Sitting of 12 January 1989

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]

PRIVATE BUSINESS
CITY OF LONDON (SPITALFIELDS MARKET) BILL (By Order)
Order for Third Reading read.
To be read the Third time on Thursday 19 January.

LONDON REGIONAL TRANSPORT (PENALTY FARES) BILL [Lords/ (By Order)
Orders for Second Reading read.
To be read a Second time on Thursday 19 January.

Oral Answers to Questions
  NORTHERN IRELAND

    Security
    Mr. Maginnis: To ask the Secretary of State for Northern Ireland if he will make a statement on the security situation in Northern Ireland.
    Mr. Flannery: To ask the Secretary of State for Northern Ireland if he will make a statement on the security situation in Northern Ireland.
    Mr. Barry Field: To ask the Secretary of State for Northern Ireland if he will make a statement on the work of the security forces over the Christmas holiday.
    The Secretary of State for Northern Ireland (Mr. Tom King): During the past year 93 people died as a result of the security situation in Northern Ireland. These included 39 members of the security forces and 54 civilians of whom one third were believed to have been terrorists. The remainder were civilians with no connection with the security forces. There have been no deaths so far this year.
    During the recent period, including Christmas, as throughout 1988, the security forces continued to act with determination and courage. This has resulted in a significant number of people being charged with serious offences, while some 550 weapons, over 100,000 rounds of ammunition and 10,500 lbs of explosives have been recovered in Northern Ireland.
    The Garda Siochana has recovered over 300 weapons, about 140,000 rounds of ammunition, 1,000 lbs of explosives and 380 gallons of nitrobenzene. In addition, a substantial find was made in county Offaly on 4 January which included over 35 mortar bombs containing a large amount of Semtex explosive. The House may know that
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    there was a further significant discovery this morning near Dundalk of an amount of ammonium nitrate and nitrobenzene.
    Mr. Maginnis: The Secretary of State, like many of us, will be aware that the figures that he quoted give very little satisfaction to the people of Northern Ireland. There has been a steady increase in the number of deaths in the past three years. The "significant" finds of more than 500 weapons are less significant nowadays in comparison with the weapons now available and those that were available in the past. Following the Secretary of State's visit to the west of my constituency earlier this week, will he ensure that no change is made to the permanent vehicle check points there? I hope that any changes that he proposes will be discussed properly with the Royal Ulster Constabulary and receive its support, as I am certain that the removal of check points would not.
    Mr. King: Obviously I endorse the hon. Gentleman's opening comments. Although the number of deaths is the same as the figure for the year before, that figure is far too high. At the same time, as he knows, we are in the teeth of what the IRA intend to be a sustained campaign, of which the chief constable of the RUC made mention. It would be right to pay tribute to the efforts of the security forces over the past few months in preventing what could have been, and what was forecast to be, an appalling end to the year. That did not actually happen, but that does not mean that there is any room for complacency. It is right to recognise the significant number of finds of arms and explosives and the significant number of arrests where charges have been preferred as well.
    As to the hon. Gentleman's particular point, he knows that I will not give him a blanket answer from the Dispatch Box, but it is vital that we make the very best use or available resources. That may not always mean leaving security checks in a static position, which takes up a lot of manpower and can often be easily bypassed.
    Mr. Maginnis: What will happen if the security check points are removed?
    Mr. King: The security forces may be more effective and more able to bring help if they operate in a mobile fashion. I take seriously the need for the closest possible understanding on any such matters.
    Mr. Maginnis rose—
    Mr. Speaker: Order. I am the first to appreciate the seriousness of Northern Ireland questions, but I ask right hon. and hon. Members to make them brief so that we may progress more quickly through the Order Paper.
    Mr. Maginnis: On a point of order, Mr. Speaker. As you know, I have few opportunities to speak as a Member of Parliament for Northern Ireland. The security situation is extremely—
    Mr. Speaker: Order. I ask the hon. Gentleman not to challenge me. I am anxious to call as many right hon. and hon. Members aa possible. Long supplementary questions lead to long answers, which slows our progress through the Order Paper.
    Mr. Flannery: During the many years that several right hon. and hon. Members have been in the House, whenever security questions have been asked a state of deadlock has been revealed and we seem to get no further. It is always

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    said that we shall defeat the IRA militarily, but politics are never discussed. As one who is deeply frustrated at that situation, may I suggest that the Minister call together the political parties of Northern Ireland—for example, the church groupings—at a conference to discuss not only defeating the IRA but the political situation as it is viewed by the various Northern Ireland groupings? Is that not the right way forward rather than sterile discussions about what armaments will be deployed?
    Mr. King: The hon. Gentleman is absolutely right to draw attention to the pointlessness of the campaign of violence, which only damages the prospects for peace for all the people in the Province and brings misery and sadness in its wake. I am anxious to encourage the maximum dialogue, in whatever form is possible, between all constitutional parties supporting the democratic route and not subscribing to violence.
    Mr. Field: Do the numbers of those killed in Northern Ireland given by my right hon. Friend include the innocent grandfather and granddaughter who were murdered returning home from a game of bingo? Do they include the two elderly people who were rewarded by an IRA bomb for their kindness in calling on a neighbour? Do they include the two people killed outside the swimming pool in the Falls road? How many innocent victims are included in the figures given by my right hon. Friend?—{HON. MEMBERS: "They were all innocent."] How many innocents were killed by what the IRA obscenely calls a mistake?
    Mr. King: I confirm that the figures include just those cases to which my hon. Friend refers and many others—including Gillian Johnston, and the schoolgirl on the school bus who, fortunately was not killed. They were just some of the casaulties of the totally callous campaign being waged by the IRA. I am grateful to my hon. Friend for drawing attention to the evilness of that campaign of violence.
    Mr. Mallon: Is the Secretary of State aware of the blanket searches currently taking place in Armagh, Derry and Belfast? If so, will he confirm whether individual searches are the result of reasonable suspicion, or are those blanket searches being used to cover up targets and sources of specific information? Does the right hon. Gentleman agree that it is outrageous that innocent people should suffer and flies in the face of every precept of natural and legal justice?
    Mr. King: No, I confirm that there is no question of searches being made on a random basis. They are made only when there is good reason to relieve that there is cause for concern. Recently I received a complaint about the searching of a number of houses in west Belfast. Unfortunately, it was necessary to search 43 houses, but seven hides were found in them. In five of those hides nine mortars, 1,500 rounds of ammunition and 400 lbs. of home-made explosives were discovered. I make no apology for those searches. If they will save a grandfather and granddaughter going home from bingo from being mutilated and being blown clean across the road and into a nearby field they will continue to be made.
    What is absolutely outrageous—I agree with the hon. Gentleman—is that innocent people are having their homes uprooted because evil men are intimidating and
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    threatening them and forcing them to hide explosives and weapons in their houses. That is what is outrageous, and the House must stand as one against such practices.
    Rev. Ian Paisley: Will the right hon. Gentleman take note of the question put to him by the hon. Member for Fermanagh and South Tyrone (Mr. Maginnis) and give an unequivocal assurance today that he will not overrule the recommendations of the RUC, which knows better than the Army how to safeguard the lives of individuals on the border?
    May I ask the right hon. Gentleman to consider the serious situation arising as a result of the closure of part-time police stations? As he is well aware, when the police withdraw from them those police stations become assault targets—two have been bombed already—and much manpower is needed to search them before they are re-occupied. Will the right hon. Gentleman study the position?
    Will the right hon. Gentleman also consider the dates of the two coming elections? Why should the security forces have to be employed on two days when the elections could be held on one day, thus easing the burden on the security forces?
    Mr. King: On the first point, I cannot add much to what I said to the hon. Member for Fermanagh and South Tyrone (Mr. Maginnis). I take seriously the RUC's concerns in any such matters. At the same time I know that how best to use available resources is a matter of real concern to those involved in security so as to create maximum uncertainty for terrorists, which in turn creates maximum security for the people whom the security forces are seeking to protect. Having said that. however, I take the hon. Gentleman's point seriously.
    I also take seriously the hon. Gentleman's point about part-time police stations. None of the issues is easy. It is a matter of deciding on the best use of manpower, which stations it is most sensible to man on a full-time basis and where stations are needed. We are looking at that matter carefully.
    I see no prospect of changing the dates of the elections to make them coincide, but I understand the hon. Gentleman's point about the additional burden placed on the security forces.
    Ms. Mowlam: I am sure that the Secretary of State will acknowledge the difficulties when a street is searched and everybody becomes confused and upset, but in view of his acknowledgment of the increased number of house searches will he clarify what he means by non-random?
    Mr. King: Non-random means when the security forces have good reason to believe that a house may contain hidden munitions. For instance, I hope that the hon. Lady will understand the outrage felt by any resident in the Creggan in Derry at the death of the two good neighbours and the way in which terrorists deliberately intimidate ordinary people into hiding weapons, insisting that they do so. That is intolerable and I hope that the House will not hesitate to make it clear where the blame for the problem really lies.
    Sir Antony Buck: Is my right hon. Friend aware that it will be a matter of gratification to hon. Members on both sides that he has paid such a full tribute to our security

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    forces? Does he agree that probably no forces but ours could sustain the burdens that they have sustained over such a long period with such amazing forbearance?
    Mr. King: Any holder of my office must be careful as one never knows what problem or tragedy may occur. None the less, it is right to pay tribute to the achievement of the security forces in the past few months. All the intelligence indicated that the IRA was determined to step up its campaign. Its members tried a whole range of different attacks of one sort or another, and the efforts of the security forces were beyond praise.
    Although we cannot be certain about the future, I can assure the House that morale is high and that the security forces will do everything in their power to ensure that their performance is maintained.

    Anglo-Irish Agreement
    Ms. Short: To ask the Secretary of State for Northern Ireland if he will list the reforms introduced under the Anglo-Irish Agreement which have improved conditions for the nationalist community in Northern Ireland.
    The Parliamentary Under-Secretary of State for Northern Ireland (Dr. Brian Mawhinney): Many programmes and measures have been introduced of value to all the people of Northern Ireland, including the minority, since the Anglo-Irish Agreement was signed. Among the items which have benefited from discussion through the conference are the establishment of an independent commission for police complaints, the repeal of the Flags and Emblems Act, new legislation aimed at securing full equality of opportunity in employment, the establishment of the international fund, the extension of the franchise for assembly and district council elections and the publication of the RUC code of conduct.
    Ms. Short: The question for this House is what political strategy we have to end the bloodshed in Northern Ireland. Hon. Members seem to think that they have made a contribution when they denounce it, but it has been going on for 20 years and the prospects are that it will continue for another 20. Do we have a political strategy to bring peace to Northern Ireland? The Anglo-Irish Agreement was meant to be the strategy to reduce support for the men of violence by bringing in serious reforms for the disaffected community. Blanket searches create disaffection and support for paramilitary activity—that we know.
    The Government seem to have given up. If they give up on any political strategy of reform and improvement and go for repression, things will get worse—[HON. MEMBERS: "Ask a question."] You are a fine lot to talk about that. What is the hope in the long term? Do the Government believe that this level of violence will go on indefinitely?
    Dr. Mawhinney: In keeping with your injunction, Mr. Speaker, I will tell the hon. Lady that the Government are not embarked on any act or policy of repression. The acts and policies of repression in Northern Ireland are carried out by the Provisional IRA, not by the democratically elected Government backed by this House. The surest way of making the situation in Northern Ireland worse would be to take the hon. Lady's advice and take the security forces out and the British troops back home.
    Mr. Nicholas Baker: Does my hon. Friend agree that the progress made by the Anglo-Irish Agreement is constructive and useful? Will he confirm that the policy recommended by the hon. Member for Birmingham, Ladywood (Ms. Short) of removing the security forces from Northern Ireland—
    Ms. Short: That is not my view.
    Mr. Baker:—would be especially inappropriate in the light of the present need to remove the explosives and discover the ammunition dumped and hidden by terrorists in Northern Ireland?
    Dr. Mawhinney: Yes, indeed. It is obviously for the benefit of all the people in Northern Ireland that the British and Irish Governments should have good relations, that those relations should extend to co-operation in security—as was demonstrated by my right hon. Friend's answer—and that the legitimate concerns that both Governments share be dealt with to the benefit of all the people of Northern Ireland.
    Ms. Short: On a point of order, Mr. Speaker. The Minister and the hon. Member for Dorset, North (Mr. Baker) suggested that my view—
    Mr. Speaker: Order. I cannot be held responsible for what Ministers or hon. Members say. I know that the hon. Lady feels aggrieved and misinterpreted, but I cannot help her.
    Rev. Martin Smyth: Pursuant to the question asked by the hon. Member for Birmingham, Ladywood (Ms. Short), as the Anglo-Irish Agreement was intended to bring peace and stability will the Minister tell us what actions and reforms have brought benefit to the British people in Northern Ireland?
    Dr. Mawhinney: The list that I gave in my main answer—[interruption.]—contributes to the answer that the hon. Gentleman seeks, as did the information given by my right hon. Friend the Secretary of State in the first answer. The House should note that the hon. Gentleman is showing an unwillingness to accept that security co-operation, as evidenced by the information that my right hon. Friend has just given to the House, is of benefit to the people of Northern Ireland.
    Mr. Kilfedder: Is it not correct that since the date of the Anglo-Eire Agreement the extradition arrangements with the Irish Republic have worsened?
    Dr. Mawhinney: The hon. Gentleman knows that we have extradition arrangements with the Irish Republic but that from time to time we have certain difficulties over them. [Interruption.] However, the understanding which underlies them and will make them more effective is well in place.
    Mr. McNamara: Is the Minister aware that those hon. Members who are catcalling at his attitude towards the Anglo-Irish Agreement have, as their natural allies, the Provisional IRA and that both groups who adopt that attitude have no real interest in conciliation between the communities in Northern Ireland, which is the basis of the Anglo-Irish Agreement? What every hon. Member should want, need and desire for the people of Northern Ireland and for the safety of our security forces—because it

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    represents the best hope for the island of Ireland and for our relations with the Republic of Ireland—is the proper strengthening and pursuit of the Anglo-Irish Agreement.
    Dr. Mawhinney: It is obvious that what will benefit the people of Northern Ireland, and it will emerge from the Anglo-Irish Agreement, lies both in the security realm, which the hon. Gentleman has recognised, and in the political realm, whereby we can devise arrangements for the future of Northern Ireland which command the widespread support of the substantial majority of people on both sides of the community. That is what we are aiming to achieve and that is what this House supports.
    Mr. Leigh: In view of the controversial views of the hon. Member for Birmingham, Ladywood (Ms. Short) on the "Troops out" movement—
    Ms. Short: On a point of order, Mr. Speaker.
    Mr. Speaker: I know that the hon. Lady is aggrieved because she thinks that she has been misinterpreted, but I cannot be held responsible for what hon. Members say.
    Ms. Short: On a point of order, Mr. Speaker.
    Mr. Speaker: Very well. What is the hon. Lady's point of order?
    Ms. Short: I am grateful to you, Mr. Speaker. This is the third attempt wrongly to describe my views on Northern Ireland. Like the majority of British people, I believe that there should be a political settlement and that Britain should politically withdraw from Northern Ireland. It is not my view—[Interruption.]
    Mr. Speaker: Order. I know what the hon. Lady said.
    Mr. Leigh: I apologise, Mr. Speaker. Clearly I was not heard the first time. In view of the controversial views on the "Troops out" movement that have been tendered by the hon. Member for Ladywood—
    Ms. Short: That is not what I said.
    Mr. Leigh: Can my hon. Friend think of any policy less likely to help the nationalist community than withdrawing the troops unilaterally? Can he think of any responsible nationalist politician who supports the hon. Lady's views on that matter?
    Dr. Mawhinney: There is no doubt that the vast majority of people in the nationalist community, who are law-abiding people, have most to fear from the activities of the IRA and that they owe an immense debt of gratitude to the security forces in Northern Ireland.

    Privatisation
    Mr. William Ross: To ask the Secretary of State for Northern Ireland which functions of local councils in Northern Ireland he is considering for privatisation.
    The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Richard Needham): The consultative paper on local government recently published by the Department of the Environment for Northern Ireland asks for comments on compulsory competitive tendering for the following district council activities: refuse collection and street cleaning, cleaning of buildings, grounds maintenance, vehicle maintenance, catering services and
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    recreation and leisure services. Some construction and maintenance work may, in certain circumstances, also be put out to tender.
    Mr. Ross: Within the past hour I have re-read the paper, just to ensure that my eyes did not betray me on the first occasion. Councils in Northern Ireland look after the burial of the dead when the churches do not look after it. Councils look after about half the burials in Northern Ireland. Their two other main functions are refuse collection and recreation. If those functions are privatised, what will be the point of having councils—or do the Government intend to givem them increased powers in some form or another?
    Mr. Needham: I am glad that the hon. Gentleman's eyes do not deceive him on one issue. They certainly deceive him on the other issue. We are not talking about privatisation but about competitive tendering. It is a quite different matter. It may well be that large numbers of council activities will remain with the present staff once they have been looked into. But it is right that ratepayers should know that they are paying the proper price for the services that they get.
    Mr. Peter Robinson: Before the Minister considers measures to encourage financial prudence in local government, will he consider the record of his own Department? In the past seven years the district rate of Castlereagh borough council has increased by only 17 per cent. whereas his Department's regional rate has increased by 53 per cent. Perhaps he should get his act in order first.
    Mr. Needham: The Department of the Environment in Northern Ireland does not set the regional rate in Northern Ireland. It is set by the Department of Finance and Personnel in Northern Ireland. The House should have the correct facts. Of course, all Government spending must be examined most rigorously and we must ensure that the taxpayer gets the best possible value for money.
    Mr. McCusker: In view of yesterday's announcement on privatising water supplies in Great Britain, does the Minister intend to privatise the water service in Northern Ireland, and if not, why not?
    Mr. Needham: We shall certainly consider whether we can privatise the water service in Northern Ireland, although the circumstances and the way in which water is delivered in Northern Ireland is different from the rest of the United Kingdom.
    Mr. Bellingham: While privatisation is important, does my hon. Friend agree that it is equally important that additional functions are devolved to the district councils to give them extra teeth and a more constructive role? Does the noble Lord agree with me that there has been disappointment since the Anglo-Irish Agreement in terms of the number of functions—[Interruption.]
    Mr. Speaker: Order. The Minister is a commoner here, I believe.
    Mr. Needham: I agree with my hon. Friend on a great deal. I am only sorry that he did not ask his question in front of my right hon. Friend the Prime Minister.

    Anglo-Irish Agreement
    Mr. Ashdown: To ask the Secretary of State for Northern Ireland what representations he has received concerning the inter-parliamentary tier of the Anglo-Irish Agreement; and if he will make a statement.
    Mr. Tom King: This is, of course, a matter for Parliament and my right hon. Friend the Lord President has been taking a close interest in it. I am grateful to the right hon. Gentleman for forwarding to me his party's views.
    Mr. Ashdown: Is the Secretary of State aware that during my visit to Dublin before Christmas I discovered a wide cross-party enthusiasm to push forward the provisions made in the Anglo-Irish Agreement for the inter-parliamentary tier and a wide belief that the British Government are holding up that progress? Does the Secretary of State recognise that the distressing events which have occurred in the past three or four months have done severe damage, which he regrets as much as I do, to the Anglo-Irish Agreement? One way of giving that agreement new impetus and direction would be for the Secretary of State to press forward with the inter-parliamentary tier provided for in the agreement.
    Mr. King: There is certainly no truth in the suggestion that the Government are holding up discussions on the matter. My right hon. Friend the Lord President has been taking a keen interest in it and so have I. But it is a matter for the House and for the Houses of Parliament. A number of hon. Members have been involved in discussions on various approaches.
    Mr. Marlow: Would it not be more helpful to the situation in Northern Ireland to give more power to the elected representatives of Northern Ireland rather than to involve the parliamentarians of a country whose Prime Minister, although he might not like the methods of the IRA, certainly shares its objectives?
    Mr. King: I must make it absolutely clear that my hon. Friend's last comment was quite unwarranted. Anyone with any knowledge of the history of IRA terrorism and the Irish Government's responses to it will know that there has been a very effective response while Mr. Haughey has been Taoiseach on this and on the previous occasion. The list that I read out of the number of Garda arms finds, the recent redeployments that have been taking place and the communication and relations that now exist between the RUC and the Garda are certainly most encouraging.
    Mr. Bell: Is the Secretary of State aware of the series of discussions that have taken place between hon. Members of this House and Members of the Irish Dail, under the auspices of the Inter-Parliamentary Union and under the chairmanship of the hon. Member for Leominster (Mr. Temple-Morris)? Will he confirm that there is wide support in the House for an inter-parliamentary tier, based upon the—
    Hon. Members: No.
    Mr. Bell: It has its origins in the Anglo-Irish summit of 1981, rather than the Anglo-Irish Agreement 1985. Is it not a fact that we would all benefit from a dialogue with fellow
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    parliamentarians in the Irish Dail, and that that benefit would be shared equally by all people of the islands of the United Kingdom and the Republic of Ireland?
    Mr. King: I was sorry to hear hon. Members on the Unionist Benches shout "No" before they had even heard what the hon. Gentleman was talking about. He was talking about discussions being under the auspices of the IPU and how the matter might be pursued under the Intergovernmental Conference of 1981. It is a matter for the House, as to which forum hon. Members wish to go forward, and the Government will view it with interest.

    Political Reform
    Sir Michael McNair-Wilson: To ask the Secretary of State for Northern Ireland what measures he is considering to enable Northern Ireland political parties represented at Westminster to play a more constructive role in the administration of the Province.
    Mr. Gow: To ask the Secretary of State for Northern Ireland what progress he is making towards his declared aim of devolution in the Province.
    Dr. Mawhinney: All the main constitutional political parties have said that they support a policy of devolution. The two Unionist leaders put to my right hon. Friend nearly a year ago outline proposals about devolution. As he told them at the time, and on several subsequent occasions, he found their proposals constructive and suggested that the next step should be to move to inter-party dialogue. He has since repeated his call for further talks, without preconditions, and I confirm our hope that the Unionist and other party leaders can respond positively to my right hon. Friend's invitation.
    Sir Michael McNair-Wilson: My hon. Friend will be aware of the promise in the Queen's Speech to give local politicians greater involvement in the affairs of Northern Ireland. What proposals has he for making that promise come true?
    Dr. Mawhinney: My hon. Friend will know that the proposals that were put to my right hon. Friend were seen not only by him but by my right hon. Friend the Prime Minister as a constructive basis for discussion. I confirm that we would wish to do what we could to encourage party leaders and members of the constitutional parties in Northern Ireland to seek ways to enable them to sit down together without pre-condition and, if necessary, outside the framework of the Anglo-Irish Agreement, to consider how best to carry forward the governance of the Province.
    Mr. Gow: If it was right in 1979 for our party to propose that we should seek to set up a regional council or councils in Northern Ireland with widely devolved powers over local matters, why is it wrong for us to implement those proposals in 1989?
    Dr. Mawhinney: Because, as my hon. Friend knows, the other part of our manifesto commitment in 1979 was to seek to move towards devolution. The part that he quoted was in recognition of an inability to do so. I must repeat to my hon. Friend what I said in my original reply. All the main constitutional political parties in Northern Ireland have said that they support a policy of devolution, as does Her Majesty's Government. It is to that end that we are continuing to work.
    Mr. John D. Taylor: As a better alternative to the failed Anglo-Irish Agreement is required, hon. Members will welcome the Minister's statement that he wants talks without any pre-conditions. Am I to assume that that means that his previous pre-condition that the Anglo-Irish Agreement remain in operation, has now been dropped?
    Dr. Mawhinney: The right hon. Gentleman must understand that every political party in Northern Ireland can find some reason in history for not looking towards the future. In some cases it may be three years into history, in some cases it may be 30 years, and in other cases it may be 300 years. This Government believe that it is time for political parties in Northern Ireland to fix their eyes on the future and to find ways that will enable them to come together to put that into effect without pre-conditions and, I repeat to the hon. Gentleman, if necessary, outside the framework of the Anglo-Irish Agreement.
    Mr. Alton: Given what the Minister has just said, does he accept that the major aim of the Anglo-Irish Agreement was the creation of a cross-community devolved assembly? Does he accept that a logical step towards that objective might be the creation, under Standing Order No. 99, of the Northern Ireland Committee which would allow politicians from both sides of the community to come together? If that Committee was to meet in Northern Ireland, it might be a useful step towards devolution.
    Dr. Mawhinney: As the hon. Gentleman knows, the Government's policy on devolution did not start with the Anglo-Irish Agreement in 1985. I hear what the hon. Gentleman said about the Northern Ireland Committee. If approaches were made to the Government to reconstitute the Committee they would be looked at sympathetically.

    Workers' Party (Peace Charter)
    Mr. Harry Barnes: To ask the Secretary of State for Northern Ireland if he will make a statement of his policy towards reconciliation in Northern Ireland in the light of the peace charter which has been sent to him by the Workers' party of Ireland.
    Dr. Mawhinney: Reconciliation between the two traditions is fundamental to the achievement of lasting peace and stability in Northern Ireland. The improvement of relations between the communities is a key element in the Government's approach. We are encouraged by the Workers' party's forthright rejection of terrorist violence and by its call for dialogue between political representatives in the Province.
    Mr. Barnes: In rejecting all forms of terrorism and struggling for peace in Northern Ireland, the Workers' party is advocating constructive dialogue, the establishment of democratic machinery and procedures throughout Northern Ireland and equal opportunities based upon the elimination of poverty and unemployment. How well do the Government score on that scale?
    Dr. Mawhinney: We support in broad principle the sort of proposals included in the Workers' party's peace charter. It may encourage the hon. Gentleman to know that I shall be inviting representatives of the party to talk to me about the proposals.
    Mr. Budgen: Would not the course of reconciliation in Northern Ireland be most helped if the people of that
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    Province had the same rights in the legislative procedures in the House as the remainder of the United Kingdom? Is is not an absolute disgrace that the criminal law of Northern Ireland can be changed by order after three hours' debate in the House without an opportunity for reconsideration, receiving the arguments of High Court judges in Northern Ireland or amendment?
    Dr. Mawhinney: I note my hon. Friend's point and I note also that it is made at a time when there are two Bills relating to Northern Ireland passing through the House. If my hon. Friend has constructive proposals to make in terms of Northern Ireland legislation, I am sure that my right hon. Friend the Secretary of State will listen to them.

    Privatisation
    Mr. Cryer: To ask the Secretary of State for Northern Ireland if he will make a statement on the privatisation of Harland and Wolff and Short Brothers.
    The Parliamentary Under-Secretary of State for Northern Ireland (Mr. Peter Viggers): Negotiations are continuing with the principal parties interested in acquiring Harland and Wolff.
    With regard to Shorts, an information memorandum was issued on 10 January to a selected number of prospective buyers and more detailed discussions will now take place with them.
    Mr. Cryer: Can the Minister justify those lunatic, catastrophic and dogmatic proposals in the light of the uncertainty about employment, investment and securing jobs in the strife-torn Province? Is it not absurd that, for example, Harland and Wolff is having to turn orders away? Only recently it lost an order for dredgers, which went to Holland. Is that not a complete catastrophe for the retention and development of jobs in Northern Ireland? Why do the Government not abandon privatisation? Will the Minister turn round and tell the woman in blue next to him to stop it?
    Mr. Speaker: Order. In the House of Commons we refer to one another by our parliamentary titles or constituencies.
    Mr. Viggers: Apart from anything else, the hon. Gentleman is selling Northern Ireland seriously short in terms of employment. Unemployment has fallen from 134,000 to 108,000 over the past two years. We have recently been successful in winning inward investment. The Government believe that the best future for Harland and Wolff is not in the public sector, supported by subsidy, but in the private sector, operating on a commercial basis.
    As to Shorts, the information memorandum issued on 10 January invites responses by 10 February. We are now confident that we shall move the company into the private sector with Government support and that is what we intend to do. We are confident that it will be best for both companies.
    Mr. Peter Robinson: Given that a number of people in senior posts at Harland and Wolff are looking for other positions because of the uncertainty there, will the Minister say how long it will take to make a decision about the shipyard?

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    The funeral is taking place today in Belfast of the parents of the senior public relations officer of Harland and Wolff, Dr. Maria Maloney. Will the Minister join me in expressing the House's sympathy to her?
    Mr. Viggers: I join the hon. Gentleman in expressing our concern and grief over those affected by Sunday's accident. Northern Ireland has a population of 1·5 million people, few of whom have not been touched in some way by this terrible accident.
    I assure the hon. Gentleman that we shall move as briskly as we can to a solution of the present position at Harland and Wolff. We are aware that uncertainty is not good for the company, but it would not be good to set a timetable that might inhibit us from pursuing certain opportunities for continuing employment at the yard.

  PRIME MINISTER

    Engagements
    Mr. Beith: To ask the Prime Minister if she will list her official engagements for Thursday 12 January.
    The Prime Minister (Mrs. Margaret Thatcher): This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House I shall be having further meetings later today.
    Mr. Beith: Following her visit to the site of the east midlands air crash, does the Prime Minister agree that the widespread speculation—some of which apparently was fuelled by United States' Government officials—attributing pilot error to Captain Hunt the day after he was so widely acclaimed as a hero, was utterly deplorable? Does she further agree that what is needed is not deeply hurtful speculation but the most thorough investigation of the causes of this dreadful crash?
    The Prime Minister: I agree with the hon. Gentleman. It would be far better if everyone accepted that the best course after a tradegy of this kind is for those charged with the duty of investigating to get on with that task. Nothing should be said until it is properly and truly completed, with the one exception that if any technical problems are found during the course of the investigation information should be given so that they can be put right. Otherwise, there should be no speculation and we should wait until the facts are found.
    Mr. Teddy Taylor: Given the widespread concern in the west about the chemical warfare establishment being built in Libya, is the Prime Minister willing to take a Euro-initiative to try to persuade European firms not to provide the equipment on which it is based?
    The Prime Minister: I agree with my hon. Friend that there is widespread concern about the plant, which I believe is there to produce chemical weapons. We have the powers to stop exports that could be used for that purpose, which have been used, but usually persuasion has been enough. When people have told us that they have received certain orders and we have asked them not to proceed with them, they have agreed not to do so.
    Mrs. Ray Michie: To ask the Prime Minister if she will list her official engagements for Thursday 12 January.
    The Prime Minister: I refer the hon. Lady to the reply that I gave some moments ago.
    Mrs. Michie: Will the Prime Minister accept a timely warning that if she continues to ignore the wishes of the majority of Scottish people for constitutional reform and the right to look after their own affairs through their own Scottish Parliament, she, the Government and the Tory party could be responsible for the break-up of the United Kingdom?
    The Prime Minister: Many of us have been through these arguments before on Bills and the referendum, and know full well that the House was split, not always on party-political grounds, although we accept that we are the party that believes in the Union of the United Kingdom and will continue to do so. I would find it strange if the Labour party believed in separatism for Scotland.
    Mr. David Martin: I welcome my right hon. Friend's continuing active interest in environmental issues and a cleaner atmosphere. In the run-up to the Budget, will she consider the wisdom of widening the tax differential between leaded and unleaded petrol to promote greater use of unleaded petrol?
    The Prime Minister: My right hon. Friend the Chancellor introduced a large differential in cost between leaded and unleaded petrol in favour of unleaded petrol, which was designed to encourage more people to use unleaded petrol. It is not possible for everyone to use it because it depends, obviously, on the kind of engine that one has in one's car. I believe that there will be progressively more use of unleaded petrol as new car engines come into use.
    Mr. Kinnock: The Chancellor said yesterday that he was not worried by the further rise in the pound against the deutschmark. Is that the Prime Minister's view as well?
    The Prime Minister: The main priority of my right hon. Friend the Chancellor is the same as mine—to get inflation down. As my right hon. Friend says, one cannot have two priorities and that is—and will remain—his main priority.
    Mr. Kinnock: Is the Prime Minister saying in her response to this House, importers and competitors that, in her view, it does not matter how high the pound goes?
    The Prime Minister: I am saying that when one considers these many matters, the task and priority of getting inflation down takes precedence over other things and that one cannot have two priorities. The priority is getting inflation down.
    Mr. Kinnock: Is it, then, the Prime Minister's view that in pursuit of that objective, British industry should be crushed between a high pound and high interest rates?
    The Prime Minister: It will not have escaped the right hon. Gentleman's attention that the country that has had the sharpest increase in the value of its currency—Japan
    —is the country that has the highest balance of payments surplus.
    Mr. Dickens: I wonder whether my right hon. Friend can tell the House whether the ground crew working on aircraft flying in and out of Northern Ireland—the engine mechanics and airframe mechanics—are positively vetted?
    The Prime Minister: That is not a matter to which we would refer, but I do not think that it is wise to speculate in any way on the cause of that very tragic crash.
    Mr. Dunnachie: To ask the Prime Minister if she will list her official engagements for Thursday 12 January.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Dunnachie: Can the Prime Minister tell the House what plans she has to prevent the dreams of home ownership—[Interruption.]—becoming the nightmares of bed-and-breakfast accommodation because of the Chancellor's policy?
    The Prime Minister: With regard to bed-and-breakfast accommodation, as the hon. Gentleman is aware, it varies very much between local authority and local authority as to how they make use of that provision—[HON. MEMBERS: "Answer the question."] I am sorry, did I mishear the question? That is not unusual in this House.
    Mr. Dunnachie: What plans has the Prime Minister—[Interruption]
    Mr. Speaker: Order. Please let us hear the question.
    Mr. Dunnachie: Can the Prime Minister tell the House what plans she has to prevent the dreams of home ownership becoming the nightmares of bed-and-breakfast accommodation because of the Chancellor's policy?
    The Prime Minister: More and more people are having their dreams of home ownership realised—opportunities they would never had had before. As far as repossession is concerned, the latest figures show that it is less than one third of 1 per cent.
    Mr. Roger King: Is my right hon. Friend aware that tomorrow the city of Birmingham celebrates its 100th anniversary of being created a city and that celebrations will take place that will reflect the city's noble past and look forward to opportunities for the future? Has my right hon. Friend a message for the people of the city of Birmingham as they celebrate on that centenary?
    The Prime Minister: I congratulate Birmingham. The city has played a tremendous part in our industrial and political history. I wish it well, and I hope and believe that it is well on the way to regaining its former industrial and commercial pre-eminence in our country.
    Mr. Allen McKay: To ask the Prime Minister if she will list her official engagements for Thursday 12 January.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Allen McKay: Has the Prime Minister seen or heard of the report—[HON. MEMBERS: "Reading."] I know; I have to get it right. Has the Prime Minister seen or heard of a report suggesting that cook-chill causes a disease called listeria which is as dangerous as salmonella—perhaps more so? In view of the scare caused by one of her ex-Ministers over the Christmas period and by the fact that amended guidelines have been drawn up by the Ministry, what do the Government propose to do about the problem?
    The Prime Minister: I have not seen the report, although I have read reports about the report. As the hon.
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    Gentleman knows there is as yet far too little information about the problem, and my right hon. Friends are looking into the matter very carefully because they, too, are concerned about the facts and figures given in the new report.
    Mr. Oppenheim: To ask the Prime Minister if she will list her official engagements for Thursday 12 January.
    The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.
    Mr. Oppenheim: Will my right hon. Friend congratulate the work force of Amber Valley district council on winning the lion's share of recently tendered contracts, and will she congratulate and commend the leadership of that council on having made Amber Valley the first local authority to put all its services out to tender in accordance with the Local Government Act 1988, thus saving ratepayers more than £2 million?
    The Prime Minister: I shall certainly congratulate Amber Valley district council on the most excellent way in which it has tackled the problems and I congratulate its leadership on having saved the ratepayer something like £2 million. I think that that example could be followed by many other councils. I understand that an Audit Commission report published today suggests that savings of 20 per cent. or more can be gained in contract prices, irrespective of whether the work has been won by the private sector or by the authority's own work force. May many others follow the lead given by Amber Valley district council.

    Correspondence
    Mr. Harry Barnes: To ask the Prime Minister what is her policy as to whose signature appears on replies to letters she receives from members of the public dealing with matters of Government policy.
    The Prime Minister: I receive several thousands of letters each week from members of the public. It is not possible for me to deal with all those letters personally and I must accordingly refer most of them to the Minister and the Department with responsibility for the policy in question. Others are signed by my staff at No. 10.
    Mr. Barnes: Mr. George Flynn of 24 Amber Place, Holmgate sent a letter to the Prime Minister about his loss of £6·20 a week housing benefit. The reply came not from the Prime Minister's Office or from Social Security Ministers but from the transitional payments unit in Glasgow, and it was a political defence of the Government's policy. Should not the Government change their response entirely and ensure that civil servants are not instructed by them to act as their political hacks?
    The Prime Minister: The hon. Gentleman is being totally unreasonable. He knows full well that I should never even be able to come to the House to answer questions if I spent all day opening letters—4,000 a week. The Opposition would not like that. The hon. Gentleman also knows full well that we went to great lengths to set up the unit to deal with those special problems. I can only say that I congratulate my staff on sending the letter to the appropriate place to get the right answer.
    Mr. Latham: If I were to dictate and sign personally a letter to my right hon. Friend asking her to ensure that two popular rural maternity units in my constituency remained open, would she make it her business to dictate and sign personally a reply to me of a favourable nature?
    The Prime Minister: No, I can make no such promises that I would automatically answer for my right hon. and learned Friend the Secretary of State for Health.

