an audacious speech from new Labour, by the hon. Member for Ashfield (Mr. Hoon). The audacity of his speech takes some believing. He had the gall to mention the exchange rate mechanism and Britain's exit from it. His Front-Bench spokesman, the hon. Member for Dunfermline, East (Mr. Brown), will not even answer a question on whether he believes in fixed exchange rates.

The hon. Member for Ashfield also had the audacity to mention the European Union. As a socialist—I use that term very loosely—he failed to mention that there are more than 20 million unemployed people in the European Union. He then went on to talk about spending capital receipts. He was really talking about increasing spending and increasing borrowing, and we have been down that route before—under old Labour. What we have heard from the hon. Member for Ashfield is not a prescription for a successful economy.

In recent weeks, we have had quite a lively debate about the merits of tax cuts, especially on the Conservative Benches. I do not intend to spend much time talking about tax cuts and where they should be focused. We face more immediate economic issues, particularly in the areas of monetary policy and public expenditure. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) commented on the new timetable for debates on economic affairs that has arisen since the unified Budget was introduced. We tend to have rather long gaps between economic debates now, but that can be helpful if it enables us to take a longer perspective on our economic affairs.

On reading the summer economic forecast produced by the Treasury, we find that some quite significant changes have taken place since the Budget in November. The estimated tax revenues for the current year are forecast to rise by around 11 per cent. compared with the financial year that ended in April. Since the last Budget, we have also had two increases in interest rates. They have risen by 1 per cent. and there has been a consequent tightening of monetary policy.

The effect of those changes is shown in the economic projections in the summer forecast. The economy is starting to slow down fairly significantly in certain areas. First, the forecast of the growth in domestic demand for the current year has dropped since the Budget, from 2.75 per cent. to 2 per cent. The forecast for manufacturing output has been reduced from 4.25 per cent. to 3 per cent. Indeed, the figures for manufacturing output announced yesterday showed a fall of 0.1 per cent. for May and of 0.4 per cent. since April. We are seeing a marked slowing down in manufacturing output.

Growth in consumer expenditure is also forecast to be at 2 per cent.—not 2.5 per cent. as in the Budget forecast. The forecast for fixed investment has been reduced from 5.75 per cent. to 3 per cent. At the same time, as my hon. Friend the Member for Hazel Grove (Sir T. Arnold) remarked, retail sales have been flat over the past 12 months. There is clear evidence of a marked slowdown in the UK economy. I think that in 1995 we shall see a growth pause.

I have no doubt that the Chancellor's decision on 5 May not to increase interest rates was correct. Many hon. Members have remarked on that decision in the debate. I consider that we may now have reached the peak of the interest rates cycle. The next move in interest rates is likely to be down, and that could be more significant for the UK economy than adjustments in taxation levels in the November Budget.

The prospects for the world economy as a whole have also somewhat diminished in comparison with what we were considering six months ago. The prospects for growth in Germany, the United States and Japan are not as great. The international inflation risks have also been reduced. There can—I think—be no case for higher interest rates in the UK economy in 1995.

The other interesting changes in the summer economic forecast are those of the projections for the public sector borrowing requirement. The projected figures for the next two years have worsened by some £6 billion, which is mainly due to a fall in income tax receipts in the current year of some £1 billion, and a fall in VAT receipts from that projected at the time of the Budget of some £3 billion. Receipts from taxes are falling and that is also a sign that the economy is slowing down. Monetary policy should not be tightened further.

My right hon. and learned Friend the Chancellor has set a new target for inflation for the coming years and beyond the end of this Parliament. He is right to have medium-term targets for inflation and he is right to aim for inflation in the region of 2.5 per cent. My only criticism of the Chancellor is that he suggested that inflation might go over 4 per cent. due to events beyond our control and he referred to commodity prices.

I thought that we had learnt the lesson of the 1970s: it is not commodity prices that cause inflation, but Governments who cause inflation. If we looked at what happened with commodity prices in the 1970s, we would remember the hike in oil prices. That did not cause inflation. We have only to look at the comparative performance of the UK and German economies at that time.

In 1975, German inflation increased by 5.9 per cent. In the United Kingdom, it increased by 26 per cent. The following year, United Kingdom inflation went up by 16 per cent., whereas German inflation increased by only 4 per cent. Commodity prices cannot affect inflation unless Governments produce monetary policies that accommodate increases in commodity prices. I offer a word of caution to the Chancellor if he still believes that commodity prices can throw his inflation controls out of the window. It is essential for a responsible Government to have a firm monetary framework and for there to be an intelligent analysis of that framework.

My other area of concern in monetary policy is that the Governor of the Bank of England seems over-concerned about the level of sterling. At his meeting with the Chancellor on 5 May, one of his main reasons for wanting interest rates increased was his belief that sterling had weakened significantly, which could cause inflationary pressures.

I do not think that that is so, and I feel that what the Governor said in his previous meeting with the Chancellor on 5 April better describes the implications: The fall in the exchange rate"— that is, the fall in sterling— was a side effect of the international exchange rate turbulence— the weakness of the dollar, or related to non-economic domestic factors". To take too much notice of movements in sterling against a basket of currencies or against particular currencies at present would not be a sensible way in which to decide monetary policy. It is essential that we have a flexible exchange rate, because British business is trading across the world and needs the right exchange rate with all its international trading partners, not just with one or two.

What the Chancellor does on monetary policy will be vital for our economic success. My hon. Friend the Member for Bridlington (Mr. Townend) set out an agenda for public expenditure reductions, and I hope that the new Chief Secretary to the Treasury will prove a ruthless cost cutter and deliver the savings in public expenditure that are required over the coming three or four months, so that we can reduce the level of taxation. I am sure that in that endeavour, the Chief Secretary will have the support of the Chancellor of the Exchequer and the Prime Minister.

In his November Budget, the Chancellor will have an opportunity to set out a programme of tax reform, and that will help to reinvigorate the Conservative party and to show that our policies are continuing to move forward. Capital gains tax is certainly one area in which reform must take place—indeed, an area in which reform could even achieve higher levels of tax revenue. But I would be more cautious about inheritance tax. We must also consider changes in reliefs, thresholds and personal allowances, so that those on whom tax increases have borne too heavily in recent years will have the prospect of some reduction in what they pay.

7.42 pm

Mr. Barry Jones (Alyn and Deeside)

I envied the speech by the hon. Member for Milton Keynes, South-West (Mr. Legg) for its certainties. He certainly fashioned some alibis for his Government. The Chancellor of the Exchequer made a speech of genial ruthlessness, but he had nothing to say, so he attacked his shadow. In contrast, my hon. Friend the Member for Dunfermline, East (Mr. Brown), the shadow Chancellor, spoke for the people of our country. I am glad that he called for investment in our industries and for the rescue of our social services.

There is a daunting agenda. First, 180,000 young people aged 16 and 17 are currently not in work, training or education. About 2.5 million of our fellow citizens are out of work, with little prospect of further meaningful work in their lives. At least 800,000 of our fellow citizens are classed as long-term unemployed. We have also seen the disappearance of apprenticeships.

Hundreds of thousands of our fellow citizens live in homes blighted by negative equity, and there are at least several hundred thousand council homes in desperate need of modernisation—the basic civilised essentials of modern windows and new doors—to make them at least warm and draught-proof. That is a blight on our society.

The Conservative Governments who have held office since 1979 have enjoyed the realisation of about £78 billion-worth of assets from privatisation—a colossal sum. They have also received about £120 billion-worth of North sea oil revenues. I cannot be the only person who finds it incredible to set all that treasure and wealth that Conservative Governments have received, those staggering sums, against the colossal scale of the problems in our society. Those problems are so colossal that we know that, even if there were a change of Government, they could not be righted in the new Government's first term.

A worse feature of the analysis is that about 2.5 million manufacturing jobs have disappeared since 1979. Real well-paid manufacturing jobs have been lost to our nation. We must acknowledge that Mrs. Thatcher, Sir Geoffrey Howe and Sir Keith Joseph decided on an industrial policy that allowed all those manufacturing jobs to go to the wall. We now know that our nation lacks the capacity of a truly broadly based set of manufacturing industries. That is a wounding reality, and it bodes ill for the next century. I do not think that we can criticise that troika of crazed ideologues too much for what they did to our manufacturing base.

My own priorities remain with aerospace and steel, and here I think I can claim the backing of the whole House. I shall speak in detail about one aerospace project—the airbus. More than 25,000 British people go to work on an airbus every day, and more than 300 British businesses are involved in the airbus project. There are 1,250 airbus airliners in service with 120 airlines throughout the world. Further orders, if they are realised, will be worth up to $52 billion. Furthermore, more than £1 billion a year is contributed by the airbus project, through British Aerospace plc, to the United Kingdom's balance of trade. That must be good.

I am proud of the fact that 2,300 of my constituents make the wings of the airbus—of every airbus—in my constituency. The Government must as a matter of urgency give British Aerospace grants for technological research, specifically for research and development in wing technology. I worry because, in Hamburg, there is now a factory assembling nothing but a variant marque of the airbus. It is clear to me that the Germans covet our wing technology expertise. They want to make wings, so it would help if the British Government gave British Aerospace those grants, by way of reward.

My other local industry is steel, and I acknowledge the work that the Government are doing to try to eliminate the cheating that goes on in some continental steel-producing countries. At the moment, British Steel plc is going great guns, and its profits are high. But everyone who knows steel knows that the day will come—sooner rather than later—when the cyclical trade in steel will dip, and dip horribly. Our British steel industry will then be hit, because our competitors on the continent are cheating by means of illegal subsidies for their steel companies.

We in Britain, in Wales and in my constituency have made enormous sacrifices, with de-manning and with the closure of steel mills. Having created what is arguably one of the world's finest steel industries—with brilliant production and quality—we should not have to suffer that kind of competition from the continent. I ask the Government to look carefully at the matter.

Time is short tonight, and I conclude by saying that I do not think that the Government have any strategic sense with regard to economic policy. It all seems to be tactical, short-term and hand-to-mouth, and that is not good enough for a nation facing major challenges. The Government never exhibit any sense of urgency in their plans related to large-scale unemployment, but such large-scale unemployment in the long term destroys the fabric of our society.

Nor do I see any convincing plans from the Cabinet or the Government for investing in our manufacturing industry in any meaningful way. There are no coherent plans to rescue the national health service from the problems it faces. There are no realistic plans to help our school services or to tackle homelessness. All the people of this country can do is hope that they will be able to vote urgently in a general election.

7.52 pm

Mr. Nirj Joseph Deva (Brentford and Isleworth)

I am grateful for the opportunity to follow the hon. Member for Alyn and Deeside (Mr. Jones) and my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg), who made a very technical speech. I would also like to congratulate my hon. Friends who are now assuming their Front-Bench duties for the first time. I wish them the very best.

When the country voted at the last general election, the Conservative party received the largest number of votes it or any other party had received in the history of British politics. When the country voted that day, we were in the midst of the worst recession in Europe, but still the country voted for us. It was not a mere act of faith, but an act of certainty in the ability of the Conservative party—and the Conservative party alone—to turn the country around. That expectation is now being met. The Government have delivered.

In 1992, when those votes were cast, the growth in the GDP was minus 0.5 per cent. Today it is 3.9 per cent., and rising. In 1992, when those votes were cast, interest rates were at 10.2 per cent. Today, they are at 6.7 per cent., and are steady. In 1992, when those votes were cast, inflation was at 4 per cent. Today, it is 3.5 per cent., and is below the European Union average.

In 1992, when those votes were cast, 660,000 people were out of work. Today, there are 660,000 more people in work and supporting their families. In each of the past 22 months, unemployment has fallen. In my constituency alone, unemployment has fallen by 100 per cent. compared with the same period last year. In 1992, when those votes were cast, industrial production was growing at minus 0.1 per cent. Today, it is growing at a phenomenal 5 per cent. a year. In 1992, when those votes were cast, the balance of payments was £10 billion in red. Today, we are beginning to achieve something that has not been achieved since 1984—a balance of payments surplus.

No wonder the Labour party is in a panic, and is hiding behind its leader's sanguine smile. Labour Members are collectively paddling half under the water to stay afloat. The Labour party must acknowledge that it has tried to borrow the Government's policies as its own. I know that imitation is the sincerest form of flattery, and no one— least of all the Labour party—can deny that the party is imitating the Conservative party in all aspects bar one or two, such as its belief in the social chapter and the minimum wage.

Why is the Labour party attempting to steal our clothes if they are ill-suited to the country? Why is the Labour leader discovering every day a new Labour policy which is, in truth, an old Conservative policy? We are flattered by the imitation, and heartened by the confidence that the Labour party has placed in our policies.

We must look at the Government's record to understand the enormity of their success in turning the country around since the general election. No wonder the Labour party is trying to imitate us. Imitate us, by all means—but the more it imitates us, the more it flatters us, and the more it flatters us, the more the country will understand that it will be better to vote for the tutor at the next election rather than the new student. We are old hands at managing the economy well.

Labour's record of economic mismanagement during its entire history has been utterly disastrous, and it has been disastrous because one cannot teach an old dog new tricks. One can try, but in the end it reverts to its own traditions. Each party has an imbued culture, an underlying foundation, and its own ethos and values—in the case of the Labour party, it is pervasive socialism which, try as it might, will never go away.

Along with that all-pervasive socialism comes the desire to intervene, which is a polite word for meddle. The Labour party wants to meddle in people's lives, in how they spend their money, in how they should run their business, in how they educate their children, and in how they support their families. That old desire to meddle and the belief that the Labour party "knows what is good for you" comes from the party's socialist roots. That is why the Labour party is socialist.

Without that need to meddle, and without its socialist roots, the party will be left without a philosophy. Without a philosophy, it will be nothing as a party. It will believe in nothing and will stand for nothing, other than to get power. It will then become nothing—the ultimate nihilistic experience. The party will implode upon itself, smiling sanguinely and with a stiff upper lip to the last behind its languid leader.

Original thinking, like original sin, is unbecoming in the modern Labour party, as the party's modernity is entirely based on its unoriginality. The modern Labour party does not think, it copies. The modern Labour party does not innovate or develop, it merely reflects—like a large cracked mirror—our policies. That is a sad state of affairs.

Perhaps I am being a trifle unfair. The shadow Chancellor, who I notice has left the Chamber, is an original thinker. Last year, in a moment of weakness, the hon. Gentleman thought of something original, which, like a golden egg, dropped on his entire unthinking party. He developed a new economic theory, and called it the endogenous growth theory of the economy. His theory was particularly concerned with investment, a subject about which the hon. Gentleman spoke this afternoon.

In a number of pronouncements, the shadow Chancellor has made his suspicions of the work of business operating in a free economy quite clear. He has said: The British free market without effective intervention, has proved to be a static, brittle and second rate model of economic development because people do not have the tools to plan and invest for the future … To summarise, crude free market dogma has failed because it does not encourage long term relations and commitments and therefore gives no incentive for people to invest for the future". As a result, the shadow Chancellor has stated: without co-ordinated action we cannot expect to see the kind of investment in industry and in skills and in infrastructure that we need". Instead of trusting businesses to invest, Labour's version of the endogenous growth theory makes the state the key player in undertaking investment decisions, camouflaging nice-sounding, well-meaning rhetoric on the mechanics of how the Government should intervene directly in the investment process. Yet without the appropriate knowledge of commercial discipline, that cannot be meaningful. Alienated from justifiable economic stimuli, it will serve only to produce less investment, and lower-quality investment.

