HC Deb 30 March 1995 vol 257 cc1166-9
3. Mr. Forman

To ask the Chancellor of the Exchequer what estimate his Department has made of the change in real personal disposable income in 1995–96; and whether he will make a statement. [15277]

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

At Budget time, I forecast growth of 1½ per cent. in real personal disposable income during 1995 as a whole.

Mr. Forman

That is welcome news. Does my right hon. and learned Friend accept that it is largely due to his determination and that of the Governor of the Bank of England to keep a tight lid on inflation, and to the Government as a whole pursuing policies which have improved the supply side of the economy, that people have been enabled to earn more in a productive way?

Mr. Clarke

I agree with my hon. Friend's analysis. Real disposable personal incomes, over and above the low inflation that we now enjoy, grew last year and they are forecast to grow this year. People can feel confident that this increase in prosperity is based on very sound and secure ground, precisely because we are pursuing the approach that my hon. Friend commends.

Mr. Gordon Brown

Does the Chancellor agree that millions of people are worse off under the Conservatives, first, because there have been 20 tax rises in the past two years, secondly, because of two mortgage rises in the past few months and, thirdly, because of the overcharging by water and electricity companies? Will he explain why no action has been taken on that overcharging until now? Does he agree that water companies—not just one, but all water companies—should be reducing their prices and that there should be a refund for past excesses?

Mr. Clarke

If the hon. Gentleman is trying to imply that people are worse off under the Conservatives since we came to power, that is an absurd claim, as he well knows. Average incomes are up by about 40 per cent. in real terms since we came in, whereas they crawled up, barely increased at all, when the Labour party was in power.

As for what is going on at the moment, it is true that the last few tax increases in the pipeline will cost the average family about £1.10 a week when they come into effect in April. Nevertheless, over and above that, people's disposable incomes will rise. Somebody on average earnings and with an average mortgage has seen their disposable income, after their mortgage, go up by almost a quarter since 1990. So living standards are rising and will continue to rise under the Conservatives.

On water companies, as the hon. Gentleman knows, it is a balance between the investment, which is at last coming in through privatisation. Investment was neglected when they were state owned, but it is now raising our water quality, improving our drainage and services, and the prices have been reduced by competition. The old state-owned water industry did not serve this country well, and it is absurd to single that out to try to damage the impressive evidence that I have given the hon. Gentleman of rising living standards in this country.

Mr. Yeo

My right hon. and learned Friend refers to the abysmal performance of the Labour party in failing to increase real personal disposable income in 1974–79. Can he think of a single policy advocated by the Labour party which would make it do any better next time?

Mr. Clarke

It is rather difficult to think of a single policy advocated by the Labour party full stop. If I may, I shall judge the Labour party by its actions. It has voted against all our attempts to raise revenue and against all our attempts to cut public expenditure. It has given no clue that it has given any thought to the level of public borrowing, and it would plainly disregard inflation. This country would be in deep recession and people would face reduced living standards if we had taken the slightest notice of such hints of interest as have come from Members on the Opposition Front Bench.

Mr. Skinner

Is the Chancellor aware that when the Tories came to power in 1979, out of disposable income the amount that the average family owed in debts of one kind or another was 45 per cent? After 15 years of a Tory Government, that has now risen to well over 100 per cent. That is why people realise that there is no feel-good factor because, like the country, most of them are up to their necks in debt. They are living on tick.

Mr. Clarke

That is a quite ingenious but wholly selective use of figures. The real incomes of people, every section of society in this country, are substantially higher now than they were in 1979. When the Labour party was in power, we were an industrial laughing stock. The country was suffering from stagflation, and the real living standards of people rose by barely 1 per cent. per year. Since that time, they have taken off and real disposable incomes are about 40 per cent. higher than they were then.

Mr. Nicholas Winterton

While I very much appreciate the sound way in which my right hon. and learned Friend the Chancellor is seeking to manage our economy and to keep inflation under control, is he not aware that the construction and housing sectors of our economy—which are of immense importance to the economy of this country as they purchase from practically every manufacturing sector—are in deep decline? There is a crisis and we need a regeneration of confidence in that area, not to increase house prices as rapidly as happened in the late 1980s, but to get some confidence back into that sector of the economy. What can my right hon. and learned Friend do to achieve that?

Mr. Clarke

I do not agree that there is a crisis or that those sectors are in decline. However, my hon. Friend makes a serious point: the housing and construction market is completely flat, which makes economic judgments very delicate. We must sustain the strong recovery, particularly in manufacturing, we must ensure that unemployment continues to fall, and for that we must have low inflation. The recovery is unbalanced, with manufacturing and exports doing well and housing and construction very flat. I believe that growing consumer confidence—people's growing feeling of security in the future of their jobs and the fact that mortgage rates are so much lower than they were in 1990—will create enough pent-up demand to make the housing market move. I should be wary of any artificial stimulation, which would have the effect that my hon. Friend the Member for Rutland and Melton (Mr. Duncan) warned us against and return housing prices to unrealistic levels.

Mr. Wigley

Does the Chancellor accept that there is a massive disparity between personal incomes in different areas? In Gwynedd—my own county—Dyfed and Mid-Glamorgan, gross domestic product per capita is now lower than the average in the Irish Republic. What will the Chancellor do to try to ensure that areas which have fallen behind can catch up?

Mr. Clarke

There have always been discrepancies in earnings and living standards in different parts of the country, but comparisons between living standards—which are what matter—must be made very carefully, especially when borders are involved, because exchange rates and so forth must be taken into account. In most parts of the United Kingdom, actual disposable incomes in terms of purchasing power compare very well with those in most of Europe, and we have a high level of consumption. The old regional disparities have changed greatly in many ways, as we see when we examine actual economic activity. Another healthy feature of the current recovery is the fact that there is no longer a performance gap between the north, Scotland, large parts of Wales and south-east England.