    Engagements
    Mr. Chris Smith: To ask the Prime Minister if she will list her official engagements for Thursday 12 January.
    The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.
    Mr. Smith: Does the Prime Minister stand by the view, which she held when she was Secretary of State for Education in 1972, that nursery education should be available for all three and four-year-old children whose
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    parents wished it? Will she, therefore, ensure that there is a favourable response from the Government to the unanimous report of the Education Select Committee on this matter?
    The Prime Minister: There has been an increase of more than 100,000 pupils under five in nursery and primary schools—an increase of a quarter in eight years. That is really a very good performance, which followed the particular White Paper that bears my name. We also pointed out in that White Paper that authorities should consider carefully the role of voluntary playgroups. Many thousands of mothers devote considerable time and energy to organising them. We increased the financial support for the playgroups. We pointed out, too, that the most important thing for the increase of nursery education was that it was especially valuable for children whose homes and lives are restricted, for whatever reason. Therefore, priority would be given to areas of disadvantage. That has happened.

Business of the House
3.30 pm
Mr. Frank Dobson: Will the Leader of the House tell us the business for next week?
The Lord President of the Council and Leader of the House of Commons (Mr. John Wakeham): The business for next week will be as follows:
MONDAY I6 JANUARY—Consideration in Committee of the Security Service Bill (1st Day).
Motions relating to School Curriculum Development Committee and Secondary Examinations Council orders. Details will be given in the Official Report.
TUESDAY 17 JANUARY—Conclusion of consideration in Committee of the Security Service Bill.
Motions on Scottish Housing Support Grant Orders. Details will be given in the Official Report.
WEDNESDAY 18 JANUARY—Opposition Day (1st Allotted Day). Until about seven o'clock there will be a debate entitled "The Freeze on Child Benefit". Afterwards there will be a debate entitled "The Inadequacy of Government Provision for Pre-school Education and Child Care". Both debates will arise on Opposition motions.
Motion to take note of EC Document on the beef regime 1988–89. Details will be given in the Official Report.
THURSDAY 19 JANUARY—Motions on the Rate Support Grant Report (England) 1989–90 and supplementary reports, details of which will be given in the Official Report.
FRIDAY 20 JANUARY—Private Members' motions.
MONDAY 23 JANUARY—Opposition Day (2nd Allotted Day). There will be a debate on an Opposition motion, subject for debate to be announced.
[Debate on Monday 16 January:
The School Curriculum Development Committee and Secondary Examinations Council (Designation of Staff) Order ( SI 1988 No. 2171)
The School Curriculum Development Committee and Secondary Examinations Council (Transfer of Property) Order (SI 1988 No. 2172)
Debate on Tuesday 17 January:
The Housing Support Grant (Scotland) Order
The Housing Revenue Account General Fund Contribution
Limits (Scotland) Order (SI 1988 No. 2081)
Debate on Wednesday 18 January:
Relevant European Community document
8903/88 + COR 1 Review of the beef regime
Relevant report of European Legislation Committee
HC 15-i ( 1988–89), para 5
Debate on Thursday 19 January:
Rate Support Grant Report (England) 1989–90 ( HC 75)
Rate Support Grant Supplementary Report (England) 1988–89 (HC 14)
Rate Support Grant Supplementary Report (England) (No. 2) 1987–88 (HC 13)
Rate Support Grant Supplementary Report (England) (No. 4) 1986–87 (HC 12)
Rate Support Grant Supplementary Report (England) (No. 4) 1985–86 (HC 11)]
Mr. Dobson: I thank the Leader of the House for his statement.
Will the right hon. Gentleman tell us whether he intends the football identity card Bill to be introduced in the House of Lords or in this House? It is a most contentious
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measure that invades the civil liberties of tens of thousands of people wishing quietly to go about their lawful business and involves the disclosure of confidential personal information to commercial companies. The Bill shows that the Government are prepared to allow football and its law-abiding spectators to be taken as hostages. Instead of dealing with the yobbos, the Government propose to make life even more difficult for their victims—the clubs, the spectators, and the police. The Bill is clearly so controversial that it should come first to this elected House. Will he now follow the precedent set by the then Norman St. John-Stevas as Leader of the House in 1979 when he accepted our representations over a similar matter and withdrew the proposal to introduce a controversial measure in the Lords?
When do the Government expect to announce the outcome of their policy review of the National Health Service? When may we expect a statement to be made in this House, and will it be made by the Secretary of State for Health or the Prime Minister?
When will we have a debate on the Fennell report on the King's Cross disaster? This is not just a constituency interest of mine. It affects all who travel on London Transport and, indeed, is of interest to anyone concerned with transport safety—and, God knows, that includes practically everyone in the country at present.
Does the Leader of the House recall that the Secretary of State for Education and Science told the House in December that he would be happy to debate the proposed replacement of student grants with student loans and that he would like it to be debated before 1 February and in Government time? When does the right hon. Gentleman intend to make his right hon. Friend happy, if he means to do so?
May I remind the Leader of the House that the Standing Orders of the House still require the establishment of a Select Committee on Scottish Affairs? When does he expect to come to the House with some proposals to ensure that Scottish Labour Members can serve on that Committee and do their duty, which they want to do, whether or not his colleagues want to?
Mr. Wakeham: The hon. Gentleman asked me five questions about the business for next week and I shall do my best to answer them. He asked about the Football Spectators Bill. I can confirm that it will start in another place, and it is perfectly proper for it to do so. Successive Governments have started substantial measures in the House of Lords. It must be for each Government to organise their legislative programme and to decide on the appropriate House for the introduction of their Bills.
I cannot give the hon. Gentleman a specific date for a statement on the future of the NHS, but it will not be too long in coming. While I have not been able to confirm this, I imagine that the Secretary of State for Health would make the statement.
I agree with the hon. Gentleman that the Fennell report on the King's Cross fire is an important issue which should be debated. I recognise that, although the hon. Gentleman has a constituency interest, the matter is of wider concern. I regret that the arrangements that we previously proposed for a debate were unacceptable to the Opposition. I cannot promise a debate in Government time in the immediate future, but I shall certainly bear his point in mind.
I recognise that student loans are a suitable matter for debate. I shall discuss the hon. Gentleman's question with

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my right hon. Friend the Secretary of State for Education and Science and see whether I can make the hon. Gentleman happy in the not-too-distant future. However, that is not necessarily my first priority in these matters because he is an understanding gentleman.
We had a reasonable debate recently in the House on the Scottish Affairs Select Committee, and the House reached a conclusion. If I thought that the position had changed in any way, I would come forward with proposals. During the debate constructive suggestions were made and I have invited the hon. Gentlemen who made them to come and talk to me. I would be prepared to meet them and anyone else to see whether any progress can be made, but I cannot be too optimistic at present.
Mr. John Carlisle: In view of the question of the shadow Leader of the House, is my right hon. Friend aware that the Football Spectators Bill cannot come fast enough for those of us concerned for our constituents who have football grounds near their houses? Does he accept that the various press reports of rumblings on these Benches against the Bill are wholly unfounded and that we commend the Government on their admirable step? I hope that my right hon. Friend will consider introducing the Bill sooner rather than later.
Mr. Wakeham: I take note of my hon. Friend's points. It is an important measure and there is no room for any complacency in any part of the House. Last season there were more than 6,000 arrests at football matches and 6,500 ejections from grounds, so it is right that the Government proceed as soon as they can.
Dr. Lewis Moonie: As over the past year there has been both an enormous increase in the frequency in food poisoning, with more than 50 deaths from salmonellosis and increases in the number of cases of listeria infestations, as reported yesterday in the press, and as those are the direct responsibility of his colleagues in the Department of Agriculture, Fisheries and Food, will the Leader of the House provide time for a debate on this matter as soon as possible?
Mr. Wakeham: I cannot promise a debate in the immediate future, but the Government are working with both the retail and manufacturing sectors of the food industry to address the problem of listeria in those foods most likely to be contaminated. The Department of Health is looking at the new data accumulating from various sources and considering their implications with the relevant experts.
Mr. Nicholas Winterton: Although I am tempted to register most strongly with my right hon. Friend my opposition to the national football membership scheme, my question relates to early-day motion 40.
[That this House calls for a full and early debate on the Barlow Clowes affair.]
Will my right hon. Friend seek to arrange at an early date a debate on the sad saga relating to the collapse of the Barlow Clowes companies, bearing in mind that more than 180 hon. Members have registered in that early-day motion their concern and demand for a debate?
Mr. Wakeham: I fully recognise my hon. Friend's concern. There is nothing that I can usefully add to what has been said in this House in the recent past. My right hon. Friend the Secretary of State for Trade and Industry
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is co-operating fully with the Parliamentary Commissioner for Administration and the right course of action is probably to wait for that report to decide how best to proceed.
Mr. Jack Ashley: As it has now become obvious that the price of a competitive economy is safety, and as there is evidence of reduced maintenance and inspections over a wide range of British industry, when may we have the opportunity to debate reconciling safety with the drive for profits?
Mr. Wakeham: I cannot accept the premise of the right hon. Gentleman's question. The Government have brought forward a whole range of measures covering a wide range of policies which have been designed to improve safety. I see no incompatibility between a profitable and well-run industry and maintaining high safety standards. The chances of high standards being maintained are improved if the business is run efficiently.
Mr. Ivan Lawrence: Is my right hon. Friend aware that many hon. Members believe that the provision usually made for foreign affairs debates is completely inadequate? Instead of having occasional debates over the whole tour d'horizon of British interests, would it not be better to have more debates on regional issues so that most of us might have an opportunity to speak on important matters?
Mr. Wakeham: I recognise my hon. and learned Friend's concern which is shared by a number of our colleages. I recently wrote to my right hon. Friend the Chairman of the Select Committee on Foreign Affairs setting out my views on the matter. I shall try to meet the spirit of what my hon. and learned Friend says, hut, looking at past debates, considerably more hon. Members would have been able to take part if some of the speeches had been a little shorter.
Mr. Archy Kirkwood: Although the constituency of Richmond, Yorks has technically been unrepresented in this House only since the beginning of the week, is the Leader of the House aware that substantial issues are now arising in that area—for example, the lack of establishment of the local police force which the county council is anxious to press on the Home Secretary? Will the right hon. Gentleman explain why the Government have decided to adopt an entirely different procedure in filling the vacancy in Richmond compared with the attitude adopted by the official Opposition in calling the Govan by-election quickly to keep the electors of Govan properly represented? Will he assure us that there will be no undue delay in moving the writ for Richmond?
Mr. Wakeham: I can assure the hon. Gentleman that there will be no undue delay, but I hope that he was not thinking certain thoughts. We do not want to follow what happened to the official Opposition in Govan, which does not seem to be a very cheerful precedent.
Mr. Michael Jopling: Will my right hon. Friend tell the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) that our hon. Friend the Member for Skipton and Ripon (Mr. Curry) has been widely reported in the local press as looking after constituency affairs in the Richmond area in the interim?
Mr. Wakeham: My right hon. Friend is quite right. Conservative Members ensure that, when there is a vacancy, one of our hon. Friends looks after the constituents' interests.
Mr. George Foulkes: Is the Leader of the House aware of the increasing hazard to fishermen in the Firth of Clyde and the Irish sea caused by British and American submarines either submerging below them or getting caught in their nets? Is he aware that the latest incident took place on 3 January just off the coast of my constituency where the American submarine Will Rogers surfaced under a fishing vessel, the New Dawn? Will he arrange for either the Secretary of State for Defence or the Secretary of State for Transport, whoever is the responsible Secretary of State, to make an urgent statement to the House on that matter?
Mr. Wakeham: I am aware of this issue because I had the doubtful pleasure of hearing the hon. Gentleman speaking on the radio last night, and I gather that his comments were repeated this morning. This is a serious and important matter. The collisions between Royal Navy submarines and civilian craft are very rare. Submarine commanding officers are well trained in the avoidance of surface craft and every care is taken to avoid collisions. The Ministry of Defence pays fair and reasonable compensation to owners of civilian craft when Royal Navy vessels are shown to be liable. Accidents involving non-UK vessels are a matter for the Governments concerned.
Mr. Richard Holt: My right hon. Friend may well have read in the press that last week there was a 17-mile tailback of traffic in the north of England on the A1 on a day when there was very little commercial traffic on the road. That was in juxtaposition with a reply that I received from the Department of Transport stating that it has no plans now, or in the medium or long term, to uprate the Al to motorway status. Is not that a disgrace and a matter that should be debated in this House?
Mr. Wakeham: I cannot accept my hon. Friend's latter remark. However, in view of his comments, I will certainly refer the matter to my right hon. Friend the Secretary of State for Transport. I hope that it is possible to arrange a debate, but I cannot promise one in the immediate future.
Mr. Eric S. Heffer: Has the right hon. Gentleman had an opportunity to read early-day motion 241 titled:
"Safety in the building and construction industry."?
It has been signed by 205 hon. Members from most parties, excluding the Conservative party, although Conservatives are welcome to sign it if they want to do so.
[That this House is deeply concerned and disturbed by the increase of accidents in the building and construction industry, leading to an increase in deaths and serious injuries; believes that this is partly due to the increase in self-employment, namely, lump labour and to some construction companies, in order to increase profits, ignoring the Health and Safety legislation; welcomes the efforts of workers and trades unions in the industry to halt the increasing numbers of deaths and injuries; fully supports the present campaign by workers and unions and other interested bodies to improve the situation; and further believes that there should be more factory inspectors appointed and that the legislation should be improved so that
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stronger action can be taken against those employers who ignore the legislation and thereby put the lives of the workforce at risk.]
The matter is important because of the increase in deaths and serious injuries in the construction industry. Will he assure us on the basis of this early-day motion that we will have an early debate on the matter because it is vital for people working in the industry?
Mr. Wakeham: I am sure that the whole House will want to wish the hon. Gentleman a happy birthday. He has taken the opportunity to raise an important matter. The Government are concerned about health and safety in the construction industry generally. That is why we support the vigorous enforcement blitzes and publicity campaign on construction safety being run by the Health and Safety Executive and why we have given the HSE the resources that it asked for in the last public expenditure round.
Safety in the construction industry is relevant to the debate on the Employment Bill which is currently before the House. I cannot promise the hon. Gentleman a specific debate in the immediate future, but I will bear his point in mind.
Sir Anthony Grant: With regard to the Government's proposals for the future of the National Health Service, will my right hon. Friend please ensure that just for once the proposals are made known to the House at least at the same time as, and not after, they are made known to the BBC and the press?
Mr. Wakeham: I share my hon. Friend's disapproval of leaks from wherever they may come. While this is not a matter entirely under my control, I will do my best.
Mr. D. N. Campbell-Savours: May I express the hope that there will be a carefully prepared reply to my question as well? May we have a debate on the scandalous conduct of Westminster city council? Does the Leader of the House think that it is right that Westminster city council should award a £78,000 consultancy contract to Messrs Touche Ross when a partner in that company is the district auditor charged with the responsibility for investigating the scandal of the sale of Westminster's cemeteries? Is there not a clear conflict of interest, and should not the Government step in and put an end to this nonsense?
Mr. Wakeham: It is not primarily a matter for the Government. It is understood that the contract to which the hon. Gentleman refers has been discussed with the Audit Commission in accordance with the code of local government audit practice approved by Parliament. The commission is satisfied that it constitutes no threat to the auditor's independence. Once again, the hon. Gentleman's wild allegations do not stand up to inspection.
Rev. Ian Paisley: When the Leader of the House reads Hansard tomorrow, he may be amazed to note that his hon. Friend the Member for Peterborough (Dr. Mawhinney) told the House during Northern Ireland questions that the blazing row between the Prime Minister and Mr. Haughey concerning extradition has been resolved. If that is true—and the Leader of the House is in a position to find that out—will he see to it that the House

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debates that matter at the first opportunity so that we may all know how the row was resolved, the compromises that were made, and what is to happen to Mr. Ryan?
Mr. Wakeham: I give the hon. Gentleman my assurance that I shall read Hansard tomorrow, and when I am reminded of what was said I shall determine the appropriate course of action.
Mr. Alex Salmond: The Leader of the House will be aware of the serious economic situation confronting the fishing industry as a result of lower total allowable catches and high interest rates. Given the small number of opportunities that right hon. and hon. Members representing fishing constituencies have to debate such matters, should not another debate be arranged in Government time, when the responsible Ministers can give their estimates of the economic damage done in terms of lost jobs and lost output that will be suffered by fishing areas resulting from the Government's policies?
Mr. Wakeham: If we are able to organise such a debate, I hope that the hon. Gentleman will present a more balanced account of the situation than he managed to give in his question to me. He must acknowledge the substantial success achieved by my right hon. Friend the Minister of Agriculture, Fisheries and Food in the negotiations, when the United Kingdom's share of total allowable catches suffered less than those of many other Community countries. However, it is an important issue, and, although I cannot promise an early debate, I shall bear the matter in mind.
Mr. Jonathan Aitken: Does my right hon. Friend share the increasing concern felt even among supporters of abortion law reform, such as myself, about the terms of the private Member's motion in the name of my hon. Friend the Member for Maidstone (Miss Widdecombe), which is to be debated on Friday 20 January? Does my right hon. Friend agree that that motion, calling as it does for unlimited parliamentary time to be allocated to a private Member's Bill, represents a fundamental and far-reaching change in our parliamentary arrangements? Does he accept that the debate on that issue should be kept separate from the abortion issue itself, and that it would be wise to make use of a different procedure rather than a private Member's motion?
Mr. Wakeham: My hon. Friend raises an important point. I have read the private Member's motion on today's Order Paper to which he refers, but whether it is in order is a matter for you, Mr. Speaker, not me. However, we should consider carefully before seeking to amend Standing Orders through private Members' motions. I shall say no more at this stage, but if I catch your eye, Mr. Speaker, during the debate in question I shall seek to elaborate.
Mr. Frank Haynes: My hon. Friend the Member for Liverpool, Walton (Mr. Heller) mentioned the many deaths and serious accidents occurring in the construction industry. Is the Leader of the House aware that that situation is common to many industries? Will he arrange for the Secretary of State for Employment to come to the Dispatch Box and tell the House that he will do
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something about ensuring that there is a proper number of safety inspectors to do the job which would help to solve the problems?
Mr. Wakeham: The hon. Gentleman is not being fair. Of course there are difficulties, but the steps that the Government have taken to support the Health and Safety Executive to do what can be done is to be commended, not criticised. I have said that this is a right and proper subject for debate, but I cannot arrange one in the immediate future.
Sir Michael McNair-Wilson: Since my right hon. Friend will be aware that we are all anxious to expedite the privatisation of Short Brothers, and since the company, which is wholly owned by the Government, will apparently require capitalisation to the tune of many hundreds of millions of pounds, can he say what legislative procedure will be necessary to place the company in the private sector?
Mr. Wakeham: No, I cannot, because the arrangements have not yet been made. There is nothing that I can add to what my hon. Friend the Under-Secretary of State, the Member for Gosport (Mr. Viggers), said in answer to a question earlier today, but we shall be able to address any legislative needs when the proposals have been finalised.
Mr. Greville Janner: The Leader of the House will recall that the Secretary of State for Transport told me during questions on his statement on the tragic air crash on the MI that four aircraft with the same engines would be grounded. He has said since then that a considerable number of other aircraft have been grounded, although he has not told the House. Should there not be a further statement from him immediately, not on the results of the inquiry, which we must await, but on what is to be done to quell the fears of travellers and air crew about other aircraft while awaiting the results of that inquiry, because those fears are great and they are continuing?
Mr. Wakeham: The answer given by my right hon. Friend the Prime Minister to the hon. Member for Berwick-upon-Tweed (Mr. Beith) during Prime Minister's Questions today should clearly be taken into account by everybody in order to lessen speculation. I do not think that there is need for my right hon. Friend the Secretary of State for Transport to make a statement, but I shall refer the hon. and learned Gentleman's point to him to see whether he feels it necessary to say anything further.
Mr. Nicholas Budgen: Will my right hon. Friend refer at some stage to my right hon. Friend the Home Secretary's interesting decision to cut off funds payable to Hackney council under section 11 I of the Local Government Act? Does he agree that it is now time that the House had a general debate about the activities of the race relations industry which would be of particular interest to Wolverhampton where, following the death of a West Indian, Clinton McCurbin, the officers of the council for community relations used their position as public servants to attack the police in a wild and unwarranted way and were not even prepared to accept the verdict of the coroner's inquest?
Mr. Wakeham: My hon. Friend raises important issues. I wish that I could be more forthcoming about a debate at Government time so that he could expand on the points

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that he has made, but he might seek to raise some of those matters on an Adjournment debate, which would not exclude the possibility of a debate in Government time if I could find such time, but I cannot be too optimistic.
Mr. Ron Brown: Since the Government are supposed to be opposed to terrorism, why are we being represented at the funeral of Hirohito, one of the most notorious terrorists of all time? Does that not reek of double standards? Surely there should be an early debate to consider this important matter.
Mr. Wakeham: No, that is not necessary. The Government, and indeed the British people, have repaired many difficulties of the past, and good relations between the United Kingdom and Japan are in everybody's interests.
Mr. Roger Moate: May I refer my right hon. Friend to the report on private Bill procedure produced by the Select Committee so ably chaired by my hon. Friend the Member for New Forest (Mr. McNair-Wilson)? Does he agree that the report contains important recommendations that merit early and full debate in the House, and can he offer us the prospect of an early debate on that subject?
Mr. Wakeham: I have been even more forthcoming than that. I have suggested that I am seeking to arrange a debate before the Government respond to that report so that the House may have a chance to express views on an important and complicated set of proposals. I hope to arrange that in the fairly near future.
Mr. David Clelland: Is the Leader of the House aware that the spokesman for the private sponsors of the proposed Gateshead city technology college has said that the aim of the school will be to educate children for the needs of business? Will he arrange for an early statement to be made by the Secretary of State for Education and Science in which he can assure the House that the aim of school education, especially for children up to 16 years old, is to educate the whole person and to prepare young children for the whole of their lives—not merely to turn out fodder for the temporary needs of business?
Mr. Wakeham: I should have thought that giving people an education that enabled them, among other things, to compete in today's highly competitive world was desirable. I shall refer the hon. Gentleman's point to my right hon. Friend—but I cannot promise an early debate.
Mr. Tony Marlow: Will my right hon. Friend accept that, unlike the Opposition, many of his hon. Friends are deeply reassured that the Football Spectators Bill will be starting in another place? Hopefully, it can be sunk without trace there and will not need to surface here.
Will my right hon. Friend give us back our slot for European questions? Perhaps not 80 per cent. of our legislation will be decided in Europe, but much of it will be. My right hon. Friend is deeply aware of the democratic deficit, and yesterday, in the one week in four when we have European questions, not one of them was reached.
Mr. Wakeham: My hon. Friend prefaced his reasonable question with a sentence that was not particularly helpful in his getting a favourable reply.
The previous arrangement, whereby a 20-minute slot was provided within Foreign and Commonwealth Affairs Question Time, was agreed through the usual channels. That was subsequently changed to the current arrangement following further discussions through the usual channels. If right hon. and hon. Members generally hold the view that the current arrangements should be changed, discussions could be held again through the usual channels to determine whether that meets with general acceptance.
Mr. Tony Banks: The Leader of the House promised us a debate on the recommendations of the Joint Committee on Private Bill Procedure. When will we have that debate? In the meantime, is the right hon. Gentleman aware that British Rail is making an announcement today or tomorrow about the siting of the second London terminal for the Channel tunnel, a decision that has widespread strategic implications for the whole of London and the south-east. It is being introduced through the private Bill procedure, which underlines how urgent it is to have a debate and to do something about the way in which that procedure is being used to circumvent all the planning procedures established by this House and used throughout the country.
Mr. Wakeham: I recognise the importance of the issue being considered by British Rail. I told my hon. Friend the Member for Faversham (Mr. Moate) that I hoped to arrange a debate in the not-too-distant future on the general subject of the way in which we handle private Bills in this House. That is an important subject, and we need to debate it.
Mr. Harry Greenway: Bearing in mind my constituents' long suffering at the hands of Ealing council, may we have an early and specific debate on the action of that council, which now proposes to increase rates by 35 per cent. in the coming year, having already increased them by 65 per cent. two years ago? Is my right hon. Friend aware of the extreme suffering of pensioners, disabled people and many others, about whom the Labour party on Ealing council professes to care so much, as a result of these wicked arrangements?
Mr. Wakeham: I am sure that the whole House is grateful to my hon. Friend for raising this matter. I wish it were possible to arrange a debate in the near future. I cannot do that in Government time, but my hon. Friend is ingenious at raising such matters in the House, and I am sure that he will give them the airing they need.
Mr. Dennis Skinner: Has the Leader of the House been informed that the Secretary of State for the Environment is reconsidering the Torbay ballot on the selling of council houses, for which only 16 per cent. voted in favour? As it looks as though there will be a re-run ballot, may we take it for granted that, in line with the practice used by the Government against local authorities, since the Government have made a mistake in the legislation the cost of the re-run will be paid for by the Secretary of State for the Environment?
Mr. Wakeham: I do not accept the premise of the hon. Gentleman's question, but I shall certainly refer it to my right hon. Friend.
Mr. Irvine Patnick: Is my right hon. Friend aware that Sheffield, Hallam Liberals have been sending me cheques for monitoring my speeches? Is it not time that we had a debate on this in case Short money, which is public money, is being used for such purposes?
Mr. Wakeham: I did not know that the Liberals in Sheffield had been sending my hon. Friend cheques for monitoring his speeches. No one sends me cheques for monitoring mine. However, I can understand that in Sheffield they believe that my hon. Friend's speeches are so good that they deserve that sort of support. I would find it hard to believe that that was the purpose for which Short money was given—or that that was what it was being used for.
Mr. John Home Robertson: Is the right hon. Gentleman aware that there is widespread support for just one initiative announced last year by the former Under-Secretary of State for Health, the hon. Member for Derbyshire, South (Mrs. Currie)—the proposal to impose a ban on the production and sale of a form of chewing tobacco that goes under the trade name Skoal Bandits? Will there be an early opportunity for the House to consider regulations that would impose such a ban?
Mr. Wakeham: I do not know of any proposals. I shall refer the matter to my right hon. Friend the Secretary of State.
Rev. William McCrea: Bearing in mind the serious catalogue of murders in the Province of Northern Ireland, will the Leader of the House consider giving time for a full-scale debate on security there? My constituency has bourne the brunt of attacks along the border, recently and for many years. In the Castlederg area at least 20 members of the security forces have been murdered, yet not one person has been brought to justice or found guilty of those murders. I am sure that the right hon. Gentleman can understand the frustration and fear with which people living in the border areas have had to exist for many years.
Mr. Wakeham: I accept what the hon. Gentleman says. I fully understand his feelings and those of his colleagues in Northern Ireland about the difficulties with security. My right hon. Friend the Secretary of State for Northern Ireland, as one of his prime concerns, continually tries to improve the arrangements. I hope that the hon. Gentleman will not take it amiss if I tell him that it is difficult to see how I can arrange a debate in the immediate future—although the subject is worthy of proper discussion in the House when time is available.
Mr. Paul Flynn: Does the Minister think it appropriate that we should have an immediate debate on the dangerous practice of carrying chemicals by air? Following the importation into this country of 27 tonnes of PCBs from Canada to a spot near my constituency, I have been carrying on a long and detailed correspondence with the Department of Transport.
I was alarmed this morning to receive a letter which agreed that these products cannot be properly safeguarded in a crash or fire but said that the Government intended to do nothing about that. The letter seemed to suggest that
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PCBs would not survive an air crash. If they had been on board the aircraft that crashed over Lockerbie, they would not have survived. They would have changed into dioxins and dibenzofurons. A situation like that at Seveso might have recurred, and large tracts of country would have been unhabitable for decades. The Department of Transport does not think that this is a serious problem. Is it not time that this House told it that it is?
Mr. Wakeham: The hon. Gentleman knows much more about this than I do, but I do not think he has correctly interpreted my right hon. Friend's position. He is concerned about the possible release of dioxins in the extreme temperatures of a fire. As a first step—by which I mean the first from this moment—he will discuss with the Health and Safety Executive and the Civil Aviation Authority whether to propose an international review through the ICAO.
Mr. Teddy Taylor: In view of the Prime Minister's significant statement at Question Time today that the Government are taking active steps to prevent British firms from participating in the building of the chemical warfare establishment in Libya, could we have a debate next week to enable the House of Commons to send a simple message to the other EEC countries that their Governments, particularly Germany, should follow exactly the same course? Appalling problems are created by chemical warfare. If the EEC is meant to stand for freedom and liberty, is there no procedure whereby that course could be followed, with the Government's splendid example being sent as a clear message to the other EEC countries?
Mr. Wakeham: The fact that I cannot arrange a debate next week does not mean that the Government are not pursuing these matters within the EEC with great determination and fortitude.

Points of Order
Rev. Ian Paisley: On a point of order, Mr. Speaker. At Question time today you took a point of order from my colleague the hon. Member for Fermanagh and South Tyrone (Mr. Maginnis). Later on, during Question Time, you took other points of order. The result was that three minutes of the precious time that we have for Northern Ireland questions were taken up with points of order. I have been in this House on other days during Question Time when you have ruled that you would take points of order after Question Time. Will you please follow that procedure for Northern Ireland and give us the three precious minutes that we need each fortnight, together with the other time allocated to us, to handle affairs of great importance in our Province?
Mr. Speaker: When a point of order is raised with the Chair, it must be taken if it requires immediate attention. That is what I did today. I fully agree with the hon. Member that if it is not a genuine point of order it merely wastes time. I hope that that will not occur. I am, nevertheless, bound to take points of order when they are raised, to determine whether they require immediate attention.

Autumn Statement
[Relevant documents: European Community Documents Nos. 9510187 on the creation of a European Financial Area and the supplementary explanatory memorandum submitted by HM Treasury on 20 June 1988 and 6427188 on medium-term financial support for member states' balance of payments.]
Mr. Speaker: Before I call on the Chancellor of the Exchequer to move the motion on the Autumn Statement, I must announce to the House that I have selected the amendment in the name of the Leader of the Opposition. In view of the number of right hon. and hon. Members who have said that they wish to participate in the debate, I propose to impose a 10-minute limit on speeches between 7 and 9 o'clock.
4.11 pm
The Chancellor of the Exchequer (Mr. Nigel Lawson): I beg to move,
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 1st November 1988; endorses the action taken by Her Majesty's Government to ensure that inflation resumes its downward trend; welcomes the prospect of continued growth and strong investment as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.
The whole House owes a debt of gratitude, once again, to my right hon. Friend the Member for Worthing (Mr. Higgins) whose Committee has produced a report on the Autumn Statement.
One matter which greatly exercised my right hon. Friend and his colleagues was the manifest shortcomings of a number of the published economic statistics. As he knows, the Government share this concern, and set up a scrutiny of Government economic statistics. That first stage is now complete, and the Government are now considering the findings. A comprehensive report will be published in due course.
In recent years, it has become customary for me to use the occasion of this debate, on the Autumn Statement, to announce the date of the Budget. I am happy to follow that precedent, and inform the House that the Budget this year will be on Champion hurdle day, 14 March—that is, in a little under nine weeks' time. Right hon. and hon. Members opposite will no doubt wish to make a note of this in their official Labour party filofaxes, which I see were among the prizes to be won in the 1988 Labour party Christmas lottery—along with a Black sea cruise for the Ron Todd wing of the party.
As usual, the Budget will be the occasion to announce the rates of taxation for the coming year and the projected size of the public sector borrowing requirement—or, to be accurate, in the new era which our prudent fiscal policy has ushered in, the size of the public sector debt repayment, or Budget surplus. What it is not is an occasion for announcing changes in public expenditure. Our public spending plans for the coming year were announced in the Autumn Statement, which we are debating today.
The House will be aware that public spending in the current year is likely to be the lowest which it has been, expressed as a share of total national income, for more than 20 years, with a further decline in the ratio likely in the years ahead. This has been achieved by sticking firmly to the planning total published in last year's public
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expenditure White Paper, while ensuring, within that total, significant extra money for priority programmes, from the Health Service to roads. Overall public spending has been further contained by the reduction in the burden of debt interest that flows directly from the transformation of the massive Budget deficit which we inherited from the party opposite—equivalent to some £25 billion in today's terms —into a substantial Budget surplus.
I will leave other aspects of public spending to my right hon. Friend the Chief Secretary, who will be winding up this debate—if, Mr. Speaker, he is fortunate enough to catch your eye—and who so skilfully conducted last year's public spending round. I would only add that firm but common-sense control of public expenditure remains, as it has always been, central to our economic strategy and a major contributor to the economic success which we are now enjoying. It is a success widely acknowledged by British business and industry, who have seen productivity and profitability improve beyond recognition, and now have the confidence to invest on an unprecedented scale.
It is a success, too, widely recognised abroad, where Britain's standing has never been higher. One sign of this is that last year, despite a substantial current account deficit on the balance of payments, the pound stayed strong and our foreign exchange reserves ended the year at an all-time high; and of course it is a success widely enjoyed by the British people, who see steadily rising living standards, more people in work than ever before in our history and inflation far lower than it was under Labour.
Indeed, only Labour has failed to recognise the transformation that has occurred to the British economy. As even Pravda, which I know the Opposition read carefully, was obliged to point out in an article on Britain last month:
"the Left have been in retreat for ten years, unable to respond to the Thatcher challenge, unable to adapt to life in the 1980s."
One of the key reasons why we have been able to achieve this long-term success is that we have never shirked taking the measures which are necessary to deal with short-term problems, even if those measures were unpopular. Getting the economy right does not mean that there will never be problems. That idealised state of affairs is not for this world.
Mr. Harry Ewing: Will the Chancellor give way'?
Mr. Lawson: I shall give way in a moment.
What it does mean is getting the fundamentals right, which we have done, and then tackling short-term problems effectively and decisively, as and when they emerge.
Mr. Ewing: I am anxious to ask the Chancellor a question before he passes from the section of his speech in which he deals with his success as Chancellor. Interest rates are higher now than they were when he became Chancellor, inflation is higher than it was when he became Chancellor, and people are finding it much more difficult to meet their mortgage payments than they were when he became Chancellor. Does he claim the credit, or does he take the blame for that?
Mr. Lawson: I have to tell the hon. Member—although I know that many of his hon. Friends on the Front Bench

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do not understand this—that interest rates inevitably fluctuate. They have fluctuated before and they will fluctuate again.
In particular, sound management of the economy means acting firmly to deal with the sort of inflationary pressures that emerged in the second half of last year, when it became clear that total spending in the economy was growing at a wholly unsustainable rate. That is why interest rates have had to rise.
As every schoolboy should know by now, there is no way in which inflation can be controlled other than by a sufficiently tight monetary policy, and that means having the courage to raise interest rates as and when it is necessary to do so. There is nothing new in this—nothing new at all. It is what all other successful countries do. It is what we—unlike the disastrous inflationary Labour Government who preceded us—have always been prepared to do, and have consistently made clear we would continue to do, throughout the 10 years since we first took office.
Mr. Robert N. Wareing: Will the Chancellor give way?
Mr. Lawson: In a moment.
As a result, the underlying rate of inflation, as measured by the RPI excluding the distorting effect of mortgage interest payments, which reached 5 per cent. in July, is likely to edge up a little over the next few months, perhaps to the 5.5 per cent. or so which it reached during the last inflation blip in 1985. But then, just as it did in 1985, it will start coming down again. Let there be no doubt about that whatever. Monetary policy works, and the passage in the official Opposition amendment before us today, urging us to "combat inflation" and "move interest rates downwards" betrays that irredeemable economic illiteracy that is their hallmark in every economic debate which we have ever had.
Mr. Wareing: The Chancellor said that the Government, and indeed any responsible Chancellor, should not veer away from any unpopular decisions. Why was it that, before the last Budget, Robin Leigh-Pemberton, that famous Left-wing Governor of the Bank of England, advised the Chancellor on a cautious Budget? Why did the Chancellor not take his advice then? Why is he not taking his advice now when making a statement in advance of the Budget?
Mr. Lawson: My conversations with the Governor of the Bank of England are amiable, cordial and private. 1 would like to express my thanks today for the dinner which the Governor of the Bank of England gave in my honour last night.
So far as the recorded RPI is concerned, the position is complicated by the fact that, of all 12 nations of the European Community, we are one of the only two—the other one being Ireland—that is daft enough to include mortgage interest payments in its retail price index. So, for example, next week's RPI figure for December would show a further rise of almost half a percentage point, simply because a mortgage rate fall made the December 1987 index artificially low, even if there were no change in underlying inflation at all.
Mr. A. J. Beith: How can the Chancellor of a Government who make home ownership
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a fundamental objective of their policy say that the cost of home ownership is not relevant to an assessment of inflation by the majority of householders in this country?
Mr. Lawson: There are home owners in other European Community countries which even the deputy leader of the Liberal party—or whatever he is—ought to be aware of. As I said, of the 12 nations of the European Community, only two are foolish enough to have mortgage interest payments in their retail price index.
Mr. Tony Banks: Will the Chancellor give way?
Mr. Lawson: In a moment. I have just given way.
But to assert that monetary policy works—[Interruption.] I do not know whether the Leader of the Opposition wishes to make a contribution or whether he is simply muttering from a sedentary position?
Mr. Neil Kinnock: If the Chancellor wants to fool himself, that is up to him, but he must not fool the British people. He knows very well that every single comparable country in the OECD has included in its comparable figure with the retail price index a figure for the payment of expenditure on housing. He knows very well that those figures are directly comparable to the inclusion of mortgage figures.
Mr. Lawson: It is again my task to seek to educate the Leader of the Opposition. Of the other 10 countries of the European Community that do not include mortgage interest payments, there is a minority, it is true, that do have as a proxy for the cost of owner-occupied housing —it is a minority—imputed rents. The majority have nothing at all. So the Leader of the Opposition was trying to mislead the House, no doubt through his own ignorance.
Mr. Robert Sheldon: Will the Chancellor give way?
Mr. Lawson: No. I have just given way to the Leader of the Opposition.[Interruption.]
Mr. Sheldon rose—
Mr. Speaker: Order. I think that the Chancellor is not giving way.
Mr. Lawson: I am quite sure that the right hon. Gentleman would have made a much more telling intervention than that from the Leader of the Opposition. I am afraid that I had to choose which one I was giving way to, and I chose the Leader of the Opposition. I must now carry on with my speech.
But to assert that monetary policy works is not to say that we are relying on monetary policy alone. It is a matter of not being afraid to use monetary policy where monetary policy is called for. But of course it is buttressed by the firmest fiscal stance of any Government since the war: for the first time for at least half a century we have a Government in this country that are engaged in repaying the national debt, and will continue to do so next year too. It is this immensely strong fiscal position that guarantees that the historic tax reforms and tax reductions in last year's Budget—for which I make no apology whatever— will remain fully in place, to the immense benefit of the British economy in the years to come.