A specific method of economic and industrial control has been unveiled, involving widespread Government oversight of the economic process. Let us take some of the specific proposals with which the Labour party has threatened us, such as on companies' relationships with other companies.

The Labour party says that a beneficial influence is to be exerted in terms of industrial companies allocating decisions. It says that the state is to influence from whom companies buy, to whom they sell and how they relate to each other over the long term. Have you, Mr. Deputy Speaker, heard of anything so preposterous? The state will tell companies and their boards who to buy from, who to sell to and how to market their products.

On the allocation of companies' investment funds, the Labour party says that the state is to be involved in the type of investment undertaken. Regardless of the needs of the individual business, the Government are to involve themselves in whether a company invests in plant, machinery, advertising, marketing or research.

If the Labour party were elected, which I do not think it will be, we could look forward to a period in which the state—the shadow Chancellor and his team—informed company boards that growth would be better stimulated if they took their £100,000 and invested it in new plant or machinery rather than spending it on an advertising or marketing campaign, or even on a new carpet.

The Labour party says that the state should be directly involved in how firms handle and invest in their employees. On training—

Mr. Deputy Speaker (Mr. Michael Morris)

Order. The hon. Gentleman's time is up. I call Mr. Jim Cunningham.

8.2 pm

Mr. Jim Cunningham (Coventry, South-East)

I was interested in the remarks of the hon. Member for Milton Keynes, South-West (Mr. Legg), as he is the only Conservative Member who has tried to be honest about the economy. The Treasury has admitted what everyone already knows—that the recovery is slowing down, and that Britain is at the back of the class of industrialised countries on competitiveness. It is now known that, during the period 1979–94, the economy grew at an average rate of 1.7 per cent. per annum. That is the slowest period of growth in this country since 1945.

More shocking still, wages and salaries have been reduced to their lowest share of GDP since the second world war. They went down from 66 per cent. of GDP in the second quarter of 1979 to 62.7 per cent. in the fourth quarter of 1994. Manufacturing output has also received a hammering. In 1993, it was less than 1 per cent. higher than it was in 1973. But what really gives the lie to the Conservative "economic miracle" is that, of all the G7 countries, the UK had the lowest average export growth, at 2.9 per cent. Together with Germany, the UK has the highest imports among the G7 states, at 26.3 per cent. All those statistics are indictments of the Conservative party's record.

To really appreciate the effect of current policies, one must look at how my constituency has been devastated. Rolls-Royce and GPT have shed about 18,000 jobs in the past 10 years, which shows the magnitude of what has happened in my constituency and other parts of Coventry. The region suffers from poor transport links, which will only be exacerbated by rail privatisation and inadequate plans for the west coast rail link. Large manufacturers have been shedding jobs, causing Coventry's dole queues to rise above the regional average.

People should not forget when they make comparisons that, at one time, Coventry was known as a boom city. The decimation of the manufacturing industry has hit Coventry particularly harshly. One in three of the region's work force are in manufacturing, compared with one in five nationally. The subsequent job losses have created more long-term unemployed people in Coventry than even in Warwickshire.

It is not just the manufacturing sector that has been hurt. The service sector is expected to lose more jobs later this decade. The virtual end of the British coal industry has affected many people in Coventry and north Warwickshire. It is widely recognised that, due in no small measure to the recession and the slow faltering of the so-called recovery, investment in town centres has been slow.

The Government have shifted their excuses for the catastrophic fumbling of the economy, while the dole queues have lengthened and unemployment has more than doubled from just over 1 million in 1979. The labour force survey report shows that 734,000 people are working part-time as they cannot find a full-time job. That should be seen against a background of more than 1 million people earning less than £2.50 an hour. Women have been especially hit by the economic climate. Some 670,000 women earn less than £2.50 an hour.

The "Summer Economic Forecast" that has been laid before us does not show that things will change. On the contrary, the document acknowledges that the rut has been created for us by the Conservative party. Manufacturing industry has borne the brunt of two Tory recessions, as can be vividly witnessed in Coventry. Investment in industry, infrastructure and people are the keys to re-establishing a fragile economy. While extolling the virtues of investment, the "Summer Economic Forecast", however, reports that 1995 will not see as large a rise in business investment as expected.

The Treasury has also declared that total fixed investment is likely to be less than business investment. With growing under-investment, it should not be surprising that Britain has suffered. In May, excluding oil and erratic items for non-EC trade, Britain's volume of exports fell by 2 per cent., while imports rose by 5.5 per cent. The Central Statistical Office has even suggested that the non-EC visible trade deficit is widening. There has been a domino effect as money flows abroad. The net external assets of this country have been diminished, from £17.7 billion at the end of 1994 to £8.2 billion in the first quarter of this year.

Labour has imaginatively put forward an exciting strategy of investment and partnership with industry, and has recognised changing work practices in the run-up to the 21st century. It has also acknowledged the inventiveness and talent of the British people, and has been discussing its proposals with the trade unions and businesses. The Tories, through their shenanigans in a split ribbon leadership race, wiped £10 billion off share prices, which sums up Conservative economic mismanagement.

The Government should listen to the Labour party's proposals. Instead, we have seen clashes between the Chancellor and the Governor of the Bank of England. Labour would make the Bank of England more accountable to Parliament via a statutory framework, as my hon. Friend the Member for Dunfermline, East (Mr. Brown) outlined today.

The rules governing private sector participation in the affairs of the state are in dire need of an overhaul. They need to be amended so that companies would not necessarily recoup all their costs at the point of use. The rules should consider not just cost-effectiveness but social benefits to the community.

The Treasury is also confused in its handling of leases. For example, a 20-year lease costing £200 million but repaid at £10 million a year would be counted against the external financing limit of the £200 million in the lease's first year. Clearly, it should be viewed as £10 million against the external financing limit in the lease's first year.

Most fundamentally, Labour will institute a decade of investment, as compared with a decade of negligence. One way to encourage investment in industry would be to establish an investment in industry unit at the Department of Trade and Industry. In an impact statement, each Government Department should declare how each of its policies would affect industry. The small loans guarantee scheme should be extended. Other measures could include a moratorium law for the courts to attempt to save companies from bankruptcy—not dissimilar to what happens in America.

Those and other proposals are being considered by the Labour party. All we hear from the Government is the tired old statement that has wrecked our economy—the iceberg of blind ideology.

8.9 pm

Mr. Matthew Carrington (Fulham)

I apologise to the House for missing most of the earlier part of the debate because I was stuck upstairs in a statutory instruments Committee that went on longer than most of us who were on the Committee expected.

It is sad that I missed the first half of the debate, because I understand that the opening speeches were worth hearing, and especially that the speech of my right hon. and learned Friend the Chancellor of the Exchequer was one to treasure. He laid bare and exposed the policies of the Labour party most effectively, and I am sure that that approach will be carried forward for the next 18 months to two years and will become stronger and stronger.

I welcome to the Treasury Bench my hon. Friend the Member for Erewash (Mrs. Knight), and congratulate her on her appointment, which delights us and all her friends on the Conservative Benches. We look forward to great things from her.

I am especially pleased to have an opportunity to speak in the debate, because the summer economic forecast shows an economy that is in extremely good shape. It is in rather better shape than the country's economy has been, perhaps, since the end of the second world war.

The economy is doing very well indeed in a great many sectors. Unquestionably, there are problems in the economy, but even the apparent problems are in reality strengths. We are witnessing a decline in economic growth, but it is a decline from 4 per cent., which is historically in our economy a very high level, to a much more sustainable level of about 3 per cent. That is to be greatly welcomed, because it means that our recovery from the recession can be continued in a way that will allow the recovery to strengthen, broaden and deepen throughout the economy.

The continuing low retail sales are in many ways a serious problem for our economy. Many parts of industry suffer badly as a result—those that rely heavily on domestic sales. Low retail sales are a serious problem, but they have the advantage of avoiding what has always killed our economy in the past when recovering from recessions—an import boom, a massive sucking in of imports, which has destroyed the balance of payments in the past and caused us so many difficulties. A cautious return of growth in retail sales is therefore to be welcomed.

We should not be overly worried about depressed house prices; they will cure themselves with time, as they already are. The great problem of house prices increasing far too rapidly has beset us in the past and blown our economy right off course, most notably in the boom of 1986 and 1987, when the growth in house prices was largely responsible for the crash that came afterwards. We should therefore all greatly welcome the continuing low growth in house prices.

One of our great strengths is exports. As was said earlier, the increase in export volumes that has taken place—and there is every sign that that increase will continue to be sustained at high growth rates—is something that we have not previously witnessed in this country when coming out of recession. That is extremely positive, and it allows us to hope that this time, our recovery will be sustainable. It offers the opportunity for the next downturn in the economy, when it comes—in economic cycles there is inevitably a downturn—to be mitigated by the strength of our exports and our external market, which is extremely healthy.

Perhaps the biggest problem is inflation. Although inflation is low, it is projected to increase. It is increasing, admittedly, from a low base, which is encouraging, but inflation is the danger in our economy, and that is what we must watch.

I was very pleased to notice in the economic forecast that, after having increased, inflation is projected to decline sharply to an underlying rate of about 2.5 per cent. Inevitably, in the forecast there is no indication of the way in which that decline will be achieved, because the Government, wisely and rightly, give no estimates as to future movements in interest rates.

I hope that it will be possible to avoid a sharp increase in interest rates to control inflation, but in my opinion it is more important to maintain a low inflation rate than to worry about maintaining a low interest rate. We need to take whatever measures are necessary to get the inflation rate under control and to achieve the target of getting back down closer to 2.5 per cent. to 2 per cent. That should be a major objective in economic policy.

However, hope remains that it will not be necessary to increase interest rates to do that. There are signs that the inflationary pressures in the economy are not great and that, in the external economy, if anything, interest rate movements in the United States and Japan will allow us to weather the current inflationary storm. I rather agree with my hon. Friend the Member for Bridlington (Mr. Townend) that, by watching the economic figures during the summer, and certainly through the second and perhaps the third quarter, before doing anything precipitate on interest rates, it may be possible to avoid any increase in interest rates.

One problem will need to be tackled; as things stand, we need to boost the domestic economy. We need to find some way of spreading that recovery from the recession so that it benefits more people. We have heard in many speeches this afternoon about the difficulties that confront the domestic industries in our country. Those industries need to benefit eventually from the recovery, and the sooner the better. To do so, we need to put more money into people's pockets in the right way, and slowly.

There is a strong case to be made for gently encouraging the domestic market to recover. The best way of doing that is by increasing people's disposable earnings. The most effective way of doing that is by reducing taxation, and by reducing direct taxation. I wish to encourage my right hon. Friend the Chief Secretary and my hon. Friend the Economic Secretary to consider seriously ways in which direct taxation may be reduced in the next Budget.

However, it is obvious from the economic forecast that, on the face of it, there is no scope for reducing taxation. Indeed we are witnessing, in the projections of public sector borrowing, a slight increase in the anticipated amount of borrowing this year and an increase in the anticipated amount of borrowing next year, neither of which shows any flexibility to allow for a reduction in taxation. Therefore reductions in taxation must come from a serious review of the public expenditure.

I wish to encourage a rigorous look at public expenditure, because there must be scope for finding substantial reductions in public expenditure, which can then be translated into returning money to people's pockets to spend as they choose, to encourage domestic industries to grow and expand. That is a desirable objective socially and economically, and it must be done sooner rather than later.

The question also arises whether that is best done in income tax cuts or in changes to capital taxes. There is a strong case to be made for changing capital tax, whether it be capital gains tax or inheritance tax, to encourage savings in the economy.

The summer economic forecast reveals that the savings ratio is decreasing and industrial investment, although it is projected to increase quite sharply in this forecast, is showing a marked decline on what was anticipated in the Budget forecast in the Red Book. There is therefore a strong case to be made for encouraging savings, and, in addition to some reduction in income tax, I should like steps to be taken towards reforming the taxation of capital, especially capital gains tax.

We have a strong economy that is going in the right direction and we need to ensure that that progress continues. As a Government, we must not—

Mr. Deputy Speaker

Order. The hon. Gentleman's time has expired.

8.19 pm

Mrs. Helen Liddell (Monklands, East)

My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), who is a very distinguished and experienced parliamentarian, made one of the most perceptive remarks to be heard in tonight's debate. He drew attention to the importance of economic debates and the significance that the country attaches to them, while also drawing attention to the paucity of such debates in this Chamber.

That caused me to reflect, as a much less experienced Member of Parliament, on the fact that the Chancellor of the Exchequer had an opportunity to come to the House today and give a reasoned and detailed explanation of the Treasury summer forecast. He missed that opportunity, and all we got was bluster and theatricality. That does not serve the House or the nation well. We expect better from someone who holds one of the highest offices in the land.

The Chancellor had an opportunity today to tell us why the Treasury summer forecast differs so markedly from last year's Budget. He had an opportunity to explain why the Treasury has revised down its forecast of overall growth in the economy. Gross domestic product in 1995 is estimated to fall from the Budget forecast of 3.25 per cent. to 3 per cent. in the summer forecast. The people of this country are concerned about economic growth; it is an integral part of their lives.

My hon. Friend the Member for Ashfield (Mr. Hoon) pointed out that, in the period from 1979 to 1993, this country has had the slowest rate of economic growth of the 18 countries of the European Community and the G7 nations. A number of Conservative Members referred to an increase in forecast inflation. My hon. Friend the Member for Dunfermline, East (Mr. Brown) pointed to the significantly higher estimates of public sector borrowing requirement.

We are elected, Opposition and Government Members alike, as custodians of this country, its legislative framework and its economic performance. That is key to our future and it is why we, as politicians, have a very low standing in the community. The Government have not fostered an environment in which investment can improve. They are selling out our future.

The low levels of investment in both the public and private sectors—I do not turn repeatedly to the public sector as a panacea for all ills—are selling out this country's future. I do not spend a lot of time playing with a fancy electronic organiser that will tell me what the next day is or when I can expect my husband to take me to dinner. I do not mark down dates in my diary and 1 January 2000 does not mean all that much to me—except I suspect that it will be a rather more alcoholic Hogmanay than usual.

On that subject, I hope that by then we will have a Labour Chancellor who recognises that one cannot take policy decisions based on pique. The whisky industry in my constituency has suffered directly as a consequence of the Conservatives' pique. When they were defeated on the issue of value added tax on fuel, the duty on whisky was increased. As a consequence, we have seen a reduction in revenue to the Exchequer from that industry as well as a reduction in the industry's prospects.

Levels of investment are critical. Inward investment is important to my area. For many years, Scotland has depended on high levels of inward investment. My hon. Friend the Member for Dunfermline, East referred to the opportunities that come from the globalisation of the economy and from increasing technological advances. We have an opportunity to attract companies that are mobile and can invest in this or any other country. Yet we often lose that opportunity, just as we are losing other opportunities that we should seize.

Let us consider, Mr. Deputy Speaker, that you and I are economic strategists for a multinational company which could choose to establish a business in any country in the world. Would it choose to come to Britain when it does not know what is the Government's policy on the exchange rate and when it does not know whether there are one or two Conservative parties on the issue of a single currency? How can businesses plan for the future and view this country as a potential site for industrial investment if the Government are not confident about where they are going and about their long-term future?

