Economic Growth (Hansard, 11 March 1996)

§ The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)
My Lords, the Government's latest forecast is set out in the November Financial Statement and Budget Report, and shows the economy growing by 3 per cent. in 1996.

§ Lord Ezra
My Lords, I note the optimistic tone of the noble Lord's response. However, will he accept that the present rate of growth is not at that level, and if this rate is to be achieved over the year as a whole, there will have to be a surge in growth in the latter part of the year? Will he also accept that it is unlikely to be export-led, as our main export markets, particularly on the Continent, are going through a difficult economic period? Moreover, will he accept it is unlikely to be investment-led because of cut-backs in government capital investment and manufacturing and construction investment, and therefore it is likely to be consumer-led? Will the noble Lord accept that in those circumstances, we will be running the risk of once more seeing some overheating in the economy?

§ Lord Mackay of Ardbrecknish
My Lords, the noble Lord will have to decide whether we shall hit the 3 per cent. growth target or whether we shall overheat the economy. Of course our GDP growth has slowed down, as it has done elsewhere in Europe; but the fundamentals are in place to ensure that good growth will continue. I am sure the noble Lord read Saturday's newspapers where he would have seen the very encouraging headline in the Guardian: 'Bumper year' spells poll gloom for Labour. Most economists back Clarke's forecast of strong growth, lower inflation and higher prosperity in 1996".

§ Viscount Chandos
My Lords, does the Minister not also recall a headline from today's Financial Times in which the Government are referred to as having apparently abandoned their safety first policy on inflation in their interest rate reduction in order to achieve the projected rates of growth about which so many noble Lords on this side of the House are sceptical?

§ Lord Mackay of Ardbrecknish
My Lords, I am not entirely sure how one satisfies the Opposition or indeed the Shadow Chancellor. Week by week they call for lower interest rates; but the moment my right honourable friend the Chancellor lowers interest rates, they then complain. We are in no doubt that the level of inflation is set to continue its current trend which is well within the targets set out by my right honourable friend the Chancellor. The cut in interest rates on Friday is a sensible way to help everyone in the economy, particularly house owners.

§ Baroness O'Cathain
My Lords, can my noble friend confirm that growth can indeed be led by both investment and consumer expenditure through this prudent, managed and consistent reduction in interest rates?

§ Lord Mackay of Ardbrecknish
My Lords, my noble friend is quite right. A number of factors will help this year, including the reduction in taxes which will come into play in April and the fact that TESSAs will be maturing. In particular, as a result of the three interest rate cuts by the Chancellor and the Governor of the Bank of England, the payment for an average mortgage of £33,000 will have fallen by £150 a month since the high point in October 1990. That represents a great deal of extra consumer spending.

§ Lord Brabazon of Tara
My Lords, as well as having the lowest interest rates, and particularly mortgage rates, for very many years, can my noble friend tell me how unemployment in this country compares with unemployment in the countries of some of our European Union colleagues?

§ Lord Mackay of Ardbrecknish
My Lords, as I have explained from the Dispatch Box before, we have seen unemployment fall by around 750,000 as we have come out of this recession and our unemployment is still falling in contrast to many of our friends in the European Union—using the EUROSTAT standardised unemployment rates, just in case the Opposition demand to know whether the rates I quote are standardised, as indeed they always are. In December, the last month for which we have these standardised figures, ourselves and Germany were both at 8.6 per cent. The Germans will now be above us. The French were at 11.6 per cent.; Italy at 12.6 per cent.; and the European Union average was 10.9 per cent. So we seem to be doing rather well.

Lord Bruce of Donington
My Lords, is the noble Lord aware that regarding unemployment figures he is living in cloud-cuckoo-land? The unemployment figures, which are now renamed "claimant unemployment", are about 1.25 million lower than the actual figure at the present time. If unemployment were calculated and reported on the same basis as in 1979, it would today be standing at 4 million. Sooner or later, the country will become aware of that, and then the noble Lord will be smiling on the other side of his face.

§ Lord Mackay of Ardbrecknish
My Lords, it is rather a pity that the noble Lord, who is always very careful in these matters, did not listen carefully to what I said before I explained the figures. The figures I used were not the figures we collect monthly; they were the EUROSTAT standardised unemployment figures which are collected and put on a standard rate. That is why, at 8.6 per cent., they are higher than the figures we produce every month.