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I understand full well that the Opposition do not like it. What they want—what they have always wanted—is to see income tax put up. That is why they voted against each and every reduction in income tax—each and every one of them.
I recognise, of course, that the rise in interest rates will mean that people with mortgages will have to curb their spending on other things, in a minority of cases considerably, in order to meet the higher mortgage payments. Indeed, the policy would not be working if this were not so, and there are growing signs that it is working.
But the Opposition's charges that the Government have been deliberately stoking up borrowing, apparently by keeping interest rates persistently too high, again betray their irredeemable economic illiteracy. What we have done is to give people the freedom to choose how much to borrow, in the light of what they think they can afford. That judgment has to take account of the fact that mortgage rates do go up and down, as I told the hon. Member for Falkirk, East (Mr. Ewing) earlier.
Mr. Tony Banks: Will the Chancellor give way?
Mr. Lawson: Later.
Responsible people know this—even though the hon. Member for Islington, South and Finsbury (Mr. Smith), whom I am glad to see in his place, evidently does not, judging from his recent pronouncement on behalf of the Opposition Front Bench about
"home buyers who budgeted sensibly in taking out their mortgages, who mortgaged themselves up to the hilt".—[official Report, 8 December 1988; Vol. 143, c. 423.]
Mr. Tony Banks: Does the Chancellor accept that some people borrow money for the simple reason that they need to cover their costs and are forced into a great amount of debt? The Chancellor seems not at all concerned about that. Will he do anything about the expansion of credit in this country? This morning I received another invitation to spend £800 on a Visa card by 31 March to get two free tickets to America. Surely the Chancellor should do something about that. [HON. MEMBERS: "Take them."] If he lends me the money, I shall.
Mr. Lawson: I am afraid that I do not have the pleasure of knowing the hon. Gentleman sufficiently well to know whether he is capable of resisting temptation or not.
What we heard from the hon. Member for Islington, South and Finsbury was not sensible budgeting. That was Labour budgeting.
In a society which treats people like adults, it must be for individuals to decide for themselves how much it is sensible for them to borrow. That is the only way to a free and responsible society, and that in turn is the only way to a successful economy.
Dr. Jeremy Bray: When, in due course, as the Chancellor says, interest rates go down, will the exchange rate go down also? [Interruption.] I am sorry that the Chancellor has knocked over his glass of water.
Mr. Lawson: I have a temporary liquidity problem.
I think that the hon. Gentleman is asking me to predict the course of exchange rates in some hypothetical circumstances. I am not even prepared to predict the course of exchange rates in less hypothetical circumstances, so I am hot prepared to answer the hon. Gentleman.
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He has been in this House long enough to know that I never predict the course of either interest rates or the exchange rate.
Mr. Nicholas Budgen rose—
Mr. Lawson: I must move on a bit now.
As far as the impact of interest rates on companies is concerned, the plain fact is that companies are now in a far stronger financial position than they have been for a very long time.
Whereas, in 1980, company borrowing amounted to some 45 per cent. of the total value of their equity, by the end of 1987 it was down to around 28 per cent. At the same time, their profitability has been transformed: the rate of return on capital employed has trebled from 4 per cent. in 1980 to 12 per cent. now. Moreover, although short-term interest rates have risen considerably, long-term rates this time have barely moved at all. With the Government now actually redeeming some of their outstanding debt rather than making continuing demands on the markets, there are excellent opportunities for borrowers who wish to take advantage of this market for fixed-term and long-term borrowing. Last year, for example, there were over £10 billion of fixed-rate long-term sterling bond issues, and there is likely to be even greater scope this year.
Much concern has been expressed recently about the sharp fall in the personal savings ratio—the proportion of personal disposable income that is saved. It has certainly been dramatic. Equally certainly, high interest rates, which make savings more attractive and borrowing less attractive, are likely to reverse this trend— not least because the sharp fall in the personal savings ratio has been overwhelmingly caused by the sharp rise in personal borrowing, since savings are measured net of borrowing.
But it is important—thisis not always fully understood—to set this in its proper perspective. The United Kingdom's overall national savings ratio has remained virtually unchanged throughout the 1980s, with the sharp fall in personal savings offset by a sharp rise in company savings as profitability has been transformed, coupled with the improvement in the public finances from deficit to surplus.
Even so, the strength of the recent investment boom has meant that total domestic investment exceeds total domestic savings, and the gap has therefore had to be financed from overseas. As a result, we have moved into sizeable current account deficit, with a surge in imports of capital goods and other materials for industry, superimposed on a slightly less rapid, but still considerable, growth in consumer goods imports.
But as savings rise in response to higher interest rates, particularly with the collapse of the housing boom, and as the growth of spending slows down from last year's peak, the current account deficit will narrow, although this process is bound to take time.
Dr. David Owen: Savings may well rise as a result of high interest rates. Nevertheless, without prejudging his Budget, is the Chancellor prepared to use tax allowances and the tax system to stimulate personal savings, which are seriously low?
Mr. Lawson: Of course I note what the right hon. Gentleman has said, but he will not expect me to make any comments in advance of the Budget.

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Two things are vital to the long-term success of an economy. One is a foundation of sound finance, and that is why, as I have explained, we are determined to take whatever action is necessary to deal with inflation. But what is equally important for economic growth, and hence for the prospects for jobs and for living standards, is the supply side of the economy—productivity, investment, and profits—and the transformation in the supply side of the British economy has been dramatic.
Mr. David Howell: Before my right hon. Friend refers to the supply side of the economy, in respect of which he will have a good tale to tell, I agree fully with his view that fiscal policy should be medium-term and kept right away from the short-term aim of squeezing out inflation. In addition to high interest rates, what other instruments on the monetary policy side are necessary to control monetary aggregates? Other countries seem to have other weapons at their disposal. Sometimes, the impression that we are relying totally on interest rates and nothing else at all in monetary policy may be misleading.
Mr. Lawson: I think that, if my right hon. Friend, who has made a great study of many of the aspects of this, were to look at what other countries do, he would see that, whereas in the past some other countries have relied on direct credit controls of one kind or another, in every single case they have been abandoned. Look at the case of the United States, Canada, Japan, Germany—even France and Italy who now entirely rely on interest rates, and do not rely on direct credit controls, or anything else other than interest rates, in order to control their monetary policy, for the very good reason that, in a much more open world market and for the avoidance of distortions, that is really the only sensible way to proceed. As I said to my right hon. Friend, that is the practice of every other well-conducted economy nowadays.
Going back to the supply side, manufacturing productivity has grown far faster than in any other major nation in the 1980s, after growing slowest of all in the 1960s and the 1970s. Of course, the industrial relations scene is unrecognisable from the depths plumbed in the Labour Government's winter of discontent almost exactly 10 years ago. Profitability is at its highest levels for 20 years, and, partly as a result, Britain's investment performance has improved dramatically.
One of the reasons why we grew more sluggishly than any other major European country in the 1960s and 1970s was because we fell behind in investment. Comparing the rates of growth of investment in the 12 European Community countries, in the 1960s, we came ninth out of 12. In the 1970s, we slipped further, to tenth. But in the 1980s we have shot right to the top—an achievement that bodes well—very well indeed—for the future.
Within the economy, there has been a marked shift in the balance of growth, thus between investment and consumption. In the five years between 1968 and 1973, consumption grew by about 3 per cent. a year, and investment by about 2 per cent. a year. Between 1973 and 1978, the next five-year period, and again between 1978 and 1983, the five-year period after that, in both of those periods consumption grew slowly, and investment actually fell. That was the record of the Labour Government. But since 1983—since 1983—investment has grown at getting
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on for twice the rate of consumption, so that private sector investment now stands at 16 per cent. of GDP—the highest figure ever.
So much for what the Opposition like to call a short-lived consumer boom. What we have seen is a long-lived investment boom—and one which is set to continue, as the surveys from the Confederation of British Industry, the Institute of Directors, and the Department of Trade and Industry all confirm.
The transformation—because that is what it is—of the supply side of the British economy has been the foundation for what is already the longest period of strong and steady growth, and the longest sustained fall in unemployment since the war; and Britain's economic renaissance is set to go on, although growth this year will be slower than in the past two years, particularly so far as domestic demand is concerned.
Perhaps the best evidence of the transformation of the supply side is the way the economy has forged ahead through the coal strike, through the oil price collapse, and through the stock market crash. There will be further evidence in the way that we shall come through the present problems about which I was speaking earlier. In the past, each and every one of these incidents would have created a major crisis. Now, they are little more than changes of pace in the sustained upward march of the British economy.
Our economic prospects will inevitably, of course—I do not deny this—depend to some extent on the wider world economy. The closer international co-operation which has been in place for well over three years now has, I am sure, been of great benefit in creating the right climate for healthy, non-inflationary growth, and particularly for investment. As the House will be aware, I was in Washington on Tuesday for an informal discussion with United States Treasury Secretary Brady, and I am sure that the new United States Administration will continue to play its full part in that process of international co-operation.
In this context, a low-profile meeting of the G7—the Finance Ministers and central bank governors of the seven major industrial nations—and of course the first involving the new United States Administration, may well take place within the next few weeks.
I have set out in the Autumn Statement the prospects for 1989, and I have explained the policies which I intend to pursue to ensure that our economic success continues. But when he comes to reply, I hope that the hon. Member for Dunfermline, East (Mr. Brown) will have the honesty and the courage to set out his own party's policies as well. For in spite of all his very frequent speeches, letters to me and television appearances, the House, I have to say, is little clearer than it has ever been on what Labour's policy on the economy actually is.
We are still waiting to hear what they decided at their retreat into seclusion in a convalescent home at Rottingdean a few weeks ago. We are still waiting to hear the outcome from their much-vaunted policy review, which seems to have disappeared from sight.
But I must be entirely fair. That great economist, whom I miss so much, the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley), has published his proposal to solve all Labour's problems. He recognises that it has already lost the next election. So, on the principle that if he

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cannot win, he is not playing, he proposes that we split the country up into ever smaller units, until we eventually find one where Labour might hope to find a majority.
So now we know what at least one section of the Labour party offers the country—what I might term the Yugoslav solution: total devolution and total ungovernability. It was only appropriate that the entire Yugoslav Government resigned, because they could not find a way out of their economic difficulties, on the very day that the right hon. Member for Sparkbrook produced his idea.
But let me come back to the hon. Member for Dunfermline, East, who is with us, and ask him a straight question—in fact, two straight questions. [Laughter.] I shall ask him three, if he is not careful. First—I know that he does not want to listen but I want to ask him this straight question first—can he bring the House up to date on what Labour's tax policy actually is this week, and in particular what Labour's basic rate of tax would be? I realise that the hon. Gentleman may find this is a tiresome question but I have to say that it is of some interest to the House, and may be of some interest to the country too.
I shall remind the hon. Gentleman that Labour voted against the cut in the basic rate from 29 per cent. to 27 per cent. in 1987, and also against the cut from 27 per cent. to 25 per cent. in 1988.
Mr. Ron Leighton rose—
Mr. Lawson: Yet, when he was pressed on the subject by Mr. Brian Walden a few days ago, the Leader of the Opposition said that, for the 95 per cent. of taxpayers who pay at the basic rate—and I quote from the transcript—"
the possibility of increasing their income tax is very, very remote".
However, I have to say that, when Mr. Walden then kindly offered to change the subject, the right hon. Gentleman exclaimed, "Thank God!"
Mr. Kinnock: Is that in the transcript?
Mr. Lawson: Yes it is.
Perhaps the hon. Member for Dunfermline, East will now confirm to the House, having heard what the leader of the Labour party said, that Labour now admits that it was wrong to vote against the cuts in the basic rate of income tax in 1987 and 1988.
Since we are debating the Autumn Statement and the Government's public expenditure plans, perhaps the hon. Member for Dunfermline, East, who has, I understand, rejoiced under the title of shadow Chief Secretary for over a year now, can tell us—this is my second question—by how much Labour would increase public expenditure in the unlikely event of their returning to office.
The House will want to hear a clear, honest and straightforward answer to that question, because the only policies we have heard from Labour, throughout the 1980s so far, have been a repeat of the disastrous policies which laid this country low in the 1970s, and would do so again, as the British people so clearly recognise. By contrast, the Autumn Statement offers the prospect of a further year of healthy growth and strong investment with inflation resuming its downward trend and above all, an economy that has been fundamentally transformed for the better. I commend it to the House.
4.44 pm
Mr. Gordon Brown: I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:
"declines to approve the Autumn Statement; deplores the failings in the Government's economic policies and the higher interest rates, higher inflation, the continuing high level of unemployment and worsening balance of payments these have caused; is concerned about the damaging impact of these policies on industry, home owners and low income families throughout the country; believes that the Autumn Statement does nothing to ensure a balanced economy and fails to ensure necessary improvements in essential public services; and calls upon the Government to adopt an economic strategy which will sustain growth, combat inflation, move interest rates downwards towards the levels of Britain's competitors and reduce the balance of payments deficit by improving export performance."
What we have just heard from the Chancellor of the Exchequer is the predictable response of a man who has just heard through the post that his last remaining policy —depending on high interest rates—has been rejected by his last remaining supporter—the Bank of England. He is the one-club man who has now become the one-man club.
Mr. Tony Favell: Answer the questions.
Mr. Brown: I shall come to the questions in my own time.
The Chancellor made many boasts in his speech. He tells us that private investment as a share of the economy has not been higher since the 1960s. He fails to tell us that overall investment—the figure that matters—as a share of the economy has not been lower since the 1960s. He tells us that long-term interest rates have not moved at all. He fails to tell us that short-term interest rates are now 3 per cent. higher than in America, 5 per cent. higher than in Germany and 8 per cent. higher than in Japan. Our interest rates are among the highest in Europe.
Mr. Lawson: I must tell the hon. Gentleman that he is wrong. Total investment is, on the official figures, the highest for a quarter of a century and, according to outside analysts, is likely to be the highest figure ever as a proportion of GDP.
Mr. Brown: The right hon. Gentleman should consult the real figures. He has been wrong before and he is wrong now. Investment, as a share of the national income, is lower than it was in the 1960s and 1970s, and lower than in almost every European industrialised country, except Belgium.
The Chancellor tells us that manufacturing productivity is our best ever. He fails to tell us that the productivity of the labour force as a whole is less than it was during most of the 20 years before he took office. When boasting about productivity throughout the world, he fails to tell us that our growth in productivity has been half that of Japan. Those are the real figures.
Sir Peter Hordern: I wonder how that can be. Manufacturing output is now 10 per cent. higher than it was in 1979 and, on the Opposition's thesis, the number of unemployed is higher now than it was then. Surely it must follow that productivity is greater now than it was in 1979.
Mr. Brown: Of course it has been possible for most years under this Government to show higher productivity because less has been produced by fewer people. The figure

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that I was putting to the Chancellor is that if one compares our record on productivity in all sectors of the economy with that of Japan, one can see that our productivity has been rising by half as much. The Chancellor will have to come to the House to correct his figure at a later date.
I suspect that we have heard from the Chancellor one half of the Government's case on the economy, reflecting much of the weekend thinking in his get-together at Dorneywood. Perhaps later in the debate we shall hear from the Chief Secretary, who is in a position to report on the more important meeting with the Prime Minister at Chequers on Boxing day. I understand from a report in the Sunday Telegraph that, under the auspices of the Prime Minister, the get-together included the previous Chancellor, the assistant to the Chancellor and the next Chancellor. I suppose that we must wait to hear from the Chief Secretary on that subject. Perhaps he will show more concern than the Chancellor did for the problems faced by people because of high interest rates. After all, as a Back Bencher in 1982 he told the then Chancellor that the level of interest rates was simply "not tolerable". That intolerable level of interest rates was 9·5 per cent. 3·5 per cent. lower than today.
It is clear from what the Chancellor said this afternoon that he does not begin to understand the scale and significance of the problems facing millions of people. A few weeks ago he told the press that he believed in targeting. With his enthusiasm for high interest rates, he has targeted industry—the borrowing costs of which have increased by £1·3 billion—small businesses—company bankruptcies in 1988 were higher than in 1987, even before the latest wave of interest-rate rises—and most of all, home owners. The average home owner has had to pay an extra £40 a month since last summer's interest rate rises. The young first-time buyer has experienced rises of £50 a month, and the home buyer in the south-east has experienced rises of £70 a month. The reason why home owners are stretched to the limit is that throughout the nine and a half years that the Government have been in office mortgage rates have never been below 9·5 per cent., and they have been below 10 per cent. on only two occasions.
As interest rates rise yet again, more of each householder's income, for reasons beyond his control, will be spent on his home. The added burden facing families can be expressed in two figures. Ten years ago the typical home owner paid 14 per cent. of take-home pay to cover housing costs, while today it is 24 per cent.—nearly twice as much. It is not a careful Chancellor whose meticulous housekeeping has been knocked off course by imprudent home owners, but careful home owners whose budgeting has been knocked off course by an imprudent Chancellor. Home owners, small businesses and industry should know that their mortgage rises and higher borrowing costs are not some accidental by-product of the Chancellor's strategy—they are the strategy.
The Chancellor has decided that the problems facing him are to be solved at the expense of home owners, small businesses and industry. The price of his economic mistakes are to be paid by those who secured least benefit from the top-rate tax cuts in the Budget. What is the Chancellor's response? He told us today that people will have to curb spending on other items. Perhaps in the Chancellor's world people can cut back on second homes, the third car or the third or fourth holiday, but in the wider world an increasing minority are finding that the sole car
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is harder to pay for, that their annual holiday is under threat and that they are struggling to pay the mortgage on the one family home. The Chancellor protests that his interest-rate strategy is right because he cannot afford to admit that his Budget strategy was wrong.
Mr. John Townend: Will the hon. Gentleman accept that, despite what he says, the man on average earnings is £45 a week better off than he was in 1979?
Mr. Brown: Standards of living have risen in every decade. The hon. Gentleman should ask whether standards of living can be sustained at their present level. The answer for millions of home owners is that they cannot and that they will be worse off as a result of rises in their mortgages. If the hon. Gentleman does not believe me, why does he not ask some of his constituents about the notes that they have received from building societies over the past few weeks? The Chancellor will not make a change in his fiscal strategy because when the interests of a tiny minority of taxpayers clash with the economic interests of the nation, the interests of the small minority come first.
Last week, following the mortgage rate rises, new dental charges were introduced, train fares increased by 9 per cent. and tube fares increased by 12 per cent. Electricity prices will rise by 6 per cent., following the 9 per cent. increase last year, and in April the price of gas will increase. The price of water will increase to pay for privatisation. When those rises—which on average will amount to an extra £10 a month if rates or the poll tax are included—have wiped out the tax cuts of the majority of families, what is left of the Chancellor's boast to a Conservative party conference in 1984:
"On this occasion, unlike all previous recoveries, there has been no resurgence of inflation"?
The right hon. Gentleman told the IMF:
"In previous cycles, inflation has tended to rise as soon as the recovery has become well established. As a result, many commentators have argued that an inflation upturn in the United Kingdom is imminent. We take a different view."
The Chancellor cannot blame the Organisation of Petroleum Exporting Countries or rises in world commodity prices. He has no one but himself to blame. As inflation increases to 7 per cent., when it is less than 2 per cent. in Japan, predicted to be 3 per cent. in Germany arid predicted to be 4·5 per cent. in America and Canada, what does the Chancellor say about his objectives? [Interruption.] I tell the Chancellor that, in the last year of the Labour Government, inflation was at the European average. Under this Government it is 40 per cent. above the European average. This will be the fourth year when inflation has been above it, but this is the Chancellor who told us that he would create zero inflation. On 18 December, the right hon. Gentleman said, when asked about zero inflation:
"It will take a long time to get there … The important thing is to be moving in the right direction."
The Chancellor's only solution is to change the rules by taking mortgage interest rates out of the retail prices index. In a year or two, he—or more likely his successor—will tell hon. Members that, like the unemployment problem before the last election, the inflation problem has been solved, no doubt after 19 changes in the retail prices index.
The Chancellor says that these rises are a temporary blip on the road to zero inflation. The temporary blip occurred. not when inflation rose above 5 or 6 per cent., but when it fell below 3 per cent. for four months in the 66

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months of his Chancellorship. The real blip under this Chancellor's term of office is the four months when inflation was below 3 per cent., the three months when Britain had a visible trade surplus and the two months when mortgage rates were below 10 per cent.
Mr. Ian Taylor: Will the hon. Gentleman explain the blip that occurred under the Labour Government, when the average rate of inflation was 15·5 per cent.? It will return to that level if some of his policies are put into practice.
Mr. Brown: I do not think that the hon. Gentleman has looked at his history. When the Labour Government left office, after a 300 per cent. rise in oil prices, inflation was falling. Under this Government, after a 20 per cent. drop in oil prices, it is rising.
What is the Chancellor's answer to every problem? His answer to rising consumption is high interest rates; to problems with the pound it is high interest rates; to inflation it is high interest rates; and, amazingly, to the regional problems it is high interest rates. A few days ago the Chancellor told the Financial Times that interest rates are
"helping to secure a better regional balance within the economy."
I know that something had to be done to replace the lost regional grants, the lost regional status and the cut in the development agencies, but industrialists in my constituency are amazed at being told that their economy is in need of being cooled down, when it has not begun to warm up. They strongly believe that high interest rates will force them to move from a period of recession to depression without enjoying an intervening period of recovery.
The Chancellor would do well to listen to the Secretary of State for Wales, who, regarding the policy of high interest rates, was quoted in The Scotsman on Monday 5 December as saying:
"There is a whole range of things that can be used. I do not think you can ever run an economy dependent on any single factor alone."
That was said by a man who is not only a Conservative Member, but a member of the Cabinet. He, apparently, can say that with impunity in front of the Prime Minister.
What has happened to the Chancellor's strategy? What has happened now that he is so enthusiastic about high interest rates? What has happened since the days when everything was going to be solved by M3, which is rising this year by 20 per cent. and in previous years by anything between 10 and 25 per cent., and which is rising faster than in Europe? What has happened to M3, because we hear nothing about that? What has happened to the statement that the Chancellor made in 1980 in the economic progress report:
"Judgments about appropriate levels of interest rates are replaced by control of the monetary base."?
What has happened to the view that interest rates should be left to the markets and not to the Government? The aim was for a
"greater role for the market in determining the rates."
What has happened to the presumption that if the public sector borrowing requirement came down interest rates would inevitably follow them?
Gone are the days when Treasury Ministers reported to us in the financial statement and Budget Report in 1981:
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"The Government is committed to a progressive reduction in the growth of the money stock and to pursuing the fiscal policies necessary to achieve this without excessive reliance on interest rates."
The Minister who was most enthusiastic about the medium-term financial strategy, and the Minister who repudiated excessive reliance on interest rates in 1981, is today the Chancellor of the Exchequer who can think of little else.
After nine years, when we have been through fads of monetarism, the totems of M0, M3, the basket of monetary aggregates and all the dogma about PSBR, we are back to the crudest, most basic, old-fashioned, short-term weapon of them all—high interest rates. The Government do not have a resolute approach, but falter from one desperate expedient to another. They pursue the short-termism that is, I suppose, the inevitable result of an unequal dialogue between a Chancellor who has not yet made up his mind when to retire and a Prime Minister who has not yet made up her mind when to sack him.
Our case against the Chancellor is not merely that without a prior and sustained long-term investment boom the consumer boom that he engineered was bound to be unsustainable. Our case is not only that the solution that he has chosen—high interest rates—is not only directly damaging to industrial investment, as everybody knows, is directly damaging to home owners and fails to address the real problems facing us—for what can high interest rates do about skill shortages, bottlenecks in technology or regional imbalances?—but that his excessive reliance on interest rates is worsening the economy and that the imbalances in the economy will only be exacerbated by the high interest rate policy that he pursues.
Mr. Tony Marlow: Will the hon. Gentleman give way?
Mr. John Redwood: Where has the hon. Gentleman obtained his figures from when he says that investment has been at a low level in recent years? The burden of the hon. Gentleman's case against my right hon. Friend the Chancellor is based on phoney figures. Total investment in 1988 was at high levels relative to the 1970s. Would the hon. Gentleman like to show us his alternative figures so that we can judge their veracity against the official record?
Mr. Brown: I find the comments of the hon. Member for Wokingham (Mr. Redwood) interesting. After all, he was the hon. Member who suggested about a year ago that the Chancellor should consider pumping an extra £5 billion into the economy. If he checks the figures, he will find that, far from being an economic miracle akin to that of Japan, as the Chancellor says, the growth rate of investment in Britain has been about half the level of that in Japan since the Government came to office.
Mr. Marlow rose—
Mr. Brown: What is even worse about the Chancellor's strategy is that, after 10 years during which he has protested that we are living through an economic miracle akin to that of Japan, after 10 years during which he has boasted that our economic position is akin to that of Germany, not only have other countries manufactured more, produced more, grown faster and exported more but they have seen the wisdom—which the Chancellor clearly

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has not, to judge from his Autumn Statement—of taking a pragmatic approach to public investment and to the public sector, for the future of the country.
Mr. Marlow rose—
Mr. Brown: I have given way on numerous occasions this afternoon. I am happy to give way to the Chancellor if he wants to intervene, but I want to press on with my remarks.
In which other countries would supply side investment in education, training, research and development in the regions take second place to a doctrinaire obsession to reduce public spending below a notional and arbitrary mark of 40 per cent. of national income? In the Autumn Statement, the Government should be examining what investment is being put in place, what skills are being developed, what technology is being encouraged and what resources generally are being mobilised to ensure that we are competitive for the 1990s. We know that over the past nine years we have been spending, in real terms, less on the regions industry, transport, housing and the environment.
In the Autumn Statement, despite the Chancellor's boasts, industry and housing find their expenditure cut, in real terms, by £400 million, employment and energy by £300 million, Scotland by £200 million, the environment by £100 million and spending on education, Wales and Northern Ireland is so important to this Government that it is to take up a far smaller share of national income.
The Chancellor claims that he has managed to reduce public spending as a share of national income and to increase public spending at the same time. I shall tell him how he can claim that. The main reason why he claims he is spending more next year is that he has spent less this year than was originally planned. Once all the receipts are in, it is likely that public spending will have fallen, not by £1 billion, as is said in the Autumn Statement, but by about £2·5 billion over the year. The truth is that, for all the talk of increased spending. the real value of allocated departmental spending for all those functions is worth less next year than it has been in many of the years since 1983. There is no extra money for industry, for housing or for the environment.
There are, of course, a few exceptions—which are mainly unintentional. The £200 million for income support for pensioners is a result of the Chancellor giving a weekend briefing that went wrong. The £20 million, or more, is the result of a junior Health Minister giving a weekend interview that upset farmers. If any lesson is to be learnt, it is that our best, and perhaps only, hope of more public cash for interest groups and industry is that the relevant Minister is tempted into an indiscreet weekend interview.
Mr. Lawson: The hon. Gentleman may have forgotten that I asked him two simple straight questions. I should like now to hear his answers. First, he has seen our figures in the Autumn Statement. By how much would Labour increase the total of public expenditure—by how much? Secondly, what basic rate of income tax would it need to finance that?
Mr. Brown: I do not know what the problem is for the Chancellor. The Labour party is, of course, committed to increased public investment. The Chancellor himself was committed to that last year, but the only problem was that he did not spend the money that he promised to spend. I
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see from the Budget submission that even the Institute of Directors is demanding more public spending because of the chronic under-funding of education and health.
I can assure the Chancellor that we believe in more public investment, and to make that possible we would have a different fiscal strategy from the strategy that the Chancellor is pursuing. Before the Chancellor tells us that last year's Budget was a success and that there is no need to change the fiscal stance, he should talk to home owners, who have seen their tax cuts wiped out many time over as a result of his policy.
The main reason why investment represents a smaller share of our national income is that, year after year, the Chancellor has insisted on giving a low priority to public investment. The real value of Government investment fell in 1987, and the published figures show that it also fell in the first three quarters of 1988. Is it not a damning comment on the Government that in the motion they should congratulate themselves on bringing public expenditure below 40 per cent. of GDP, even though that means that public investment in our future has fallen?
Where is the basis for congratulation in the fact that there has been less spending on research and development, when we know that other countries are running ahead of us? We know that other countries have more research scientists than we do. Where is the basis for congratulation in the fact that many major companies in this country are having to recruit graduates from abroad because of the skill shortages caused by lack of investment in training? Where is the basis for self-congratulation in the neglect and decay of the infrastructure that has occurred as a result of the public expenditure policies that the Chancellor has pursued?
Sir Peter Hordern: The hon. Gentleman said that the level of public sector investment had fallen last year compared with previous years. Has he taken into account the denationalisation of British Gas and other public sector investments? If he were to make a proper comparison, he would find that total investment had risen.
Mr. Brown: I am grateful to the hon. Gentleman for allowing me to point this out. [Interruption.] The Chief Secretary says that I am wrong. I have to tell him that my figures from 1979 exclude public corporations. We are talking about general Government investment. Local authority and Government investment fell last year and the year before, yet the Government and the Chancellor congratulate themselves in the motion on presiding over this fall in public investment.
The Chief Secretary knows all about these things. He knows that the biggest increase in spending has been not on the National Health Service, roads or education but on Government advertising. What we need is action to deal with the problems of the inner cities, science space and the environment, but all that we get is Government advertising. What happened to the initiative that the Prime Minister launched in St. James's park—amid great advertising—the aim of which was to clean up the environment? What happened to the committee to push scientific research, which the Prime Minister was to chair? What happened to the initiative to help women
What new measure has followed the trumpetings of Prime Ministerial enthusiasm for the global environment? What has happened to the inner-city campaign, which appears to have started and ended with the publication of

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that glossy brochure last March? What has changed since September 1987, when the Prime Minister did a walkabout on the wasteland in Midlesbrough to launch the inner-city campaign? What was wasteland in 1987 remains a wasteland in 1989, and the only opportunities created in Middlesbrough were photo opportunities. I am sure that the people of Middlebrough treasure the snapshots still.
We need a policy to cope with the problems that we face —not publicity or public relations. This is the Government who promised the initiative for women, but ended up freezing child benefit. They said that they would deal with the environment, but ended up cutting the money spent on research into pollution. They set out promising to regenerate inner cities, and ended up lavishing top-rate tax cuts on the landed estates. They are a Government whose priority is not the consumer, the inner city, pensioners or the family, but the top-rate taxpayer.
Let me tell the Chancellor what his priorities should be. First, he should admit that his last Budget was misconceived—that it was not only unfair and divisive but ill judged and imprudent. He should end excessive reliance on interest rates, no least by acting directly to encourage saving and on the inflation that he has created—in particular, by abandoning the electricity and water price increases. Above all, the Chancellor should set in motion a fiscal strategy that is not only fair but designed to reduce inflation, allow interest rates to fall and assist our balance of payments.
We have been told that the next Budget will be a Budget for savings. We were told that the last Budget was a Budget for savings.The huge tax cuts at the top were justified to the House on the pretext that top taxpayers would save, with the result that there would be more investment by them in the economy. We know that quite the opposite happened and that the savings ratio has now fallen to its lowest level.
If the Chancellor wants a real Budget for savings, why does he not end the discrimination against pensioners on income support and housing benefit, who are penalised for saving by the loss of that benefit? Why does he not end the discrimination against people too poor to tax who save with building societies and who are automatically taxed on their income? Why does he not create a savings scheme that will do something to promote real savings and real investments in the areas where they are most needed—in the regions? That is the first thing that the Chancellor should examine.
Secondly, the right hon. Gentleman should say now, at a time when it would have the most effect on interest rates, that in the current difficulties that he has created the British people cannot afford another Budget like the last one—a professedly tax-cutting Budget whose effects were quickly cancelled out by mortgage and price rises. Let me tell him directly that, if press reports are correct—if he intends to introduce measures to help the low-paid, to cure the poverty trap and to reduce the tax burden on low-income Britain, which is now heavier than it was in 1979—he will have the support of the Opposition for those measures. But even if tax allowances for low-income Britain are raised in line with wages, people will still be paying exactly the same share of their income in tax next year as they are this, and that represents a larger burden than existed in 1979. Would not the Chancellor be doing
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better if he took back at least part of the top-rate tax cuts that he gave to people who did not need them and who spent large parts of them on imports? In that way, he could take many thousands more out of tax.
Thirdly, will the Chancellor agree that with a prudent economic strategy that does not rely exclusively on high interest rates he could afford some targeted investment, especially on the regions? Such investment would not cause the inflation, the imports and the pressure on interest rates that his top-rate tax cuts have caused. Action on capacity constraints, skill shortages, technology and research, on regional imbalances and on infrastructure would not only assist greater balance in the economy, but would make for better long-term efficiency and competitiveness. Those are the measures that the Chancellor should consider introducing in a Budget.
No Chancellor has had better opportunities than this Chancellor. He has never had to deal with huge oil price rises. He has not had to deal with a world commodity price explosion. Instead, he has had huge oil revenues—more than £70 billion. He has had money from the privatisation of industry. He has had £20 billion from house and land sales. He has broken the link between pensions and earnings and thus saved himself £18 billion.
In spite of that, there is no supply side transformation. There is no zero inflation. The trade deficits are no freaks, the price rises are no blips, and the hardship that the Chancellor has imposed and is imposing is no accident. There is no economic miracle. This Government have had the best opportunities that have been available for decades but have left the nation ill prepared for the future. What we need is not just a new Chancellor, but a new Government, and the sooner the better.
Mr. Harry Ewing: On a point of order, Mr. Speaker. Would it be in order for me to move a vote of thanks to my hon. Friend the Member for Dunfermline, East (Mr. Brown)—
Mr. Speaker: I call Mr. Higgins.
5.20 pm
Mr. Terence L. Higgins: This year's Autumn Statement is in many ways more important than ever before, because it includes a considerable number of the figures and data normally included in the public expenditure White Paper. I believe that the House should be glad that the Chief Secretary, together with the Chancellor, has accepted the recommendations made by the Select Committee on the Treasury and Civil Service that the Autumn Statement should be expanded and given greater prominence.
I am sorry that I missed the opening sentences of the Chancellor's remarks, not least because I gather that he was kind enough to pay a compliment to the Treasury Committee. I hope that our report will help the House in analysing the complex economic problems we face.
I should like to take up one point arising from the speech of the hon. Member for Dunfermline, East, (Mr. Brown). There was considerable disquiet on this side of the House about some of the statistics on which he based his argument. I suggest that he should, perhaps, adopt the policy used on similar previous occasions: he should put down some written parliamentary questions setting out precisely the points that he wishes to justify; then we could see what the official statistics actually are.