The Government have repeatedly been thrown off course. They are committed to short-termism and the Chancellor and his colleagues on the Back Benches have already begun to consider, with some anxiety, their prospects at the next election and the way in which they can use and abuse the economy to secure their re-election. I do not believe that the people are foolish enough to fall for that.

My constituents would have been interested to learn today why 734,000 more people are working part time and cannot find full-time work. Why has the number of temporary employees in industry increased by 30 per cent? Why has the number of those in employment fallen by 14,000 in the first quarter of this year? My constituents and those of every hon. Member in the House—there are more than 650 of us—want to know why they feel insecure at work. The Chancellor's speech has not prompted us to explain to our constituents that the Government are in control and have the country's long-term interests at heart.

My speaking time is short. Most hon. Members have been fairly restrained in their remarks and I will try to do the same. I am very interested in the future of small firms in my constituency. More than 90 per cent. of people in the country work for small firms; it is a fallacy to believe that everyone works for the ICIs and the Marks and Spencers. It is the small firms sector that is most troubled about the future. Some 40 per cent. of those involved in small firms who were polled in a recent Daily Telegraph survey said that they did not believe that the country had come out of recession. People in small firms are at the sharp end.

I commend those Conservative Members who referred to what is happening in the retail industry. My constituency used to comprise market towns. When I walk down South Bridge street, the main street in the major town in my constituency where as a child I was taken to buy my Sunday outfit, all I find now are discount stores and empty shops. People have lost confidence in the Government. I do not seek to make a partisan point when I say that the people are entitled to turn to the Chancellor of the Exchequer and expect answers, not bluster. What we had tonight was bluster and also complacency from a number of Conservative Members.

We cannot be complacent about the country's economic performance and economic future. We have a responsibility to take these debates extremely seriously and to show that we are committed to ensuring the country's future economic growth. We must make sure that the Government are considering some of the existing fundamental problems in the economy.

I do not believe that every economic problem is caused by the Government. However, some honesty and some rational argument on the part of the Chancellor about the nature of the problems that we face would allow people to go forward in partnership. Confidence among our business sector would increase, as would the hope and confidence of those people who fear unemployment. Some 65 per cent. of people fear unemployment and feel insecure in their jobs. Given the events of the past couple of weeks, I would have thought that there was one man who, more than any other, would understand how it feels to be insecure in one's job: the Chancellor of the Exchequer.

8.29 pm

Mr. Nicholas Budgen (Wolverhampton, South-West)

The hon. Member for Monklands, East (Mrs. Liddell) represents a considerable strand of the Labour party. She is fluent, she has an attractive way of addressing problems, she has confidence and vigour, and she plainly addresses herself to that great body of those in the private sector who are temporarily disenchanted with the Government.

They look at the policies of new Labour and they say to themselves, "This is splendid. It is a new, reinvigorated Labour party and we can vote for it and have all the advantages of a new form of Conservative Government." They say to themselves, "Here is a smart, young public school boy with his attractive and very successful wife at the Bar. He is just the sort of person that we in Hampstead or Tettenhall feel most comfortable with." They then say, "While we respond to those arguments, what are the principles and the policies of the Government?"

It is true that, after 16 years, there have been some changes. It is instructive for all those outside the Chamber who believe that they can have a Labour Government without substantial changes to read the debate. It is important to examine not just the principles and the policies, but the prejudices of the two great parties. Those prejudices have been eloquently demonstrated in today's debate.

Conservative Members have, by and large, expressed support for my right hon. and learned Friend the Chancellor of the Exchequer. We believe that economic policy is now settled and successful. We have had some discussions about the minutiae of monetary policy, but the persistent theme is the need to cut public expenditure. We admit that it is jolly difficult to cut public expenditure, even when the prejudices of our party are in favour of it.

My hon. Friend the Member for Bridlington (Mr. Townend), as always and rightly, put the need for specific cuts in public expenditure in the first paragraph of his speech. My hon. Friend the Member for Fulham (Mr. Carrington) supported the way in which economic policy is proceeding at present, but he too was looking for cuts in public expenditure. That is a proper expression of Tory prejudice. Yet, in spite of those prejudices, it is extremely difficult to contain public expenditure, and our public expenditure has risen too much.

New Labour, however, offers all the attractive features of Conservative economic policy, but people should listen to the speeches by Labour Members this afternoon. Every time a speech makes recommendations on how the economy could be improved, massive amounts of public expenditure are involved. The public school boys leading the Labour party will say, "Oh no, that is only old Labour. The right hon. Member for Chesterfield (Mr. Benn) is completely out of touch with everything that is happening, but we have younger, smarter, cleverer people and we don't want massive amounts of public expenditure." But we have only to look at the speeches made this afternoon.

The hon. Member for Ashfield (Mr. Hoon) produced a massive catalogue of suggestions for increases in public expenditure. He is an important figure on the Labour Front Bench who is thought to be modern, new, intelligent and well educated Labour, well away from the trade unions, but he gave us a massive catalogue of expensive promises.

The hon. Member for Birmingham, Hodge Hill (Mr. Davis) is solid, decent and moderate. What was his prescription for improving the economy? It was spend, spend, spend. The hon. Member for Alyn and Deeside (Mr. Jones) is not one of the right hon. Member for Chesterfield's wild men with roving eyes and a mad look, but another decent, sound man who might be in middle management anywhere, but yet again he makes further suggestions for increasing public expenditure. Those solid citizens that would support a Labour Administration would ask for more public expenditure.

I am glad that the hon. Member for Wolverhampton, North-East (Mr. Purchase) is here. I gave him notice that I would mention him. I have watched him and his colleague the hon. Member for Wolverhampton, South-East (Mr. Turner) these past 10 years as they have been councillors in Wolverhampton and then Members of Parliament. Every time there is a suggestion for closing a hospital or moving facilities elsewhere, they ask for more public expenditure. They want more public expenditure for general practitioners and they are extremely good at supporting middle-class claims for extra public expenditure. When the lawyers complain, they want more money for legal aid. Whenever there is a suggestion for more public expenditure, along come those solid citizens representing new Labour—the soft, decent face of a Labour party that can give the country Conservatism under a different name.

The prejudices of our parties are quite different. The Conservative party wishes to reduce the size of the state; we want to reduce public expenditure, because that is the only safe way to reduce taxation and the only way to keep interest rates down.

The Labour party should realise that it cannot reintroduce exchange controls or any form of capital control. It will have to borrow money from the global pool of capital. If it comes to power, those solid citizens will put pressure on the fresh-faced public school boy and we shall be back to the old story of an enormous public sector borrowing requirement, higher taxes and higher interest rates, and there will be no difference whatsoever in substance between the fresh-faced public school boy and all the old chaps who are in favour of old Labour and the nostrums of the right hon. Member for Chesterfield.

8.36 pm

Mr. Alan Milburn (Darlington)

We have heard in the debate a tale of two Britains. We have heard the official version from the Chancellor of the Exchequer earlier today, who described a Britain on the up—a Britain where everything is improving dramatically and insecurity and unemployment are about to become things of the past. At one point, I thought that the Chancellor was about to follow his predecessor by using a gardening metaphor. Hon. Members will remember those famous green shoots of recovery. I thought that the present Chancellor was about to talk about everything coming up roses.

Like the previous Chancellor, the right hon. and learned Gentleman will quickly find that the public simply do not believe that message of optimism because it jars against the other Britain—the real Britain, where, unfortunately, confidence is low, pessimism is high and insecurity in the job and housing market is the order of the day. It is the Britain where middle and low-income families face record tax bills and ordinary families are paying more for less— more tax for fewer services. It is a Britain where millions of home owners have lived through more than five years of crisis in recession, debt and repossession. As the debate takes place, more than 1 million home owners remain trapped in negative equity.

A Government committed to the home owner would seek to create the conditions in which the insecurities, doubts and lack of confidence in the private housing market were removed. The Government's approach is clearly driven by an understandable fear of a lurch back into the bad old boom-bust cycles, for which they were largely responsible and which they wish to avoid again. I understand that fear. They are right to be fearful but are wrong not to recognise the fact that the economic circumstances of the 1990s are very different from those of the 1980s. The danger in the present situation is not that a recovery in the housing market will inevitably set up a damaging inflationary spiral but rather that a lack of recovery in the housing market will dampen prospects for the economy as a whole.

The Government have a responsibility to carry out the promises and pledges that they made to home owners. They can do that quite simply tonight. The new Chief Secretary to the Treasury, when he winds up in an hour or so, can tell the House that he will recommend to the Secretary of State for Social Security that he drop the proposal to remove benefits from unemployed home owners. The Chief Secretary can say that he will review the additional tax burdens that ordinary home owners face, as a result of the fact that, between January of last year and October of this year, repayment costs on an average home have risen by more than £800, because of interest rate rises, two cuts in mortgage interest relief at source—MIRAS—and the cost of private mortgage insurance.

I recognise that the insecurity in the housing market springs from something deeper than mistrust of the Conservative party. It springs from a growing insecurity in the jobs market and growing economic insecurity in general. In essence, insecurity will remain as long as doubts remain about the prospects for long-term growth in the British economy. Here, as the summer forecast itself bears out, the prospects are rather less rosy. Economic growth, as my hon. Friend the Member for Monklands, East (Mrs. Liddell) said a moment ago, has been cut from 3.25 to 3 per cent.

Nor are the prospects for future sustainable growth any more favourable. Labour Members have consistently argued that the economy requires higher levels of investment for sustainable growth to avoid the boom and the bust, as growth is inevitably derailed by accelerating inflation. Yet in the summer forecast, business investment has been halved from 10.75 per cent., as it was in the Budget just a few months ago, to 4.75 per cent.

Many hon. Members will have read the Bank of England's inflation report and will have noted in the February edition the warning, which I hope that we will all take seriously, that, already, Capacity constraints are becoming widespread in industry … This will increase inflationary risks unless productive capacity increases. Already, the fragile economic recovery that we are seeing is running into all the old problems of capacity constraints, investment gaps and skills shortages—skills shortages when more than 2 million people are officially unemployed. The low capacity of our economy is the main reason why unemployment remains so high and our trade deficit is so large, and is the root cause of rising taxes and high unemployment.

Unless those underlying weaknesses in the British economy are tackled, Britain's relative economic decline will continue through the latter part of this century and into the next. That failure to invest in capacity, whether it is physical or human, lies at the heart of Britain's inflation and its slow growth problems. The result is that, unfortunately, Britain has a sluggish rather than a dynamic market economy. That reflects a failed model of Government: the deregulation dogma, cuts in investment in skills and infrastructure.

Cuts have been made in investment in training at the very time when so many people are out of work and are crying out for an opportunity to gain entry to the labour market. That reflects the failure to see that it is necessary to develop long-term partnerships to improve economic performance. Partnership—between Government and the private sector, and between companies, shareholders and workers—is the model for progress.

Investment is the key to future economic success. Without investment, Britain will not only remain in the slow lane of the global economy, but will remain a country divided. Again, there is a tale of two Britains: prosperity for the few, insecurity for the many, and unemployment and low pay scarring the prospects for all. Britain is locked in a vicious cycle of poverty, rising inequality and economic failure.

It used to be said in the 1980s, when we heard much of the economic miracle, that trickle-down economics would provide the basis for sustainable growth, that they would work, and that cuts in the top rate of tax would mean that those at the bottom would find gainful employment. There has been no economic miracle. There has been an economic disaster. Just a week or so ago, the former Welsh Secretary coined the phrase, "No change, no chance." He was right in more ways than one, because the summer forecast and all that the Chancellor had to say this afternoon represented no change—no change in policy, no change in direction.

We could be rubbing our hands with glee at the prospects—or rather the lack of them—that arise for the Conservative party from that lack of change in direction, but what worries me is not the life chances of Conservative Members of Parliament but the life chances of the people of this country. The real lesson to take from the economic forecast is that, without a change in Government, life chances will not improve for the majority of people.

8.46 pm

Mr. David Tredinnick (Bosworth)

I congratulate my right hon. Friend the Member for Bristol, West (Mr. Waldegrave) on his appointment as Chief Secretary to the Treasury and wish him well in the future as he considers the budgets of the great Departments of State.

I have always believed that we would win the next general election. I have listened to speeches from Opposition Members this evening and am more convinced of that than ever before. My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) referred to the speech made by the hon. Member for Ashfield (Mr. Hoon) and to the huge shopping list. The realisation of the bills that will have to be met by an incoming Labour Government will, I believe, frighten voters. Secondly, there will be a recognition that the Conservative Government have moved the country from recession to recovery, and that they have done so at a time of the deepest worldwide recession since the 1920s.

I was struck yesterday, when listening to Opposition Members posing questions on education and employment, by what an uphill struggle the Opposition will have because of the way in which the statistics are changing. How difficult it is for one to mount an effective attack when the statistics are against one.

The hon. Member for Birmingham, Hodge Hill (Mr. Davis) focused his speech tonight on unemployment and said that it was a key factor. Yet all the statistics relating to unemployment and the creation of jobs, are moving in favour of the Government. Unemployment has fallen by nearly 700,000 since its peak in December 1992, and the number of people joining the unemployment register in May was the lowest for five years.

It is hard to attack the Government when the number of people in employment has risen by more than 400,000 to about 25.5 million since the recovery began; and it is hard to attack the Government when redundancies are down to half the level that they were a year ago. It is also hard to attack the Government when, over the three months to May, the number of people out of work for a year or more fell by 40,000 and the number of people employed in manufacturing industry is on the rise.

When I listen to some Opposition Members, I really think that we are living in different worlds. [Interruption.] We have heard the theme of the tale of two cities from the Opposition this evening, but with such improvements in the economy, it is hardly surprising that the Opposition made so little headway yesterday.

It is in part due to the success of our economic policies that the Conservative party is now recovering in the polls. [Interruption.] The most recent polls show us recovering, but Opposition Members do not like to hear that. The recovery is also due to the Opposition's failure to present credible costed policies. That was the problem faced this evening by the hon. Member for Dunfermline, East (Mr. Brown). They are not helped when the Leader of the Opposition appears to have begun to distance himself from one of their key policies, the minimum wage, saying that he wants to leave it to the unions to negotiate rather than coming up with a figure.

Perhaps that is why the stock market has surged recently. That is further evidence of economic recovery, although, judging by the speech made by the hon. Member for Coventry, South-East (Mr. Cunningham), he may not have noticed it. However, the key factor in boosting the stock market, which is an illustration of people's confidence, is the fact that my right hon. Friend the Prime Minister has been re-elected with a greater majority than the leader of the Labour party achieved in his election. [Interruption.] Hon. Members do not like to hear it, but it is true.

I welcome the summer economic forecast. I quite understand why growth has to come down slightly if we are to keep inflation within a figure which will enable us to compete internationally. I welcome the target of 2 per cent. of GDP for the PSBR for 1996–97 and the need to keep tight control. Growth is what we need and will get. Some Opposition Members may give us credit for the fact that unemployment in France is twice that per capita in Britain, and France has yet to begin to reconstruct some of its state industries.

I come now to the area that I represent—the middle of England, the east midlands. Manufacturing in the east midlands has performed strongly in recent years and its share of regional GDP at 29 per cent. is higher than anywhere else in the country. Output is up 32 per cent. over the past decade. If we have a problem, it is that not enough inward investment into Britain is going to the east midlands. That is something which I hope that the Government will address.