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I believe that the report of the Select Committee helps to put the present situation in perspective, especially paragraph 49, which draws attention to the fact that the worldwide fear of recession after the stock market collapse in October 1987 led the authorities throughout the world to take action to avert that risk by stimulating their economies. I believe that this time last year, everyone—with the exception of my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen)—was unanimous in believing that that was the right thing to do. That sets the background against which the present policies are to be appraised. The Committee goes on to say:
"With hindsight it can be seen that thereafter policy was too relaxed too long."
An important point made by the Select Committee was that there is grave concern about the margins of error that arise in official statistics, not in the context I have just mentioned, but regarding the overall national income statistics. I know that my right hon. Friend the Chancellor feels that the financial statistics are better. That is so, but, if he is trying to manage the economy against a background where there are tremendous variations—large variations of the kind which were revealed in the evidence given to the Committee—in estimates of economic growth, depending on which measure one takes, it is important that we should devote more resources to it.
I note that my right hon. Friend said that he will be publishing the report of the inquiry. I welcome that, but the fact is that the position has deteriorated significantly since the Committee originally suggested that an inquiry was needed. Therefore, if one is to manage the economy properly, that is important.
A separate issue, but related to the one which I have just mentioned, is forecasts. The Chancellor said in evidence to us that he wished he did not have to publish the official forecasts of the economy. I believe that that is wrong: it is important that the House should know the forecasts on which the Government are taking their decisions, since otherwise we cannot have a sensible debate on these matters. In the light of that, I am sure it is important that we should do all we can to improve the forecasts. The pass record of the Treasury has been good on this, but the model is now clearly defective. As the Committee has pointed out, the model at the moment, for example, would produce a conclusion, if it were not adjusted, that if there is a fiscal surplus of the kind we now have, we would also have a surplus on the current account. When the difference is that big, clearly the forecasting model needs to be looked at closely.
The first point I wish to make from an analytical point of view is that the Committee points out that, against the background of the stimulus of last year and the consequential hangover, that the Chancellor is, in effect, on a tightrope, and that there are two dangers. On the one hand, the effect of the higher interest rates could be a sudden abrupt stop in the economy, so that the unemployment figures would cease to go down and the economy as a whole would come to a halt. On the other hand, if the economy delayed its response to the hike in interest rates, before effective response is felt, we might have a deterioration in foreign confidence, a fall in sterling, still higher interest rates and an uncontrollable situation.
The Chancellor is balanced on this tightrope, but he is still clearly in a position of balance. We do not yet know how long it will be before the interest rate increases become apparent in the economy. Although the last set of
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balance of payment figures were the third worst ever, they showed a significant fall in imports. The increase in the mortgage rate will take some time to have the effect which my right hon. Friend has rightly described. Essentially, one should not make a premature judgment for further action ahead of the Budget, but one should wait to see what the subsequent figures are.
There are particular points of concern regarding the balance of payments, because the Chancellor of the Exchequer rightly told us:
"with the exchange rate given the task of combating inflation, it follows that the exchange rate cannot be assigned the task of"
restoring equilibrium in the balance of payments. The Committee expressed concern about restoring that balance in the current account, because the Chancellor has effectively used the exchange rate as a means of putting that right. We expressed some doubt about whether the supply side improvements—which I believe are coming through—and the reduction in the strain on domestic demand will be sufficient to ensure that there is sufficient capacity for the resources to be diverted into exports.
I have two related puzzles. The first one relates to the recent comments on these issues by the hon. Member for Dunfermline, East. Of course, there is a puzzle about what rate of income tax he would select, to which I still believe we do not have an answer. The hon. Gentleman complains about the cut in the top rate of income tax in the last Budget, but I believe that he must take fully into account what happened to revenue following that cut.
While that is a normal party political point to make, I find it strange that the hon. Gentleman argued that the totality of tax cuts in the last Budget was too great, given the fact that we are now clearly heading for, by an enormous margin, the largest fiscal surplus that we have ever had. I believe that the only previous one was the one achieved by Roy Jenkins, which resulted in the immediate defeat of the Labour Government, but that was in different circumstances. I believe that the Chancellor is heading for a large surplus. It is the relationship between taxation and expenditure and the balance between the two which are important, and not simply what the Chancellor did last time on taxation. When one looks at that balance, one sees that there was a massive surplus. I do not believe that it is convincing to say that the tax cuts in the last Budget were too great.
Another related problem is that I am puzzled because my right hon. Friend is fond of repeating that he has only one weapon with which to deal with the problems of the economy—that of short-term interest rates. He does himself less than justice. Indeed, I detected some slight change of emphasis even this afternoon. Clearly, the use of short-term interest rates occurs against the background of the fiscal policy and stance which he has established. It is true that, under a Conservative Government, that changes only once a year, in contrast with the previous Labour Government. None the less, it is a weapon of great importance in managing the economy. I hesitate to use a corny analogy, but I do not agree that the Chancellor is using only one golf club; he is using a fiscal driver and putting with interest rates. That is a sensible way of dealing with these matters.
The Chancellor's fiscal stance, which he repeated this afternoon and gave the Committee in evidence, is tight, and that is extremely important. It also has relevance to what he can do eventually when we have the latest figures

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for the next Budget. If he were simply to offset the effect of fiscal drag in the Budget, there would be a tight fiscal stance. If he were not to give any reductions, it would be a significant tightening. My present feeling is that a choice between those two rather than a further relaxation would be right, because it is important that the fiscal policy should reinforce the operation of what the Chancellor is inclined to call his monetary policy but what is more accurately called his interest policy.
From the Autumn Statement and the caveats which are summarised in the Select Committee report, it seems that the Chancellor remains balanced on the tightrope. There is some equilibrium. Now it is important that we wait to see what effect interest rate increases have when they have worked their way fully through to the level of consumption and consuming expenditure—against a background where, clearly, the increase in mortgage rates will have considerable importance.
We debate these matters in different circumstances from those which existed a few years ago. For many years we had negative real interest rates, but now we have positive ones. Despite that, we have seen a remarkable fall in the personal savings ratio, which gives cause for anxiety. I hope that the Chancellor will do something to rectify that in his next Budget. Above all, we now have a completely different policy stance, as, instead of having a public sector borrowing requirement, we now have public sector debt repayment. That leads to the extraordinary jargon, which the report mentions—that we now have a policy not only of full funding of the deficit but of "full unfunding" of the repayment.
Given the overall position, we can reasonably say that the picture in the Autumn Statement, with massive additional resources for public expenditure, leads us to believe that, in the Budget, we shall again see that the Chancellor can continue with his present policy. In particular, the slowing down of the rate of growth from a clearly unsustainable and unintended level will result in a significant improvement in the country's overall welfare.
5.32 pm
Mr. Robert Sheldon: We must always pay tribute to the right hon. Gentleman for Worthing (Mr. Higgins) for the work that his Committee does on the Autumn Statement. I agree with what he said about the problems of inadequate statistics and the fear of inadequate capacity for exports in our industries, but I disagree with him on the effects of tax cuts.
In his comments to the Financial Times, the Chancellor of the Exchequer said:
"No Government has done more to set out its policy and stick to it."
I find myself something like the ghost at the feast. Like the right hon. Gentleman, I recall the famous Financial Statement and Budget Report 1980–81. It is dated 26 March 1980 and chronicled "Treasury Chambers, Nigel Lawson" on the first page. Clearly, he has responsibility for it. Page 16 states:
"Control of the money supply will over a period of years reduce the rate of inflation."
Although I am proud to own this, I do not like trotting out the FSBR and I would not have dared to regurgitate it once again to the House, had the Chancellor not claimed:
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"No Government has done more to set out its policy and stick to it."
I automatically had to look to see what he said.
The Chancellor went on to say:
"It is to provide a firm basis for those expectations that the Government has announced its firm commitment to a progressive reduction in money supply growth."
I understand that people can change their minds, but he cannot say that and at the same time say that the Government have done more than any other Government to set out their policy and stick to it. It is obvious that the Government have not done that. They set out their policy and immediately set about not sticking to it. Those are problems that the Chancellor must find some way of living with.
In the famous Financial Times interview of 3 January, the Chancellor said:
"As for the Budget, I have no regrets whatever."
The balance of payments forecast in the FSBR this year was £4 billion. Past forecasts allow for an error of 3 per cent. It is right to allow for some error. One cannot be too precise when talking about £4 billion. The Treasury is generous enough to allow itself to be out. Three per cent. of £4 billion amounts to £120 million, so the Chancellor assumed that there might be a balance of payments deficit not of £4 billion, but of £4,120 million. We now know that it was £14 billion. That is unbelievable. We must first ask ourselves what has happened to the Treasury. Can we believe that the Chancellor has no regrets about forecasting a £4 billion deficit? Can we believe that if, at the time of the Budget, he had anticipated not £4 billion but £14 billion, we would have had exactly the same Budget? Of course not.
Why, then, has the Chancellor been so humiliated by his forecast? We know that he has been hoist by his own petard and blown up by the device that he primed. He allowed our economic statistics to decline, he took a conscious decision to downgrade their importance, and he and the country have paid an exorbitant price for that folly. The Budget was completely misconceived because of that.
Although Chancellors invariably scoff at statistics—I have heard them all on this—they all make use of them. How else can they arrive at their Budget judgement? Is it by intuition, or by feel? I should be terrified if I thought that they relied exclusively on that. Of course they cannot.
Dr. Bray: The Chancellor was smirking when my right hon. Friend gave the errors, which are confusing in their presentation. To take the Chancellor's interpretation, the forecast balance of payments deficit in 1988 was £4 billion and the error was £3 billion which is a long way short of the actual error. The right hon. Member for Worthing (Mr. Higgins) should not imagine that the Treasury forecast bears much relationship to the model. The model publication has been delayed. It was promised for yesterday, it had not been delivered when the Chancellor rose to speak and I do not know whether it has now been delivered.
Mr. Sheldon: I am sure that my hon. Friend will make his own comments, and his views on statistics are well known and important.
Statistics are not the only guide, but they are an important one, and the Chancellor should have learnt an essential lesson. How has he reacted to the £14 billion? Market forces would have led to the falling of the pound. He has reacted by an interventionist policy not to help but

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to harm British industry. At the time of the Budget, the pound stood at DM3·07 and now it is at DM3·22, and the index of sterling against other currencies is higher now. So once again it is cheaper to import and harder to export. So much then for manufacturing industry. The Government have not considered the matter according to that sector of our economy, as they should.
As a result of that folly we have had a consumer boom. The euphoria of a rising standard of living has given way within months to the misery of a declining one. The Chancellor of the Exchequer has reduced taxes and put up interest rates all in the same year. He did not even have the excuse of the need to win a general election.
There is one lesson—not a very difficult one—that the right hon. Gentleman might have picked up from Lord Keynes on demand management. One does not reduce taxes on the rich in the middle of a spending boom. Those people who said that the tax cuts were smaller in economic terms overlooked the psychological effects of a Budget. There was a combination of tax cuts with high house prices, which led to a euphoria. It was a created euphoria activated by the Chancellor. In his Budget statement, he said:
"We have thus secured an enviable, virtuous circle in public finance: lower borrowing and lower tax rates create both the scope and the incentive for the private sector to expand."—[Official Report, 15 March 1988; Vol. 129, c. 996.]
That is what it was intended for. Lower borrowing and lower taxes create both the scope and incentive for the private sector to expand. He encouraged the private sector and it went ahead and expanded; it spent and spent. That was the result of the Budget.
Our problems today concern essentially manufacturing industry. We do not trade very much internationally in services, but we trade enormously in manufactured products. If we were a country like Switzerland, we could manage with a large service sector, but we have 56 million people to look after and we cannot do that unless we sell a large part of our goods as well as our services. The Chancellor of the Exchequer, with his City background, has not paid sufficient attention to that.
Those 56 million people depend on the large hinterland of a flourishing, productive economy. The Chancellor has taken pride in the financial strength of Britain arising from the North sea oil economy, which has assisted in the move from a manufacturing economy to a rentier economy in which we live off the overseas investments. There is a need for training and education and a need to avoid the harmful effects of stop-go. The danger for much of our industry is that there has not been that much of a go. There has been a very large stop, and there is a very large stop now.
I make no apology when I speak on these matters for referring to my constituency, which lost 30 per cent. of its industry in those fateful years 1979–81. It was a prosperous town with many small and medium-sized firms, the largest of which employed 500 people. We lost one third of those companies in those two years. There was a wide range of medium-tech industries such as one finds in every country of the world, including Japan, the United States and Germany. Those industries were destroyed. When we come to advance, those companies will not be there so we will have some capacity constraints. Those companies were ruined by the combination of 17 per cent. interest rates and the $2·40 pound. The 17 per cent. interest rates finished them off at home and the $2·40 pound made exports almost impossible and resulted in imports.
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Those are the lessons that we must learn. We must never find ourselves in that situation again, so we must re-create a larger manufacturing economy. No incentives are too great to restore that. If the Chancellor of the Exchequer ever has money to spread around, this is where is should go.
When a manufacturing company buys a machine tool, it does not just obtain a new piece of equipment: it gets productivity, a growth in skills to operate the new machinery and a modernisation of the factory and workplace, and it helps to produce the kind of Britain that we shall need if we are to regain our place as an important manufacturing country. If the Chancellor of the Exchequer ever has money to spend, there is no better way to spend it.
It is ludicrous that capital allowances are 25 per cent. Each year, therefore, the depreciation allowed is one quarter of the reducing capital value. That is clearly absurd. The profit of the distributor selling the machinery is greater than that 25 per cent. so, when he comes to sell that new grummet press, for example, even after a week, he will not get back the amount of the depreciation that he is allowed. We therefore have not an incentive, but a built-in disincentive, to capital modernisation. The best investment decisions are made on the basis of the need for machinery, but one must never discount the incentive of a product made easier to purchase through sensible tax policies, providing benefits which can be used to the advantage of the company, the employee, the industry and the nation.
We must ask how the Chancellor is dealing with the consumer boom. He declined any control on credit, on what I consider the hilarious foundation that it would not be fair to those with little financial knowledge because others would easily circumvent it and those with little financial knowledge would be left to carry the burden. That is to suggest that the Government are a paragon of fairness and equality. In the long run, I agree that there would be ways around them, but credit controls are not required for the long run. Action in areas such as hire purchase, banks and credit cards was required and could have been taken. Such a short-term measure would have had some immediate effect—largely psychological, but none the worse for that.
High interest rates hurt industry, which finds itself competing with the banks who can now offer a better return than many investments in manufacturing industry. If we know that it will cost us 15 or 16 per cent. or more, that is obviously a disincentive to spend money on investment in machinery, but that does not affect credit card purchasers who finance APRs approaching 30 per cent. and are oblivious to the 1 or 2 per cent. above that.
Interest rates are feeding into the retail prices index through mortgage payments. There is an inflationary chain. High interest rates lead to RPI rises, which lead to wage demands, which in turn lead to what the Chancellor always forswore—exhortation. That is what we have today. There was a time when the Government said that wage demands were nothing to do with them. They said that they would control the money supply and, if firms allowed excessive wage demands, they would go out of business. It is pitiable that we now see the Government, who are responsible for wage demands, pleading with industry not to grant them.
The Chancellor of the Exchequer must bear in mind the fact that, although mortgage interest is included in the

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RPI, house prices are not. The enormous rise in house prices is one element of inflation; there is no question about that. It affects everyone who buys a house with a mortgage. It affects everyone other than those who have paid cash outright or who have redeemed their mortgages. The Prime Minister knew the inflationary effects of her policies when she decided to buy her own house in Dulwich. She said that, if she had not bought it then, she would have had to move 100 miles out, because she could see that house prices were going to rise. That is an important element in inflation and it is not measured by the RPI, for reasons that we know and understand.
The right hon. Member for Shropshire, North (Mr. Biffen) said in 1980 that we were in for
"three years of unparallelled austerity".
How right he was. I hope that we are not in for even a year of that. We paid the price then and the Government should have learned the lesson. If that lesson has to be learned again, the Government will rightly be accused of the damage that they have done to the country that we were sent here to serve.
5.47 pm
Mr. John Townend: I found the speech of the hon. Member for Dunfermline, East (Mr. Brown) illuminating, to say the least, because it confirmed what I and many of my hon. Friends thought: the Labour party is devoid of any policy at all. When asked twice by the Chancellor of the Exchequer how much the Labour party would increase spending if it were in office, he could not provide an answer. When asked twice by the Chancellor about the increase in the basic rate of taxation, he was unable or unwilling to answer. The only policy that he outlined was that there would be an increase in the higher rate of taxation. The Labour party is either devoid of policy or its policy is so out of this world that it is frightened that the ordinary man in the street will know what to expect if a Labour Government were elected.
I should like to spend a few minutes explaining to the House why, as a member of the Treasury and Civil Service Select Committee, I could not vote for its report. I objected to it on a number of matters of principle, particularly paragraphs 18 to 21, in which the Committee said that, when considering public sector claims on public resources, transfer payments should be excluded. That is nonsense. What difference is there on the effect on the economy of an increase in the old age pension and an increase in nurses' pay?
If transfer payments were excluded, the percentage of expenditure to GDP would fall and there would be pressure for increased Government spending. In paragraph 30 the Select Committee recommends that there should be more information about differential price increases. Again, I think that that is unnecessary. It would undermine the cash planning process and would be a first move back to planning expenditure on a volume basis, a practice which was used under the previous Labour Government when spending was completely out of control.
My final objection to the report is the recommendation that the Government should publish annual national and public sector balance sheets. That would be very expensive and time-consuming for the Treasury and there would be
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enormous problems in valuation. For example, the Chief Secretary to the Treasury asked the Committee, how we would assess the present market value of a prison. Furthermore, there would be problems with depreciation.
This year's Autumn Statement paints a picture of a sound economy which has some short-term problems due to the unsustainable level of growth which has resulted in the resumption of inflationary pressure and a rise in the balance of payments deficit. I do not believe that the Chancellor's Budget judgment was in any way responsible for those short-term problems. With a public sector debt repayment now forecast at £9·8 billion, as my right hon. Friend the Member for Worthing (Mr. Higgins) said, we cannot describe the fiscal stance as slack. With that size of surplus, the tax cuts were completely justified.
It is always easy to be wise after the event, and the Chancellor has already admitted that he and other financial leaders in the industrial world over-estimated the dangers to the world economy following black Monday and the stock market crash. To prevent a worldwide collapse, they slackened the monetary stance and interest rates around the world fell. The world economy proved far more resilient than anyone imagined. In retrospect, interest rates were undoubtedly kept too low and growth went ahead at an unexpected level. That was particularly so in the United Kingdom where there was a large increase in private sector borrowing and private investment.
We are facing a much less serious problem than we would have faced if there had been a slump equivalent to that in the 1930s. Therefore, I stongly support the Government's commitment to reduce inflation. The present high levels of interest rates are necessary. However, I do not believe that they will be enough on their own. They must be backed, if possible, by wage increases in the private sector that do not put up unit labour costs more than the very minimum so that our exports remain competitive. If that is to be achieved, the Government must set an example in the public sector wage negotiations this year. A large proportion of wage increases in manufacturing industry is recouped by increases in productivity, but that is more difficult to achieve in the service sector and practically impossible in the public sector. Indeed, it rarely happens.
This year the Government should do everything possible to keep public sector pay increases within the level of inflation. There have been large increases in recent years for the police, firemen, teachers, nurses and the armed forces. This year the Government must be prepared to accept short-term unpopularity and stand firm.
Everyone accepts that the balance of payments deficit is too great and it cannot be ignored. However, there is a difference between our present deficit and other deficits since the war. In the past a balance of payments deficit has always been mirrored by a public sector deficit, and that is the position in America. At the moment we have a public sector surplus. Our trade deficit is completely a private sector phenomenon. It is the result of private sector investment—which will help us to increase productivity and produce exports in the future—private sector consumer borrowing and a rundown in private savings. There is a limit to the amount that the private sector is willing or able to borrow and we can spend our savings only once. Therefore, over a period, the deficit should rectify itself. However, it will persist for some time and the Government should take some action to try to increase the speed of its natural fall.

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I urged the Chancellor to take measures in the Budget to encourage savings. The Government should look at all the nations with which we have a significant trade deficit to see whether we have the same access to their markets that they have to ours. That should include not only trade in goods, but trade in services. The most glaring example is Japan. It has taken 20 years to get the Japanese to open their markets to Scotch whisky. During that time their exports of manufacturing goods have increased dramatically. It is still not possible for us to have complete access to Japan for our insurance industry, and South Korea still prevents the free sale of Scotch whisky. We need a tough, no-nonsense trade policy based on reciprocity.
Mr. Jim Cousins: In attempting to put those matters right the hon. Gentleman would not want to see a protectionist trade war which would inhibit Japanese external direct investment into regions like mine. Such investment has been significant in my area over the past five years. It must be extremely important to avoid a return to competitive protectionism. In that respect, his remarks are extremely unhelpful to the development of patterns in the world economy that assist in solving the problems to which he has drawn attention.
Mr. Townend: I am sure that my hon. Friends will he intrigued to know that there has been such an increase in investment in the hon. Gentleman's constituency, and I am sure we are all delighted about that. Obviously the investment environment attracts foreign investors. However, I do not think that what I have suggested would prevent that investment. We believe in free trade and open markets, but open markets must operate two ways. I believe that the Japanese only appreciate strength in negotiations.
I congratulate the Government on their public expenditure forecasts in the Autumn Statement. It has been a long time since expenditure in a current year was expected to be more than £3 billion less than anticipated. That shows that we have Ministers in the Treasury who believe in good housekeeping.
Mr. Robert Sheldon: I thought that the hon. Gentleman said that he voted against the report. This is very important. Having looked at the report, I cannot see that he voted against it.
Mr. Townend: I want to make it clear that I was giving reasons why I could not vote for the report.
The planning total for next year will stay the same as planned and the Government deserve to be congratulated on that. However, in the two following years the Government intend to loosen their grip a little and increase spending by a further 3 per cent. each year.
Having abandoned their policy of keeping public expenditure level in real terms, the Government have set themselves a target of reducing public expenditure as a percentage of gross domestic product. Here again, they are to be congratulated on their success in bringing the figure down from 46·75 per cent. to 39·75 per cent. this year. However, it is worth putting that achievement into perpective. Under Harold Wilson's Government in 1964–65, public expenditure as a percentage of GDP was only 36 per cent. I often find it surprising to hear Opposition Members claim that we are spending far too little when we are still spending more than they did under Harold Wilson. I was a little disappointed, when I raised
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that matter with the Chief Secretary to the Treasury in the Select Committee, that he did not accept that 36 per cent. should be a target for the future.
I am worried that the impetus to increase spending might coincide with a period when economic growth is much slower as we try to level our balance of payments. Therefore, spending as a proportion of GDP will clearly rise.
I believe that the Government's policy is working. High interest rates are having an effect. The throttle is coming off the housing market, and once we get over the mad Christmas spend, consumer spending will drop. Provided that wage settlements do not explode, the economy should have a soft landing.
Government spending must be kept under control, but with a Budget surplus, I see no reason why, in his next Budget, the Chancellor should not continue repaying the national debt, while continuing his successful supply side policy of reducing taxation—proceeding to his ultimate aim of a standard tax rate of 20 per cent.
5.59 pm
Mr. A. J. Beith: This afternoon, the Prime Minister spoke of the Chancellor of the Exchequer's absolute priority. I am sorry to see the Chancellor being called away at the very moment that I refer to his Prime Minister. I wonder about the reason. Perhaps she has summoned him. I hope that the Chief Secretary to the Treasury will report my comments to him.
The right hon. Lady said that the Chancellor's absolute priority is to control inflation. As that is what she said, no doubt that is what his absolute priority will be. There was a stage when the Chancellor flirted with policies different from those of the Prime Minister, but that was not an entirely successful experiment. I do not know whether she is in the habit of reiterating strongly to him the way that she wants things done, but at the moment the right hon. Lady and the Chancellor are working to meet the same priority.
The Chancellor of the Exchequer reminds one of a doctor searching through a medicine cupboard, trying some medicines and throwing others away as being unusable. At the end of that long process, the Chancellor has lighted on one and says, "This medicine will work. If it doesn't work, you can take more of it. If it still doesn't work, you can take still more." The medicine is short-term interest rates.
It is odd that the Chancellor is still attending to the same disease of inflation. He has run out of all the excuses that he was previously able to give for inflation's continuance. He can no longer say that world commodity prices are causing inflation, as was the case some years ago. Neither can he blame over-mighty, over-powerful trade unions. He cannot blame an outgoing Labour Government for the rate of inflation. It is a little difficult to blame even the Conservative Government who preceded the last Labour Government, which the present Administration often do. Blaming the Heath Government is a little difficult for them to do at this distance.
Mr. Nigel Griffiths: Certainly he cannot blame the last Labour Government.
Mr. Beith: The Chancellor cannot blame the period when my hon. Friends ensured that a Labour Government reduced inflation from 21 per cent. to 7 per cent. Neither

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can he use the monetary supply targets, because he abandoned most of them. He cannot blame the public sector deficit, because the Government have achieved a public sector surplus.
In years gone by, I listened to many sermons from Conservative Members, including the Prime Minister, when they said that once we rid ourselves of the public sector deficit, there would be no inflation. The Conservatives have now done that—they have cracked it. They have achieved a public sector surplus, but still there is inflation.
The Government contributed to that inflation with the Chancellor's last Budget judgments. I dissent from the right hon. Member for Worthing (Mr. Higgins) on this point. Where he is wrong about the Budget tax cuts is not in his analysis that, with hindsight, they may be seen as entirely acceptable in terms of the amount of revenue needed. One could even argue that they were insufficient in relation to revenue, because of the size of the surplus. But they had the effect of generating inflationary expectations at a particular time. In making that argument, I say also that that problem will not be solved by reimposing the tax levels that were earlier reduced. Those cuts had the one-off effect of giving people the knowledge that they would shortly have more money in their wage packets, encouraging them to have more credit at a time of considerable expansion in the credit market. That one-off effect undoubtedly led to overheating and contributed to inflation.
The Government also created unnecessary public sector price increases, which have added to inflation. The remedy that the Government choose, of higher short-term interest rates, increases inflation still further. No one can really accept the Chancellor's claim that one can consider inflation without reference to mortgage interest rates, because they are such a potent factor in inflation for home owners throughout the country.
Despite the Chancellor's prophesies and forecasts, the tables identified by the Select Committee show that the goal of zero inflation never gets nearer. It is always three years away that inflation is predicted to fall to 3 per cent. How many more years will it be before it falls to zero? The Chancellor has never cracked that one. He is not even believed by his fellow Ministers. In a statement the other day after a meeting of a Committee of the House, the Chancellor's right hon. Friend the Secretary of State for Energy reiterated a forecast of £40 billion outturn of electricity industry investment. That figure assumes a rate of inflation of 8 per cent. That has been reiterated today on the Secretary of State's behalf. It is possible to reinterpret those figures to mean that inflation is only 5 per cent. However, it is impossible to get it down to 3 per cent., let alone zero. Ministers are acting on assumptions about what will happen to inflation that are wholly different from the rosy ones made by the Chancellor of the Exchequer.
Let us consider the short-term interest rates, and examine whether their use will achieve the Chancellor's objective. From whatever standpoint one considers it, the Select Committee's report poses questions about the assumptions on which the Chancellor bases his strategy. One is whether credit is all that sensitive to interest rates. The burden of the letter that is alleged to have been sent by the Governor of the Bank of England to the Chancellor
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is that it is not, and that if the Chancellor engages in policies of the kind he adopted for his last Budget and creates further inflationary expectations, interest rates will not by themselves stop that process.
As well as being an instrument of limited effectiveness, higher interest rates are counter-productive. They have an adverse effect on domestic inflation because of their influence on mortgage repayments, and also a serious effect on industrial competitiveness and the balance of payments, by pricing British goods upwards in foreign markets.
One is bound to question what will happen eventually if the market gets round to dealing with the curious fact that mortgage interest operates on a short-term basis, whereas borrowing money to buy a house is in reality a long-term commitment. How long will that situation continue? How long will the competitive mortgage market continue offering only short-term interest rates in house purchase finance? There is no obvious reason why it should do so, other than the traditional pattern of building society borrowing and lending policies.
From the home owners' point of view, I hope that the market will address that question and look for ways of relating home ownership to a long-term interest rate, which could be much lower—in the region of 9 per cent. Home owners would be much better off, but the Chancellor would be left naked and with no clothes at all. Short-term interest rates would cease to be available to him as his one instrument for managing the economy.
In addressing the effects of that instrument on the balance of payments, I am led to comment on our balance of payments deficit itself. The forecast trade deficit of £4 billion turned out to be in the region of £14 billion, and we must question the Government's assumptions about what will happen next. They claim that the trade deficit will be tackled by depressing domestic demand through high interest rates, so that industry will have spare capacity, and that that spare capacity will immediately be diverted to exporting more goods. The Government argue that the resulting increased price in foreign markets will be entirely offset by released capacity.
I can tell the Chief Secretary to the Treasury that I do not know many people who believe that things will happen in that way. That is not a political criticism of the Government but an attempt at making an objective assessment of the viability of such a strategy. It cannot be guaranteed that excess capacity can easily be switched to export production, or that the size of the trading sector switched will be big enough to make a significant difference to our trade deficit.
If the Government's assumptions do not hold, the United Kingdom trade deficit will remain dangerously high, and overseas confidence will be tested. At present, it is attractive to put money into this country in sterling on the basis of current high interest rates, but if confidence is lost, the crisis will come. The Chancellor blames the statistics for a lot of this and says that they are all wrong. The Select Committee, too, was fairly critical on that point, but everyone in these arguments seems to be guilty of misusing statistics. The Chancellor increasingly talks as if the retail prices index already excluded mortgage interest rates. He is in danger of getting into the position that we got into on employment statistics, where nobody any longer believes the Government's unemployment figures because they have been changed so many times.

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It is in the general interest that we should have generally accepted statistics so that we can talk meaningfully about unemployment, inflation and public expenditure levels. When the Government increase health expenditure by 1·7 per cent. they should stop going around saying that they have increased it by 4·5 per cent., or at least they should explain rather more clearly that a lot of that increase is accounted for by projected savings in efficiency and by changes in the balance sheet of public assets by the sale of the health authority's present assets, to which the Select Committee attached some importance.
I am bound to ask the Chief Secretary again why he believes that public expenditure should decline as a proportion of gross domestic product. What is the ultimate objective of public expenditure declining year by year? That is the yardstick to which he has been instructed to work. I tried to find out during the sittings of the Select Committee what was the ultimate objective. Was it zero or was it some accepted plateau? He said that he did not think that there was a plateau. Where are we heading? Surely the argument about public expenditure is an argument about its merits, associated with an argument about what level might be unreasonable for the taxpayer or the economy to bear.
We now have a substantial public sector surplus and a situation in which industry can see where the serious gaps in public expenditure are causing difficulties. It does not seem reasonable to argue that we should go on reducing public expenditure year by year. The Prime Minister's argument used to be that public expenditure was crowding out everything else and causing inflation, thus having a harmful effect on the economy. Many businesses would now like to see some public expenditure crowding in. Certainly many businesses in London would like to see greater public investment in London's public transport system so that their staff can travel to work. In other parts of the country, industry would like to see some public expenditure on the infrastructure on which it depends—for example, links from the Channel tunnel to the north of England and Scotland. Businesses, usually pretty sceptical about unnecessary public expenditure, are increasingly worried that if some expenditure does not take place they will not be able to compete.
There is a growing sense that in some areas of public expenditure we are getting into public squalor. It is difficult to relate that to a target of constantly decreasing public spending as a proportion of what we as a nation can produce. Therefore, I invite the Chief Secretary to tell us when he replies what is the purpose of it all.
As to the strategy that the Chancellor should adopt, we would argue that there are a number of things that he could do in the Budget which would reduce his dependence on interest rates as the sole measure and deal with some of the other matters that I have described. He should do more about savings, as I have argued in all our previous economic debates and, indeed, on the occasions when he has introduced measures that were supposed to encourage savings, but the Chancellor has had such a narrow conception.
Take the greatly trumpeted personal equity plans which were introduced two Budgets ago which were never cast in such a way that they would encourage a wider range of people to invest in industry. All the tax reliefs that they offered benefited mainly those with an existing portfolio who had not used up their other tax reliefs. Unless he gives some front-ended tax relief on the PEP schemes and
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extends their scope in some way, he will not attract a wider range of people into saving, and particularly into saving in industry. Unless he does give some reason for savings in industry, he will not get the level playing field either.
Mr. Budgen: Is there any sign that if there were a distortion in the tax system in favour of some form of saving, say in a particular kind of share of or something like that, it would increase overall saving, or would it merely make those favoured forms of saving more attractive and bump up their market value?
Mr. Beith: There are two options open to the Government at the moment. One is to remove all tax incentives which distort the savings market. I know that that is what the hon. Gentleman would favour. That would lead him to do what I know the Prime Minister does not want to do, which is to remove mortgage interest tax relief, which attracts savings into housing. The other is to try to balance the picture by ensuring that savings in industry, and certainly those on a fairly limited scale affecting a wider range of people, can be at least as attractive as investing in the bricks and mortar of a home. Some offsetting of existing distortions for which there are other justifications seems reasonable in those circumstances unless the Government are to change tack entirely and go for the complete removal of all tax incentives that affect saving.
The other part of the hon. Gentleman's question is perfectly fair. Will it increase overall savings? More sensibly directed incentives to savings could increase overall saving by attracting people who are not now saving. Clearly there is bound to be some shifting, but there could be a wider effect. But to do that, it would also be necessary to change the Government's approach to things such as targeted benefits. If the Chancellor goes on saying, and Ministers go on ensuring, that to have a small amount of personal savings precludes one from any form of benefit after retirement, a culture against saving is built up. That is one of the current disincentives to saving about which the Government should be more worried.
I must not deal so deeply with each individual item that I keep other hon. Members out of the debate. The Chancellor should also take some informal steps to cool the credit explosion. Formal credit controls are not an attractive way to go. They would be extremely unfair and it would be a pity to have to achieve a reduction of the overall level of credit by penalising those most dependent on credit and least able to look for alternatives. That is why I said previously that the Bank of England and the Chancellor should start to call in and talk to the credit institutions and ask them what they are going to do. They should ask them to cool off the vast pressure of ludicrous letters that go out through computer mailings trying to induce people to engage in credit that they cannot afford. The possibility that the alternative would be fairly uncomfortable credit controls might concentrate the minds of those involved.
The Chancellor should drop the public sector price increases, such as those for electricity—they are demonstrably not required for the electricity industry's investment programme which has been so hugely overstated. He should make prudent use of the fiscal surplus for investment in those areas in which he could increase industry's competitiveness. He should take early steps to get into the exchange rate mechanism of the EMS

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to give us some stability and that downward pressure on inflation which is the Prime Minister's reason for not joining the EMS. She does not want to be tied into German policies which bear down heavily on inflation. Why she does not is rather difficult to understand, but that would be the logical step to take.
Then we come to what should be done about personal taxation. The Chancellor is presented with an opportunity in his next Budget to sort out some of the mess of national insurance contributions and taxation for the low paid. He would earn some respect if he made some serious tax reforms in that area, given the freedom that the surplus gives him which previous Chancellors, and indeed the Government in previous Budgets, may not have felt they had. There would be scope for changes in that area which would not represent a massive tax cut programme of the kind that would have damaging economic consequences. It is that combination of greater prudence and a greater sense of social justice which many British people, including many who supported the Conservative party at the previous election, feel is desperately needed.
I have tried to set out positive ways in which there could be an alternative to a strategy which is based on some dangerous assumptions, and I commend them to the House.
6.18 pm
Sir Peter Hordern: The debate opened with my right hon. Friend the Chancellor agreeing that the published statistics were deficient. As the debate went on it was clear that the statistics of the hon. Member for Dunfermline, East (Mr Brown) were also deficient.
The hon. Gentleman said that he would outline the Labour party's policies for dealing with inflation and other important matters. I know that they were not spelt out overtly, but both he and the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) alluded to them, I think unconsciously. The hon. Gentleman said that it was important to act directly on prices. I think that I know exactly what the Opposition would do if they were re-elected. They would try to reactivate Mr. Solomon Binding. The hon. Member for Berwick-upon-Tweed (Mr. Beith) said that it was not necessary to go in for a full-scale prices and incomes policy; all that was necessary was for the Governor of the Bank of England to call in the leaders of the credit institutions and have a word with them. So Liberals would not go in for such a full-blooded affair as that to which the Opposition are still wedded in terms of a prices and incomes policy.
Two principal concerns emerge from the Autumn Statement—at least, they concern Conservative Members. The first is inflation, the second the balance of payments. Of those, the first is by far the more important. The solution to the first is the key to solving the second. I hope that my right hon. Friend the Chancellor is right and that the rate of inflation will peak in the next few months before falling to lower levels. One thing is certain: high interest rates are an essential weapon in combating inflation. In contrast with what other hon. Members think, I do not think that there is an alternative in the form of rationing credit, not because I believe that the techniques of doing that would be inadequate or even that it might be unfair as between one person who received credit and another.
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I say that it would be impractical because London is now a world financial centre whose existence depends upon the free transfer and flow of funds between one part of the world and another. It would not be possible to mount any effective system of controlling credit in one country, such as the United Kingdom, without giving up the advantage that we have as a financial centre. It does not make sense to throw out the whole trading system in order to impose controls which, in any case, would not work.
It is right to distinguish between this and previous inflationary bouts, which those who have been in this place for some time will well recognise. First, I refer to the enormous surplus in the public sector. No one can get away from that—it is a signal achievement, for which my right hon. Friend is responsible. It is not just the sale of assets in the public sector which has achieved this effect; it would have happened in any event. There would have been a surplus of £4 billion without the sale of public sector assets.
Nor have corporations and businesses in any way failed. They have a large savings ratio; they are investing at record levels; and, as my right hon. Friend said earlier, their earnings on capital are at the highest level for about 20 years. The whole problem appears to reside in the private sector, and it is on that that we must concentrate our attention. This is what distinguishes our position from that of the United States, where there is a large public sector deficit. The trick is to encourage savings in the private sector. High interest rates will certainly have that effect if they are high enough, but this is an opportunity to broaden the entire level of savings.
I do not accept, as the Opposition do, that it was wrong to reduce taxation in the last Budget—how much further does one have to reduce the national debt? It is extraordinary that the gross debt interest is forecast to fall from £17·75 billion this year to £15·5 billion in 1991–2. It is clear that those who want to keep tax rates high want to do so not for economic reasons but for some sort of moral reasons. The people, apparently, may not be trusted to act responsibly with their own money so it must be removed from them. That is entirely in line with Socialist policy: people are not allowed to be entrusted with their money —a form of the nanny state. I hope that my hon. Friends will agree that it should be no part of Conservative policy to take more revenue than is strictly necessary to pay the state's expenditure.
There is another argument against higher tax rates. The right hon. Member for Ashton-under-Lyne slid pretty quickly over the fact that he was responsible for high rates. When he was Financial Secretary in the last Labour Government tax rates were 92 per cent. So we should not take any lectures from him about taxation levels—
Mr. John Battle: How would the hon. Gentleman respond to the answer given to the hon. Member for Hornchurch (Mr. Squire) this week, which showed that taxation, including direct and indirect taxation, is now higher under this Government than it was in 1979?
Sir Peter Hordern: I should be delighted to explain. The Opposition cannot grasp that earnings in this country have appreciated considerably, so people are vastly better off.

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Of course they have gone through higher rates of taxation, but they are conspicuously better off than they were a few years ago; statistics prove that.
I wonder whether it is right to concentrate on savings by lending money to the Government to reduce the national debt, or to concentrate on house purchase, on which the tax concessions operate now. There has been a revolution—the formation of a property-owning democrary—but that is confined to the home-owning democracy. In virtually every area, the Government have taken power from the state, from local authorities and from institutional landlords and handed it over to the people. But one great institution remains—the investing institutions, which are mainly pension funds. Their beneficiaries are seldom, if ever, consulted.
One reason why the savings ratio has fallen so low is that companies have waived their contribution in recent times because of the pension funds' good performance. Employees are far too dependent on their employers for their retirement benefits. We should now consider spreading the property-owning democracy still further.
Mr. Budgen: Is that really true? Surely the problem about the dramatic fall in the savings ratio is the vast increase in borrowing, not any great reduction in saving. The savings ratio appears to be a figure based only on savings, but is it not a net figure?
Sir Peter Hordern: I picked this out of the Autumn Statement—I do not have the reference now—but one of the reasons for the fall in savings is the fact that institutional investment has fallen, from employers' contributions—
Mr. Cousins rose—
Sir Peter Hordern: I should like to give way, but many other hon. Members want to speak.
I propose that we spread the property-owning democracy much further and allow mortgage tax relief to apply to all who save additional sums up to the same level of £30,000. I mean this as an alternative for those who do not have mortgages on their homes. There are many examples of people being unable to buy homes because they are too expensive, or because of circumstances peculiar to them, but the encouragement of savings is necessary at present, and would be good in any event. It would also be helpful to have savings concessions in the same way for elderly people who have paid off their mortgages. In many respects—home ownership, education, trade union rights—we have broken institutional power and returned it to the people. Pensions, too, are an important institution, and they are far too dependent on short-term performance. Our democracy would be much healthier if ownership were spread to the roots and we could get away from the dependency culture that institutional pensions breed.
There would have to be additional investment. It would not be possible to allow people to switch from existing investments to the tax relief scheme, and investments would have to be held in private individuals' names. These investments would not be managed for them but would be held in shares and units in equities which could be bought or sold. That would be particularly apt now. It would help to enfranchise the investment market.
Bank borrowing by the private sector amounted to £49·8 billion in the first three quarters of 1988—more than
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the whole of bank borrowing in 1987 and virtually double that in 1985. We must try to achieve a more permanent and lasting shift into savings than is possible through the building societies or even by lending money to the Government.
I wish that I felt that all that is necessary in the control of inflation is high interest rates. I felt in 1988—and I still feel strongly—that to control inflation our currency should be closely linked with the European currencies, particularly the deutschemark. The comparison is not exact, but one has only to look at the effect of coupling the Hong Kong dollar with the United states dollar. If that had not taken place, the Hong Kong dollar would have fallen through the floor. The rate of interest in Hong Kong is lower now than it is in the United States. That direct link has done a great deal to stabilise the position in Hong Kong.
I do not suggest that we are in a similar position, but to link our currency directly with a strong currency, such as the deutschmark—since Germany's inflation rate is 2 to 3 per cent. and interest rates are 5 per cent.—would be of immense benefit to this country. I do not refer to any political advantage that might be obtained by those means. I believe that it is a practical weapon that could be used to combat inflation. The use of that weapon has already been far too long delayed. We need an external discipline as well as the interest rate weapon to deal with inflation.
The argument has been conducted so far in altogether too academic terms. The instrument for keeping sterling tied to the deutschmark would still be interest rates. Industry and business would know that the direct result of allowing wages to increase to an uncompetitive level would be higher interest rates. They would know that for certain; they would not have to guess what the Chancellor intended to do.
Practical experience, as opposed to theory, suggests that existing investments overseas have to be hedged now. People's perception of the strength or weakness of a currency is usually the same. There is far more activity now in the foreign exchange markets than there would be if there were a formal link between sterling and the deutschmark and the European Community as a whole. When people—usually academics—complain that that would place an impossible strain on foreign exchange and that the Bank of England could not intervene with sufficient reserves, the truth is that if there were a formal link between sterling and the deutschmark there would be nothing like the amount of business being done as is being done now.
As for setting up a central bank within the European Community, I think that my right hon. Friend the Prime Minister was absolutely right to deplore the Socialist idea that a central bank must be established. However, if we were part of the European monetary system, that would be the effect. I do not believe that there needs to be a formal institution, set up by the Commission or the Council of Ministers. However, the practical effect of the United Kingdom joining the EMS would be that funds would be drawn to the strongest currency. It would not be long before, for the sake of practical convenience, European Community bankers combined to form a suitable means of conducting monetary and economic policy, which would turn out to be very much like a central bank. Progress towards monetary union will be made within the EEC. It is very much better that we should be part of that process than outside it.

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What on earth are we afraid of? The objections to the United Kingdom joining the EMS have been concocted by lawyers. They say, "Oh, you can't have that. Look at the small print. Look at the danger of having a central bank." With respect to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), it is a lawyer's trick. Where would the Victorians have been if they had tried to start their industrial revolution with lawyers? It would never have got off the ground. We must have far more confidence in ourselves than now seems to be the case. We should join the European monetary system, and the sooner the better.
6.34 pm
Mr. Giles Radice: I congratulate my hon. Friend the Member for Dunfermline, East (Mr. Brown) on his excellent speech, the third in a row. However, before he leaves the Chamber, I am afraid that I cannot similarly congratulate the Chancellor. His speech was a characteristic mixture of insouciance and complacency. He gave absolutely no sign that he is aware of any of the economic problems, or of the fact that the economy is seriously out of balance.
I congratulate the right hon. Member for Worthing (Mr. Higgins) on his skilful chairmanship of the Select Committee. We are a diverse bunch of people. He keeps us together very well, in the circumstances. I congratulate the right hon. Gentleman on assisting us to produce a valuable report for the House.
The Select Committee report reveals that the economy is now seriously out of balance in three interconnected ways. First, demand is still rising too fast; secondly, inflation is too high; thirdly, the current account is now in very substantial deficit.
On demand, it is ironic that, after a number of years in which our growth rate was behind that of our main competitors, the Select Committee should now be warning of too fast a growth rate and advocating action to restore balance. We all applaud economic growth: it makes possible increasing living standards, it brings down unemployment and, provided that the Government make available the necessary investment, it can lead to improvements in vital services. That is why I welcomed, when I spoke in the debate on 25 October, the fact that, since the deep and disastrous recession of 1980–81, the British economy has grown steadily throughout the 1980s.
I drew attention also to the welcome increase in labour productivity that has raised the productive potential of the British economy and therefore enabled the British economy to grow more quickly. Whereas it used to be said that we could grow at only two thirds the rate of our main competitors, it is safe to say now that we can probably grow at about the same rate, without running into balance of payments difficulties.
What, therefore, has gone wrong? The problem with the British economy is that the Chancellor failed to take control of the situation last spring, despite obvious signs —I do not agree with the right hon. Member for Worthing on this point—that the economy was growing too fast and in an unbalanced fashion. By March last year—I invite the right hon. Gentleman to look at press comment at the
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time, at the statistics and at what Opposition spokesmen said—our growth was not only faster than that of our main competitors but faster than our productive potential.
It is true that, after the consumption-led boom—the Government have been making great play of it—that began in 1986, investment has risen rapidly, but the Government never say that investment fell by 5 per cent. in 1980 or by 10 per cent. in 1981. So there is a considerable amount of catching up to do. Despite the recent large increases in investment, we are still investing only 18 per cent. of our gross national product, compared with Japan's 30 per cent. We have a long way to go.
The other difficulty is the regional imbalance in the British economy. When the southern economy is in danger of overheating, as it is now, the northern economy is only just warming up. It was when the economy was becoming over-stretched that the Chancellor introduced his tax-cutting Budget last March. I know that the Treasury has argued that the Budget had little effect on demand, but there is no doubt—I very much agree with what the hon. Member for Berwick-upon-Tweed (Mr. Beith) said on this point—about the psychological impact of the Chancellor's last Budget. It gave all the wrong signals. Add tax cuts to the record fall in the savings ratio, the massive credit expansion—triggered off by deregulation—the consumption boom and, last but not least, earnings rising faster than inflation, and we have all the makings of a dangerously overheated economy.
The Chancellor cannot say that he was not warned. Not only the Opposition alerted him to the dangers. A number of prominent economists, many City commentators and even the Bank of England were concerned but the Chancellor allowed his political obsession with tax cuts—almost his personal political manifesto—to overrule what should have been his priority as Chancellor—economic prudence. As the Select Committee report points out, the consequences of the Chancellor's gamble are now only too apparent. There is the rising inflation forecast by the Autumn Statement. Already, the OECD main economic indicators for December show that our inflation rate is the highest of the G7 countries.
When the Chancellor gave evidence to the Select Committee, he was pressed by the hon. Member for Berwick-upon-Tweed (Mr. Beith) to say whether the inflation rate would rise above 7 per cent. His answer was that we could make our own assessment. That was telling the Select Committee that he is expecting inflation to rise above 7 per cent. during 1989. That is a disturbing prospect, and there will certainly be great difficulties in getting it down.
Despite the Chancellor's remark to the Select Committee—
"the central purpose of the macro-economic policy is to get inflation under control"—
the Select Committee remains sceptical about the Government's recent record on inflation. As we point out in our report, the Government's
"goal of 3 per cent. inflation always remains three years from being realised."
So we have a serious inflationary problem.
The other problem highlighted by the Committee is the extremely large and rapidly deteriorating current account deficit. At the time of the last Budget, as hon. Members have pointed out, the Treasury was forecasting a £4 billion deficit for this year. The Autumn Statement's revised forecast is £13 billion, a figure which had already been

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achieved by November. The forecast for next year is an £11 billion deficit. In other words, our current account deficit has reached and is expected to remain at between 2 and 3 per cent. of GDP—a proportion similar to that of the United States, which has been criticised by the Chancellor.
It is worth noting the Select Committee's comment:
"As a proportion of GDP the 1988 deficit is not unprecedented, but a sequence of two annual deficits well in excess of 2 per cent. of GDP has not occurred since shortly after the war. We are not aware of any occasion since then in which the economy of any major trading nation has run a long series of deficits of this size without eventually encountering currency difficulties."
The Chancellor should be aware of our remarks.
As I have already argued, it is largely the Chancellor's fault that we are now in such a mess. We warned him about the dangers, and he failed to listen. Even so, it is the job of the Opposition to offer him constructive advice and I shall try to do just that. He could make a start by having the honesty to admit that the economy is seriously out of balance.
The Chancellor certainly has reaffirmed that the defeat of inflation is the Government's central objective, but, in his evidence to the Select Committee, the Chancellor was far more concerned to boost his own record on inflation and say how well he has done, and apparently to argue for changes in the way in which the RPI is calculated by removing mortgage interest rates from the index.
However, on other occasions the Government are only too concerned to say how well they have done and to stress the fact that more than 60 per cent. of people in this country are house owners. That has a major impact on inflation. The Chancellor should remember that there are probably more home owners in Britain than in any other western European country, so it would be very badly received if the Government tried to remove mortgage interest rates from the RPI. The Chancellor was certainly far more concerned to argue the case for that than to explain how inflation might be brought down.
The Chancellor is even more complacent about the current account deficit. He implies that somehow it is not a serious problem. If I understand it, his argument runs as follows: that in a world of international capital markets, without fixed exchange rates, some countries will have surpluses and others will have deficits, and we happen to be one of the countries that has a deficit. According to the Chancellor, that means that we are doing our bit for world trade and growth by running a deficit. The Chancellor considers that that is good for Britain too. On 29 November he told the House:
"It is more like a company that, though profitable, cannot finance its investment programme entirely from its own resources, and has to raise funds from the market to fill the gap."—[Official Report, 29 November 1988; Vol. 142, c. 596.]
According to the Chancellor, it is therefore right and proper for Britain to continue to rely on the rest of the world to finance our current account deficit.
I wish it were possible to take as relaxed a view as the Chancellor. Unfortunately, despite the welcome increase in investment over the past year, it is not just a question of graciously allowing the rest of the world the opportunity to invest in our industries. The DTI figures on imports by commodity show a major increase in consumption goods as well as foreign manufactured goods. The latest OECD report on the British economy pointed out that imports of manufactured goods have increased far faster than exports throughout the 1980s and that import penetration into the
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British economy remains high. Therefore, it is clear that our deficit reflects much more excess demand and underlying structural weaknesses than the welcome benign effect of a foreign investment programme in British industry.
As the Select Committee report and the OECD economic outlook point out, substantial risks are attached to running a deficit for any length of time. International capital flows are only too volatile, and if confidence goes there is likely to be sharp downward pressure on the exchange rate, which the British authorities would not be able to control. The overseas assets about which the Chancellor has so often boasted and which represent one of the few tangible benefits of North sea oil will be used up if we continue to run a balance of payments deficit of such a scale. Corrective action has to be taken sooner rather than later, not only on the balance of payments but on demand and inflation.
The problem is that the Chancellor is operating with too few instruments. We are not arguing that a Labour Chancellor would not use interest rates—of course he would. We are saying that an excessive reliance on interest rates carries considerable risks. The Chancellor admitted to the Select Committee that high interest rates could hurt small businesses. Equally important, by contributing to an over-strong pound, they can also harm the prospects of exporters. Last but not least, they hurt home owners. Reliance on interest rates alone runs the danger of bringing the economy to a grinding halt if applied too bluntly, or, if applied too laxly, of leading to a catastrophic loss of confidence in sterling. So more instruments are needed.
On the monetary side, the Government should consider the possibility of at least temporary consumer credit controls. I accept that things have changed, but there is a case for obliging lending institutions to make special deposits and for imposing some limitation on bank loans to the personal sector. At least that would be a clear signal to consumers. I agree with the encouragement of savings. As we say in our report, the Government should be looking more seriously at that issue.
Sir Peter Hordern: Does the hon. Gentleman recall the time when there was a restriction on private credit that was not extended to companies? What used to happen was that company treasurers would borrow money at the corporation rate and lend it on the money market to private consumers at a rate which produced a considerable return. It is not possible to distinguish between private restriction and company restraint.
Mr. Radice: I accept that things have changed, but it would not be impossible to operate short-term credit controls. As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) said, they are needed for short-term arrangements. We are not considering long-term arrangements. They at least give a slightly broader balance of instruments with which to operate.
The Chancellor has forsworn the use of fiscal policy, except in the medium term. He is wrong. He should say now—before the Budget—that, because of demand, he will not cut tax rates this year. I do not think that he will agree, but there is a strong case for restoring the 60 per cent. top rate band. It would at least help to finance the raising of tax thresholds, which all of us would probably

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agree are necessary. Measures along those lines would also give a signal to the market that the Government are serious about controlling demand.
Another problem with the Chancellor's policy, with its over-reliance on interest rates, is that the exchange rate cannot be used to redress the current account deficit, unless there is a collapse in confidence, leading to a collapse in sterling. The problem is that, with the Chancellor's high interest rate policy, the pound is now as uncompetitive as it was in the great 1980–81 recession. In 1989, with no rising oil prices and no oil exports at the same level to bail out the balance of payments, the only way for the Chancellor to improve the balance of payments is to operate on imports—that is, if he uses only interest rates—by slamming on the brakes through higher and higher interest rates. A less inflexible exchange rate policy would at least have the advantage of making exports more competitive and thus improving the balance of payments.
The truth is that, if the Government are to take action on excessive demand, bring down inflation, and bring the current account into balance again, they cannot operate on the basis of a single instrument. They must use all available weapons—monetary, fiscal and exchange rate—if they are to bring the economy into balance. I fear that there is no sign that the Government are aware of that point. On the contrary, what was so depressing about the Chancellor's speech was the lack of concern that he showed for the problem of inflation and for the current account deficit, and his repeated insistence on relying entirely on interest rates. It does not bode well for the Government's chances of bringing the economy into balance again.
6.52 pm
Sir John Stanley: The hon. Member for Durham, North (Mr. Radice) will not be surprised to know that I do not wish to follow his criticism of the Chancellor's overall economic strategy.
There is one narrow but important aspect of the Autumn Statement—overseas aid—about which I have two points to register with my right hon. Friend and his team. The first concerns the Chancellor's extremely welcome and imaginative debt reduction initiative for the poorest sub-Saharan African countries. I warmly congratulate my right hon. Friend on conceiving the scheme and on successively negotiating its acceptance by members of the Paris Club. It was no mean achievement. The whole House has reason to be grateful to him for that.
It comes as a surprise to see the Treasury's projections of the public expenditure over the next three years that is due to arise from the Chancellor's debt reduction initiative which is now in place. Given the level of indebtedness of the countries concerned and, therefore, the attractiveness of the scheme to them, one would have expected a fairly quick and significant build-up of public expenditure.
On looking at the figures, it appears that there will be no public expenditure under the scheme during the 1989–90 financial year. In the 1990–91 financial year, there will be a bare £2·5 million. In 1990–91, United Kingdom expenditure under the scheme will amount to only £14 million. Of course, that money is to be spread among all
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countries in sub-Saharan Africa. That is a disappointingly slow rate of build-up. I should have expected something much more significant.
It is a matter of concern that, on our own estimates, in three years from now, the countries concerned will benefit to the tune of only about £14 million. I hope that my right hon. Friend the Chief Secretary will at least give a brief explanation of why the expenditure provision is so small and why the build-up rate is so delayed. I hope also that he will give the House an assurance that, through the IMF and the Paris Club, the British Government will do everything that they can to try to maximise ways in which cripplingly indebted countries are able to benefit from the Chancellor's debt reduction initiative.
I now deal with a second, more fundamental issue—the overall provision of overseas aid. Although the Government's general performance is extremely creditable in the main range of social issues, not least in respect of the National Health Service, despite the Opposition's carpings, that is not entirely true of their provision of overseas aid. I intend and imply no criticism whatever of my hon. Friend the Minister for Overseas Development —quite the reverse. In the 15 years I have been in the House, we have had no more effective and capable Minister for Overseas Development than my hon. Friend the Member for Bath (Mr. Patten). He is doing an outstanding job, but even he can only make such bricks as he can with the straw that is available. Set against the totality of the Government's public expenditure programme, the amount of straw that he has been given is relatively small.
I cite two instances. First, table 1.10 of the Autumn Statement shows that, in real terms, overseas aid is still well below what it was when we came to office in 1979, and also that, three years from now, that will still be the case. That is not a happy situation.
Second, I am unhappy that the proportion of our gross national product that we devote to the overseas aid programme should have pursued a steady downward course while the Government have been in office. In 1979, the proportion was 0·51 per cent. It has steadily fallen. In 1987, the latest year for which we have figures, it had fallen to 0·28 per cent. According to Overseas Development Administration figures, that 0·28 per cent. is below the proportion spent by every other major western European country and also most smaller western European countries.
It is no answer to say that GNP has been expanding. Of course we all greatly welcome and applaud that, but, if GNP has been expanding, and therefore, our wealth has been increasing, one would have hoped to achieve, at least as an minimum, a constant proportion going towards least-developed countries and to those in the greatest need in sheer human terms. It is regrettable that we have not been able to maintain a more constant level of the proportion of GNP that we devote to overseas aid.
When my right hon. Friend the Chief Secretary winds up, he will no doubt be equipped with a suitable defensive Treasury brief headed "Overseas Aid". That will draw attention to the fact that the published figures in the Autumn Statement show that it is planned that there should be an increase of 5 per cent. in real terms in the overseas aid programme over the next three years. I welcome that. However, let us have no illusions. Even an increase of that sort will not bring the overseas aid programme anywhere near what it was when the

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Conservative party took office in 1979. Nor is it likely to bring the percentage of GNP used on that programme up to the level of the larger European countries—or even many of the smaller ones.
I hope that Treasury Ministers will continue to reflect on this matter, because all hon. Members are familiar with the needs that are made clear in stark human terms in the press and on television. We live in a world in which many people still suffer from starvation and semi-starvation, where many diseases are eminently curable with modest applications of basic health care and with relatively small sums being spent on producing small increases in the quality of diet and making cleaner water more widely available. At those basic levels, the need to spend more on overseas aid is paramount and compelling.
This country has the means to utilise more expenditure on overseas aid. No other country has voluntary and charitable organisations with more professionalism, expertise and commitment than our own. Charitable organisations and their staff who work in Third-world countries are an enormous credit to this country. I am not entirely sure why, but people in this country to a greater extent than in many other countries seem to be prepared to make a commitment to serve, in some cases for many years, in some of the most remote, harsh and disease-ridden parts of the world. Again and again, individuals from this country give unsung, and often unheard-of, marvellous commitment to some of the most desperate communities in Third world countries. Therefore, we have the means, and the need is clear.
I hope that before we debate next year's Autumn Statement—we do so each year in the comparatively extraordinary affluence, comfort and ease, of western Europe—Treasury Ministers will give further consideration to what constitutes a proper level of commitment to those parts of the world that are so singularly less fortunate than our own.
7.4 pm
Mr. Jim Cousins: The speeches of my hon. Friend the Member for Durham, North (Mr. Radice) and the right hon. Member for Tonbridge and Malling (Sir J. Stanley) brought a necessary note of humility into our proceedings. They both drew attention to the position of the world economy in conjunction with our own. That must give Conservative Members grounds for concern. Even if we were to accept that the Government are experiencing a period of short-term transitional difficulty, we should also have to bear in mind that the world economy is undergoing a period of great transitional difficulty.
The problem of world debt has been alluded to. There is the problem of grappling with the American deficit together with the problem of not returning to an era of protectionism, into which a Conservative Member slipped so easily during the debate. Dealing with the short-term difficulties in the world economy together with the difficulties in our own economy will make the task of Government extremely difficult.
I add to the note of humility one of charity. It has often been said—I have said it myself—that the Chancellor has only one policy instrument, short-term interest rates. That is not fair to him. He also has a prices and incomes policy disguised as an exchange rate policy. Now the exchange rate is for internal consumption rather than external
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consumption. We must proceed with the exchange rate policy on its present terms until the prices and incomes in our ecomomy are beaten down. If the consequence of that is a sustained balance of payments deficit over many months or years, we must put up with it and trust that the world economy, despite its own difficulties, will see us through. I doubt whether any hon. Member believes that that is a tenable or serious policy.
In conjunction with that, we have the Chancellor's interest rate policy and its effects on our economy. This is a curious time in which the party runs together with the headache. We are running two policies side by side—the Chancellor's boom and the Chancellor's slump. We shall experience a long war of attrition until we find out which will come out on top. That is a matter of guesswork, perhaps even for the Government.
There is doubt about whether the Government's policy is truly counter-inflationary. A policy of raising short-term interest rates, which imposes on the 8·5 million owner-occupying, mortgage-paying households a dramatic cut in their standard of living, is not counter-inflationary. Those people need no lectures from the Government about a dependency culture because they are not part of it. They belong to households in which the partners are young and often both economically active. They will attempt, by individual and collective action, to combat the effects of the Chancellor's policy. That will be shown in wage disputes and earnings drift as people seek to push their earnings ahead even if their wage rates are stationary or held down. That will have all sorts of effects in an economy in which the stock of skills is dwindling and the labour market is tightening because of demographic trends.
The Government have chosen owner-occupiers to bear the brunt of their policies. As I have said, they are young, economically active and command a great share of the dwindling stock of skills. They are in age groups where demographic trends support their attempts to combat Government policies. You will discover that relying on short-term interest rates alone is not counter-inflationary, but inflationary. You will be forced back to the side of the Chancellor's policies which ignores the balance of payments consequences as you use the exchange rate as a substitute for a prices and incomes policy. It is a period of much difficulty for the Government, and they should not ignore what they are doing.
The Chancellor deregulated the financial markets, but according to his policy that deregulation was to be accompanied by fiscal neutrality through the tax system so that the savings and investment market would not be distorted by the tax system. The Chancellor abandoned his policy of moving towards fiscal neutrality, the consequences of which are to be seen in the monetary aggregates, where M0—the figure to which we are supposed to pay attention—is 50 per cent. outside its maximum target range. M3 is at 20 per cent. inflation per year. Building society lending is a critical component of the difficulty in which the Government have found themselves, but banks and building societies have brought into existence a group of people whose expectations you will not be able to meet and whose living standards you are now attacking. Building society lending is rising at 24 per cent. a year as a direct result of the Chancellor's deregulation of financial markets and not pursuing a policy of fiscal neutrality.
Even if the Government reduce inflation, will that have the beneficial effects on the balance of payments that you

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anticipate? That is blind faith unsupported by any policy. The Government have no industrial policy, but they do not want one. The Secretary of State for Trade and Industry told us at lunchtime, in the context of the GEC-Plessey merger, that the time for strategic planning had gone. There is no industrial policy, so you must rely on blind faith and hope that if inflation decreases the balance of payments will return to even-steven or surplus. There is no evidence for that belief. It may be that our economy, encouraged by your policies, will structurally produce balance of payments deficits because we lend long and borrow short and because we have become too dependent on dealing on world financial markets as a substitute—this point was made in the effective speech made by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon)—for building our industry and economic activity.
My constituency is in a region that over the past two years has begun to benefit from the trickle in the consumer boom. One third of the increase in regional GDP is accounted for by wage increases in the education and health sectors and by an expansion of financial services. That is a dangerously narrow base on which to advance GDP, and that defect is reflected throughout the country. The Government have no industrial policy and no strategy for industrial growth. They are dealing in magic politics and believe that a reduction in inflation will solve the balance of payments deficit.
We need an industrial strategy that is linked to the financial markets. We need to make pension funds more responsible. They must have longer-term vision and be more accountable to the people whose savings they represent.
Madam Deputy Speaker (Miss Betty Boothroyd): Order. I am sorry to interrupt the hon. Gentleman, but he has had his 10 minutes. The hon. Gentleman has burdened the Chair with many responsibilities this evening. When he catches the eye of the Chair on another occasion, I hope that he will speak through it to the Government.
7.14 pm
Mr. Anthony Nelson: I have never heard such a catalogue of economic crimes laid at the door of Mr. Speaker.
The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) returned us to a macro-economic discussion, following a most sensitive, compelling and sincere speech from my right hon. Friend the Member for Tonbridge and Malling (Sir J. Stanley). It is not a central tenet of Government economic policy that a reduction in inflation will lead to the balance of payments deficit disappearing. We hope that it will reduce and become a surplus, but there are other influences acting on it.
I should like to add to the tributes paid to my right hon. Friend the Member for Worthing (Mr. Higgins) for the capable way in which he chaired the interesting Treasury and Civil Service Select Committee. I note that its report was passed by the narrow margin of two votes, which shows how difficult it is to pass a Select Committee report that goes into not qualitative judgments of overall levels of public expenditure but rather narrow and esoteric points,
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although substantial in value, about transfer payments and their composition in general Government expenditure.
The Treasury and Civil Service Select Committee has, not for the first time, done the House a service by the way in which it took evidence from a number of economic advisers, including the Chancellor and the Chief Secretary to the Treasury. It has given us an opportunity to read the answers to questions that I am sure many hon. Members would like to pose.
Ms. Joyce Quin: Is the hon. Gentleman aware that two members of the Committee who would have voted in favour of the report were busy in the Chamber taking part in the debate on shipbuilding? It was not passed with the narrow support that the hon. Gentleman suggests.
Mr. Nelson: I am delighted to hear that the hon. Lady would have supported this excellent report.
I am glad that the Government have been able to dip the overall level of expenditure below 40 per cent. of GDP. I believe that anticipated expenditure of £178 billion for the forthcoming financial year will maintain all the electoral promises that we made and continue the excellent spending programmes that the Government have increased, most notably those for health and education, which account for the largest market increases. The Government will bring about welcome improvements in the spending of the Department of Social Security and on roads and infrastructure.
My right hon. Friend the Member for Tonbridge and Malling devoted his speech to one major subject, so I shall deal with a matter to which in future the Treasury should be more receptive. The United States will not for much longer be able to put off tackling—in some ways progressively—its massive budget deficit. In doing so, it will have to resolve the problem of defence expenditure. It has done so this year, but increasingly over the years it is inevitable that it will seek economies in its international defence obligations. It is better for Britain and other members of NATO to be prepared to spend moneys to maintain our common defence obligations in NATO and Europe. The Ministry of Defence will in future be asking the Government for substantial real increases in its budget to compensate for the American withdrawal and the economies in Europe and elsewhere on the various NATO fronts.
I should like to follow some of the persuasive and excellent remarks of my hon. Friend the Member for Horsham (Sir P. Hordern), who spoke of the level of savings and what should be done about them. It is alarming to read chart 2·8 in the Autumn Statement, which graphically shows the enormous reduction in the propensity to save. With an anticipated ratio of saving of 3·5 per cent. in the forthcoming year, we are returning to the levels of saving that were evident in the early 1950s. It is a question that has not, I believe, been answered either in the Autumn Statement or by the Select Committee.
The real reasons for the propensity for saving in this country to have fallen so dramatically over the past couple of years have not been explained. It is accounted for not wholly by the fiscal and other incentives that have been given to investment in property, but far more by the

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uncertainty about fluctuations in, and the actual level of, inflation which have led people to pull out of holding money and to put the money into goods and expenditure.
Mr. Dennis Turner: Will the hon. Gentleman give way?
Mr. Nelson: No, because we have limited time. I hope that the hon. Gentleman will forgive me.
I believe strongly, for those reasons, that the Chancellor, in the run-up to the Budget, should consider carefully and radically encouraging new forms of saving. I say with some sorrow, that we should recognise that personal equity plans have been a flop, although they were a good idea, because the management costs and bank commissioning fees have not made them worth while. We should scrap that idea. Encouragement to personal investment and savings will never be effective or taken seriously until we give a straight tax break on the extent to which people can move a proportion of their gross earnings into personal savings without having to go through saving institutions or some form of trust.
As Conservatives, we should believe in the plurality of those investment decisions and the responsibility of the individual to make those investments. Providing tax relief can be constructive—as it has been in France and other countries—in a way that does not allow substantial abuse, we should be moving away from a system that has given total tax relief towards the purchase of homes, but no tax relief towards capital provision for the future. As we consider the future liabilities that we know we shall have to meet for an increasingly elderly proportion of people in this country, we should realise that the only way to enable people to meet their own requirements and not place too heavy a burden on the state is by encouraging more direct and simple personal incentives towards saving and investment. 1 hope that other Conservative Members will join me in applauding my right hon. Friend the Chancellor if he can do that in March.
7.23 pm
Mr. Stuart Bell: I listened with interest to the hon. Member for Chichester (Mr. Nelson), but I do not want to spend time on personal equity plans and the taxation of savings.
Each time we have these debates, there are references to the Labour Government of 1974–79 and to the inflation rates at that time. As my hon. Friend the Member for Dunfermline. East (Mr. Brown) pointed out, when Labour left office in 1979, the inflation rate was 8 per cent. and falling. If one compares that with the present inflation rate, it was not had. As my hon. Friend the Member for Dunfermline, East said, the Chancellor has not had to deal with a 300 per cent. increase in oil prices or with an explosion in commodity prices. In the 1970s, high inflation led by oil prices, commodity prices and wages chased prices, which gave us massive inflation. That is not the case now; we are living in a different environment.
Conservative Members have made many comments about Labour policies for the future. The hon. Member for Bridlington (Mr. Townend) referred to the Chancellor's questions about what our policies would be on taxation and on public expenditure. Hugh Gaitskell said many years ago that Labour was the party of high taxation, and that was the basis of Labour party policy. We believed in services and having the taxation to pay for them. We
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accept that we live in a different environment, but Labour is the party of fair taxation. That does not necessarily mean a high standard rate of income tax, but fair taxation throughout the economy.
The Conservatives have reduced several taxes over the years, such as the tax on investment premium income, which, like other taxes, has now gone by the board. There are many ways to redress the balance in our society without having a high income tax rate. The Labour party believes in a proper and appropriate standard of taxation —which does not necessarily mean a high income tax rate—and a proper balance in public expenditure.
The Chancellor and Conservative Members applaud the fact that we no longer have a public sector borrowing requirement, but instead a public sector debt repayment. It is not surprising that a Government who want to repay the national debt do not have a great deal of sympathy with those who are suffering as a result of high interest rates. The Chancellor said earlier that the interest rate increase policy was working and that that was why people were feeling the pinch.
If the Government are trying to repay the national debt as a matter of public policy, it is hardly surprising that they have no common sympathy with home owners, small business men and those who use credit cards for consumption, who are paying 28 per cent. APR. Many hon. Members, especially the right hon. Member for Guildford (Mr. Howell), showed some unease at the Chancellor relying entirely on a policy of regulating the economy by using interest rates.
To give him some credit, the Chancellor said in an intervention that other nation states were moving away from credit controls. He mentioned Canada, the United States, France and Italy as going down the same road. In 1981, when there was a consumer boom in the United States, the United States Government withdrew credit cards from circulation and the credit consumer boom collapsed quickly.
I am not suggesting that the Government should move to a programme of taking credit cards out of the system, but I caution the Chancellor against limiting his options in such a way that he seems to say to outside investors and those who are financing our balance of payments deficit by investing in our economy at 13 per cent., "Is that interest rate enough for you, or do you want more?" We may lose control of our own economy by reliance on a single interest file policy. The Chancellor mentioned the French, but I should be surprised if the French Government will relinquish a series of credit controls, including control of bank spending, to conform with policies such as those to which the Chancellor referred.
Hon. Members referred to the massive balance of payments deficit of £15 billion, and it is hardly surprising that it has been taken up by manufactured goods coming in from abroad. Since 1979, we have so run down the manufacturing side of our economy and placed such reliance on services that it was inevitable that, with the overheating of the economy, goods would then come in from abroad.
My hon. Friend the Member for Dunfermline, East referred to Middlesbrough, my constituency. About 50,000 jobs were lost in Middlesbrough from 1979 to 1981, while the present Foreign Secretary was Chancellor of the Exchequer. Jobs were lost in steel, chemicals, shipbuilding and foundry work, and those jobs will never come back to