That the east midlands is doing so well is in part due to Toyota's huge new plant near Derby. When I was parliamentary private secretary to the Minister of State, Welsh Office, I visited that plant, on behalf of the Welsh Office, on its opening. It is a wonderful plant, which has had a large impact on the east midlands, in particular stimulating the trend towards exports.

My hon. Friend the Member for Bridlington (Mr. Townend) referred to the fact that this is the first time that he has seen an export-led recovery. My hon. Friend the Member for Fulham (Mr. Carrington) talked about the importance of the export-led recovery possibly shielding us against a downturn in the future. We listened to the shopping list of the hon. Member for Ashfield, but I was surprised to hear him say that the export-led economy is not helping the domestic economy. If that is the case, he certainly has not visited my constituency. The success of specialised companies there and in other parts of Leicestershire has played an important part in rejuvenating the local economy.

For example, Nelson Burgess in Hinckley, which makes massive industrial exhaust systems, has doubled its work force on the basis of export orders. Intertech has received a £31 million order from Nigeria for radio equipment. Another company which is well known to everybody, Caterpillar (UK) at Desford, has just received the Queen's award for industry for exports. That is why unemployment in my constituency is down from 4.1 per cent. to 3.8 per cent. I am very surprised that the hon. Member for Ashfield can say that exports have no bearing on the domestic economy.

The hon. Member for Dunfermline, East referred to the importance of training. He suggested that we were taking no notice of training, whereas my right hon. Friend the Prime Minister and his Ministers have a firm policy on training. That has been an excellent area of growth in my constituency in recent months. At an award ceremony in my constituency, 12 firms received the training for excellence award.

My right hon. Friend the Chief Secretary to the Treasury should not be put off by what is said by Opposition Members. Our policies are working. It is much more important to get right the fundamentals in the economy so that we can compete internationally in order to generate the revenue that we can spend on training rather than going to the IMF and borrowing the money, which would mean putting up interest rates and return us to the old vicious cycle.

My right hon. and learned Friend the Chancellor said that this is the best country in the European Union in which to invest, and it is, and that is because of my right hon. and learned Friend's policies. As my right hon. and learned Friend approaches his next Budget, he should address three issues. I accept that we have problems with the housing market. In Leicestershire, the problems are to be found in the middle range rather than at the bottom or the top of the market. We also need to consider the problems of the married couples' allowance. Finally, if it is a matter of income tax or interest rate reductions, I would urge my right hon. and learned Friend to reduce interest rates first.

8.56 pm

Mr. Malcolm Chisholm (Edinburgh, Leith)

Opposition Members are relieved this week to get away from the irrelevant leadership escapism of the rabble on the Conservative Benches and face up to the reality that confronts our constituents—the growing inequality and insecurity that we debated on Monday, and the economic failure that underlies that which we are debating today. Even this week, I cannot give too many marks to the Chancellor for facing up to reality, because what he displayed today was a mixture of hypocrisy, brass neck and election babble, which will deceive no one in the country and possibly not even himself.

I start with the four indicators that the Government chose to highlight in the motion of which they are so proud—growth, exports, inflation and borrowing. It takes brass neck for them to boast about growth with the all-time low record of 1.7 per cent. since 1979, below that in the other G7 countries. Of course, the figure sometimes has to creep up to compensate for the recessions that the Government create, but even this year they will struggle to manage growth of 3 per cent. The manufacturing output figures released this week put that in question, as does the total failure of investment to take off in the economy.

The Government are, perhaps, proudest of exports. Again, what a nerve they have. Their record of export growth is the lowest in the European Union. The export growth that they achieved last year resulted, in fact, from the failure of their economic policy: it happened only because of devaluation. That 8 per cent. figure was just in line with the world average, as an 8 per cent. expansion of world trade took place last year. Other countries that devalued their currencies enjoyed greater export growth; the figure was 9 per cent. in Italy and 17 per cent. in Sweden.

What about borrowing? Well, if it reaches £50 billion, of course it must come down; but the significant aspect of the summer forecast is that it is revised upwards. At no point in the current economic cycle will the Government conform with the golden rule, and most commentators are now saying that there is no economic argument for tax cuts in view of that. The Chancellor, however, has said that he wants to cut taxes in time—and to him that means in time for the next election.

The Government boast about inflation. Again, most commentators question whether they will meet their inflation target. They are very proud of having lowered inflation, but again we should look at the international picture. The Government are very much in line with other countries and there are disinflationary forces in the international economy; in fact, our inflation rate is now higher than those of France, Germany, the United States and Japan. Last year, our inflation rate was 113 per cent. of the OECD average, only slightly less than the figure that obtained at the end of Labour's time in office: the figure was 122 per cent. in 1978. I do not think that the Government have too much to boast about, even in regard to inflation.

Those, of course, are the Government's chosen indicators. They ignore more worrying indicators, which have far gloomier implications for the country. The key indicator is investment, in which we come 22nd out of 24 OECD countries. The figure fell last year for the fifth successive year, and it is falling further this year. It is on that key factor that Labour's economic policy is concentrating; our analysis is based on the failure of investment, and all our prescriptions are directed primarily towards dealing with it. My hon. Friend the Member for Darlington (Mr. Milburn) spoke of capacity shortages, as has the Bank of England, and others have issued the same warning. That is the problem with which we are keenest to deal when we come to power.

There are many policies that I have no time to describe, but I should like to say a little about dividends, which we are examining in our corporate tax review. The enormous increase in dividends has, however, already been highlighted by a previous Financial Secretary to the Treasury, by the Select Committee on Trade and Industry and by the Institute of Fiscal Studies. They have increased from 1.5 per cent. of gross domestic product when the Government took office to 5.4 per cent. now. That almost mirrors the decline in investment from 21 per cent. in 1979 to 17 per cent. now. More of companies' profits must be used for investment rather than dividends.

The Government chose to ignore many other indicators—for instance, the growing inequality in society. There is no trade-off between equality and economic efficiency, as many Conservative Members often argue; in fact, there is much evidence that countries where there is more equality have better economic records than "unequal" countries such as ours. Our constituents perceive that as the reality of the present Government. The Chancellor merely referred to the growing wage inequality in his usual dismissive way in trying to put down our minimum-wage policy. On Monday, the Secretary of State for Social Security said that we should conduct a pilot study for the minimum wage; but every country in Europe is "piloting" it, and many academic studies show that the Government are lying when they say that a minimum wage set at the correct rate will cause job losses.

Can the Government really justify circumstances in which a utility boss earns in one month what someone on £2.50 an hour will earn in four and a half years? What will they do about that? We know what they will do: they are introducing the jobseeker's allowance to drive low wages even lower. The problem is not just wage inequality; it is the whole regressive tax system in which the top 1 per cent. have been paid the equivalent of £300,000 in the Government's lifetime, while the bottom fifth pay tax at 39 per cent. rather than at the 31 per cent. rate that they paid in 1979.

The other great factor behind inequality—almost unmentioned by the Chancellor—is unemployment. The Government boast that the figures are falling, but we note that in the first three months of the year, employment fell too. Many people with jobs work part time. Some want to, but others do not: we are told that three quarters of a million people have part-time jobs that they do not want, which clearly increases the insecurity that many are experiencing. At some point in the past five years, 10 million people have been unemployed. That is why it is not just the poorest in society who feel a grievance against the Government.

Insecurity feeds through the whole of the middle areas of society and, of course, those sections of society are feeling the full brunt of the great tax increases—the greatest tax hike in British history. That is affecting those middle-income groups, just as it is affecting low-income groups. That is why there is today a great coalition of forces between middle-income, low-income and no-income people. That coalition took to us power 50 years ago this month, and it will take us to power as soon as the Government have the courage to call a general election. It cannot come too soon.

9.4 pm

Mr. Nigel Forman (Carshalton and Wallington)

I add my personal warm words of welcome to my right hon. Friend the new Chief Secretary to the Treasury. I welcome him to his important duties in the Front-Bench team and extend those words to all my other right hon. and hon. Friends who are new to their Treasury responsibilities.

In dealing with their responsibilities, my right hon. and hon. Friends, like other members of Governments throughout the European Union and the advanced world, face two awkward realities when trying to steer the economy, a phrase that may be a misnomer these days in the world of global markets. As has been made clear in the debate tonight by many hon. Members, one reality is that we have not one homogeneous economy any more, but several. The second point is that no national authority, whether it is a central bank or a national Government, has any longer a monopoly of control or influence over economic conditions—if it ever had.

There are three main levers of economic policy— monetary, fiscal and supply side. Of those, the greatest room for manoeuvre available to national Government probably exists in the supply side. That should be a lesson for my right hon. Friends when taking policy forward. In the past few years, Treasury Ministers have been steering the economy, as I rather quaintly put it, effectively. I shall give just a few figures. The corporate sector financial position has improved from deficits of about 4 per cent. of gross domestic product in 1989 and 1990 to a surplus of about 2 per cent. of GDP last year and, I think, a slightly larger surplus this year. In the personal sector, it is the same story of a healthy turnround from a deficit of 4 per cent. of disposable income in 1987–88 to a surplus of 4 per cent. in 1994.

In the public sector, I am glad to say that we are again moving in the right direction. The financial position is improving, but is still vulnerable to the triple risks of slower growth which, as everyone knows, affects tax revenues, the lack of buoyancy in revenues at all stages of the recent economic cycle, and the inevitable public spending pressures in the run-up to a general election, which I am sure thatn my right hon. Friend the Chief Secretary will be well able to cope with. He must, however, be robust in dealing with those pressures because otherwise dangers will flow and we intend to inherit the consequences of our decisions.

As my hon. Friend the Member for Hazel Grove (Sir T. Arnold) said in his interesting speech, the Bank of England, in testimony to the Select Committee on the Treasury and Civil Service, of which I am proud, with him, to be a member, referred to the "tale of two cities" in our economy, a phrase frequently used in this debate. It is right for our constituents to understand, even though it may be disagreeable for them, that whereas in recent years the internationally traded goods and services sector has been buoyant and highly successful, the rest of the economy has not.

No doubt exists that we must hope that the gap between those two sectors will converge, not only from the point of view of Conservative Members, because voters' subjective assessment of how the economy is going will improve if that convergence takes place. That is possible, first, because the figures on real personal disposable incomes are pointing in the right direction in relation to our constituents—this year, it is set to rise by a little over 1 per cent. and next year by more than 2 per cent.—and, secondly, because it would be economically and politically appropriate to have some judicious tax cuts in the forthcoming Budget.

It is not just a dual economy of two cities because there is a third city that one might almost call a shanty town outside the gates of the other two. It is the informal or black economy. So far it has not been mentioned in the debate, but it is important to take account of it in considering what is happening in our society. Nobody knows the precise size of that informal economy, but it is probably between 7 per cent. of GDP—that is the cautious Inland Revenue estimate—and 14 per cent. of GDP, which is an example of some of the academic estimates.

Let us take a middle figure of 10 per cent. of GDP as fair and possibly accurate. That represents £70 billion of economic activity in today's money, and it is largely outside all the formal mechanisms, the information gathering systems and, most of all, the tax system. Therefore, it becomes increasingly important for the Treasury to consider carefully the best and most intelligent ways in which any Chancellor can capture a proportion of that turnover for good public expenditure causes and other necessary Government expenses.

Against that background, any tax policy must not only be internationally competitive because of competition between fiscal jurisdictions—a point that I have made in previous debates—but also aim at the broadest possible tax base and the lowest possible rates, particularly on income, so as to maximise the revenue available. At the same time it must gradually shift more of the burden to taxes on expenditure and less to taxes on income and capital, as the Government have sought to do since 1979. Those broad principles should be borne in mind.

I should like to make two or three headline Budget recommendations. Because of the vagaries of the Budget timetable, this debate in July is one of the few opportunities for politicians to place such recommendations on the record. I should like to see several proposals in this year's Budget, but I do not expect the Minister to comment on them, simply to take note of them. First, we should cut the income tax burden on the large number of those who pay it, especially those on average and below average incomes. That is the priority.

Not long ago, I put down a parliamentary question which clearly shows that to make the 20p band of income tax the highest marginal rate for half of all taxpayers would cost about £4.3 billion in today's money, which is just over 0.5 per cent. of GDP. That is not an excessive sum, and it is well within the bounds of what could be prudently afforded by the Chancellor in November.

Secondly, on the expenditure side it is important especially to target any improvements that we can afford on the elderly, on those on the state pension who need help most. The way to do that would be to focus it on those born before a set date. I am trying to direct help to those who are over, say, the age of 75 and who, according to all the indicators, have some of the greatest social and personal needs.

Few of those who were born before 28 November 1920 have occupational pensions. Help would lift some of them out of income support, and that would be a countervailing saving on the other side of the account. By definition, that form of help would be a declining public expenditure commitment. I do not need to spell out why that is so, because it is fairly obvious. A deserving cause could be targeted and it would not take public expenditure out of control.

In the interests of brevity, I shall come to my third and final recommendation. The time has come to introduce a comprehensive tax incentive for personal savings. Many of my colleagues have been advocating such ideas from various quarters. Let us call it PIP—short for personal investment plan. It should be self-certified and there should be stiff penalties to deter potential abuse. It should be available to be offset against all forms of personal savings and investment up to a figure of let us say £10,000 per year per person. So it should be more generous than the existing structure of PEPs, but for the very good reason that it would cover all forms of savings instruments.

It would have great advantages for the investment problem, which has been one of the main themes of the debate. If we could achieve an increase in aggregate investment, it would be a great triumph for this country. It could also be used by people to invest in their own future: in their education and training, their professional updating, refreshment of their skills, and so on.

That would all be to the good and would meet both a social and an economic need. I hope that my right hon. and learned Friend the Chancellor of the Exchequer and my right hon. Friend the Chief Secretary will bear those points in mind as they move towards this year's Budget.

9.15 pm

Mr. Stephen Timms (Newham, North-East)

I have only a few minutes and I want to make only one point, picking up from where the hon. Member for Carshalton and Wallington (Mr. Forman) left off. We face a crisis of inadequate investment in Britain, which the Government have failed to resolve. That has been the Government's central economic failure in the past 16 years.

We are a long way from seeing the investment-led recovery that will lead to sustainable growth in Britain. We face a crisis of investment and, therefore, a desperate lack of the underpinning that we need to transform our economy for the new century. In the years since 1979— some hon. Members have referred to this already—the average level of investment as a share of gross domestic product in this country has been 17 per cent. That has put us 22nd out of the 24 nations of the Organisation for Economic Co-operation and Development. We have the worst level of investment of the countries in the European Union and the G7. It is no surprise, therefore, that over the same period we have had the worst economic performance. Our economy has grown at an average of 1.6 per cent. since 1979—the worst of the G7 countries.

Recent evidence shows that our economy is still in a bad state. The Government told us in the Budget that investment would grow by 10.75 per cent. in 1995. Now we are told that it will be 4.75 per cent. In the first quarter of this year the level of investment fell. In March, the Confederation of British Industry told that its survey of investment intentions revealed that companies were increasingly cutting their investment plans in the face of inflationary pressures and the fears of higher interest rates.