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Teesside. We have the urban development corporation, which will have a budget of £172 million, and it seeks to lift the area, but 50,000 jobs cannot be re-created.
Mr. Julian Brazier: Would the hon. Gentleman like to mention a single major industrialised country where large numbers of jobs have not been lost in the steel industry or in shipbuilding, in countries that have such a capacity?
Mr. Bell: Jobs have been lost in many western nations. There are about 28 million unemployed in the OECD countries at present. That is a great tragedy, both for our country and for those which followed in the tracks of the Government in 1979. It was a great misfortune for the 50,000 people of Middlesbrough who were working but who are no longer working, and in that sense an entire generation has been wiped out.
My hon. Friend the Member for Dunfermline, East referred to the Prime Minister's walkabout on that sacred site in Middlesbrough. I did not know that it would be referred to today, but I went down there last Friday. I found the site still empty. Now and again the Prime Minister has meetings at which she insists that something be built on that site between now and the general election; I have no idea why it should be on that plot specifically.
We are witnessing an indictment of the Government's policy on manufacturing industry. The consequence of years of running down manufacturing industry throughout the country is that, with the consumer boom, exports are not keeping pace with imports and manufactured goods are coming in from abroad. We have a destabilised economy that is not balanced in any way.
The Chancellor made the best speech that I have heard him make in five years, and I say that in all humility. One of the unforeseen consequences of the excellent performances of my hon. Friend the Member for Dunfermline, East has been that they have obliged the Chancellor to lift his game. He has been obliged to take the House of Commons into account more and to give us a speech that was interesting and illuminating—although it was not sufficiently illuminating to tell us whether he proposes to take the advice of the Bank of England that there should not be tax reductions in this year's Budget. The Chancellor would not give any indication of what exchange rate policy should be, and I thought that very sensible of him.
Last year's Budget combined reduced interest rates with reduced income tax. The reduction in the income tax on higher salaries from 60 per cent. to 40 per cent.—a reduction of one third in one go—created a climate for the consumer boom that brought imports rushing in and, in effect, destabilised the economy. At the time, we applauded the Chancellor's reduction of interest rates. That policy was right and proper, but the Budget gave so much back that it created a climate for spending. The mistake that the Chancellor made then gave rise to our present problems. According to newspaper reports, the Bank of England has advised the Chancellor to follow a tight fiscal policy as well as a policy of high interest rates, and on this occasion perhaps he will take that king of advice.
The hon. Member for Chichester referred to the lack of saving in our society. I am reminded of my visit to the
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United States last year, during which I saw a bumper sticker which simply said, "I am spending my children's inheritance." Under the present Government and the present Chancellor, we are squandering the inheritance of the British people. Lower taxes, reductions in services, poorer education and a poorer infrastructure all mean that we are not investing in future generations. I wonder where our economy will be when oil revenues begin to fall and all our heirlooms are sold.
7.33 pm
Mr. Nicholas Budgen: I want to explain why I support the policy of high interest rates. The first question that hon. Members ask as they watch many of their constituents going through agony is whether there is an alternative. In our previous debate on the economy, many of my right hon. and hon. Friends said that they wondered whether we should have either some form of selective control on lending or some direction of lending—a return to the old days before the banks became very much freer, particularly in London. My hon. Friends concluded that there was no possibility of relieving their constituents' agony in that way.
In this debate, the idea that has emerged is one that has long been favoured by my hon. Friend the Member for Horsham (Sir P. Hordern). My hon. Friend will forgive me for saying that he is one of the most influential of my hon. Friends. When he advances an argument—I regret that on this occasion I concluded that I disagreed with him—it should be properly argued. My hon. Friend says that there is now a strong case for the introduction of a British loi Monory, which he says would alter the savings ratio in a helpful way. There can be no argument but that the savings ratio has fallen substantially—from 14 per cent. in the late 1970s and early 1980s to 1·3 per cent. according to recent figures. It is important to appreciate that the savings ratio is a net figure; it is the difference between saving and borrowing.
My hon. Friend was right to draw attention to paragraph 2·30 of the Autumn Statement, which identifies the fall in employers' contributions to pension funds in recent years as one of the factors in the decline of the savings ratio. I shall not elaborate that point, which my hon. Friend made very well. I am sure that he will agree that it is not the figure for saving but the figure for borrowing that is wrong. Up to November last year, the increase in bank borrowing was 27·3 per cent. higher than in the previous year. It is that figure which has had a distorting effect and has reduced the savings ratio and it is that figure which needs to be changed.
I do not think that my hon. Friend's proposal would have the dramatic effect this year for which he hopes. Furthermore, it would introduce yet another distortion into the tax system. One thing for which my right hon. Friend the Chancellor will be remembered with admiration when he comes to retire from his high office is his reform of corporation tax. In that case, he was able to apply his belief in fiscal neutrality. The measure was criticised somewhat at the time, but it has been an outstanding success. My right hon. Friend also believes in fiscal neutrality in relation to the taxation of private individuals, but, for various political reasons, he has not proceeded to apply it to private taxation. Nevertheless, the introduction of a new distortion would make it more

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difficult to introduce fiscal neutrality at some stage in the future. In this instance, it would be an entirely unnecessary distortion.
For the sake of argument, let us assume that the Chancellor goes away from today's debate saying, "I do not want to introduce a distortion, but the lads are in such disarray and so hate watching their constituents go through agony that I must do something, even if it mucks up the tax system." Even if that happened, the measure would not come into effect until the end of June. High interest rates may have to continue into June or July, but by the time interest rates are likely to come down the broad mass of the public will only just he starting to notice the distortion.
Once the distortion has been introduced and everybody has been told that the new Jerusalem is at hand—Back Benchers will go round constituency associations saying that the new savings measures are the most wonderful thing ever, in the exaggerated terms which I have come to realise are inseparable from politics—it will be impossible to withdraw it, even when interest rates have fallen. I would respectfully suggest to my hon. Friend the Member for Horsham, who, as I say, is so influential, that I hope he will not lead our colleagues astray on that matter.
Sir Peter Hordern: I am most grateful to my hon. Friend. He speaks about a perfect world, where there would be fiscal neutrality and no relief for mortgage interest, but I must ask my hon. Friend what happens when an irresistible force meets an immovable object. When my right hon. Friend wishes to introduce fiscal neutrality in mortgage tax relief, he comes up against the Prime Minister. I regret to say that the Prime Minister in this instance is absolutely immovable. My argument is not addressed solely to the need to find tax incentives on savings and equities, and the advantages which I believe will accrue from that. I also want to try to carry on the process of democratisation which we have seen with the freeing of trade unions and the housing market.
Mr. Budgen: I believe that my hon. Friend will agree that his argument would be very much stronger if it were possible to change the law on taxation at the very moment that interest rates go up, but it cannot be done until the end of June, and it is probable that the agony will already be being eased by then.
As to my hon. Friend's wider point about the political forces that have governed the Chancellor of the Exchequer, I can only say that I have always observed that one of the great charms of politics is its unpredictability, and leave his general argument at that.
I suspect that the second question that my hon. Friends will be turning over in their minds is whether the Chancellor will over do it. Will the squeeze be kept on for too long? Will this agony be made much worse and unnecessarily worse? All we can really say about that is that there is no evidence from the Chancellor's track record that he has pursued the defeat of inflation with any mindless and excessive zeal. A Chancellor who has enjoyed the advantages of 5 per cent. inflation per annum throughout his entire period of Chancellorship cannot be described as a sound money bigot. He says that he was successful in 1985. It is true that in 1985 inflation as recorded by the, in my opinion, rather inadequate RPI did go up to 7 per cent., and for a brief period interest rates were increased to 14 per cent. However, it was not the 14
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per cent. that got him out of trouble, but two other factors. One was that petrol, oil and other commodity prices dropped sharply and the other was that sterling appreciated. As soon as those two happy horsemen came to his rescue, the money supply was allowed to increase once again.
We live in an electoral cycle. It will be possible now to have a bit of agony. It will not be possible, because the lads will not stand it, to have a great deal of agony in a year or 18 months' time. Therefore, for all those reasons I hope that my hon. Friends will give the Chancellor their support.
7.43 pm
Mr. Win Griffiths: I continue to be amazed at the gullibility of the Conservative Members, because most of them appear to listen with reverence to another edition of the tales of the babes of Dorneywood from this latter-day member of the family of the Brothers Grimm.
When we look at the Autumn Statement and the various forecasts that the Chancellor has made in the past year or two, we must admit that in every case he has been a failure. He promised us that inflation would be running at 4 per cent. and it is more than 6 per cent. and rising; and that the balance of payments deficit would be £4 billion, but it will probably be more in the region of £14 billion this financial year. The Chancellor thought that imports would increase by about 6·5 per cent., but we know already that the increase will be more like 13 per cent.-plus. He thought exports would increase at the rate of 3 per cent., but we know that we shall be lucky to obtain 1·5 per cent. He thought that interest rates would remain stable, but we know that they have virtually doubled·from 7·5 per cent. to 13 per cent., and who knows where they might go in future? The Chancellor thought that the money supply would range somewhere between 1 and 5 per cent. and already we know that it is more like 8 per cent.
When forecasting for every major item in the Budget, and for expenditure, the Chancellor got it wrong. It is no wonder, therefore, that the Government are in a state of some panic about using high interest rates as virtually their only policy in this sector and are concerned about the problems caused to them by the agony and the pain felt by some people, which the hon. Member for Wolverhampton, South-West (Mr. Budgen) graphically explained.
I was staggered, too, by the way in which the Chancellor almost rushed to remove the cost of mortgages from the retail prices index. The Chancellor must be living in cloud cuckoo land with Rupert Bear and Algy, if he believes that the home owner regards an extra payment on the mortgage as something not to be counted in his or her spending in any particular month. There is no way that we can avoid responsibility by not including mortgage rate repayments in the RPI.
Another matter which struck me was the massive complacency of the Chancellor, which appears to be echoed by most of other hon. Members who have spoken, about the great economic miracle which has been performed in the past decade. That miracle can only be seen by looking down a telescope, with a long set of blinkers on the end of it, focused somewhere in the London area. The figures for the number of jobs in all of the standard planning regions, the moment one moves beyond a line from the Severn to the northern side of the

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Wash, tell a story of dismal failure. Conservative Members could do themselves a good turn if they studied those figures, which I shall now give them.
I shall begin with Wales, because I believe we should start with the most important part of the United Kingdom and the one which has suffered most. In Wales, there are 130,000 fewer jobs than there were in 1979; in Scotland 173,000 fewer jobs; in the north of England 107,000 fewer jobs; in the north-west of England 337,000 fewer jobs; in Yorkshire and Humberside 77,000 fewer jobs; and in the west midlands 70,000 fewer jobs. That is a grand total of 894,000 fewer jobs now than in 1979. A total of 234,000 of the extra jobs that have been created in the regions which I have mentioned are part-time jobs for women. The state of the British economy, in by far the greater part of the country, is a sad tale of woe and failure.
It is true that more jobs have been created in the south-east, East Anglia, the south-west and the east midlands, but that is because the Government have almost completely ignored the needs of the northern and western regions of the United Kingdom. I have left out Northern Ireland deliberately, because I accept that the problems of that area are far greater than any damage that the Chancellor is doing to the economy.
The Chancellor likes to talk of the success of the British economy and the wonderful way in which it is working compared with other economies. On the latest figures available, inflation in the United Kingdom is 6·4 per cent. compared with 3 per cent. in France, 1·4 per cent. in Germany, 4·8 per cent. in Italy, 4·2 per cent. in the United States, 4·1 per cent. in Canada and 0·5 per cent. in Japan. All those figures relate to the end of last year and show that Britain is at the bottom of the league of major industrialised countries.
Short-term interest rates are 13 per cent. in Britain, compared with 8 per cent. in France, 4·8 per cent. in Germany, 12 per cent. in Italy, 8·3 per cent. in the United States of America and 4·4 per cent. in Japan. The figures for Canada are not available. Again, which economy is the worst? Why, it is the British economy.
Although we are not at the bottom of the ladder for unemployment figures, we are near it. According to the Organisation for Economic Co-operation and Development figures for the end of last year, unemployment in Japan is 2·5 per cent., in Canada 7·8 per cent., in the United States 5·3 per cent., in Germany 6·4 per cent., in France 10·4 per cent. and in Britain 8·4 per cent. Again Britain is doing badly. It is only because of the distorted nature of the British economy that Conservative Members can comfort themselves in the apparent success of the Chancellor's policies.
The truth is that we have had a decade of neglect which has not been in the interests of creating a balanced and prosperous nation. [Laughter.] We have a divided nation. The hon. Member for Beaconsfield (Mr. Smith) may laugh, but if he cared to come to Wales or to visit the north of England or Scotland, he would see a different picture. It may be hard for him to admit that some areas have high unemployment and that those who earn there gain poor wages. He may like to come with me one weekend and see the poverty and deprivation that the Government have caused by deliberately taking money from pensioners and
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the long-term unemployed and by reducing spending on the regions by two thirds. No wonder we no longer have those jobs.
When he replies, perhaps the Minister can tell us exactly what judgment the Chancellor has made of the amount that demand will need to slow down for him either to reduce interest rates or at least ensure that they do not climb higher. I must admit that, in view of his previous forecasts, it may not be worth while getting an answer to that question, but I should like one. How long will the agony continue?
7.53 pm
Mr. Tim Smith: One of the most interesting things about our economic debates is that most of the debate these days takes place on the Conservative side of the House. After having listened to such a pedestrian speech packed full of tedious statistics, I should like to return to the Autumn Statement and to public spending with which it is principally concerned.
The Government's objective on public spending has been changed twice during the past 10 years. The objective was first to reduce it in absolute terms and then to hold it constant; now it is to ensure that it falls as a proportion of GDP. I make no complaint about that, because, with the growth in the economy, that is something that we can reasonably afford to do, but I am worried about the projections for the next three years.
Although the achievement on this front, as shown in table 1.1 of the Autumn Statement, is impressive, as the trend is moving in the right direction, I remain worried that the target is not as ambitious as it might be. We should press on to return to the levels shown at the top of the table—for example 36 per cent. of GDP in 1964–65. My second point, which was raised by the Treasury and Civil Service Select Committee, is whether that is a sensible way to control the overall level of spending. I agree with what my hon. Friend the Member for Bridlington (Mr. Townend) said and I do not share the view of the Select Committee that this is not a sensible way to proceed. It has the virtue of simplicity, it is intelligible and it does not make sense to include transfer payments.
However, I do not agree with what my hon. Friend said about the Committee's recommendation on the need for a public sector balance sheet. I know that this is a difficult area. My right hon. Friend the Chief Secretary told the Select Committee that it would be difficult to get a market value for a prison. Of course that is true, but as a member of the Public Accounts Committee I have been shocked at the number of witnesses who have been unable to say what assets they are responsible for. For example, the Crown Estate Commissioners appeared before the Committee recently; they, who are the equivalent of a property company, produced a balance sheet for the first time only in the past 12 months. There is tremendous scope for improvement.
Departments of State should know what assets are under their control. One way of doing that is to require them to produce a balance sheet. That would have the advantage that we would then know what additions had been made and what the total level of capital spending was. That information in the Autumn Statement is deficient and I hope that, when the public expenditure

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White Paper is published, we shall have the table that appeared last year which showed the Government's total capital spending.
Such a balance sheet would also show capital receipts satisfactorily, which does not happen at present. Privatisation proceeds are deducted from total Government spending and the proceeds from the sale of council houses are deducted from total spending on council housing, so there is room for improvement. The production of a public sector balance sheet would be a good idea.
We have had a good deal of discussion about inflation. Every Conservative Member subscribes to the principal objective of the Government's economic policy, which is trying to defeat inflation by monetary rather than fiscal means. I have two worries, one of which was mentioned by a Labour member of the Select Committee and is referred to in the report. The Government's goal is always being moved one year out, so that the goal of 3 per cent. inflation always seems to be 3 per cent. away. We need to try to set targets to which we can adhere or people will not believe the targets that the Treasury sets itself.
Secondly, it is not widely recognised that if, instead of analysing the RPI in the normal way, which is between different items of spending, one analyses it as Christopher Fildes did in an article in The Spectator in December, which was between the public sector elements and the private sector elements of the RPI, one sees that the Government are responsible for a considerable amount of the inflation from which we are now suffering.
According to the October figures, inflation measured by the RPI was 6·4 per cent, whereas public sector inflation was 7·8 per cent. If mortgage payments were included, it would be 13·8 per cent. On the other hand, private sector inflation was 4·8 per cent. That discrepancy was due to the fact that nationalised industry prices were rising at 7·5 per cent., local authority rents were rising at 7·5 per cent. and rates were rising at 8·5 per cent. Part of the solution to the present problem of inflation lies in the hands of the Government and certainly in the hands of local government, because those prices are fixed by the Government and local government. We can expect to see an improvement when some of those figures come nearer to the general level of price inflation.
The Committee also examined the official statistics. I very much agree with the view that we must have statistics on which we can reasonably rely. Much doubt has been expressed about the balance of payments statistics. It is a well-known fact that, if we add up all the balance of payments statistics throughout the world, we end up with a large deficit, which suggests that something is wrong somewhere. We see regular adjustments to the United Kingdom balance of payments figures, which are usually favourable for the Government, because the deficit is normally reduced as a result of subsequent adjustments. I hope that the balance of payments figures will form part of the Government's inquiry, because it is important that we should have statistics upon which we can rely.
We have heard a great deal in the debate about forecasts. The Treasury has been criticised for the forecasts that it made in the Red Book at the time of the Budget, but if we consider almost every other forecast made at that time about the balance of payments, we find that the forecasts were all around £3 billion, £4 billion, £5 billion or £6 billion. No one forecast a figure near the real outturn.
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There is a lemming-like quality about economic forecasters who have a tendency to assume that things will continue as they are today. I am not so pessimistic.
For example, I am inclined to agree with my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) that the savings ratio problem is beginning to resolve itself. One of the principal reasons why the ratio has fallen so low is, as we can see from a table in the Autumn Statement, the close correlation between the movement of the savings ratio over a number of years and the movement of inflation. As inflation comes down rapidly, people feel the need to save far less. There is far more confidence in the economy, so they feel less need to save for the future.
That has now changed. All the evidence shows that there is more uncertainty. There will be less borrowing, which is an important element because we are dealing with a net figure. The problem is therefore already starting to resolve itself. If we were to have a Monory proposal, I doubt whether it could be introduced by the Treasury as early as June, as my hon. Friend the Member for Wolverhampton, South-West suggested. The PEP scheme did not come in until 1 January following the Budget, so I agree with my hon. Friend that the problem would have started to resolve itself before we could even tackle it.
My right hon. Friend the Chancellor of the Exchequer should cut income tax further in the Budget. With such a large public sector debt repayment, I see no reason why another 1p should not be cut off income tax or why thresholds should not be increased by more than the rate of inflation. I should like to see something done about the national insurance contributions made by the lower paid. That matter is mentioned in the submission of the Institute of Directors. I do not have time to develop the point, but I am sure that my hon. Friends will be aware of the point to which I refer. There is a poverty trap when one first comes to make these payments, and again when the rates increase. I should also like to see something done about capital gains tax in relation to investments in unquoted companies, a matter which has been raised by the Conservative Back-Bench small business committee.
I fully support the economic strategy in the Autumn Statement. We have every reason to be confident about the future of the United Kingdom economy.
8.4 pm
Ms. Joyce Quin: The widespread reaction to the Chancellor of the Exchequer's Autumn Statement and his recent pronouncements on the economic situation in Britain shows clearly that many people, including those whom the Chancellor might normally think of as supporters, believe that he has got it badly wrong.
The hon. Member for Beaconsfield (Mr. Smith) appeared not to like statistics, particularly when they show the Government in a bad light, but none the less, it is clear that the forecasts were very wrong, particularly those on inflation, but also those relating to the balance of payments and trade deficit which is three times greater than the original prediction.
The serious economic developments that we have seen in recent months are very much related to last year's Budget in which, again, the Chancellor got it disastrously wrong. Many of us reacted strongly to that Budget for what we felt were the immoral giveaways to the richest in

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society, but it is now clear that the Budget was also economically very foolhardy and wholly inappropriate to the economic situation in which Britain found itself. The Chancellor was warned at the time, particularly by Labour Members, that the Budget would lead to a boom in imports and that it would mean a serious trade deficit given the great weakness of the British manufacturing sector.
We are now given the Chancellor's forecast for trade recovery and how the balance of payments is supposed to improve over the next year, but is this forecast also to be disastrously wrong? The only cure that appears to be given is that of raising interest rates, but, in that sense, the Chancellor appears to remind us of 18th-century doctors who prescribed leeches for every ailment. The problem was that so many of the patients never recovered.
Let me cite some of the reactions to the Chancellor's Autumn Statement and his economic policies. The Confederation of British Industry reported that many exporters appeared to be gloomy about the future. The Engineering Employers Federation felt that the Chancellor was misguided in the way that he thought that action on interest rates would do much to cure our trade deficit. There was widespread hostile reaction in many national newspapers and there was an encouraging headline in the Daily Mail which read:
"Has Nigel blown the next election?"
The Bank of England has also warned the Chancellor against tax cuts in the forthcoming Budget. Organisations such as the National Federation of Self-Employed and Small Businesses say that the interest rate increases are affecting detrimentally the fastest growing firms in the country. The chairman of Ferranti International is quoted in one newspaper as saying that, because of the interest rate increases, the company will look hard at its investment programme. Last but not least, the OECD report produced last December predicted a growing trade deficit for the United Kingdom which was in very worrying contrast with the Treasury's predictions. All that adds up to a strong weight of opinion against the Chancellor and Government economic policies.
The Civil Service and Treasury Select Committee, of which I am a member, has produced a worthwhile report, which, although often worded in a restrained and sometimes even coded manner, makes many telling criticisms of the Chancellor's policy and of the defects, as we see them, in the Autumn Statement. In particular, it points out inconsistencies in the Chancellor's exchange rate policies. Only last March, he was telling us that an exchange rate of DM3 to the pound was an anchor against inflation, but, by the end of the year, he had changed his tune, particularly as the exchange rate with the deutschmark was then 3·22. He was not so certain about what the anchor against inflation would be for the future. That is another worrying sign.
In the remaining time, I should like to highlight two issues which are of particular concern to me and will be worrying factors in the coming months and years. The regional effects of the Chancellor's policy have already been referred to. Like my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins), I come from the northern region of England which has, at best, seen only a partial economic recovery. We learn that, before an
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economic recovery can take place there, it will feel the recessionary effects of the measures to cure overheating in the south-east.
The Government seem to have no regional strategy or economic policy to deal with the undoubted regional division. The reaction in the northern region to the Chancellor's rise in interest rates was particularly unfavourable. Mr. Paul Torday, the regional director of the Northern CBI, said that he felt that Government policy was concentrating on the south and that there appeared to be an absence of any thought about how to deal with regional variations. The chambers of commerce in Tyne and Wear and on Teesside also expressed concern. However, when I raised these points with the Chancellor in the Treasury and Civil Service Select Committee, he said more or less, "Well, they would say those things wouldn't they? They feel that they've got to say them." He dismissed real and genuine concern as ritualistic mutterings.
The Chancellor's contempt for the region was also clear from his earlier remarks when he referred to Labour party policy to regenerate the regions as the "Yugoslav solution". Perhaps he should have considered West Germany, where there is a great deal of regional economic autonomy and no clear regional division or disparity of wealth such as exists in this country. Both inflation and unemployment are lower in West Germany.
The Chancellor's policy is undoubtedly bad news for the regions. There seems to be no regional measure to offset the negative effects of the Chancellor's policy. A recent report by Cambridge and Northern Ireland economic forecasters stated that there will be an ever-widening gap between the regions in Britain if present policies are pursued.
I am also concerned about the effect on Britain of the moves towards the creation of the single European market in 1992. The Chancellor's economic policies bode ill for Britain in the run-up to 1992. A recent article in The Guardian asked whether 1989 would be the year that Europe invaded Britain. I am worried that the bids and mergers from Europe mean that much of our industry appears to be ripe for takeover while in return we have no alternative strategy or a policy to defend our industries, particularly in the regions.
I am worried that, if we follow the present course we will become the poor relation of the EEC between now and 1992. The Chancellor's policies have contributed greatly to inequalities in Britain. Perhaps they are set now to contribute to inequalities on a Europeanwide scale where inequalities between rich and poor regions are already much wider than in America.
A Conservative Member who may or may not wish to admit to the remark now, said that the jury was out on the Chancellor. On the evidence available, the only verdict possible that the jury could return is one of guilty. The Autumn Statement is an autumn indictment of the Chancellor's policy failures.
8.13 pm
Mr. Andrew Mitchell: I subscribe fully to the comments made by my hon. Friends the Members for Wolverhampton, South-West (Mr. Budgen) and for Beaconsfield (Mr. Smith) who referred to the importance of fiscal neutrality and the need to avoid a British loi

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Monory. Many Conservative Members in favour of fiscal neutrality accept the fact that mortgage interest relief is the exception that proves the rule.
I invite the hon. Member for Vauxhall (Mr. Holland)—who is not in the Chamber at the moment—to enlighten us on some points when he replies to the debate for the Opposition. He is said to be possessed of a remarkable intellect as an economist and to have invented a new form of economics. I hope that he will spell out specifically what measures the Labour party would take to control credit expansion instead of using the interest rate mechanism. We have heard a lot of non-specific talk from Opposition Members, but I hope that the hon. Member for Vauxhall will tell us specifically how he would handle that.
I do not deny that high interest rates are unpopular, although many elderly people with savings and no debt have seen a welcome rise in their income. High interest rates on mortgages have a radical effect on disposable income. Those of us with large mortgages feel the effect keenly. My hon. Friend the Member for Wolverhampton, South-West did not exaggerate when he spoke of the agony that is felt in some quarters in that respect.
I have received a pretty clear message from my constituents. They have told me that high mortgage rates are unpleasant and unwelcome. However, high inflation is a worse enemy and an ever-present threat. Many people take a longer and less staccato view than the Labour party on this issue. If there are economic squalls—it is naive to suggest that they will not occur—it is far better to have the hand of this experienced Treasury team on the tiller who will take the necessary tough decisions than the old-fashioned and confused Socialist remedies from the Labour party, some of which we have heard again today.
As my hon. Friend the Member for Beaconsfield said, the medicine may be working more quickly than was expected. It is hardly surprising, when monetary policy is tightened, for conflicting signals to occur. The inclusion of mortgage interest in the retail prices index masks the fact that the underlying level of inflation has stayed broadly static since last July.
High interest rates have already reduced demand in the economy and the growth in house prices is declining. According to the Royal Institution of Chartered Surveyors, that trend continues to spread. Mortgage lending has fallen, and recent figures show that retail sales are slowing. One of the beneficial effects of the present policy is that it reaches directly to consumer spending rather than corporate and industrial spending and investment.
As the Chancellor said earlier, at the beginning of the decade the gearing ratio of British companies averaged out at about 45 per cent. The comparable figure now is little more than half that. Investment in the United Kingdom has increased over the past year by at least 12 per cent. That cannot be dismissed as a temporary trend, as it has clearly been the pattern for the past five years.
I do not disguise the fact that high interest rates will adversely affect some businesses, particularly smaller ones. However, for companies and individuals, rising inflation is a worse and more potent enemy.
The Treasury and the Civil Service Select Committee, in reviewing public expenditure and our debt profile, has made sensible comments about the need to enhance public debate through a comprehensive public sector balance sheet. Many of my constituents were appalled at the huge level of Government debt which characterised the 1960s
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and 1970s. However, they are deeply impressed with and support an economic policy which yields significant increases in public expenditure while achieving such a dramatic public sector debt repayment during this financial year. I agree with my colleagues that that is a signal achievement and a complete change from the previous pattern. It is one which our constituents note and respect greatly.
The Select Committee also referred to the level of expenditure on the National Health Service. In a year when the NHS has been the subject of a major review, it should not be forgotten that the review is set against a background of the largest injection of funding that the NHS has ever received. In other words, the review takes place against a position of confidence and strength. That is very different from the other great NHS review conducted by the previous Labour Government, which took place against a background of a desperate need to find savings and make cuts in NHS provision. Those cuts emasculated the NHS building programme, which we have restored fully and increased significantly. The Nottingham health authority benefited from that increasing expenditure. Under RAWP, we hope, and need, to do better—we are till 5 per cent. short of our target.
Next year, as the Select Committee makes clear, there will be an overall 9·5 per cent. increase in cash in the NHS which is a growth rate of 4·5 per cent. in real terms. I am grateful to the Select Committee for making clear how that figure was reached. It is a fine achievement. The purpose of the Prime Minister's National Health Service review is to ensure that that significant expenditure increase will be directly translated into similar increases in the quality arid quantity of patient care. That is how we in Nottinghamshire will judge the review.
I was surprised not to find more in the report about the Government's programme of Third-world aid. I am not entirely in agreement with my right hon. Friend the Member for Tonbridge and Mailing (Sir J. Stanley). One must recognise the quality of the United Kingdom aid programme, which is acknowledged by the OECD's development assistance committee, and is well illustrated by the high priority it gives to the development of renewable natural resources. The increased budget announced this year means that our aid programme will increase by 18 per cent. over the next three years. Included in that figure is the expected cost of the Chancellor's widely praised sub-Saharan debt initiative. We have already set an example by writing off £300 million in loans to 14 African countries, and ours was the first country to subscribe in full to the World bank's general capital increase.
I turn briefly to four tangential points that I hope my right hon. Friend will consider in the run-up to his next Budget. The first concerns employee share ownership schemes—this is an important subject and one with which the Finance Bill Standing Committee wrestled last year. My hon. Friend the Member for Esher (Mr. Taylor) spoke eloquently on that subject. If we are serious about spreading share ownership more widely throughout society, we must consider the role that such schemes can play in enhancing and augmenting that objective, as well as motivating and improving the supply side of our economy. Share ownership schemes can help break down ancient barriers. They also clearly offer an additional savings benefit.

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Secondly, there are in my constituency families who, faced with a competitive mortgage market, have changed their mortgagee. The effect of such a move—in which, technically, a new mortgage is drawn down, repaying the old one—is that any portion of the first mortgage that financed a home improvement, perhaps even 15 years ago, becomes ineligible for mortgage interest relief.
I cannot see how that can be fair, and I hope that my right hon. Friend will see whether anything can be done to clarify this point. At the very least, building societies and banks have a duty to make that situation clear to customers seeking to roll over their mortgages and who risk being caught in that way.
Thirdly, I refer to the Inland Revenue's consultation document on the taxation of non-domiciled individuals. Action rightly needs to be taken against various abuses, but I hope that care will be taken before changing the rules in respect of those whose arrangements with the United Kingdom authorities have already been made on the basis of the existing law on domicile. Valuable inward investment into the United Kingdom may be jeopardised by the current uncertainty. I note from a recent publication that some concern is felt by the DTI on that point. In any event, an early announcement by my right hon. Friend will be welcome.
Fourthly, the next Budget will be the right one in which to lift as many of the lower paid out of the tax net as possible. I urge my right hon. Friends to make that direct contribution to helping to defeat the poverty and employment trap, and to seize the opportunity to effect this great and important change.
I have strayed from the debate's main theme, but the essential facts remain. Our economy is strong. Inevitable economic difficulties are being courageously dealt with. The Opposition are unable to put forward any coherent alternative medicine—although we wait with interest for their wind-up speech. The country continues to trust my right hon. Friend's judgment, and that of his colleagues on the Treasury Bench.
8.23 pm
Mr. D. N. Campbell-Savours: The strategy outlined by the hon. Member for Gedling (Mr. Mitchell) applies to the south, and not to the north and to the part of the country from which I come. I intended speaking about interest rates, but about one and a half hours ago I received a telephone call from my constituency concerning a company whose progress I have followed in detail over many years and which tonight has made 90 people redundant. It is in that context that I shall comment on the Autumn Statement.
The company to which I refer, Miller Footwear of Cockermouth, has a good export record but has experienced certain difficulties over the past few years. It competes directly with South Korea and a number of other countries in the far east on their manufactures, which have in recent years been dependent on the value of sterling in international markets. With the fall in the value of the dollar over the past couple of years, the South Koreans and other far east nations producing footwear decided that, instead of exporting, for example, their Union Jack-clad "Reebok" footwear to America, they would move out of that market, because the price of their prodcts
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there was increasing as the value of the dollar fell. They redirected their exports to European markets, where exchange rates have moved more in parallel with far east currencies.
In the European market, the problem arises that, whereas many of our European competitors introduced import controls that single out far east products, the British Government failed to do so. The result is that exports of footwear from South Korea in particular have been directed mainly towards the United Kingdom. Its market share has been enhanced still further by the authorities' decision to raise interest rates. With the upward movement in sterling, South Korean footwear has become more competitively priced in the United Kingdom, and our markets are increasingly being crowded out by footwear imported from the far east whose manufacturers take advantage of an increasingly favourable sterling exchange rate.
That places in context what happens in the real world when the Government decide, in order to resolve, as I see it, a uniquely southern problem, to increase interest rates, inflate sterling's value, and draw in imports—leading to 90 people working for a footwear company in my constituency being placed in the dole queue.
Although there is a great shortage of skilled labour in the south and in certain sectors of industry in west Cumberland, many of those who have been made unemployed will find that the only jobs available to them are in industries whose capitalisation is low in terms of plant and equipment. The reason for that was outlined by the hon. Member for Gedling when he spoke about gearing in the sense of lending to assets. Companies that have failed to invest as a result of high interest rates but are willing to offer employment are invariably labour-intensive. Because they are not highly capitalised, they have to compete with low-wage economies overseas. That forces down the wages available to my constituents.
The product of the Government's strategy is a sucking in of imports, which become more competitive, driving people out of home industries into those that are either under-capitalised or should be more highly capitalised, with a higher degree of automation. The overall result is lower wages. Such companies tend to resist trade unionism. Employers in the region then adopt a brutal and ruthless approach.
My hon. Friend the Member for Gateshead, East (Ms. Quin) has had the same experience as I have, particularly over the past few months. There has been an increasing incidence of what I can only regard as brutal employers who almost but not quite flout the law, who reject trade unionism, who refuse to recognise trade unions in their plants and whose only intention is to secure the cheapest labour in conditions of high unemployment in areas such as mine.
As a result of that, while unemployment in west Cumberland has gone down over the past few years, we have seen the development of non-union, low-wage industry which, when we are playing around with exchange rates and interest rates in the way that we are today in Britain, can only lead to the creation of sensitive industries which can be wiped out in the cool breeze of international recession. On the one hand, I can accept that the Government's policy has led to an increase in employment in west Cumberland, but it has come about in

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industries that are geared to that strategy, which is a southern strategy for resolving problems and difficulties in the south. We cannot continue on that basis.
Finally, let me deal with the specific problem which, although it affects all the United Kingdom, affects the south of England in a disproportionate way, and that is property price inflation. I want to leave the Government and those on the Government Benches with a thought that they would do well to consider.
I never believed that it was the miners who brought down the Government of the right hon. Member for Old Bexley and Sidcup (Mr. Heath) in 1974. I had a theory at that time that the Government were brought down because of the collapse in property prices that took place after the high inflationary period for property in the early 1970s which we all remember. The hon. Member for Wokingham (Mr. Redwood) shakes his head. He may have been in Downing street at the time. Perhaps he was an adviser to the right hon. Member for Old Bexley and Sidcup. The levels of property price inflation in 1971, 1972 and early 1973 were just as high as they are today, and the gearing of earnings to house prices was as precariously balanced then as it is now. That was a major contributory factor to the fall of the Conservative Government in 1974. In the same way that the bubble burst then, it will burst again. When it bursts, it will burst with a vengeance and it will be reflected in the ballot box.
8.32 pm
Mr. John Watts: The Treasury and Civil Service Select Committee report refers towards the end to the unsatisfactory state of official statistics. During the evidence sessions I compared them to driving in the dark without headlights.
There is concern about trends in inflation, the current account of the balance of payments, and the rate of growth of GDP, which most commentators believe to be at an unsustainably high level. But at best, we have to rely on informed hunches to know the position of any of those key economic factors. Official statistics do not provide us with the basic information on which judgments can be made.
The Autumn Statement provides a wide range of choice on most of the key economic indicators. At the time of the Budget my right hon. Friend the Chancellor forecast a £4 billion deficit in the balance of payments current account. The Autumn Statement revises that upwards to £13 billion and the latest figures show that that total has already been exceeded before the year end.
But tucked away on page 50 of the Autumn Statement in the annexe to chapter two, we find described in paragraph 2A.7 the large overseas balancing item in the first half of 1988 of about £7 billion or, annualised, an amount equal to the forecast deficit for the whole year. The note goes on to explain most helpfully that that shows that
"there were either unrecorded net credits on the current account or unrecorded net capital inflows or, most likely, both."
On the most favourable assumption, the whole of that balancing item could be unrecorded visible or invisible exports, in which case there would be no deficit on current account this year. That is not likely, but it is equally improbable that no part of that balancing item is represented by unrecorded overseas earnings. It seems likely that the true deficit will prove to be less than the
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Autumn Statement forecast of £13 billion for the year. But we do not know, and we should know with greater accuracy.
Examining the GDP statistics, we find that in the first half of 1988 GDP grew by 6 per cent. on the output measure, but by only 2·5 per cent. on the expenditure measure. The Autumn Statement follows the normal practice of averaging the various measures to arrive at a likely growth rate of around 4·5 per cent. But which, if either, of those measures is correct makes a great deal of difference to judgments about whether GDP growth is unsustainably high.
Growth of over 6 per cent. is almost certainly more than the economy can sustain, but 2·5 per cent. is just as certainly not unsustainable. It is a serious situation when the difference between those two measures for the current year is almost equal to the total growth of GDP during the period of the previous Labour Government.
On the other hand, the measurement of inflation is perhaps subject to less uncertainty than the other statistics, particularly if the short-term distortions created by changes in mortgage interest rates are stripped out. For example, inflation as measured by the GDP deflator has proved stubbornly stable at between 4·5 and 5·5 per cent. between 1983 and 1987, as my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made clear, showing that perhaps rather too little attention has been paid to the measures necessary to exert that steady downward pressure on inflation which is claimed by my right hon. Friend the Chancellor to be the cornerstone of his policy.
It can be said that statistics do not matter. The chief economic adviser refuted my suggestion that great policy decisions were taken on the basis of rather unreliable statistics. My right hon. Friend the Chancellor has made it clear that he places little reliance on statistics. To an extent, that is comforting and reassuring, given the deplorable and unreliable state of those statistics. But there are others who operate in the financial markets at home and abroad who take the official statistics rather more seriously than Ministers do. Confidence in sterling and in the performance of the economy can be seriously undermined by false signals from official economic statistics.
Furthermore, statistics have some direct influence on Minister's decisions in the management of the economy. When I asked my right hon. Friend the Chancellor whether his fiscal judgment would have been different if the information available to him at the time of the Budget had given him a rather more accurate reflection of the likely growth of GDP, he replied that his fiscal judgment would have remained the same, but:
"Had I had the greater knowledge which you posit, then what we would have had is a tighter monetary policy, a tighter monetary stance, and indeed a tighter monetary stance at an earlier date, even before the Budget."
I interpret that as meaning that if official statistics had shown my right hon. Friend how strongly GDP was growing last spring and summer we would not have seen reductions in interest rates during the summer to the low point of 7·5 per cent. Without that unnecessary and perverse relaxation of monetary policy, we might have avoided the need for interest rates to go as high as the current level of 13 per cent. That provides an additional

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and powerful reason for the Government to give a rather higher priority to improving the quality of the official statistics, as we urged in our report that they should.
My right hon. Friend the Chancellor has explained that interest rates are the most effective short-term economic regulator and that fiscal policy should be set to achieve longer-term objectives. In that he is right. He should not be deflected from his policy of continuing to reduce the burden of direct taxation and of moving towards a reduction in the standard rate of income tax from 25p to 20p in the pound. Clearly, the public finances would enable him to achieve that in this year's Budget and still achieve a substantial Budget surplus, but my right hon. Friend's policy has always been to make further reductions in the standard rate when it is prudent to do so. With the continuing and unexpectedly strong performance of the economy, it clearly needs no further stimulus now. So I do not urge my right hon. Friend to make further reductions in the rates of income tax this year.
However, as my right hon. Friend the Member for Worthing (Mr. Higgins) pointed out, if the Chancellor made no changes in income tax there would be a significant and automatic tightening of an already tight fiscal stance. So there should be scope for over-indexation of personal allowances. The opportunity should be taken, as my hon. Friend the Member for Gedling (Mr. Mitchell) suggested, to remove more people on low incomes from the tax net to increase the advantages of taking employment as against drawing benefit.
These measures aside, I believe that most of our constituents would prefer further improvement in their disposable income by means of prudent reductions in interest rates when conditions permit rather than through reductions in income tax in the immediate future. Those reductions can wait to be enjoyed in future years.
The last Labour Government would have loved to face the problems arising from over-rapid economic growth that this Government face. That Labour Government faced the problems of economic failure and decline. The Government now face the problems that come from economic success. The strength of the economy and of the public finances ensure that the problems of the inflation blip and the increased import bill can be ridden out. The Labour party must face up to the fact that we shall be able to hit the target of a 20p standard rate of income tax before the next general election, after which that party will still be in opposition.
8.44 pm
Mr. Pat Wall: At the end of November the Chancellor said that the economy was fundamentally very strong. According to The Sunday Times, he went on to say that the rise in interest rates this year would ensure that that continued. Yet a recent MORI poll showed that economic optimism has plunged to a record seven-year low. The last time economic opinion was so pessimistic was in the autumn of 1981. That was a significant date because it marked the depths of the recession of 1979–81, when 20 per cent. of British industry was wasted.
These are two rather different pictures drawn by people who stand in many ways on the same footing. They all use the same statistics and examine the same economic trends.
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They all support a demand-led, free enterprise, capitalist economy. In the coming months we shall see which of their forecasts is correct.
One of the more entertaining aspects of the recent economic debates has been the conflict between the Chancellor and his Treasury team and former members of Conservative Treasury teams, including an ex-Prime Minister. The Chancellor has painted a vivid picture of a booming economy and rising living standards. He has gone further and said that this is an unprecedented boom in our post-war history—a "first time ever".
I hesitate to involve myself in the argument on the Conservative Benches, but it is reasonable to compare this Chancellor's statistics with those of some of his Conservative predecessors. At the height of Reginald Maudling's boom from 1963 to 1964 there was an 11 per cent. growth of the gross domestic product over a two-year period, with an inflation rate of about 2 per cent. At the height of the Barber boom from 1973 to 1974, a 10 per cent. increase in GDP was achieved, with an inflation rate of 4·5 per cent. This Chancellor has equalled Maudling's record on the GDP, but achieved only half the rate of growth in the Barber boom—yet inflation has risen to 6·4 per cent.
The Chancellor speaks of an overheated economy. What does that mean? It means that manufacturing industry, which he says is leaner and fitter, is incapable of meeting the demand that has resulted from the consumer-led boom. The reason why industry cannot meet the demand is the lack of investment during the time of this Government. Investment has only just passed the level at which it stood in 1979. In the third quarter of last year manufacturing employment fell by another 18,000.
It is true that output per head has risen by 50 per cent. since 1975, but it has risen from a very low level. According to a Labour research survey, productivity in British industry remained, in 1986, 30 per cent. lower than in American industry and 25 per cent. lower than in European industry. In the three months to October 1988, imports rose by 14 per cent. and exports by only 0·5 per cent.
The high cost of borrowing, with nine increases in interest rates since the Budget, will slow down the rate of investment in manufacturing industry and the rate of productivity increases. The over-valued pound will price British goods out of world markets and attract imports on an ever-increasing scale. My hon. Friend the Member for Workington (Mr. Campbell-Savours) was right. Even the increases in productivity have been achieved by the threat of unemployment, by the managerial counter-revolution, by greater exploitation of working people and by attacks on the rights of working people to organise in trade unions. In the next few months there will be rising unemployment, stagnation of the economy and rising inflation, much of it Government-inspired.
We should not forget that the threat of a world trade war has not receded. The row over American meat treated with hormones may be, to mix a metaphor, over peanuts in terms of world trade: it involves about $100 million on each side. That argument may be resolved, but it is a portent for the future. I repeat a point I have made before: America imports 30 per cent. of the rest of the world's exports and exports only 6 per cent. of its own production. Britain and West Germany export one third of all they make, and some European countries export 50 per cent. of what they produce. Given those figures, Europe cannot

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win any protracted trade war with America—certainly not Britain, whose economy is under-productive, under-skilled, under-researched, under-trained and not provided with enough investment.
The process has been hidden by the £70 billion of oil revenue, but oil is a finite resource and revenue is declining as world oil prices continue to fall. The process has also been hidden by the billions of pounds that have been taken as a result of this Government's privatisation policies, but most of the family silver has been sold off. Unless the Government can devise methods to privatise the air that we breathe or the pavements on which we walk, those options are fast disappearing. We face a period of stagflation. If a trade war were to break out, it would lead to a recession and a slump.
As for the social cost of the Government's programme, the Chancellor says that this first-time-ever boom has led to unparalleled increases in income. But that does not apply to everybody, because 9 million workers receive wages that are lower than the EEC's decency threshold. For the first time in 600 years, shipbuilding is to come to an end on the River Wear, and during the next few months 50,000 jobs are to go in the City of London. Moreover, 3,000 textile jobs have gone in the east midlands, and thousands more in Lancashire and my own west Yorkshire.
The Chancellor had the nerve today to talk about mortgages. The fact is that 8·5 million people are having to pay more now, while the 3 million people whose mortgages are reviewed annually will face a savage increase of up to 25 per cent., in many cases, during the next few weeks. No doubt the notice will be accompanied by a "happy new year" card from the Treasury Bench. House prices are rising four times faster than people's incomes. The building societies admit that there were 23,000 repossessions last year, although there were only 2,500 in 1979. Where will the people who are made homeless go? According to Shelter, there are already 1 million homeless people. Only 29,000 council houses are to be built this year, although as recently as 1975 the figure was 174,000.
The Government talk about the growth of share ownership and democracy, but a survey conducted by The Times of the top 1,000 companies showed that the top 25 companies own 37·3 per cent. of the turnover and 53·6 per cent. of the capital assets, that the top 200 companies dispose of 78·1 per cent. of turnover and own 90·9 per cent. of the capital assets and that the top 1,000 companies are owned by 0·1 per cent. of the population. If their families are taken into account, that is less than 1 per cent. of the population. Those are the people whom this Government represent. They are not concerned about the welfare of the great mass of the British people.
When the many poor people who have given up political views face the onslaught, I believe that they will come to realise that politics is important to them and that many middle-class families who are hit by mortgage increases will change their politics and realise that a change of Government is needed. The Government's alternatives are either a demand-led economy or a bureaucratically-dominated economy. I believe in Socialist planning which can be controlled by democratic means. That will bring real benefits to the people of this country.
8.53 pm
Mr. John Redwood: The hon. Member for Dunfermline, East (Mr. Brown) owns a most useful distorting mirror. He portrays a world in decline and despondency, whereas all about us there is manifold evidence of growth in prosperity, capital investment, and the like. His mirror extends to distorting the statements of Conservative Members. He claimed that at the time of the major slump in world stock markets in 1987 my advice was to increase the public sector borrowing requirement.
I remember clearly the television encounter to which he referred. My advice was that growth should continue and that the Government should continue with their policy of a balanced budget, but that they should make the banking system more liquid to see us through the temporary crisis. I do not regret giving that advice. I think that it was correct. However, it has been distorted by the hazy memory of the hon. Member for Dunfermline, East.
More serious is the hon. Gentleman's view of the world when he looks at figures. He told us that public investment is falling and is in a bad way. He did so by ignoring investment in public corporations, which usefully leaves out, for example, the major investment increases in the railway network that were announced recently. His figures relating to total investment are incomprehensible. Perhaps they do not exist.
I, together with several of my hon. Friends, have asked him to make available the figures which he says show that total investment in our economy is lower now than it was during the 1970s. That is almost impossible to believe, but I look forward to the hon. Gentleman providing us with his sources so that they can be compared with the official statistics, which on this occasion I think are more reliable than they are in some other areas.
The Government are right to have taken action over interest rates. I hope that they will continue their downward pressure on the natural growth of public spending. I am delighted to see that my right hon. Friend the Chief Secretary is here. When he prepares the next autumn round of public spending, I hope that he will recognise the need for further increases in health and transport expenditure, which I am sure will be necessary. However, I hope that at the same time he will identify the many areas in which further reductions, or some reductions, can be effected.
With the development of regional growth and the return of prosperity to many towns, the huge regional transfers—called rate support grant—should be reexamined, and some of them reduced. My right hon. Friend should look again at the Scottish programme. Scotland is over-endowed with public spending, relative to its population and its new-found prosperity. He should look again at the interest burden as public sector debt begins to be repaid. That programme could be squeezed quite nicely, making space for other more desirable ends.
I hope that my right hon. Friend will also look at Europe where there has been a singularly large increase for the current year—a 100 per cent. rise forecast for 1989–90 compared with 1988–89. We cannot afford increases of that scale for that type of spending. We need to ensure that it does not happen again.
In order to enjoy the benefits of the large public sector surplus that the Government have engineered, it is also important to guarantee that currency intervention does not get out of hand. It is a sad fact that last year an

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excellent £3·6 billion surplus still required the borrowing of some £7 billion from the gilt-edged market to offset the impact of intervention through the foreign exchanges. That was the right decision from the monetary point of view, but I hope that the policy will be simpler to understand this year and that a large public sector surplus will be reflected in a major repayment of gilt-edged securities and public sector debt. That would be something of which the Government could rightly be proud. It is impossible to combine that policy with joining the EMS as a full member, but I should prefer financial prudence and debt repayment to membership of the EMS.
Personal savings have rightly worried many hon. Members who have taken part in the debate. There is a story to be told about the figures, in exactly the same way as my hon. Friend the Member for Slough (Mr. Watts) dealt admirably with the figures relating to the balance of trade and GNP. The figures, as compiled by the Central Statistical Office, are the result of subtracting consumers' expenditure from personal disposable income. The CSO pointed out in its advice note to editors that these are two very large figures and that a small error in either of them can cause a very large error in the savings ratio, as computed.
The figures in the other personal income category in the second and third quarters show quite a sizeable decline. I do not know whether they represent a realistic assessment of what was happening or whether those figures are subject to revision. Because my right hon. Friend took the right action on interest rates, we shall see, beginning in the fourth quarter of 1988, and much more strongly in the first quarter of 1989, a sharp improvement in the savings ratio, because borrowing is clearly reducing in volume and that will come through in the balance between personal disposable income and consumer expenditure if the figures are to be relied on at all.
Looking forward to the Budget as I do, because the Government are in such a strong position with their surplus, I do not consider that there is any need to make dramatic gestures to reduce income tax. Let us not forget just how strong the position is. If the Government decided to produce what until two years ago would have seemed almost inconceivably prudent—a Budget with no borrowing and no surplus—the standard rate of income tax could be set at around 17p or 18p in the pound. That would be below the current rate and below the target set by the Government to reach a rate of 20p in the pound during this Parliament.
I hope that the Government will take a small step on the way to 20p in the pound in the coming Budget and will continue to run a very tight fiscal policy for the ensuing year. I hope that people will become aware that there is enormous scope and that perhaps in the medium term we should think of a standard rate of income tax not of 20p in the pound but perhaps 15p in the pound which would be ideal to produce incentives and an impact on lower earnings. That will be eminently achievable if the downward pressure on public expenditure is maintained and if the growth rate of the economy remains reasonable despite the higher interest rate.
The important policy is to time the decline in interest rates properly. It is too soon to forecast when it may be possible to lower interest rates again, but there is no need
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whatsoever to raise them. They can remain at the present level for a while where they will have a great impact on borrowing levels and savings, and in due course it will become apparent when is the right moment to reduce them and people will benefit from the relief on their mortgages.
Finally, I am glad that the Labour Whips have been able to keep a few Opposition Members in the Chamber and find the occasional hon. Member to sit on the Front Bench, but until the hon. Member for Berwick-upon-Tweed (Mr. Beith) returned to the Social and Liberal Democrat Bench no one from that party was present throughout most of the debate. When one gets to the point where one is not interested in public spending or taxation, one is tired of politics. The SLD Bench has been empty for most of the time that I have been present in the Chamber.
9.1 pm
Mr. John Battle: The right hon. Member for Tonbridge and Mailing (Sir J. Stanley) made a powerful call for Government aid in support of the poor of the Third world. I whole-heartedly endorse and support that and I was glad to hear his speech. However, the Government's economic strategy had done little for the poor in Britain who represent a significant minority—28 per cent. of the population have not participated in the much-vaunted prosperity of our country.
The Chancellor opened the debate in the same spirit of complacent optimism with which he presented the Autumn Statement. His tone was that of the "winner takes all" gamester—the Chancellor as conqueror. Last autumn he presented to the House his White Paper on public expenditure. In the same speech he managed to represent public expenditure as going up, going down and remaining unchanged. Of course each of those positions serves different functions and is geared for different markets. Today it served his interest—as he goes through a rough patch—to emphasise that public expenditure is unchanged. He said that the totals are on target and that the Government are sticking to planning targets. He now suggests that he is an accurate forecaster and that he has got the forecast right.
In order to appease the National Health Service supporters that remain on the Government Benches, the right hon. Gentleman had to assure us last time that health expenditure was going up. Today, no doubt to appease the transport lobby in the Conservative party, he slipped in a reference to the fact that public expenditure on roads is going up. However, he did not point to the downside in public expenditure. He did not highlight the housing cuts, which, taking into account the Government's clawback from receipts on council house sales, mean a cash cut for housing in Britain of £550 million in real terms, when more than 128,000 households in Britain were officially recognised and registered as homeless in 1987. That is in the face of the admission of the Housing Minister on the radio this morning that there are 350 mortgage repossessions a week.
The Chancellor's statement is all things to all people, but it leaves out the homeless. They are not the only exception. There is no hope for the unemployed, either. The Chancellor claims that unemployment fell by 1 million in the past two and a half years, yet the Government's own figures show that only 50,000 full-time jobs were created in that period. That points to the development of a part-time,

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temporary, low-wage economy. Earlier this week, we saw two further measures presented to reinforce the establishment of a low-wage economy—the Social Security Bill and the Employment Bill.
Another aspect of public expenditure is the £1 billion reduction in the social security budget. The Chancellor may claim that expenditure is down because of a fall in unemployment and that it has nothing to do with creative accounting and the 28 changes since 1979 in the method of calculating the number of unemployed people. He may claim that it has nothing to do with proposals in recent Bills which will force eligible people out of benefit altogether, to save the Government a further £100 million. He will say that it has nothing to do with the savings that the Government achieved through freezing child benefit for the past two years and from real reductions in savings in respect of other benefits.
There is a myth of steadily rising living standards for everybody, but prosperity in Britain is not shared by all. It is not shared by the homeless or the unemployed. It is not shared by the 9·4 million people—40 per cent. of the work force—in low-paid jobs, earning less than the Council of Europe's decency threshold. It is striking that even those on average wages have not benefited from the Chancellor's economic strategy.
The Government are addicted to computation by averages. They are still trying to peddle the potent myth of the average wage. I sometimes get the impression that Conservative Members believe that the average wage is the national minimum—that everyone is on £254 a week. Many people understand that the majority of people in Britain earn far less than that average. They must live in the real world, on much less. Even those on that average wage pay more in tax now than they did under the last Labour Government.
Recently, a question was put to the Financial Secretary by the hon. Member for Hornchurch (Mr. Squire). The tables given in reply showed the total tax paid by a single man on average earnings of £254 a week. That total includes income tax, national insurance, and estimates of VAT and domestic rates. I would add that national insurance contributions and domestic rates are not optional; one cannot choose whether to pay them. The single man's total taxes amounted to 45·5 per cent. in 1978–79, and they will be 45·7 per cent. for the current year. For a married couple who are both working, taxes are up from 36·4 to 39·3 per cent. For a married couple with two children, they are up from 35·7 to 37·3 per cent. So much for the myth that the Government peddle of cutting taxes for all. In reality, the tax burden of the people has increased.
For all the Government's reliance on unregulated market forces, the end result of their economic policies is higher taxation for the majority, great tax handouts for the richest, higher mortgages for home buyers, and little or nothing for the poor. The Government's theory of the trickle-down economy is totally discredited. The Chancellor has yet to discover that he cannot go on pretending that the economy is like a Heineken advertisement—that the wealth at the top will filter down to the poorer parts of society. In practice, it is not happening. I am beginning to wonder whether the Chancellor really cares about that.
The right hon. Gentleman's attitude on political economy is beginning to filter through to social attitudes. People seem to believe that our society is based on what we
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can get away with and what we can get out of it. The dealing room has become the lodestone of morality in our society. Dealing room morality dominates Government policy. In practice, that means a "winner takes all" morality which is typical of the conqueror mentality. A strategy of continuing conquest which will eliminate all opposition, reduce the unemployed to statistical fiction and rub out the poor by redefining them away means that the minority—the losers in our society—will get nothing.
I remind the conquering Chancellor of a remark in a little-known and little-read play by Shakespeare which says:
"This England never did, nor never shall, lie at the proud foot of a conqueror, but when it first did help to wound itself."
9.10 pm
Mr. Stuart Holland: First, I should like to address the question of statistics. I shall return to it a little later in relation to the excellent observations of the Select Committee.
The hon. Member for Wokingham (Mr. Redwood) raised the question and, had he been here, I would have told him that the figures given by my hon. Friend the Member for Dunfermline, East (Mr. Brown) are corroborated. For example, on the basis of European Community data given by the Government, averaged out for the period from 1974 to 1979, gross fixed investment as a percentage of GDP was 19·3 per cent. From 1980 to 1984 it was 16·8 per cent. and from 1985 to 1989 it has risen a little to 17·9 per cent. but is lower than it was under the previous Labour Government.
My hon. Friend the Member for Dunfermline, East, who is always careful about such matters, obtained an independent valuation of the figures from the House of Commons statistical section which effectively confirms the same. I shall not detain the House with the figures in detail, but in 1979 gross domestic fixed capital formation amounted to 18·7 per cent. of GDP. It never achieved that level in the subsequent years under the Conservative Government. In 1987, the last year for which we have definitive figures, it was only 17·1 per cent. Therefore, my hon. Friend's figures were justified.
The Autumn Statement has been a missed opportunity for public expenditure and investment. The public spending figures show that there will be cuts in housing, environment, trade and industry, employment and energy. In real terms, there will be cuts of £400 million in the budgets of the Departments of Trade and Industry and Energy, £300 million in the Department of Employment, £400 million in housing and £100 million in environmental services. One wonders how genuine the Prime Minister's conversion to environmental issues will prove to be. There will be a cut of £200 million in the Scottish budget and a standstill for Wales and Northern Ireland.
That is only the current picture, a snapshot of what is happening now. The cuts are compounded by the neglect in public investment that has occurred under the Government. General Government expenditure has fallen by 40 per cent. in net terms since 1979 and will fall a further 6 per cent. during the next three years. Failure to invest in a public housing programme means that in 1987 almost 130,000 households in Britain—370,000 people—were officially recognised as homeless. That is twice the number declared homeless in 1979, and the figure is getting worse.

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That is an example which relates to my constituency of Vauxhall, which lies over the river from the House, where the problem of homelessness is shocking.
None of this is new because we have known for a long time that, as opposed to the care to achieve consensus—the hallmark of previous Conservative Administrations ever since Disraeli—this Government have been uncaring in their economic policy ever since they came into office and the most callous and uncaring of any Government since the war. That is not new, but the way in which the Government have been trying to run their economic policy since 1986 is. We know that they have failed to sustain their original targets and instruments for managing the economy. I well remember that when the Chancellor's predecessor took office in 1979 he said:
"It is crucially important to re-establish sound money. We intend to achieve this through firm monetary discipline and fiscal policies consistent with that, including strict control over public expenditure."
In a statement to the Treasury and Civil Service Select Committee he said:
"Any suggestion of a reversal would take us into horrendous areas of outer space so to speak."
I welcome the Chief Secretary to the Treasury and the Chancellor to outer space, because in effect that is where they are in terms of their overall management of the economy.
The Government tried for a while to adjust the figures to the facts. During an earlier phase, the Chancellor—Lawson mark 1—shuffled his monetary targets and adjusted the figures so often that had he been playing cards he would have been thrown out of any self-respecting casino. He shrank his targets from the broader M3 to the much narrow M0 in a way that did not convince anybody outside the House, certainly not in the square mile of the City of London.
By the autumn of 1986, the Chancellor had reverted to demand expansion with a pre-election mini-boom, and from his spring Budget of 1987 onwards he has confirmed that by reducing the basic tax rate. The irony is that the Chancellor is supposed to be economically literate. I am sorry that he is not present because for some reason during the debate he chose to claim that Labour Members were economically illiterate. I taught economics for at least 10 years and had many a better economics undergraduate student than him. He wrote about economics as a journalist, but it does not seem to have done him much good.
Even the Chancellor should know that what he has been engaged on since 1986 is not monetary policy, despite all the talk of sound financial discipline. In practice, although he dare not say its name, the post-1986 boom has been a demand-led classic boom. Such a boom was derided by Conservative Members for many years as a Keynesian boom. In an article next week, Professor Meghnad Desai of the London School of Economics reflects on the irony that since the autumn of 1986 the Government have run an economic policy that closely followed what the shadow Cabinet was proposing, but with a difference, because in practice, for all the rhetoric of the supply side of the economy, they have not intervened in supply and ensured the most basic equivalence of a supply response to match demand response. The result is a horrendous balance of payments deficit.
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It is not surprising that the Chancellor should not be advertising these facts. Hilaire Belloc could have warned him
"And always keep a hold of Nurse
For fear of finding something worse."
In this case, nurse does not like John Maynard Keynes, just as she does not like the international variants pursued by the Chancellor either in the form of managed floating of currencies or in his penchant to get everything over with by joining the European monetary system. Again, the irony is not merely that the Chancellor is a closet Keynesian; he is an incompetent Keynesian. It is one thing not to read John Maynard Keynes and to dismiss him, as I assume is the case for the Prime Minister, but if the Chancellor claims to be economically literate, he should have been able to do better than he has.
He should also have been concerned about the congratulations he received from the Tory press until May last year, because there is one certain statistical correlation. Every time the Tory press congratulates a Chancellor of the Exchequer—since Reginald Maudling in the 1950s—it has seen only the upswing in the cycle and has been taken for a ride. In every case, the result has been a massive balance of payments deficit. The trade deficit for 1988 is the worst in recorded history.
The situation is highlighted by considering the non-oil visible imbalance, which in 1987 was nearly £15 billion. For 1988, it may be up to £20 billion. That reflects, of course, structural factors in the economy that the Government simply have not addressed, although other nations have addressed them by pursuing an industrial strategy. The Chancellor should, once he abandoned the medium-term financial strategy, have realised the real implications of the supply side and should have concerned himself with encouraging Ministers and the Department of Trade and Industry and even, if there is still something called collective responsibility in the Cabinet, with seeking to persuade the Prime Minister that when every other country plans its investment and its medium-term trade strategy—whether European economies or Japan, with the only exception being the United States, which is hardly an example to us all with its trade deficit—this country too should be intervening on the supply side and should be planning.
Another of the Chancellor's problems is that he has stripped the policy armoury of the main Keynesian instruments. He may want to join the European monetary system and obtain gains in stability, but he is not ready to appear to adopt a policy of devaluation. That is ironic because in the 1960s, which I remember because I was in the Cabinet Office, the pressure on the pound was such that civil servants and Peter Jay, who virtually got himself sacked from the Treasury for it, scarcely dared to mention, not a four-letter word, but the word "devaluation". We understand that a similar policy is being pursued now inside the Treasury.
The message going round is that devaluation will not be referred to. I wonder why. It cannot be for trade reasons. We cannot assume that the Government have been so persuaded by some of the arguments on the multinational structure of trade that they too now have reservations about devaluation. It does not seem to be that. The reason is that the situation is so precarious at the moment, as the Chancellor and the Government know, that they simply will not allow the word to be used.

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I know of the devices adopted by people in the 1960s. I remember people talking about the real need for a double dose, although it was not specified what that was. In the 1960s, some Government economic advisers had an advantage over Terry Burns. Lords Kaldor and Balogh, as they later became, simply picked up the telephone and talked about the matter in Hungarian. Terry Burns no doubt worked out his own devices for trying to discuss devaluation without doing a cloak-and-dagger act in St. James's park.
Why are the Government so concerned to avoid a discussion about the exchange rate? The reason why the pound is relatively strong today is that it is buoyed up by interest rates that are higher than any of those of our leading competitors, and also because the dollar is relatively strong. As the dollar weakens, the pressure on the pound will become considerable. The Chancellor is standing by because he knows that he may well be forced by world pressures into the realignment of the pound.
Sir Peter Hordern: The hon. Gentleman said that the balance of payments deficit is at a record level. In nominal terms—in terms of figures—he is right, but the proportion of GDP accounted for by the balance of payments deficit is still not approaching what it was under the two previous Labour Governments, and the hon. Gentleman does not take into account the enormous public sector deficit that occurred under previous Labour Governments, which forced them to appeal to the International Monetary Fund for rescue. That is the difference between the present situation and the one for which the hon. Gentleman and his party were responsible.
Mr. Holland: The hon. Member for Horsham (Sir P. Hordern) has missed the fact that there is another difference. In the 1970s, sterling was a key reserve currency. We had a relatively fixed exchange rate system but the devaluation of the dollar in 1971 put tremendous pressure on the pound. I am not saying that I would have acted in precisely the same way as some of my former colleagues, but the pressure was exceptional. Furthermore, this Government have never had to face anything equivalent to the increases in oil prices that occurred in September 1973. Every OECD Government slowed down the international economy at that time, and with horrendous consequences. Instead of adjusting the steering or changing down, most of them slammed on the brakes.
The hon. Member for Horsham, knows—perhaps even the Chancellor knows—that one country's imports are another country's exports, and that the result was the contraction of mutual OECD trade. This Government have not had to face such problems. [Interruption.] Conservative Members should know by now that I am quite happy to take them on, but if they wish to intervene, why do they not get to their feet?
The Economic Secretary to the Treasury (Mr. Peter Lilley): Will the hon. Gentleman explain why, if the Labour Government alone among Governments of industrial countries got their economic policy right between 1973 and 1976, they were the only Government who had to call in the IMF?
Mr. Holland: I did not claim that; I wish the hon. Gentleman would listen to what I am saying. Sterling was,
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and still is, a key reserve currency and the pressure placed on the pound by the devaluation of the dollar in 1971 was exceptional.
The Chancellor will not touch any controls other than that represented by interest rate policy. The Opposition cannot see how that will be effective in sustaining recovery in the economy as a whole. One thing is quite clear, and that is that the self-financing of big business means that it will not be as deeply affected by higher interest rate charges as small firms will be. The interest rate increases will not be the euthenasia of the rentier but they will wipe out many small and medium-sized firms, as Conservative Members well know.
The Chancellor appears to need no persuading that there is an economic miracle. The shine may have slipped off his smile somewhat, but it beggars the imagination to claim that there is an economic miracle when we have a most horrendous balance of payments problem and when there is a structural crisis in the long-term manufacturing trade performance of this country.
Mr. Brazier: If there is such a structural crisis in our manufacturing performance, why has it improved so quickly in the past 12 months?
Mr. Holland: The balance of payments crisis is a very long-term problem. It certainly goes back to the 1970s, but it is very little affected by macroeconomic policies and demand management. We simply have not invested enough. Certainly in the decade during which the Government have been in power there has not been sufficient long-term, technology-embodying investment to improve our competitiveness vis-a-vis other countries in Europe and vis-a-vis Japan. The hon. Gentleman should know that. The so-called recovery of manufacturing investment lauded by Conservative Members is simply a recovery from the depths to which the Government had allowed the economy to sink by 1981. We are still hardly back to the manufacturing output level that we had reached in 1979.
Of course, the Chancellor is not confident of sustaining his miracle. He might be praying for his miracle. I am not sure of his fiscal stance on this. It appears that his fiscal stance—with interest rates where they are—is horizontal rather than vertical, but there is certainly a problem for the Chancellor. Let us be sympathetic. The statistics which we have are a problem for the Chancellor. That was put brilliantly by Bill Martin, the adviser to the Select Committee, in the following words:
"the junk-data which these days pass for official statistics make it impossible to get anything but the most tenuous appreciation of recent economic behaviour, let alone predict its future course. Consequently, forecasters who have been collectively burnt to a crisp by economic developments this year are still in no position to write a happy ending to Britain's overheating saga."
Further on in his memorandum to the report, he says:
"Worse still, the holes in the official statistics have left forecasters with only the foggiest appreciation of why the economy accelerated."
Mr. Ian Taylor: The hon. Gentleman appears to be getting into trouble despite his long years of experience as a lecturer. The reality is that the balance of probability is that any variables in the system will be in favour of a reduction in the outturn of the balance of payments deficit this year. Even last weekend it was pointed out that there is probably an under-recording of £4 billion on invisible exports. That puts his argument completely in threads.
Mr. Holland: I am pleased that the hon. Gentleman has brought me precisely to that point. He has helped me a great deal. One thing which is wrong with our foreign trade statistics is that we measure imports accurately, because there are duties liable on them, but the recording of exports is voluntary. There is no mandatory obligation to report figures or any penalty for not reporting them accurately. Further, the Government have no idea what is happening with the transfer pricing by the big businesses which dominate our trade.
When we were in government, we published the figures, for example, on the share of trade commanded by big business from 1971 onwards. When I came into the House in 1979, I asked the Government to continue to give that information. It shows, for example, that some 30 firms command 40 per cent. of our visible export trade, 75 firms half and 220 firms two thirds. What those companies do crucially affects our trade performance, but all those companies are multinationals and all are integrated in world markets. We saw an example in the Evening Standard today. There was a report that Ford will or will not decide to produce just one vehicle at Dagenham. Whatever is done to the exchange rate will not affect Ford's decision on that Dagenham location.
Mr. Brazier rose—
Mr. Holland: No. I have given way enough.
If the Government do not introduce some transparency not only on figures concerning expenditure and output, but on the structure of supply, in future, as now, they will simply be groping in the dark with their economic policy.
Mr. Redwood: Will the hon. Gentleman give way?
Mr. Holland: No. I shall not give way any more. If I give way, it will be at the expense of the Chief Secretary.
It is double standards for the Chancellor to claim, on the one hand, that his high interest rate measures are well targeted on the south-east, because that is the area where house prices are out of line, yet, on the other, that there will be nothing wrong with the RPI if it does not include mortgage costs. To do that lays him open to the charge that the country's core rate of inflation should exclude the country's property-owning democracy.
The report from the RPI advisory committee on issues affecting the retail price code said:
"These represent tangible expenditures which most owner-occupier households need to make at some time. The households concerned think of mortgage payments as an integral part of their regular expenditure."
In a survey which that committee carried out, 80 per cent. of those consulted said that they felt that mortgage interest rates should be included as part of the RPI.
The Chancellor also knows that if he does not achieve an industrial strategy, we shall see further de-industrialisation of the economy in coming years. He may not agree, for example, with unilateral nuclear disarmament, but he should not accept for GEC and other takeovers unilateral industrial disarmament. The Government must take steps which ensure that we have a sounder economic structure on the supply side of the economy, and that can be done only by intervention, negotiation and the type of consensus on both sides of industry which the Government do not wish to achieve.
1082
If the Chancellor cannot address the issues of an alternative industrial strategy, he may shortly be looking at his employment. Perhaps the City can afford him, but the country cannot.
9.35 pm
The Chief Secretary to the Treasury (Mr. John Major): We have had a wide-ranging and occasionally baffling debate in which several hon. Members, particularly those on the Treasury and Civil Service Select Committee whose report has so well informed this debate, have made excellent and interesting contributions.
My right hon. Friend the Member for Worthing (Mr. Higgins), who ably chairs that lively assembly that I occasionally have the pleasure of appearing before, raised, as did my hon. Friend the Member for Slough, (Mr. Watts), the question of official statistics. My right hon. Friend reiterated strongly the Committee's worries about the current state of economic statistics. The Government share that anxiety, which is why last year my right hon. Friend the Chancellor of the Exchequer set up a review to examine the present arrangements for producing them and to make recommendations for improving them. That scrutiny has been completed and the Government are now considering it. As my right hon. Friend the Chancellor intimated earlier, we shall in due course publish a comprehensive report as a result of that inquiry.
In the closing remarks of his teach-in, the hon. Member for Vauxhall (Mr. Holland) was pessimistic about our prospects and painted a picture which I suspect few would recognise. In his analysis of the economy it seemed that he missed some of the ingredients that many other less learned people might conceivably think important. He omitted the fact that capital investment is growing at more than twice the rate of consumption, that private investment is at its highest level since records began—he expressly stated the contrary—that manufacturing output is at its highest ever level and growing fast, and that non-oil company profitability rose by about 10 per cent. in 1987—[Interruption.] The hon. Member for Workington (Mr. Campbell-Savours) should wait a minute as he will hear something that will interest him. Non-oil company profitability is expected to be higher in 1988 than at any time since 1960. It may be that the hon. Member for Vauxhall thought that unimportant and he is not alone in that, for the hon. Member for Dunfermline, East (Mr. Brown) also failed to mention many of those facts.
Mr. Holland: Will the Minister give way?
Mr. Major: In one moment. Neither did either hon. Member mention that unemployment has now fallen for 28 successive months. Perhaps that is because in 1986 the hon. Member for Dunfermline, East said:
"there would be no fall in unemployment",
and the hon. Member for Vauxhall only last March said:
"The reality is that unemployment will get worse."
It is now two years since the hon. Member for Dunfermline, East made his prediction and 10 months since the hon. Member for Vauxhall made his. In that time, unemployment has fallen in every month and in every region.
Mr. Holland: First, one point is missing from the catalogue given to us by the Chief Secretary and that is that the balance of trade is an imbalance. Secondly, what matters is not the profits that companies have in their