The truth is that sustainable growth remains as elusive as ever. Inflationary problems are recurring, while in my constituency 21.7 per cent. of men in the labour market are out of work and there is no confidence anywhere that the position will get better. Nations such as ours that fail to invest have poor economic performance. Until we can tackle that problem and the investment gap, Britain will continue to slide out of the economic and social first division.

I wanted to say a little more about two areas of failure that say a great deal about the problems in our economy. I do not have the time to do that, but I shall just mention them in passing. The first is our lamentable record in research and development. A desperately small percentage of our GDP is spent on that, and the Government have done nothing to put it right. That augurs ill for the future.

The second area is very different, but says a great deal about the Government's failure to manage the economy in recent years. It is the saga of the channel tunnel rail link, in which I have a constituency interest. Eight years after work began on it, even this morning fundamental questions were being raised about whether the funding for it can ever be achieved. That saga poses searching questions about the Government's management of the economy and the abject failure to deliver key investment projects that should be central to our economic development and which we need if we are to be a successful economy in the new millennium. There is no sign of those projects being put together successfully.

I want to quote a short point made in the recent Rowntree report, which described the problems of inequality in Britain. We should remember that a broad cross-section of people contributed to that report and worked on the team that put it together. It concluded: Addressing growing inequality will require investment of resources which could otherwise go into current consumption. The resources may come from taxation, reductions elsewhere in public spending, greater spending by companies on training and investment, or by greater individual payments … But if we fail to make this investment, the costs we shall have to face and consumption we shall have to forgo in the future will be greater. That is a stern warning and one that the Government must heed. If this Government do not, the next Labour Government most certainly will.

9.20 pm

Mr. Andrew Smith (Oxford, East)

I welcome the Chief Secretary to the Treasury and his Front-Bench colleagues to their new positions. If I understand rightly from the place in which she is sitting, congratulations are also due to the hon. Member for Torridge and Devon, West (Miss Nicholson) on being appointed as a parliamentary private secretary. I hope that I have not just appointed her to that position. I see that I have not.

I am sure that the Chief Secretary is well aware that he takes over at a time when the downward revision of economic prospects that we have heard so much about in this debate, taken with the pre-election pressures for huge tax cuts and the Prime Minister's new £11 billion spending pledges, will make his job especially difficult.

We heard today a good example of what the right hon. Gentleman is up against. It is clear from the debate that there is a huge split between the Prime Minister and the Chancellor over the Prime Minister's commitment to abolish capital gains tax and inheritance tax—something which the Chancellor told us earlier was too ambitious. I challenge the Chief Secretary to tell us when he winds up whether it is Government policy to abolish capital gains tax and inheritance tax. There are big spending implications in that, which were added to by other aspirations expressed by Conservative Members—not least by the hon. Member for Carshalton and Wallington (Mr. Forman), who must have spent several billion pounds more in the few minutes he had to speak.

The new Chief Secretary will have to square the Chancellor's stated aspiration, to drive public spending below 40 per cent. of GDP, with his own previous speeches, which suggested that the Government would find it difficult to get it any lower. As Chancellor of the Duchy of Lancaster, he told the Institute of Directors: The advocates of a return to pre-Modern minimalist Government are whistling in the wind. In any modern democracy, the government is always going to direct"— "direct" was the word he used— around 40 per cent. of the national wealth. The debate has been interesting, if somewhat staccato with the number of contributions. I have a number of questions that arise from the debate to which I shall come later and which I specifically want to address to the Chief Secretary. First, I want to underline the point made by my hon. Friends the Members for Birmingham, Hodge Hill (Mr. Davis) and for Ashfield (Mr. Hoon) and others, by saying how worrying it is that nearly all the key changes in the summer forecast compared with the autumn Red Book and Budget statement have been changes for the worse.

As my hon. Friend the Member for Monklands, East (Mrs. Liddell) said, no explanation is provided. We should be given one tonight. We know that forecasting is a precarious business—all those uncertainties multiplied together and all those small differences between large numbers. We must expect some variation. In so far as we have heard a Government explanation today, this is all there is to it: we should not worry about the summer forecast—things are pretty much all right, with only a few small differences here and there; the economy is basically on a sound footing.

For the sake of the country and for my party if we win the general election, I would like to think that the economy is on a sound footing. However, when one examines the story, judged against the evidence, one sees that it is far too complacent and self-serving. It presents a flawed analysis of what is going on in the country and reveals a poverty of ambition for what Britain can and must accomplish.

For the key indicators—investment, growth, inflation and the state of the public finances—to look so much worse than just last autumn should disturb the Conservatives every bit as much as it disturbs us. Indeed, one or two Conservative Back Benchers—the hon. Member for Milton Keynes, South-West (Mr. Legg), for example—came close to recognising that.

The Government cannot escape the fact that the arithmetically small differences to which they point are proportionally very large. The summer forecast shows growth in the current year now expected to be down by nearly a tenth as compared with the Budget forecast; inflation to be higher by nearly 20 per cent. proportionately; the PSBR to be higher by 10 per cent.; and business investment to increase by less than half as much as the Government were expecting just eight months ago.

They are not the statistics of a successful economic policy. They are, as my hon. Friends have pointed out, another episode in the Government's persistent failure to modernise the economy in such a way that we achieve genuinely sustainable non-inflationary growth. That is clear from the summer forecast figures. Whereas last autumn they were predicting growth higher than inflation, they are now pointing to fourth quarter inflation higher than the volume level of growth.

Despite welcome falls in the unemployment claimant count, the summer forecast concedes that the rise in employment has been very much less. It puts that down to the expansion of further and higher education and increases in early retirement and in the number of people claiming invalidity and sickness benefits. On page 25, the forecast states: Unemployment therefore seems unlikely to go on falling faster than employment is rising. That begs the crucial question whether the Government believe that the gap will be narrowed in future by unemployment falling more slowly or by employment rising more quickly.

The first specific question that I direct to the Chief Secretary is, given the assertion in the summer forecast, does he now expect unemployment to fall more slowly or employment to increase more rapidly? We need to know, because it makes an awful lot of difference to the unemployed and to the social and economic cost to our whole community of that unemployment.

My hon. Friend the Member for Coventry, South-East (Mr. Cunningham) spoke with passion about the unemployed in his constituency, as did other hon. Friends about unemployment in theirs. For this country still to have 836,000 people trapped in long-term unemployment and 619,000 young people without jobs is an obscenity that demands the urgent programme for jobs for which Labour has called, measures to stimulate the recruitment of the long-term unemployed and action to make it easier for people to move from welfare to work.

Equally worrying is Britain's position on investment, especially coming on top of the Government's poor historic record. Total investment in 1994 was still 10 per cent. below the level in 1989, before the recession, and investment as a proportion of GDP fell six years in a row, from 23 per cent. in 1989 to 17 per cent. last year. Given that record, to have to revise downwards, as the summer forecast does, predicted investment growth by more than a half—from 10.75 per cent. to 4.75 per cent., is an indictment not only of the Government's forecasting ability but of what they are doing to the real economy.

Of course, business investment has always proved to be one of the most difficult things to forecast. It is all very well to suppose that the fall in manufacturing investment that we witnessed in the first quarter of this year was, as the summer forecast put it, "erratic", but the forecast does not explain that deteriorating investment outlook. The country deserves an explanation. The second key question that I would like to direct to the Chief Secretary is this: will he tell the House why investment prospects are now so much worse than the Government claimed at the time of the Budget?

My hon. Friend the Member for Alyn and Deeside (Mr. Jones) made a passionate case for investment in manufacturing on behalf of the steel and aircraft industries in his constituency. It is clearer than ever before that Britain needs the strategy for investment that Labour has set out—

Mr. Budgen

Will the hon. Gentleman give way?

Mr. Smith

In a moment.

Britain needs greater incentives for long-term finance, more opportunities for small business to access capital and incentives for investment in skills, infrastructure and transferable technology. As my hon. Friend the Member for Newham, North-East (Mr. Timms) said, we need to get research and development moving in this country if we are to confront the global competitive challenges.

Mr. Budgen

The hon. Member for Alyn and Deeside (Mr. Jones) did not just talk about investment in manufacturing, but made a specific request for grants for the aerospace industry. Is the Labour party in favour of that?

Mr. Smith

We are in favour of an industrial policy that rebuilds the strength of industries undermined by the Government's persistent mismanagement of this country's economy. We are in favour of getting industry moving through a partnership between Government and people and through training to raise the level of skills in our work force, to give people, like my hon. Friend's constituents, the opportunities which they have been denied under this Government and which they know that they can never expect from this Government.

The Government's record on investment is particularly serious given the evidence of high-capacity utilisation— at least in manufacturing industry—to the point where it is generally agreed that the output gap has significantly narrowed, which the summer forecast recognised. Indeed, some analysts believe that the gap may have disappeared altogether. That can only lend further weight to the point made by the Bank of England in its May inflation report, which was stressed by my hon. Friend the Member for Darlington (Mr. Milburn). It said: capacity utilisation in manufacturing"— in the first quarter of 1995— was at its highest level for almost six years, at about 18 percentage points above its long-run average". That underlined the warning in the February report: Capacity constraints are becoming more widespread in industry … This will increase inflationary risks unless productive capacity increases". That bears out Labour's argument, as several of my hon. Friends have pointed out, that the shortage of capacity—the failure to invest in plant, skills and infrastructure—limits Britain's growth and causes inflationary pressures to emerge even when there are more than 2 million people unemployed, consumer confidence and demand are very flat and, as some Conservative Members have pointed out, the construction industry has yet to struggle out of recession.

The hon. Member for Cambridgeshire, South-West (Sir A. Grant) referred to the difficulties facing the construction industry and drew attention to the benefits of implementation of the Latham report. He should ask his right hon. and hon. Friends in government when they will find the time to implement the legislative provisions of that report.

My right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) was characteristically wise when he drew the attention of the House to the danger of failing to take account of acting on the depreciation and degeneration of our public capital. People will ask why, given the state of Britain's infrastructure, with its rundown housing and transport systems, the Government are now proposing to cut public investment even further.

My third specific question for the Chief Secretary, if he will listen for a moment, is this: why, according to the summer forecast, is public investment in 1996 set to fall by 8; per cent.—nearly twice the 4.5 per cent. cut that the Government put forward in the Red Book in the autumn?

Mr. Legg

If, as the hon. Gentleman believes, public investment should increase—that is the case that he and his hon. Friends are putting forward—how high is he prepared to see the public sector borrowing requirement go?

Mr. Smith

We want to cut the PSBR by getting people back to work. That is the way to cut borrowing in this country.

When we survey the state of the economy, we see that the Chancellor is in a difficult dilemma of his own making. Because of the underlying limits to productive capacity, he faces growth high enough to generate inflationary pressures above his target level but not high enough to lessen insecurity at work, to generate sufficient extra employment, or even to bring in tax revenues or to make people better off.

The right hon. and learned Gentleman's response to the dilemma is to go for greater short-term flexibility by loosening the targets that he has set himself on inflation and the public finances. In that way, he hopes to gain extra room for manoeuvre on both the monetary and the fiscal sides in the run-up to the general election.

The Chancellor now says that inflation will be between 1 and 4 per cent. most of the time, when previously— [Interruption.] I have here a letter signed by the Chancellor and addressed to the hon. Member for Hazel Grove (Sir T. Arnold), the Chairman of the Treasury and Civil Service Select Committee, which says: But setting interest rates consistently at the level judged necessary to achieve the inflation target of 2½ per cent. or less should ensure that inflation remains in the range 1–4 per cent. most of the time. It is no good the Chancellor saying that he did not say "most of the time", because he signed the letter.

Not only has the right hon. and learned Gentleman loosened his words there, but he now talks about bringing the public sector borrowing requirement back towards balance, whereas he used to say that it was his goal to achieve balance. In effect, he is admitting that his policy may be loosened in the pre-election period.

This is my fourth specific question to the Chief Secretary to the Treasury—

Mr. Stephen

Will the hon. Gentleman give way?

Mr. Smith

No.

If the Chancellor is not loosening his policy, why is he loosening his language? The public finances, another critical area in which the Government—

Mr. Kenneth Clarke

The hon. Gentleman's textual analysis is utterly ludicrous. The inflation target is 2.5 per cent. or lower. I said that we were moving towards balance in the medium term in the 1993 Red Book. It is absurd textual analysis to use a difference of one word between that and the 1994 Red Book. There has been a totally consistent policy. What is Labour's policy on public sector borrowing? What is Labour's policy on inflation targets? We have listened for another half an hour and still we have not heard a word of serious economic policy.

Mr. Smith

The Chancellor of the Exchequer is obviously in a serious difficulty that he cannot get out of. He could not tell my hon. Friend the Member for Dunfermline, East (Mr. Brown) earlier which of his various targets he was following in practice—whether it was the 2.5 per cent. that he told the Governor about, the 3 per cent. that he said in an interview would be a triumph, the 1 per cent. to 4 per cent. range that he tells the public about, or the "most of the time, but we might go over 4 per cent." to which he put his name when he signed that letter. The Government's policy is in chaos.

Not only is the PSBR now projected to be higher than the Government expected at the time of the Budget, but their own panel of independent forecasters has said that it will be 25 per cent. higher than they admit even now. That prompts my fifth question to the Chief Secretary. Does he regard the £16.1 billion in the summer forecast for 1996–97 as an acceptable level for the PSBR? Is it now a target for that year?

Sir Peter Hordern

rose—

Mr. Smith

No, I am running out of time.

When does the Chief Secretary expect the public finances to reach balance? Let us have a date. The Chancellor would not give us one earlier.

The right hon. Member for Horsham (Sir P. Hordern) invited us earlier to consider what had happened to business taxation. I have news for Conservative Members about that. Not only have the Government clobbered individuals by breaking all their promises on tax and banging on that extra £800 a year from which people are suffering even now, but they have taken more tax from companies as well.

Figures from the Library show that the average share of company income taken by the Conservative Government during their years in office, in corporation tax and other taxes, is 15 per cent., compared with 11 per cent. for the years of the previous Labour Government. In 1994, the Government took 13 per cent. of company income, compared with 11 per cent. in Labour's last year in office.

We were invited by the hon. Member for Brentford and Isleworth (Mr. Deva) to contrast the values and policies of the Conservative and Labour parties. I can tell the House that the choice before the country and the House is clear. The Conservative party breaks its promises on tax cutting and living standards, fails to invest for the future and leaves our productive capacity too small to generate the welfare that people need. The Government have divided the country, trapped millions in poverty and hit middle and lower-income Britain while they have failed to act to end excesses in the privatised utilities. The Government have surrendered their responsibilities to an unregulated market.

The Labour party stands for investment in people, industry and infrastructure, and wants to open up opportunities to enable everyone to make the most of their potential. We say that fairness is crucial to enable people to get on and to get the people of Britain pulling together for economic success. I remind Conservative Members of something that the country will not forget—that it was Labour who defeated the Government over the increase of VAT on fuel, while it was the Prime Minister, the Chancellor and the Conservative party who wanted to force through that unfair tax, just as they will extend VAT again if they have the chance.

The choice is between the parties, but which one can the public trust? The public can never trust the Conservatives again. Government Members have said, "No change is no chance." Labour will bring change and a new future for Britain, and I commend our amendment to the House.

9.41 pm

The Chief Secretary to the Treasury (Mr. William Waldegrave)

These economic debates are very different from debates on agriculture. They are much more fun, I have to say. I hope that my right hon. and learned Friend the Chancellor will not find it offensive if I say that I found certain similarities between his speech and that of his shadow, the hon. Member for Dunfermline, East (Mr. Brown). They are both substantial figures who delivered speeches full of jokes. The only difference was that my right hon. and learned Friend had some substance between his jokes, while the hon. Gentleman just had jokes. They were good jokes, but there was no substance in his speech at all.

We did learn one or two things. The hon. Member for Gordon (Mr. Bruce) said that he would have liked interest rates to be higher, and that was helpful. I think that the hon. Member for Dunfermline, East really wanted interest rates to be higher, too. He shifted around a bit, but the tenor of what he was saying in his debate with my right hon. and learned Friend about the Governor of the Bank of England suggested that the hon. Gentleman would have put interest rates up.

There was also an announcement from the hon. Member for Dunfirmline, East of at least one new tax on business, for training. That is very admirable, and it is better that the hon. Gentleman should put that new tax forward firmly. It may be a good thing if he puts it forward and votes for it.

The problem for the Opposition today is a problem that I remember the late, great Keith Joseph explaining to me a long time ago when we were in opposition. He said that it was a miserable business being in opposition when the news is good—not that the news ever was good between 1974 and 1979—and added, "You have to emphasise as much as you can everything that is wrong."

The hon. Member for Oxford, East (Mr. Smith) played some wonderful games with percentages, and stated that a revision from 3.25 per cent. down to 3 per cent. was a great disaster. My goodness, Labour would have been pleased with figures such as those when they had inflation of nearly 27 per cent. It reminds me of Oxford city council, which is run by the partisans of the hon. Member for Bristol, South (Ms Primarolo). It wanted to put up a barrier to stop shoppers crossing a road because the number of road accidents had doubled. I asked how many casualties there had been and was told two—there had been one the year before. One can do things like that with percentages, and the hon. Member for Oxford, East was doing it, but it was not very effective.

Mr. Stephen

Will my right hon. Friend give way?

Mr. Waldegrave

I shall give way just once, as the hon. Member for Oxford, East did not keep to the agreement on time.

Mr. Stephen

I am much obliged to my right hon. Friend. When he reads Hansard tomorrow, he will see that the hon. Member for Oxford, East (Mr. Smith) took almost 22 minutes to wind up the debate, in the course of which he made one carping criticism after another of the Government, regaled us with figures of which we are all well aware and, apart from a few generalisations to which we can all say amen, gave no sign whatever of Labour's policy. Is the government of this country to be entrusted to a party whose economic policies are so incredible that it will not even state publicly what they are?

Mr. Waldegrave

In coming to these debates, I have learnt that there is no hope from Opposition speeches or papers on their position. One always hopes that an Opposition will give ideas that one can pinch and claim as one's own, and then say what admirable new ideas one has had. There is no chance of that from the Labour party. Alternatively, one can look at their ideas and rebut them because they are wrong. There is no chance of that either, because no ideas are forthcoming. It is inconvenient of them and I do not think that they are earning their pay on this matter.

The hon. Members for Dunfermline, East and for Oxford, East raised one important matter. They tried to manufacture confusion about our inflation target. There is no confusion about our inflation target, as my hon. Friend the Member for Hazel Grove (Sir T. Arnold) said, and he understood it very well.

Surprisingly, the hon. Member for Gordon tried to contribute to that confusion. He of all people should know that there is no confusion, because he put a question to the Governor of the Bank of England when the Governor came to the Treasury and Civil Service Select Committee. He asked the Governor whether the Government had relaxed their inflation target and the Governor said, "No, I think that that is absolute rubbish." So it seems odd that the hon. Gentleman did not listen to the answer, and neither did the Opposition Front-Bench spokesmen.

Let me give an example of what my right hon. and learned Friend means. Let us say that the last Labour Government had inflation moving between 7 per cent. and 27 per cent. If their target had been consistent with that, they would have said, "We shall set a target at 17 per cent. or downwards" and that is exactly what they would have achieved—an average of 16 per cent. inflation in that period. So the arithmetic is really quite simple.

In an eloquent speech, my right hon. Friend the Member for Horsham (Sir P. Hordern) made the fundamental point that a long-term commitment to low inflation is what produces investment, rather than clever tricks or, Lord help us, state direction. A long-term commitment to low inflation changes the culture of investment and produces long-term investments. Sustained, healthy economic growth at a strong rate, which is what we have now—stronger than any other European country—will become a permanent feature of the landscape only if we keep inflation down and achieve those long-term investments.

Many hon. Members on both sides of the House welcome the fact that the recovery has been led by exports. That is surely to be welcomed. Every Government since the second world war have sought to achieve that, but this is genuinely the first time that a recovery has been export led. Exports have risen by more than 9 per cent. compared with a year ago. My hon. Friends the Members for Cambridgeshire, South-West (Sir A. Grant) and for Bosworth (Mr. Tredinnick) made that point eloquently.

Although manufacturing investment has risen in the past year, obviously we want it to increase further. The framework for that seems to be in place because investment is ultimately caused by profitability. The Opposition, even new Labour, are pretty uncomfortable with profits in private sector companies. They do not really like them. They nearly always describe profits as excessive and conduct a sort of vendetta against companies that make large profits. The fact that profitability has now returned to its highest since 1988 and is higher than at any time in the 1970s is a good indicator that we shall get that investment in the future.

The hon. Member for Monklands, East (Mrs. Liddell) made an uncharacteristically unfair point about inward investment. She complained that we were not obtaining enough inward investment.

I do not know what figures the hon. Lady can have been reading. We have about a third of all inward investment into the European Union and 40 per cent. of the United States and Japanese investment into the European Union, and a recent Confederation of British Industry survey showed us as being the second favourite destination of mobile investment in the world, after the United States.

Therefore, it was a little unfair of the hon. Lady to make that criticism, and she well knows that Scotland has rightly been a great beneficiary of that inward investment, with a good work force and plenty of good opportunities for investment. That leads to the creation of jobs, not only in Scotland but throughout the United Kingdom.

As many Opposition Members and all Conservative Members who spoke have said, we are talking about the creation of long-term stable jobs in the only way possible—660,000 new jobs in the past two and a half years and, on either measure, unemployment has decreased during that time. Let us hope that that continues.

Living standards are now increasing after inflation and tax. Real personal disposal income is expected to increase by about 1.5 per cent. this year, and that should mean an extra £5 a week for households on average. We expect to keep that going next year and beyond.

Unjustifiably, several Opposition Members accused my right hon. and learned Friend the Chancellor of complacency. One person, the hon. Member for Oxford, East, accused him of loose language. My right hon. and learned Friend could never be accused of any manner of loose language, and he certainly could not be accused of complacency.

If we are to be accused of complacency, let us stand, not on our forecast, which we believe, but on the forecasts of outside organisations. The hon. Member for Oxford, East, who is learned in those matters, will have studied those forecasts and he will know that our forecast lies about in the middle of the range of forecasts by outside organisations. Therefore, by saying that that pattern is likely to come about in the next year and the next year or two we are not being complacent; we are simply predicting what is the best advice that can be given to us from inside and from outside.

The Organisation for Economic Co-operation and Development, for example, expects the United Kingdom economy to grow faster than any other major European country again this year. That is not complacency; it is a fact of which we should be proud, and which we should take the necessary steps to maintain in future.

Many of my hon. Friends mentioned the subject that dominates my mind, and will dominate my mind while I hold this job, which I am delighted to hold—public spending.

As I take on what is a crucial job in Government, described to me by Leon Brittan as the most fascinating job in Government, it is legitimate for my hon. Friends to ask me, in the phraseology of my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), what my prejudice or instinct is.

I have sometimes been described as a one-nation Tory or, if one wants to be offensive, a wet Tory—the type of person who admires Rab Butler and people of that kind. I do admire Rab Butler; I plead guilty to admiring Rab Butler.

Let me remind the House what Rab Butler did when he was one of the most distinguished holders of my right hon. and learned Friend's office—he was also Deputy Prime Minister—and in that great office he reduced Government spending from 37.75 per cent. of gross domestic product to 33.5 per cent. of GDP between 1952 and 1955. If that is being a Tory wet, I could probably bring my right hon. Friend the Member for Wokingham (Mr. Redwood) and my hon. Friend the Member for Bridlington (Mr. Townend) with me. My hon. Friend would put up with wetness of that type, I believe, if we reduced public spending to 33.5 per cent. of GDP.

I do not believe that I shall be able to do that, but I believe that I shall have to work, and shall work, extremely hard to continue the Government's commitment to bringing down the proportion of public spending in GDP. That will be the principal target of my efforts and of the efforts of the Treasury in the next spending round.

I believe that that is something that unites all Conservative Members. It is one of the things that fundamentally divide us from the Labour party. The Labour party will not give us targets and so on. It is uncomfortable with that because, as we decrease the percentage of GDP that is spent by the public sector, it will find it more and more difficult not to give an answer. Labour Members will make the debating points that the hon. Member for Dunfermline, East has made—"You just put it up." Yes, it did go up in the recession, but we shall bring it down to the point where the hon. Gentleman must, in the end, be smoked out into agreeing with us, or he will be shown to believe in nothing.

The two most eloquent speeches today were made by the right hon. Member for Chesterfield (Mr. Benn) and by my hon. Friend the Member for Wolverhampton, South-West. The right hon. Member for Chesterfield raised the tone of the debate by offering a real and philosophically coherent alternative. The conventions of the House do not permit me to refer to an amendment that was not chosen, but the right hon. Member's speech reminds us that, although Labour Members tease us about the divisions in our party, the divisions in the Labour party are much deeper, because they are based on a complete difference in philosophy.

The amendment appearing in the name of the right hon. Member for Chesterfield contains a reference to the philosophy of Her Majesty's Government—a belief in markets and so on. I think that that is what used to be called code; he was really referring to Her Majesty's loyal Opposition. It must hurt the right hon. Gentleman that the Labour Front Bench now professes a commitment to market economics which must be anathema to him and to his colleagues who signed the amendment.

Are they trying to tell us something? Are we to assume that Labour Members have become pink Conservatives after all? My right hon. Friend—I beg his pardon: he should be right hon.—the Member for Wolverhampton, South-West said that we should not allow the country to be fooled by that. [Interruption.] My colleagues on the Front Bench are saying, "Steady on." My hon. Friend made his point very eloquently.

What are the gut feelings of Labour Members about those matters? I do not believe that they have become pink Conservatives; I believe that they have listened to the PR men and the pollsters, and they do not think that they will be elected if they allow their true colours to show. I believe fundamentally—it is obvious from every debate in this place and in our constituencies and from the hon. Member for Bristol, South (Ms Corston), who is a redoubtable fighter for socialism but who is very quiet nowadays—that Labour Members believe in higher spending and higher taxing. If they do not believe in that, they do not believe in anything.

Mr. Andrew Smith

Will the Chief Secretary tell the House whether it is Government policy to abolish capital gains tax and inheritance tax?

Mr. Waldegrave

That is a nice easy question to answer: yes. When we can afford to do it, we shall do it.

My hon. Friend the Member for Wolverhampton, South-West should be interested in my next point. Labour Members' commitment to a belief in market economics does not go as far as believing in rewarding the winners in a market system. We believe that the abolition of those taxes will make capital markets work better so that everyone will be better off. Labour Members cannot stomach that, so they fall off the train. At that stage, they do the populist bit and say, "It's going to make some people richer, so we're against it."

That is also their reaction to privatisation. We did not hear anything about the fact that the privatised industries now contribute £55 million a week to the Exchequer, when they cost £50 million a week when they were left to us by Labour. We hear only persistent attacks on a few individuals whom Labour Members allege are overpaid. They go for the cheap populist vote in order to disguise the fact that they have no belief in privatisation.

My hon. Friend's point was eloquently reinforced by a number of Labour Members, a few of whom referred to more spending. They have been house trained to the point where they do not state any figures; they have been told to disguise the fact that their spending pledges are real. That is what so offends the honest socialists on the Opposition Benches who want to spend money and who believe in spending money. That is what so offended the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). He recently wrote in The Guardian newspaper that Labour now has a clear choice: it can be either the party of high taxation and proud of it, or the party of higher taxes which it is ashamed to describe.

The Labour party has now become the party that is ashamed to mention its own name—the party that dare not speak its name. It is really the party of high spending and high taxation, but it will not be brave enough to say so.

Question put, That the amendment be made:—

The House divided: Ayes 233, Noes 300.

Division No. 203]	[10.00 pm
AYES
Abbott, Ms Diane	Field, Frank (Birkenhead)
Adams, Mrs Irene	Fisher, Mark
Ainsworth, Robert (Cov'try NE)	Flynn, Paul
Allen, Graham	Foster, Rt Hon Derek
Anderson, Donald (Swansea E)	Fraser, John
Armstrong, Hilary	Fyfe, Maria
Austin-Walker, John	Gapes, Mike
Banks, Tony (Newham NW)	Garrett, John
Barnes, Harry	George, Bruce
Barron, Kevin	Gerrard, Neil
Battle, John	Gilbert, Rt Hon Dr John
Bayley, Hugh	Godman, Dr Norman A
Beckett, Rt Hon Margaret	Godsiff, Roger
Bell, Stuart	Golding, Mrs Llin
Benn, Rt Hon Tony	Gordon, Mildred
Bennett, Andrew F	Graham, Thomas
Bermingham, Gerald	Grant, Bernie (Tottenham)
Berry, Roger	Griffiths, Nigel (Edinburgh S)
Betts, Clive	Griffiths, Win (Bridgend)
Blunkett, David	Grocott, Bruce
Boateng, Paul	Gunnel, John
Bray, Dr Jeremy	Hain, Peter
Brown, Gordon (Dunfermline E)	Hall, Mike
Brown, N (N'c'tle upon Tyne E)	Hanson, David
Burden, Richard	Hardy, Peter
Byers, Stephen	Hattersley, Rt Hon Roy
Caborn, Richard	Henderson, Doug
Callaghan, Jim	Heppell, John
Campbell, Mrs Anne (C'bridge)	Hill, Keith (Streatham)
Campbell, Ronnie (Blyth V)	Hinchliffe, David
Campbell-Savours, D N	Hodge, Margaret
Cann, Jamie	Hoey, Kate
Chisholm, Malcolm	Hogg, Norman (Cumbernauld)
Church, Judith	Home Robertson, John
Clapham, Michael	Hood, Jimmy
Clark, Dr David (South Shields)	Hoon, Geoffrey
Clarke, Eric (Midlothian)	Howells, Dr. Kim (Pontypridd)
Clarke, Tom (Monklands W)	Hoyle, Doug
Clwyd, Mrs Ann	Hughes, Kevin (Doncaster N)
Coffey, Ann	Hughes, Robert (Aberdeen N)
Cohen, Harry	Hughes, Roy (Newport E)
Connarty, Michael	Hutton, John
Cook, Frank (Stockton N)	Illsley, Eric
Corbett, Robin	Jackson, Glenda (H'stead)
Corbyn, Jeremy	Jackson, Helen (Shef'ld, H)
Corston, Jean	Jamieson, David
Cousins, Jim	Janner, Greville
Cox, Tom	Jones, Barry (Alyn and D'side)
Cummings, John	Jones, Jon Owen (Cardiff C)
Cunliffe, Lawrence	Jones, Lynne (B'ham S O)
Cunningham, Jim (Covy SE)	Jowell, Tessa
Cunningham, Roseanna	Keen, Alan
Dafis, Cynog	Khabra, Piara S
Dalyell, Tam	Kilfoyle, Peter
Darling, Alistair	Lestor, Joan (Eccles)
Davidson, Ian	Lewis, Terry
Davies, Bryan (Oldham C'tral)	Liddell, Mrs Helen
Davies, Rt Hon Denzil (Llanelli)	Litherland, Robert
Davis, Terry (B'ham, H'dge H'l)	Livingstone, Ken
Denham, John	Lloyd, Tony (Stretford)
Dewar, Donald	Llwyd, Elfyn
Dixon, Don	Loyden, Eddie
Dobson, Frank	McAllion, John
Donohoe, Brian H	McAvoy, Thomas
Dunwoody, Mrs Gwyneth	Macdonald, Calum
Eagle, Ms Angela	McFall, John
Eastham, Ken	Mackinlay, Andrew
Etherington, Bill	McLeish, Henry
Evans, John (St Helens N)	McMaster, Gordon
Fatchett, Derek	McWilliam, John
Faulds, Andrew	Madden, Max

Mahon, Alice	Roche, Mrs Barbara
Marek, Dr John	Rogers, Allan
Marshall, Jim (Leicester, S)	Rooker, Jeff
Martin, Michael J (Springburn)	Rooney, Terry
Martlew, Eric	Ross, Ernie (Dundee W)
Maxton, John	Rowlands, Ted
Meacher, Michael	Salmond, Alex
Meale, Alan	Sedgemore, Brian
Michael, Alun	Sheerman, Barry
Michie, Bill (Sheffield Heeley)	Sheldon, Rt Hon Robert
Milburn, Alan	Shore, Rt Hon Peter
Miller, Andrew	Short, Clare
Mitchell, Austin (Gt Grimsby)	Simpson, Alan
Morgan, Rhodri	Skinner, Dennis
Morley, Ellitot	Smith, Andrew (Oxford E)
Morris, Rt Hon Alfred (Wy'nshawe)	Smith, Chris (Isl'ton S & F'sbury)
Morris, Estelle (B'ham Yardley)	Smith, Llew (Blaenau Gwent)
Morris, Rt Hon John (Aberavon)	Snape, Peter
Mowlam, Marjorie	Spearing, Nigel
Mudie, George	Spellar, John
Mullin, Chris	Stevenson, George
Murphy, Paul	Strang, Dr. Gavin
Oakes Rt Hon Geogery	Straw, Jack
	Sutcliffe, Gerry
O'Brien, Mike (N W'kshire)	Taylor, Mrs Ann (Dewsbury)
O'Brien, William (Normanton)	Thompson, Jack (Wansbeck)
O'Hara, Edward	Timms, Stephen
Olner, Bill	Touhig, Don
O'Neill, Martin	Vaz, Keith
Orme, Rt Hon Stanley	Walker, Rt Hon Sir Harold
Parry, Robert	Walley, Joan
Pearson, Ian	Wardell, Gareth (Gower)
Pendry, Tom	Wareing, Robert N
Pickthall, Colin	Watson, Mike
Pike, Peter L	Wicks, Malcolm
Pope, Greg	Williams, Rt Hon Alan (Sw'n W)
Powell, Ray (Ogmore)	Williams, Alan W (Carmarthen)
Prentice, Gordon (Pendle)	Wilson, Brian
Prescott, Rt Hon John	Winnick, David
Primarolo, Dawn	Wise, Audrey
Purchase, Ken	Worthington, Tony
Quin, Ms Joyce	Wray, Jimmy
Radice, Giles	Wright, Dr Tony
Randall, Stuart	Young, David (Bolton SE)
Raynsford, Nick
Reid, Dr John	Tellers for the Ayes:
Robertson, George (Hamilton)	Mr. Joe Benton and Mr. Jim Dowd.
Robinson, Geoffrey (Co'try NW)

NOES
Ainsworth, Peter (East Surrey)	Bottomley, Rt Hon Virginia
Alexander, Richard	Bowden, Sir Andrew
Alison, Rt Hon Michael (Selby)	Bowis, John
Amess, David	Boyson, Rt Hon Sir Rhodes
Ancram, Michael	Brandreth, Gyles
Arbuthnot, James	Brazier, Julian
Arnold, Jacques (Gravesham)	Bright, Sir Graham
Arnold, Sir Thomas (Hazel Grv)	Brooke, Rt Hon Peter
Ashby, David	Brown, M (Brigg & Cl'thorpes)
Atkins, Rt Hon Robert	Browning, Mrs Angela
Atkinson, David (Bour'mouth E)	Bruce, Ian (Dorset)
Baker, Rt Hon Kenneth (Mole V)	Budgen, Nicholas
Baker, Nicholas (North Dorset)	Burns, Simon
Baldry, Tony	Burt, Alistair
Banks, Matthew (Southport)	Butcher, John
Banks, Robert (Harrogate)	Butler, Peter
Bates, Michael	Butterfill, John
Batiste, Spencer	Carlisle, John (Luton North)
Bellingham, Henry	Carlisle, Sir Kenneth (Lincoln)
Bendall, Vivian	Carrington, Matthew
Beresford, Sir Paul	Carttiss, Michael
Biffen, Rt Hon John	Channon, Rt Hon Paul
Bonsor, Sir Nicholas	Chapman, Sydney
Booth, Hartley	Churchill, Mr
Boswell, Tim	Clappison, James
Bottomley, Peter (Eltham)	Clark, Dr Michael (Rochford)

Clarke, Rt Hon Kenneth (Ru'clif)	Hendry, Charles
Clifton-Brown, Geoffrey	Heseltine, Rt Hon Michael
Coe, Sebastian	Hicks, Robert
Colvin, Michael	Hill, James (Southampton Test)
Congdon, David	Hogg, Rt Hon Douglas (G'tham)
Conway, Derek	Horam, John
Coombs, Anthony (Wyre For'st)	Hordern, Rt Hon Sir Peter
Coombs, Simon (Swindon)	Howard, Rt Hon Michael
Cope, Rt Hon Sir John	Howarth, Alan (Strat'rd-on-A)
Cormack, Sir Patrick	Howell, Rt Hon David (G'dford)
Couchman, James	Howell, Sir Ralph (N Norfolk)
Cran, James	Hughes, Robert G (Harrow W)
Currie, Mrs Edwina (S D'by'ire)	Hunt, Rt Hon David (Wirral W)
Curry, David (Skipton & Ripon)	Hunt, Sir John (Ravensbourne)
Davies, Quentin (Stamford)	Hunter, Andrew
Davis, David (Boothferry)	Hurd, Rt Hon Douglas
Day, Stephen	Jack, Michael
Deva, Nirj Joseph	Jackson, Robert (Wantage)
Devlin, Tim	Jenkin, Bernard
Dorrell, Rt Hon Stephen	Johnson Smith, Sir Geoffrey
Douglas-Hamilton, Lord James	Jones, Gwilym (Cardiff N)
Dover, Den	Jones, Robert B (W Hertfdshr)
Duncan, Alan	Jopling, Rt Hon Michael
Dunn, Bob	Kellett-Bowman, Dame Elaine
Durant, Sir Anthony	Key, Robert
Dykes, Hugh	King, Rt Hon Tom
Eggar, Rt Hon Tim	Kirkhope, Timothy
Elletson, Harold	Knapman, Roger
Emery, Rt Hon Sir Peter	Knight, Mrs Angela (Erewash)
Evans, David (Welwyn Hatfield)	Knight Greg (Derby N)
Evans, Jonathan (Brecon)	Knight, Dame Jill (Bir'm E'st'n)
Evans, Roger (Monmouth)	Knox, Sir David
Evennett, David	Kynoch, George (Kincardine)
Faber, David	Lait, Mrs Jacqui
Fabricant, Michael	Lamont, Rt Hon Norman
Fenner, Dame Peggy	Lang, Rt Hon Ian
Reld, Barry (Isle of Wight)	Lawrence, Sir Ivan
Fishburn, Dudley	Legg, Barry
Forman, Nigel	Leigh, Edward
Forsyth, Rt Hon Michael (Stirling)	Lennox-Boyd, Sir Mark
Forth, Eric	Lester, Jim (Broxtowe)
Fox, Dr Liam (Woodspring)	Lidington, David
Fox, Sir Marcus (Shipley)	Lightbown, David
Freeman, Rt Hon Roger	Lilley, Rt Hon Peter
French, Douglas	Lloyd, Rt Hon Sir Peter (Fareham)
Fry, Sir Peter	Lord, Michael
Gale, Roger	Luff, Peter
Gallie, Phil	MacKay, Andrew
Gardiner, Sir George	Maclean, Rt Hon David
Garel-Jones, Rt Hon Tristan	McLoughlin, Patrick
Garnier, Edward	McNair-Wilson, Sir Patrick
Gill, Christopher	Madel, Sir David
Gillan, Cheryl	Maitland, Lady Olga
Goodlad, Rt Hon Alastair	Major, Rt Hon John
Goodson-Wickes, Dr Charles	Malone, Gerald
Gorman, Mrs Teresa	Mans, Keith
Gorst, Sir John	Marland, Paul
Grant, Sir A (SW Cambs)	Marlow, Tony
Greenway, Harry (Ealing N)	Marshall, John (Hendon S)
Greenway, John (Ryedale)	Marshall, Sir Michael (Arundel)
Griffiths, Peter (Portsmouth, N)	Martin, David (Portsmouth S)
Grylls, Sir Michael	Mawhinney, Rt Hon Dr Brian
Hague, William	Mellor, Rt Hon David
Hamilton, Rt Hon Sir Archibald	Merchant, Piers
Hamilton, Neil (Tatton)	Mills, Iain
Hampson, Dr Keith	Mitchell, Andrew (Gedling)
Hanley, Rt Hon Jeremy	Mitchell, Sir David (NW Hants)
Hannam, Sir John	Moate, Sir Roger
Hargreaves, Andrew	Monro, Sir Hector
Harris, David	Montgomery, Sir Fergus
Haselhurst, Sir Alan	Moss, Malcolm
Hawkins, Nick	Needham, Rt Hon Richard
Hawksley, Warren	Nelson, Anthony
Hayes, Jerry	Neubert, Sir Michael
Heald, Oliver	Newton, Rt Hon Tony
Heathcoat-Amory, David	Nicholls, Patrick

Nicholson, David (Taunton)	Stanley, Rt Hon Sir John
Nicholson, Emma (Devon West)	Steen, Anthony
Norris, Steve	Stephen, Michael
Onslow, Rt Hon Sir Cranley	Stern, Michael
Oppenheim, Phillip	Stewart, Allan
Ottaway, Richard	Streeter, Gary
Page, Richard	Sumberg, David
Paice, James	Sweeney, Walter
Patnick, Sir Irvine	Sykes, John
Patten, Rt Hon John	Tapsell, Sir Peter
Pattie, Rt Hon Sir Geoffrey	Taylor, Ian (Ester)
Pawsey, James	Taylor, Sir Teddy (Southend, E)
Peacock, Mrs Elizabeth	Temple-Morris, Peter
Pickles, Eric	Thomason, Roy
Porter, Barry (Wirral S)	Thompson, Sir Donald (C'er V)
Porter, David (Waveney)	Thompson, Patrick (Norwich N)
Portilto, Rt Hon Michael	Thornton, Sir Malcolm
Powell, William (Corby)	Thumham, Peter
Rathbone, Tim	Townend, John (Bridlington)
Redwood, Rt Hon John	Townsend, Cyril D (Bexl'yh'th)
Renton, Rt Hon Tim	Tracey, Richard
Richards, Rod	Tredinnick, David
Riddick, Graham	Trend, Michael
Rifkind, Rt Hon Malcolm	Trotter, Neville
Robathan, Andrew	Twinn, Dr Ian
Roberts, Rt Hon Sir Wyn	Vaughan, Sir Gerard
Robertson, Raymond (Ab'd'n S)	Viggers, Peter
Robinson, Mark (Somerton)	Waldegrave, Rt Hon William
Rowe, Andrew (Mid Kent)	Walden, George
Rumbdd, Rt Hon Dame Angela	Walker, Bin (N Tayside)
Sackville, Tom	Waller, Gary
Sainsbury, Rt Hon Sir Timothy	Ward, John
Scott, Rt Hon Sir Nicholas	Wardle, Charles (Bexhill)
Shaw, David (Dover)	Waterson, Nigel
Shaw, Sir Giles (Pudsey)	Watts, John
Shephard, Rt Hon Gillian	Wells, Bowen
Shepherd, Colin (Hereford)	Whitney, Ray
Shepherd, Richard (Aldridge)	Whittingdale, John
Shersby, Sir Michael	Widdecombe, Ann
Sims, Roger	Wiggin, Sir Jerry
Smith, Tim (Beaconsfield)	Wilkinson, John
Soames, Nicholas	Wilshire, David
Speed, Sir Keith	Winterton, Mrs Ann (Congleton)
Spencer, Sir Derek	Wolfson, Mark
Spicer, Sir James (W Dorset)	Yeo, Tim
Spicer, Michael (S Worcs)	Young, Rt Hon Sir George
Spink, Dr Robert
Spring, Richard	Tellers for the Noes:
Sproat, Iain	Mr. Timothy Wood and Mr. David Willetts.
Squire, Robin (Hornchurch)

Question accordingly negatived.

Main Question put: —

The House divided: Ayes 300, Noes 251.

Division No. 204]	[10.15 pm
AYES
Ainsworth, Peter (East Surrey)	Batiste, Spencer
Alexander, Richard	Bellingham, Henry
Alison, Rt Hon Michael (Selby)	Bendall, Vivian
Amess, David	Beresford, Sir Paul
Ancram, Michael	Biffen, Rt Hon John
Arbuthnot, James	Bonsor, Sir Nicholas
Arnold, Jacques (Gravesham)	Booth, Hartley
Arnold, Sir Thomas (Hazel Grv)	Boswell, Tim
Ashby, David	Bottomley, Peter (Eltham)
Atkins, Rt Hon Robert	Bottomley, Rt Hon Virginia
Atkinson, David (Bour'mouth E)	Bowden, Sir Andrew
Baker, Rt Hon Kenneth (Mole V)	Bowis, John
Baker, Nicholas (North Dorset)	Boyson, Rt Hon Sir Rhodes
Baldry, Tony	Brandreth, Gyles
Banks, Matthew (Southport)	Brazier, Julian
Banks, Robert (Harrogate)	Bright, Sir Graham
Bates, Michael	Brooke, Rt Hon Peter

Brown, M (Brigg & Cl'thorpes)	Greenway, Harry (Ealing N)
Browning, Mrs Angela	Greenway, John (Ryedale)
Bruce, Ian (Dorset)	Griffiths, Peter (Portsmouth, N)
Budgen, Nicholas	Grylls, Sir Michael
Burns, Simon	Hague, William
Burt, Alistair	Hamilton, Rt Hon Sir Archibald
Butcher, John	Hamilton, Neil (Tatton)
Butler, Peter	Hampson, Dr Keith
Butterfill, John	Hanley, Rt Hon Jeremy
Carlisle, John (Luton North)	Hannam, Sir John
Carlisle, Sir Kenneth (Lincoln)	Hargreaves, Andrew
Carrington, Matthew	Harris, David
Channon, Rt Hon Paul	Haselhurst, Sir Alan
Chapman, Sydney	Hawkins, Nick
Churchill, Mr	Hawksley, Warren
Clappison, James	Hayes, Jerry
Clark, Dr Michael (Rochford)	Heald, Giver
Clarke, Rt Hon Kenneth (Ru'clif)	Heathcoat-Amory, David
Clifton-Brown, Geoffrey	Hendry, Charles
Coe, Sebastian	Heseltine, Rt Hon Michael
Colvin, Michael	Hicks, Robert
Congdon, David	Hill, James (Southampton Test)
Conway, Derek	Hogg, Rt Hon Douglas (G'tham)
Coombs, Anthony (Wyre For'st)	Horam, John
Coombs, Simon (Swindon)	Hordem, Rt Hon Sir Peter
Cope, Rt Hon Sir John	Howard, Rt Hon Michael
Cormack, Sir Patrick	Howarth, Alan (Strat'rd-on-A)
Couchman, James	Howell, Rt Hon David (G'dford)
Cran, James	Howell, Sir Ralph (N Norfolk)
Currie, Mrs Edwina (S D'by'ire)	Hughes, Robert G (Harrow W)
Curry, David (Skipton & Ripon)	Hunt, Rt Hon David (Wirral W)
Davies, Quentin (Stamford)	Hunt, Sir John (Ravensbourne)
Davis, David (Boothferry)	Hunter, Andrew
Day, Stephen	Hurd, Rt Hon Douglas
Deva, Nirj Joseph	Jack, Michael
Devlin, Tim	Jackson, Robert (Wantage)
Dorrell, Rt Hon Stephen	Jenkin, Bernard
Douglas-Hamilton, Lord James	Johnson Smith, Sir Geoffrey
Dover, Den	Jones, Gwilym (Cardiff N)
Duncan, Alan	Jones, Robert B (W Hertfdshr)
Duncan-Smilh, Iain	Jopling, Rt Hon Michael
Dunn, Bob	Kellett-Bowman, Dame Elaine
Durant, Sir Anthony	Key, Robert
Dykes, Hugh	King, Rt Hon Tom
Eggar, Rt Hon Tim	Kirkhope, Timothy
Elletson, Harold	Knapman, Roger
Emery, Rt Hon Sir Peter	Knight, Mrs Angela (Erewash)
Evans, David (Welwyn Hatfield)	Knight, Greg (Derby N)
Evans, Jonathan (Brecon)	Knight, Dame Jill (Bir'm E'st'n)
Evans, Roger (Monmouth)	Knox, Sir David
Evennett, David	Kynoch, George (Kincardine)
Faber, David	Lait, Mrs Jacqui
Fabricant, Michael	Lamont, Fit Hon Norman
Fenner, Dame Peggy	Lang, Rt Hon Ian
Field, Barry (Isle of Wight)	Lawrence, Sir Ivan
Fishburn, Dudley	Legg, Barry
Forman, Nigel	Leigh, Edward
Forsyth, Rt Hon Michael (Stirling)	Lennox-Boyd, Sir Mark
Forth, Eric	Lester, Jim (Broxtowe)
Fox, Dr Liam (Woodspring)	Lidington, David
Fox, Sir Marcus (Shipley)	Lightbown, David
Freeman, Rt Hon Roger	Lilley, Rt Hon Peter
French, Douglas	Lloyd, Rt Hon Sir Peter (Fareham)
Fry, Sir Peter	Lord, Michael
Gale, Roger	Luff, Peter
Gallie, Phil	MacKay, Andrew
Gardiner, Sir George	Maclean, Rt Hon David
Garel-Jones, Rt Hon Tristan	McLoughlin, Patrick
Garnier, Edward	McNair-Wilson, Sir Patrick
Gill, Christopher	Madel, Sir David
Gillan, Cheryl	Maitland, Lady Olga
Goodlad, Rt Hon Alastair	Major, Rt Hon John
Goodson-Wickes, Dr Charles	Malone, Gerald
Gorrnan, Mrs Teresa	Mans, Keith
Gorst, Sir John	Marland, Paul
Grant, Sir A (SW Cambs)	Marlow, Tony

Marshall, John (Hendon S)	Soames, Nicholas
Marshall, Sir Michael (Arundel)	Speed, Sir Keith
Martin, David (Portsmouth S)	Spencer, Sir Derek
Mawhinney, Rt Hon Dr Brian	Spicer, Sir James (W Dorset)
Mellor, Rt Hon David	Spicer, Michael (S Worcs)
Merchant Piers	Spink, Dr Robert
Mills, Iain	Spring, Richard
Mitchell, Andrew (Gedling)	Sproat, Iain
Mitchell, Sir David (NW Hants)	Squire, Robin (Hornchurch)
Moate, Sir Roger	Stanley, Rt Hon Sir John
Monro, Sir Hector	Steen, Anthony
Montgomery, Sir Fergus	Stephen, Michael
Moss, Malcolm	Stern, Michael
Needham, Rt Hon Richard	Stewart, Allan
Nelson, Anthony	Streeter, Gary
Neubert, Sir Michael	Sumberg, David
Newton, Rt Hon Tony	Sweeney, Walter
Nicholls, Patrick	Sykes, John
Nicholson, David (Taunton)	Tapsell, Sir Peter
Nicholson, Emma (Devon West)	Taylor, Ian (Esher)
Norris, Steve	Taylor, Sir Teddy (Southend, E)
Onslow, Rt Hon Sir Cranley	Temple-Morris, Peter
Oppenheim, Phillip	Thomason, Roy
Ottaway, Richard	Thompson, Sir Donald (C'er V)
Page, Richard	Thompson, Patrick (Norwich N)
Paice, James	Thornton, Sir Malcolm
Patnick, Sir Irvine	Thurnham, Peter
Patten, Rt Hon John	Townend, John (Bridlington)
Pattie, Rt Hon Sir Geoffrey	Townsend, Cyril D (Bexl'yh'th)
Pawsey, James	Tracey, Richard
Peacock, Mrs Elizabeth	Tredinnick, David
Pickles, Eric	Trend, Michael
Porter, Barry (Wirral S)	Trotter, Neville
Porter, David (Waveney)	Twinn, Dr Ian
Portillo, Rt Hon Michael	Vaughan, Sir Gerard
Powell, William (Corby)	Viggers, Peter
Rathbone, Tim	Waldegrave, Rt Hon William
Redwood, Rt Hon John	Walden, George
Renton, Rt Hon Tim	Walker, Bill (N Tayside)
Richards, Rod	Waller, Gary
Riddick, Graham	Ward, John
Rifkind, Rt Hon Malcolm	Wardle, Charles (Bexhill)
Robathan, Andrew	Waterson, Nigel
Roberts, Rt Hon Sir Wyn	Watts, John
Robertson, Raymond (Ab'd'n S)	Wells, Bowen
Robinson, Mark (Somerton)	Whitney, Ray
Rowe, Andrew (Mid Kent)	Whittingdale, John
Rumbold, Rt Hon Dame Angela	Widdecombe, Ann
Sackville, Tom	Wiggin, Sir Jerry
Sainsbury, Rt Hon Sir Timothy	Wilkinson, John
Scott, Rt Hon Sir Nicholas	Wilshire, David
Shaw, David (Dover)	Winterton, Mrs Ann (Congleton)
Shaw, Sir Giles (Pudsey)	Wolfson, Mark
Shephard, Rt Hon Gillian	Yeo, Tim
Shepherd, Colin (Hereford)	Young, Rt Hon Sir George
Shepherd, Richard (Aldridge)
Shersby, Sir Michael	Tellers for the Ayes:
Sims, Roger	Mr. Timothy Wood and Mr. David Willetts.
Smith, Tim (Beaoonsfield)

NOES
Abbott, Ms Diane	Benn, Rt Hon Tony
Adams, Mrs Irene	Bennett, Andrew F
Ainsworth, Robert (Cov'try NE)	Bermingham, Gerald
Allen, Graham	Berry, Roger
Anderson, Donald (Swansea E)	Betts, Clive
Armstrong, Hilary	Blunkett, David
Austin-Walker, John	Boateng, Paul
Banks, Tony (Newham NW)	Bray, Dr Jeremy
Barnes, Harry	Brown, Gordon (Dunfermline E)
Barron, Kevin	Brown, N (N'c'tle upon Tyne E)
Battle, John	Bruce, Malcolm (Gordon)
Bayley, Hugh	Burden, Richard
Beckett, Rt Hon Margaret	Byers, Stephen
Beith, Rt Hon A J	Caborn, Richard
Bell, Stuart	Callaghan, Jim

Campbell, Mrs Anne (C'bridge)	Hill, Keith (Streatham)
Campbell, Menzies (Fife NE)	Hinchliffe, David
Campbell, Ronnie (Blyth V)	Hodge, Margaret
Campbell-Savours, D N	Hoey, Kate
Cann, Jamie	Hogg, Norman (Cumbernauld)
Carlile, Alexander (Montgomery)	Home Robertson, John
Chidgey, David	Hood, Jimmy
Chisholm, Malcolm	Hoon, Geoffrey
Church, Judith	Howells, Dr. Kim (Pontypridd)
Clapham, Michael	Hoyle, Doug
Clark, Dr David (South Shields)	Hughes, Kevin (Doncaster N)
Clarke, Eric (Midlothian)	Hughes, Robert (Aberdeen N)
Clarke, Tom (Monklands W)	Hughes, Roy (Newport E)
Clwyd, Mrs Ann	Hughes, Simon (Southwark)
Coffey, Ann	Hutton, John
Cohen, Harry	Illsley, Eric
Connarty, Michael	Jackson, Glenda (H'stead)
Cook, Frank (Stockton N)	Jackson, Helen (Shef'ld, H)
Corbett Robin	Jamieson, David
Corbyn, Jeremy	Janner, Greville
Corston, Jean	Jones, Barry (Alyn and D'side)
Cousins, Jim	Jones, Jon Owen (Cardiff C)
Cox, Tom	Jones, Lynne (B'ham S O)
Cummings, John	Jones, Nigel (Cheltenham)
Cunliffe, Lawrence	Jowell, Tessa
Cunningham, Jim (Covy SE)	Keen, Alan
Cunningham, Roseanna	Kennedy, Charles (Ross, C&S)
Dalyell, Tam	Khabra, Piara S
Darling, Alistair	Kilfoyle, Peter
Davidson, Ian	Kirkwood, Archy
Davies, Bryan (Oldham C'tral)	Lestor, Joan (Eccles)
Davies, Rt Hon Denzil (Llanelli)	Lewis, Terry
Davis, Terry (B'ham, H'dge H'l)	Liddell, Mrs Helen
Denham, John	Litherland, Robert
Dewar, Donald	Livingstone, Ken
Dixon, Don	Lloyd, Tony (Stretford)
Dobson, Frank	Llwyd, Elfyn
Donohoe, Brian H	Loyden, Eddie
Dunwoody, Mrs Gwyneth	Lynne, Ms Liz
Eagle, Ms Angela	McAllion, John
Eastham, Ken	McAvoy, Thomas
Etherington, Bill	Macdonald, Calum
Evans, John (St Helens N)	McFall, John
Ewing, Mrs Margaret	Mackinlay, Andrew
Fatchett, Derek	McLeish, Henry
Faulds, Andrew	Maclennan, Robert
Field, Frank (Birkenhead)	McMaster, Gordon
Fisher, Mark	McWilliam, John
Flynn, Paul	Madden, Max
Foster, Rt Hon Derek	Maddock, Diana
Foster, Don (Bath)	Mahon, Alice
Fraser, John	Marek, Dr John
Fyfe, Maria	Marshall, Jim (Leicester, S)
Gapes, Mike	Martin, Michael J (Springburn)
Garrett, John	Martlew, Eric
George, Bruce	Maxton, John
Garrard, Neil	Meacher, Michael
Gilbert, Rt Hon Dr John	Meale, Alan
Godman, Dr Norman A	Michael, Alun
Godsiff, Roger	Michie, Bill (Sheffield Heeley)
Golding, Mrs Llin	Milburn, Alan
Gordon, Mildred	Miller, Andrew
Graham, Thomas	Mitchell, Austin (Gt Grimsby)
Grant, Bernie (Tottenham)	Morgan, Rhodri
Griffiths, Nigel (Edinburgh S)	Morley, Elliot
Griffiths, Win (Bridgend)	Morris, Rt Hon Alfred (Wy'nshawe)
Grocott, Bruce	Morris, Estelle (B'ham Yardley)
Gunnell, John	Morris, Rt Hon John (Aberavon)
Hain, Peter	Mowlam, Marjorie
Hall, Mike	Mudie, George
Hanson, David	Mullin, Chris
Hardy, Peter	Murphy, Paul
Harvey, Nick	Oakes, Rt Hon Gordon
Hattersley, Rt Hon Roy	O'Brien, Mike (N W'kshire)
Henderson, Doug	O'Brien, William (Normanton)
Heppell, John	O'Hara, Edward

Olner, Bill	Smith, Andrew (Oxford E)
O'Neill, Martin	Smith, Chris (Isl'ton S & F'sbury)
Orme, Rt Hon Stanley	Smith, Llew (Blaenau Gwent)
Parry, Robert	Spearing, Nigel
Pearson, Ian	Spellar, John
Pendry, Tom	Steel, Rt Hon Sir David
Pickthall, Colin	Stevenson, George
Pike, Peter L	Strang, Dr. Gavin
Pope, Greg	Straw, Jack
Powell, Ray (Ogmore)	Sutcliffe, Gerry
Prentice, Gordon (Pendle)	Taylor, Mrs Ann (Dewsbury)
Prescott, Rt Hon John	Taylor, Matthew (Truro)
Primarolo, Dawn	Thompson, Jack (Wansbeck)
Purchase, Ken	Timms, Stephen
Quin, Ms Joyce	Touhig, Don
Radice, Giles	Tyler, Paul
Randall, Stuart	Vaz, Keith
Raynsford, Nick	Walker, Rt Hon Sir Harold
Reid, Dr John	Wallace, James
Rendel, David	Walley, Joan
	Wardell, Gareth (Gower)
Robertson, George (Hamilton)	Wareing, Robert N
Robinson, Geoffrey (Co'try NW)	Watson, Mike
Roche, Mrs Barbara	Wicks, Malcolm
Rogers, Allan	Williams, Rt Hon Alan (Sw'n W)
Rooker, Jeff	Williams, Alan W (Carmarthen)
Rooney, Terry	Wilson, Brian
Ross, Ernie (Dundee W)	Winnick, David
Rowlands, Ted	Wise, Audrey
Salmond, Alex	Worthington, Tony
Sedgemore, Brian	Wray, Jimmy
Sheerman, Barry	Wright, Dr Tony
Sheldon, Rt Hon Robert	Young, David (Bolton SE)
Shore, Rt Hon Peter
Short, Clare	Tellers for the Noes:
Simpson, Alan	Mr. Joe Benton and Mr. Jim Dowd.
Skinner, Dennis

Question accordingly agreed to.

Resolved, That this House welcomes the publication of the Government's latest forecast, which shows growth continuing at a steady and sustainable rate, inflation remaining low, exports rising and Government borrowing falling; and recognises that this favourable outlook for the economy is a result of the Government's firm commitment to the healthy and sustainable recovery of a modern and competitive industrial economy.