1083
pockets, but how they invest them and how competitive we are. Our productivity recovery is nothing compared with the higher levels of other countries. Thirdly, if the Government had not changed the unemployment figures 23 times, we would be more persuaded. The Chief Secretary should learn that real jobs cannot be stimulated by massaging the figures.
Mr. Major: If the hon. Gentleman intends to talk about catalogues, I shall deal with the catalogues of the hon. Member for Dunfermline, East in a few moments.
Both hon. Gentlemen, and the Labour party generally, still predict gloom with avid glee. That is the central part of everything that Labour Members say. The Labour party has been predicting a slump for a considerable number of years, although it stubbornly refuses to appear. With characteristic inhibition, the Leader of the Opposition, who is temporarily absent, predicted in 1983 a super-slump and forecast that the Government's promise of a recovery was "a mirage." The only mirage was the right hon. Gentleman's forecast of a super-slump. Since then, we have had steady growth and we are entering our seventh successive year of it.
Both the hon. Gentlemen and others raised matters to which I shall turn in a few moments, but my right hon. Friend the Chancellor promised earlier that I would deal with the public expenditure aspects of the Autumn Statement to which the hon. Member for Berwick-upon-Tweed (Mr. Beith) devoted a considerable amount of time. The House will of course have a further opportunity to discuss the spending plans in detail next month.
The most important part of the public expenditure survey to note is the fact that we have been able to hold spending for next year unchanged at the total of £167 billion. That means that we have been able to meet two separate but important objectives. The first has been to reduce overall spending as a proportion of national income, so that we can maintain a strong fiscal position and, when it is prudent to do so, reduce taxes as well, because Conservative Members believe in lower taxes.
Over the past four years, public spending has fallen, from over 46 per cent. of national income—
Mr. Leighton: Will the Minister give way?
Mr. Major: The hon. Member for Vauxhall took a considerable amount of the limited time available and, if the hon. Member for Newham, North-East (Mr. Leighton) will excuse me, I shall not give way.
Over the past four years public spending has fallen from over 46 per cent. of national income to less than 40 per cent. It is set to fall further to the lowest level since 1966 by 1991.
For the future, our plans provide for spending on programmes to grow by an average 3 per cent. in real terms over the survey period. But the reduction in the burden of debt interest means that total spending is set to grow by less than 2 per cent. a year on average in real terms. That means that we shall continue to have firm control of total public spending as well as real growth in priority services. In the total for next year, we have achieved substantial savings through the rapid fall in unemployment, which cut spending on social security benefits by £1·5 billion a year, the success of the right-to-buy scheme, which has been tremendous, and far better performance by nationalised
1084
industries. Those are the direct results of the success of specific policies and together they provide substantial savings that we can redeploy to priority services.
Those savings, together with a rigorous reassessment of priorities that we made in the public expenditure round, have meant that we are now spending money where we choose to spend it and not where circumstances dictate. That is the second objective that we have met, and it is very welcome. Let me illustrate why it is so welcome. It has made possible an unprecedented increase in resources for the National Health Service of over £2 billion next year and over £2·5 billion the year after. That will offer real service growth, as the hon. Member for Dunfermline, East, even with his perverted statistics, must know. It has enabled substantial increases for roads, the police services and the development of a modern prison system.
The science budget, mentioned by a number of hon. Members, will be over 16 per cent. higher next year. There is substantial extra investment for the water authorities to reduce both sea and river pollution, as was mentioned in the debate. In direct response to the hon. Member for Berwick-upon-Tweed, I should point out that extra investment by British Rail and London Transport will improve safety and services for passengers.
All in all, the increase in total capital spending for next year is about £2·25 billion. I cannot recall, and neither can any other hon. Members, when there was last such an increase in capital public spending in a single year. We should compare that with Labour's record on public sector capital investment. Total public sector capital investment under Labour fell by 12 per cent. in real terms. What did that mean for the services about which they claim to care? National Health Service capital spending went down by 30 per cent. in real terms. We have increased it by 40 per cent. Spending on roads fell by 40 per cent. in real terms and we have increased it by 30 per cent. We need and will accept no lectures from Opposition Members about proper capital spending and public services.
As a result of sound management, public finances are in better shape now than for a generation. For the past two years we have managed to reduce taxes, increase spending in key areas and repay the national debt on an unprecedented scale.
My hon. Friend the Member for Horsham (Sir P. Hordern) regarded the fiscal surplus as a great achievement by my right hon. Friend the Chancellor, and I agree with him. Over the past two years my right hon. Friend will have secured a net repayment equivalent to 8 per cent. of the total outstanding stock of Government debt. That means that we are the first tax-paying generation for more than 50 years to stop the growth of debt and to start repaying it, so relieving the burden that future generations would otherwise have to face.
The hon. Member for Dunfermline, East was his usual self this afternoon—lucid, forceful, agressive and a purveyor of more doubtful material than Arthur Daley. The hon. Gentleman has a way with facts that I have rarely seen equalled and he should spend tomorrow having a painful interview with his research assistant who presumably provided them.
The hon. Gentleman wriggled like a fish on a hook when challenged by my right hon. Friend the Chancellor to set out his policies on taxation and public expenditure. He repeatedly failed to give them. He left the impression with me, and I suspect with most hon. Members, that he did not respond because he had no ideas what those

1085
policies were. It would be tiresome and time-consuming to correct all the hon. Gentleman's fanciful howlers, but I will deal with some of them.
The hon. Gentleman said that inflation was at the European average when the Labour party left office. He is wrong. In May 1979 the European Community average was 8·8 per cent. and United Kingdom inflation was 10·3 per cent. He also said that inflation was on a declining trend, but it was not. It was on a sharply rising trend. In January 1979 it was 9·3 per cent., in February 9·6 per cent., in March 9·8 per cent., in April 10·1 per cent. and in May 10·3 per cent. Even the hon. Gentleman cannot say that there was a declining trend when the Labour party left office.
The hon. Gentleman also said that overall investment as a share of GDP was never lower than it is now. He is wrong again. I gloss over the fact that the figures for the current year, which has been a dramatic investment boom, are not yet available, so the hon. Gentleman cannot know the position. Even on the figures that are available, I suspect that he is wrong.
The hon. Member was also pressed to reveal his fiscal strategy and he gave a remarkable answer. He announced that he would—at one and the same time—reduce inflation, allow interest rates to fall and reduce the balance of payments deficit. In other words, he would loosen monetary policy, expand fiscal policy and expect to reduce inflation. That is an interesting trick if he can do it, but he would have to defy most of the known laws of economics to achieve it. It that is the best that the hon. Gentleman can do, I understand entirely why he failed to answer the direct questions that my right hon. Friend the Chancellor asked him.
The hon. Member for Dunfermline, East also told us that he would increase spending on training, the environment, science, the regions and technology. He did not explain how increasing that spending would help to reduce inflation. What the hon. Gentleman effectively proposed was fiscal laxity—not a fiscal strategy That is precisely what we expect from Labour spokesmen, because that is what we get from Labour Governments when we are unfortunate enough to have them.
We did learn something about the Opposition tax strategy, and very interesting it was too. The hon. Member for Dunfermline, East said that it was unfair to tax any form of saving and he specifically instanced building society investments. I assume therefore—I will give way to him if he wants to respond—that he would abolish the composite rate of tax, at a cost of around £3 billion in the short term and far more in the long term as people switch from shares into deposits. That is what the hon. Gentleman said and implied.
Some time ago, the right hon. and learned Member for Monklands, East (Mr. Smith), whom we all look forward to welcoming back, said that he was careful about making pledges, because the Conservatives added up their costs. I may tell the hon. Member for Dunfermline, East that that is exactly what I shall do, because the Opposition are racking up the cost of their programme again and again. We shall keep a very close check on what they say.
The hon. Member for Dunfermline, East dismissed a reminder that the man on average earnings is £45 per week better off now than when the last Labour Government left
1086
office. He implied that living standards automatically rise. I remind him that under the last Labour Government, real take-home pay fell by more than £1 a week for a married man on average earnings. That is the record of shame which must be compared with the increase of £45 per week that has taken place as a result of the present Government's policies.
The hon. Gentleman implied that the period at the end of the last Labour Government was a golden age, so I looked it up. To be strictly fair to the hon. Gentleman, I picked precisely today's date 10 years ago. I also picked the only newspaper that happened not to be on strike that day. I shall read the headlines to the hon. Gentleman. Under the headline "Regional 'trouble shooters'", it reports:
"The Prime Minister held back from declaring a full State of Emergency last night…Instead, the Government is setting up regional emergency committees."
Is that the hon. Gentleman's idea of regional policy? It continues:
"Apparently, they will not have the power themselves to order the use of troops."
That power at least stayed with the Government.
Other headlines include:
"Grocers may close as stocks dwindle."
and:
"Walk-out hits water supplies."
That report continues:
"Water supplies and sewerage services covering 750,000 people in central Lancashire will be hit by an unofficial strike."
On that same day 10 years ago, in that golden age, an emergency was declared in Ulster, and British Airways pilots were on strike.
However, those were not the main headlines. Those were the secondary stories. The main headline was:
"Nation on precipice, says Healey. Union spurns Cabinet plea. Lorry strike made official: food stocks 'will run out'."
That is the record of the golden age to which the hon.
Gentleman refers. Those were the policies he advocated again today, however he described them. That would be the result of those policies, and that is why the country will have nothing to do with them.
Mr. Holland: Which newspaper was that?
Mr. Major: It was The Daily Telegraph, which was the only newspaper not on strike that day, so good were the activities of the Labour party. Those were the headlines of 10 years ago.
Many right hon. and hon. Members concentrated their remarks on their concern about inflation. I can understand why, and I reiterate the Government's well-known view that the reduction of inflation is the priority to which our policy must be directed, and that it will continue to be directed at that priority in the future. The Opposition's apparent policy of lower interest rates, lower exchange rates, more public spending and more public borrowing is a lethal concoction which is bound to lead yet again to spiralling inflation.
My right hon. Friend the Chancellor of the Exchequer set out the economy's outstanding success over recent years, with growth of more than 3 per cent. per year in each of the last four years, investment rising faster than for years—and faster than consumption in six years out of the last seven. Both company profits and productivity have reached their highest levels since the 1960s.
Nor is there any doubt that supply-side reforms and the knock-on effect of the present investment boom will improve capacity and profitability in future. At present we

1087
face the particular problem of excess demand. That must and will be overcome with a strong fiscal position and a strong monetary policy to ensure that we do not jeopardise what has been achieved and our prospects for the future.
But Labour Members seem not to understand what our policy is achieving. For some years our policy has been to seek a progressive reduction in inflation together with steady and sustainable growth, and we are achieving that with the right mix of monetary and fiscal policy.
Our present fiscal position is extremely strong—a large budget surplus and no increase in planned public expenditure. Therefore, the right method to deal with excess demand is short-term interest rates. The right, most appropriate and most effective method is short-term interest rates. I have no doubt that they will work on this occasion as they have done in the past.
In the odd world in which he lives, the hon. Member for Vauxhall may not have noticed that there is an investment boom this year and every projection shows that it will continue next year.
Mr. Holland: What about small business?
Mr. Major: Every week 1,000 new firms are being registered net of those that close down. When did that happen under the previous Labour Government?
There are already signs that house price rises are being curbed, that the demand for mortgages is falling and that consumer spending is slowing down. That is what we seek and that is what we need to see in the next few months.
Despite out lack of success when pressing the Opposition earlier, we now have some clues to some of the hidden policies that they have but choose not to talk about. For example, we know that they wish to reverse higher tax cuts, because they frequently tell us so. We know that they wish to increase basic rate taxes, because they regularly vote against reductions and pledge themselves to expenditure that would raise taxes. We know that they have traditionally been proud—boastful even—to be the high-tax, high-spending, high-borrowing and high-inflation party.
Inflation during our period of office has never approached half of the average it was under the Labour Government.
Mr. Holland rose—
Mr. Major: The hon. Gentleman has already taken up far too much of the time of the House.
Mr. Holland rose—
Mr. Speaker: Order.
Mr. Major: We know too that the Opposition want credit controls because they tell us so frequently. But that is all we know, because beyond that one needs second sight to divine their policies. What policies they do have are concealed with misleading language.
Conviction has been replaced by camouflage in the Labour party's vocabulary. Nationalisation is out. That has now become social ownership, courtesy of the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). Devaluation is out. That is now called seeking a realistic exchange rate, courtesy, I think, of the hon. Member for Dagenham (Mr. Gould). Government intervention and regulation is now out in the Labour party. That is now called supply-side Socialism, courtesy of the hon. Member for Dunfermline, East.
1088
The Labour party is in hock to yesterday's ideas. They have different packages, but they have exactly the same poison in them that they always had.
The concept of supply-side Socialism is breathtaking plagiarism; another piece of yuppy camouflage by the hon. Gentlemen. It is about as realistic as horse-drawn hang gliding. The idea was first mooted by the hon. Member for Dunfermline, East, but no one has since come forward to claim credit for it. Frankly, I am not surprised, because higher taxes, more taxes and credit controls are an odd policy to encourage the supply-side. I will tell hon. Members what it is. It is a supply of Socialism, not a supply-side policy. It is also a gimmick, an idea, a jumble of words which do not add up to anything.
The Opposition claim that they want to help the poor, but they have no policy for inflation. They want to help the low paid, but they vote against tax reductions. They hope that they will get power without policy, but they Will not, because people understand the improvements in Britain. They know that the economy has been transformed and they want to keep it that way. That is why they will support the need for policies to achieve growth without inflation. The Autumn Statement is central to that and I commend it to the House.
Question put, That the amendment be made:—
The House divided: Ayes 212, Noes 276.

Division No. 32]

[10 pm

AYES

Abbott, Ms Diane

Coleman, Donald

Adams, Allen (Paisley N)

Cook, Robin (Livingston)

Allen, Graham

Corbett, Robin

Alton, David

Corbyn, Jeremy

Archer, Rt Hon Peter

Cousins, Jim

Armstrong, Hilary

Crowther, Stan

Ashdown, Rt Hon Paddy

Cryer, Bob

Ashley, Rt Hon Jack

Cummings, John

Ashton, Joe

Cunliffe, Lawrence

Banks, Tony (Newham NW)

Cunningham, Dr John

Barnes, Harry (Derbyshire NE)

Dalyell, Tam

Barnes, Mrs Rosie (Greenwich)

Darling, Alistair

Barron, Kevin

Davies, Rt Hon Denzil (Llanelli)

Battle, John

Davies, Ron (Caerphilly)

Beckett, Margaret

Dewar, Donald

Beith, A. J.

Dixon, Don

Bell, Stuart

Dobson, Frank

Benn, Rt Hon Tony

Doran, Frank

Bennett, A. F. (D'nt'n & R'dish)

Dunnachie, Jimmy

Bermingham, Gerald

Dunwoody, Hon Mrs Gwyneth

Bidwell, Sydney

Eastham, Ken

Blair, Tony

Evans, John (St Helens N)

Blunkett, David

Ewing, Harry (Falkirk E)

Boateng, Paul

Fatchett, Derek

Boyes, Roland

Faulds, Andrew

Bradley, Keith

Field, Frank (Birkenhead)

Bray, Dr Jeremy

Fields, Terry (L'pool B G'n)

Brown, Gordon (D'mline E)

Fisher, Mark

Brown, Nicholas (Newcastle E)

Flannery, Martin

Brown, Ron (Edinburgh Leith)

Flynn, Paul

Buchan, Norman

Foot, Rt Hon Michael

Buckley, George J.

Foster, Derek

Caborn, Richard

Foulkes, George

Callaghan, Jim

Fraser, John

Campbell, Menzies (Fife NE)

Fyfe, Maria

Campbell, Ron (Blyth Valley)

Galloway, George

Campbell-Savours, D. N.

Garrett, John (Norwich South)

Canavan, Dennis

Garrett, Ted (Wallsend)

Cartwright, John

Godman, Dr Norman A.

Clark, Dr David (S Shields)

Gordon, Mildred

Clarke, Tom (Monklands W)

Gould, Bryan

Clay, Bob

Grant, Bernie (Tottenham)

Clelland, David

Griffiths, Nigel (Edinburgh S)

Clwyd, Mrs Ann

Griffiths, Win (Bridgend)

Cohen, Harry

Hardy, Peter

1089

Harman, Ms Harriet

Murphy, Paul

Hattersley, Rt Hon Roy

Nellist, Dave

Heffer, Eric S.

Oakes, Rt Hon Gordon

Henderson, Doug

O'Brien, William

Hinchliffe, David

O'Neill, Martin

Hogg, N. (C'nauld & Kilsyth)

Orme, Rt Hon Stanley

Holland, Stuart

Owen, Rt Hon Dr David

Home Robertson, John

Pendry, Tom

Hood, Jimmy

Pike, Peter L.

Howells, Geraint

Powell, Ray (Ogmore)

Hoyle, Doug

Primarolo, Dawn

Hughes, John (Coventry NE)

Quin, Ms Joyce

Hughes, Robert (Aberdeen N)

Radice, Giles

Hughes, Simon (Southwark)

Redmond, Martin

Illsley, Eric

Rees, Rt Hon Merlyn

Ingram, Adam

Reid, Dr John

Janner, Greville

Richardson, Jo

Johnston, Sir Russell

Robertson, George

Jones, Barry (Alyn & Deeside)

Robinson, Geoffrey

Kaufman, Rt Hon Gerald

Rogers, Allan

Kinnock, Rt Hon Neil

Ross, Ernie (Dundee W)

Kirkwood, Archy

Rowlands, Ted

Lambie, David

Ruddock, Joan

Lamond, James

Salmond, Alex

Leadbitter, Ted

Sedgemore, Brian

Leighton, Ron

Sheerman, Barry

Lestor, Joan (Eccles)

Sheldon, Rt Hon Robert

Lewis, Terry

Shore, Rt Hon Peter

Litherland, Robert

Short, Clare

Livsey, Richard

Skinner, Dennis

Lloyd, Tony (Stretford)

Smith, Andrew (Oxford E)

Lofthouse, Geoffrey

Snape, Peter

Loyden, Eddie

Soley, Clive

McAllion, John

Spearing, Nigel

McAvoy, Thomas

Steel, Rt Hon David

McCartney, Ian

Steinberg, Gerry

Macdonald, Calum A.

Stott, Roger

McFall, John

Strang, Gavin

McKay, Allen (Barnsley West)

Straw, Jack

McKelvey, William

Taylor, Mrs Ann (Dewsbury)

McLeish, Henry

Taylor, Rt Hon J. D. (S'ford)

McNamara, Kevin

Thompson, Jack (Wansbeck)

McTaggart, Bob

Turner, Dennis

Madden, Max

Vaz, Keith

Mahon, Mrs Alice

Wall, Pat

Marek, Dr John

Wallace, James

Marshall, David (Shettleston)

Walley, Joan

Marshall, Jim (Leicester S)

Wardell, Gareth (Gower)

Martin, Michael J. (Springburn)

Wareing, Robert N.

Martlew, Eric

Welsh, Andrew (Angus E)

Maxton, John

Welsh, Michael (Doncaster N)

Meacher, Michael

Wigley, Dafydd

Meale, Alan

Williams, Rt Hon Alan

Michael, Alun

Williams, Alan W. (Carm'then)

Michie, Bill (Sheffield Heeley)

Wilson, Brian

Michie, Mrs Ray (Arg'l & Bute)

Winnick, David

Moonie, Dr Lewis

Wise, Mrs Audrey

Morgan, Rhodri

Wray, Jimmy

Morley, Elliott

Young, David (Bolton SE)

Morris, Rt Hon A. (W'shawe)

Morris, Rt Hon J. (Aberavon)

Tellers for the Ayes:

Mowlam, Marjorie

Mrs. Llin Golding and

Mullin, Chris

Mr. Frank Haynes.

NOES

Aitken, Jonathan

Bellingham, Henry

Alexander, Richard

Bendall, Vivian

Alison, Rt Hon Michael

Bennett, Nicholas (Pembroke)

Amess, David

Benyon, W.

Amos, Alan

Bevan, David Gilroy

Arbuthnot, James

Biffen, Rt Hon John

Arnold, Jacques (Gravesham)

Body, Sir Richard

Arnold, Tom (Hazel Grove)

Bonsor, Sir Nicholas

Ashby, David

Boscawen, Hon Robert

Aspinwall, Jack

Boswell, Tim

Atkins, Robert

Bottomley, Peter

Baker, Rt Hon K. (Mole Valley)

Bottomley, Mrs Virginia

Baker, Nicholas (Dorset N)

Bowden, A (Brighton K'pto'n)

Banks, Robert (Harrogate)

Bowden, Gerald (Dulwich)

Batiste, Spencer

Bowis, John

1090

Boyson, Rt Hon Dr Sir Rhodes

Grist, Ian

Brandon-Bravo, Martin

Grylls, Michael

Brazier, Julian

Gummer, Rt Hon John Selwyn

Bright, Graham

Hamilton, Hon Archie (Epsom)

Brooke, Rt Hon Peter

Hampson, Dr Keith

Browne, John (Winchester)

Hanley, Jeremy

Bruce, Ian (Dorset South)

Hannam, John

Budgen, Nicholas

Hargreaves, A. (B'ham H'll Gr')

Burns, Simon

Hargreaves, Ken (Hyndburn)

Burt, Alistair

Harris, David

Butler, Chris

Haselhurst, Alan

Butterfill, John

Hawkins, Christopher

Carlisle, John, (Luton N)

Hayhoe, Rt Hon Sir Barney

Carlisle, Kenneth (Lincoln)

Hayward, Robert

Carrington, Matthew

Heathcoat-Amory, David

Carttiss, Michael

Heddle, John

Cash, William

Hicks, Mrs Maureen (Wolv' NE)

Channon, Rt Hon Paul

Higgins, Rt Hon Terence L.

Chapman, Sydney

Hill, James

Chope, Christopher

Hind, Kenneth

Churchill, Mr

Hogg, Hon Douglas (Gr'th'm)

Clark, Hon Alan (Plym'th S'n)

Holt, Richard

Clark, Dr Michael (Rochford)

Hordern, Sir Peter

Clark, Sir W. (Croydon S)

Howard, Michael

Clarke, Rt Hon K. (Rushcliffe)

Howarth, Alan (Strat'd-on-A)

Colvin, Michael

Howarth, G. (Cannock & B'wd)

Conway, Derek

Howe, Rt Hon Sir Geoffrey

Coombs, Anthony (Wyre F'rest)

Howell, Rt Hon David (G'dford)

Coombs, Simon (Swindon)

Howell, Ralph (North Norfolk)

Cope, Rt Hon John

Hughes, Robert G. (Harrow W)

Cormack, Patrick

Hunt, David (Wirral W)

Couchman, James

Hunter, Andrew

Cran, James

Irvine, Michael

Critchley, Julian

Irving, Charles

Currie, Mrs Edwina

Jack, Michael

Curry, David

Jackson, Robert

Davies, Q. (Stamf'd & Spald'g)

Janman, Tim

Davis, David (Boothferry)

Jessel, Toby

Day, Stephen

Johnson Smith, Sir Geoffrey

Devlin, Tim

Jones, Robert B (Herts W)

Dickens, Geoffrey

Jopling, Rt Hon Michael

Dicks, Terry

Key, Robert

Dorrell, Stephen

King, Roger (B'ham N'thfield)

Douglas-Hamilton, Lord James

King, Rt Hon Tom (Bridgwater)

Dover, Den

Knapman, Roger

Dunn, Bob

Knox, David

Dykes, Hugh

Lamont, Rt Hon Norman

Eggar, Tim

Lawrence, Ivan

Evans, David (Welwyn Hatf'd)

Lawson, Rt Hon Nigel

Evennett, David

Lennox-Boyd, Hon Mark

Favell, Tony

Lester, Jim (Broxtowe)

Fenner, Dame Peggy

Lightbown, David

Field, Barry (Isle of Wight)

Lilley, Peter

Finsberg, Sir Geoffrey

Lloyd, Sir Ian (Havant)

Fishburn, John Dudley

Lloyd, Peter (Fareham)

Fookes, Dame Janet

Mackay, Andrew (E Berkshire)

Forman, Nigel

Major, Rt Hon John

Forsyth, Michael (Stirling)

Mans, Keith

Forth, Eric

Maude, Hon Francis

Fowler, Rt Hon Norman

Miller, Sir Hal

Fox, Sir Marcus

Mills, Iain

Franks, Cecil

Miscampbell, Norman

Freeman, Roger

Mitchell, Andrew (Gedling)

French, Douglas

Mitchell, Sir David

Gale, Roger

Moate, Roger

Gardiner, George

Monro, Sir Hector

Garel-Jones, Tristan

Montgomery, Sir Fergus

Gill, Christopher

Moore, Rt Hon John

Glyn, Dr Alan

Moss, Malcolm

Goodhart, Sir Philip

Moynihan, Hon Colin

Goodlad, Alastair

Mudd, David

Goodson-Wickes, Dr Charles

Neale, Gerrard

Gorst, John

Needham, Richard

Gow, Ian

Nelson, Anthony

Gower, Sir Raymond

Neubert, Michael

Grant, Sir Anthony (CambsSW)

Newton, Rt Hon Tony

Greenway, Harry (Ealing N)

Nicholls, Patrick

Greenway, John (Ryedale)

Nicholson, Emma (Devon West)

Gregory, Conal

Norris, Steve

Griffiths, Peter (Portsmouth N)

Oppenheim, Phillip

1091

Page, Richard

Stewart, Andy (Sherwood)

Paice, James

Stokes, Sir John

Patnick, Irvine

Stradling Thomas, Sir John

Patten, Chris (Bath)

Sumberg, David

Patten, John (Oxford W)

Summerson, Hugo

Pawsey, James

Tapsell, Sir Peter

Peacock, Mrs Elizabeth

Taylor, Ian (Esher)

Porter, David (Waveney)

Taylor, John M (Solihull)

Portillo, Michael

Taylor, Teddy (S'end E)

Powell, William (Corby)

Thatcher, Rt Hon Margaret

Price, Sir David

Thompson, D. (Calder Valley)

Raison, Rt Hon Timothy

Thornton, Malcolm

Redwood, John

Thurnham, Peter

Renton, Tim

Townend, John (Bridlington)

Rhodes James, Robert

Townsend, Cyril D. (B'heath)

Roberts, Wyn (Conwy)

Tracey, Richard

Roe, Mrs Marion

Tredinnick, David

Rossi, Sir Hugh

Trippier, David

Rost, Peter

Twinn, Dr Ian

Rowe, Andrew

Vaughan, Sir Gerard

Rumbold, Mrs Angela

Waddington, Rt Hon David

Ryder, Richard

Wakeham, Rt Hon John

Sackville, Hon Tom

Walker, Bill (T'side North)

Sainsbury, Hon Tim

Waller, Gary

Sayeed, Jonathan

Walters, Sir Dennis

Shaw, Sir Giles (Pudsey)

Ward, John

Shaw, Sir Michael (Scarb')

Wardle, Charles (Bexhill)

Shephard, Mrs G. (Norfolk SW)

Warren, Kenneth

Shepherd, Colin (Hereford)

Watts, John

Shepherd, Richard (Aldridge)

Wheeler, John

Shersby, Michael

Widdecombe, Ann

Sims, Roger

Wiggin, Jerry

Skeet, Sir Trevor

Wilkinson, John

Smith, Tim (Beaconsfield)

Wilshire, David

Soames, Hon Nicholas

Winterton, Mrs Ann

Speed, Keith

Winterton, Nicholas

Speller, Tony

Wolfson, Mark

Spicer, Sir Jim (Dorset W)

Wood, Timothy

Spicer, Michael (S Worcs)

Woodcock, Mike

Squire, Robin

Yeo, Tim

Stanbrook, Ivor

Young, Sir George (Acton)

Stanley, Rt Hon Sir John

Stern, Michael

Tellers for the Noes:

Stevens, Lewis

Mr. Tony Durant and

Stewart, Allan (Eastwood)

Mr. David Maclean.

Question accordingly negatived.
Main Question put and agreed to.
Resolved,
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 1st November 1988; endorses the action taken by Her Majesty's Government to ensure that inflation resumes its downward trend; welcomes the prospect of continued growth and strong investment as the basis for maintaining the trend of rising employment; and congratulates Her Majesty's Government on the continuing reduction in the share of national income pre-empted by public expenditure.

Prostitution (Streatham)
Motion made, and Question proposed, That this House do now adjourn.—[Mr. Chapman.]
10.15 pm
Sir William Shelton: Prostitution is an unpleasant matter to raise in the House. It is even more unpleasant for my constituents. Over the past few years, a plague—a pollution—has struck a part of my constituency. Certain streets have become red light areas. At night, they swarm with prostitutes. I accept that that is not unique to Streatham, although it is unique to the residents there.
I read the remarks of my hon. Friend the Member for Wolverhampton, North-East (Mrs. Hicks) during the proceedings on the Criminal Justice Bill on 20 June. She mentioned similar problems that her constituents face. I felt deep sympathy for her, and especially for her constituents. Unless one lives in the area, one cannot appreciate local residents' acute distress caused by such a plague. I ask the House to imagine what it is like every evening for one who lives there. A local resident said:
"The noise is endless as the cars screech round the roads, viewing the prostitutes as they stand on the corners. The noise of the prostitutes screaming among themselves or at their clients. The pimps and their cars; the harassment of residents as they walk down their own streets."
Then, every morning, residents must take a broom to sweep away condoms from behind garages.
The residents have mentioned cars on the roads. Last June, local inhabitants took a traffic count. On one quiet evening in one quiet residential avenue which I know well, during the rush hour, between 5 and 6 in the evening, 36 cars passed down that avenue. Between 10 and 11 that night, 127 cars passed down that avenue.
What is being done? Since April of last year, the local police have formed a vice squad. It has a sergeant and three officers. They do not have their own van at their disposal. They must call for the station van if they wish to arrest a prostitute. Nevertheless, in 1987, 239 prostitutes were arrested and prosecuted; and in 1988, 803 prostitutes were arrested and prosecuted, and 180 kerb crawlers were arrested and prosecuted.
The police send letters to the homes of those kerb crawlers whose car numbers have been taken by residents. The letter asks the reason why the car was there and who was driving it. I take this opportunity to warn all kerb crawlers that if they come to Streatham they may well be arrested and prosecuted. They may well find on their breakfast table a letter from the police asking why their car was being driven around on a certain night. What is more, at least some of the girls have been diagnosed as having AIDS, and a greater number have been diagnosed as having highly infectious hepatitis B. I say to all kerb crawlers, "Do not come to Streatham." Despite all this, the situation has not improved, so more must be done.
First, I have nothing but praise for the local police. They are doing an excellent job with the resources at their disposal. As I said, they have a vice squad of four. Tooting, which was a similar red light area in Wandsworth, up Balham hill, has a vice squad of eight—two sergeants and six policemen—with its own van. I understand that it is a matter of manpower allocation formula and that Tooting and Streatham come under different police areas. This is not a matter for the Government but for the police, but surely we should have similar strength in Streatham as in

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Tooting, where the problem has abated, perhaps due to the police. When the police in Tooting are not over-stretched, could they not co-operate across the borders so that the Tooting police could help the Streatham police?
Secondly, the maximum fine for the conviction of a prostitute is £100 but the average fine imposed last year was about £35. The police tell me that, within 90 minutes of the prostitute being taken to the police station she is out on bail and back on the street. Many of them make £400 or £500 a night. I wish that the magistrates who impose those fines understood the breakdown in law and order that those people cause in the community. There is nothing romantic about prostitutes and what they do to the lives of the residents of the areas they inhabit.
Maximum fines should be increased, if only to encourage magistrates to impose more realistic fines. I suspect that the £100 fine has remained unchanged for many years, and surely it should be increased. The argument that, if the fine were increased, it would drive the girls to ply their trade harder must be invalid. It it were true, it would apply to any thief or fraudster; one would say that they should not be fined harshly, because they would commit the same crime again. If the prostitutes are back on the job again after 90 minutes, they could not work harder anyway.
The maximum fine for a kerb crawler is £400, but the 108 who were convicted were fined an average of £100. I should like to see stiffer fines for kerb crawlers. Might it be possible to see whether those convicted of kerb crawling could be banned from driving for three months? There is no doubt that kerb crawling is a driving offence. Such people drive slowly, stopping and starting, and sounding their horns, and they do not pay attention to the road.
Thirdly, the police tell me that they can do little about prosecuting pimps with much hope of conviction because they have to prove that they are living off immoral earnings. It is not difficult to prove that a madam or a pimp is running a brothel. However, if they are minding —God help us—two or three girls on the street, it is well nigh impossible to prove. Even if the police see a girl handing money to that wretched person and they are both arrested, they will say that the pimp is the woman's banker and is merely holding the money for her until the next day. The law should be looked at.
Perhaps it might be possible to swing the balance of proof on to the man, to make him show that he came by the money honestly and that it is not from immoral earnings. I also wonder whether the Inland Revenue might look more closely at those people. They are well known to the police but cannot be convicted.
Fourthly, the Sexual Offences Act 1985 introduced by my hon. Friend the Member for Plymouth, Drake (Dame J. Fookes) is an excellent Act. The problem is that, under it, a kerb crawler commits an offence only if he solicits a woman persistently. If he is kerb crawling to pick up a prostitute, he will not have to solicit persistently. Therefore, that part of the Act is invalid and I am not sure whether any kerb crawler has been prosecuted successfully under it. I understand that no one has been in Streatham.
The reason why 108 kerb crawlers were prosecuted last year in Streatham is that the police used the second part of the Act, which says that a kerb crawler also commits an offence if he causes annoyance to other persons in the
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neighbourhood. That means that the unfortunate residents must sit behind their windows with a pencil and paper noting car number plates, and report them to the police, who then stop the car after it has been round a few times and charge the man. Surely that is not what an honest citizen should have to do to help the police to secure a conviction.
I hope that at some time in the not too distant future, advantage will be taken of a Criminal Justice Bill to modify the wording of the Act, so that kerb crawlers can be successfully prosecuted because they are soliciting, rather than because they are a nuisance to the neighbourhood. This must impose such a burden on the residents. My hon. Friend the Member for Drake told me that she did not want to include the word "persistently" but was obliged to do so in Committee, or the Bill might have fallen.
Fifthly, a good traffic management scheme is vital to control kerb crawlers. In the 1987 election, the then leader of Lambeth council descended on the area and pledged such a scheme for the residents. Some lighting has been put up, but the traffic management scheme has not been implemented. I urge Lambeth council and the residents to move as quickly as possible to implement it. I understand that at last the money will be available after April, and I hope that it is quickly put to use.
Finally, the power to send prostitutes to gaol was removed in 1982. Many people believe that that opened the floodgates to soliciting, but I should be reluctant for us to return to sending prostitutes to prison. We all feel that too many people are sent to gaol, but if the Home Office introduces electronic tagging, surely it would be a suitable option for persistent offenders. It would serve as a curfew and keep prostitutes indoors from dusk to dawn. That would be a good solution to the problem.
We must remove the burden of this problem from my constituents and those in other parts of the country. It is a great burden, which is why I have brought the subject before the House in this Adjournment debate.
10.29 pm
The Minister of State, Home Office (Mr. John Patten): It is good to have the chance to reply to the speech of my hon. Friend the Member for Streatham (Sir W. Shelton) so soon after the honour paid to him, on which the whole House congratulates him. I must also congratulate him on the persistent and assiduous way in which he has represented his constituents in trying to deal with this problem, which must be the most appalling nuisance to those of his constituents who live in the affected areas.
Undoubtedly, no one could have done more than my hon. Friend in recent months to try to ensure that the lessons from other parts of the country that may be of use in Streatham are applied there, and no one could have put more pressure on the Commissioner of Police of the Metropolis, my right hon. Friend the Home Secretary and myself to seek improvements on behalf of his constituents. He has made a highly constructive speech with a list of positive suggestions; in an Adjournment speech, one does not always hear such a constructive list of suggestions to which to reply.
Prostitutes plying for trade and clients looking for them undoubtedly create a serious nuisance for local residents; my hon. Friend and I agree wholly on that point. I also agree that local residents should not be expected to

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tolerate it. For some time, my right hon. Friend the Secretary of State and I have been trying to find ways to alleviate this most difficult problem. Prostitution will always be with us, and it is an exceptionally difficult issue with which to deal. It is often a matter of controlling it rather than eradicating it, as I am sure my hon. Friend recognises.
That is not to say that individual residents or the residents of whole streets in my hon. Friend's constituency or the constituency of our hon. Friend the Member for Wolverhampton, North-East (Mrs. Hicks), whose speech we listened to in the dying moments of the Report stage of the Criminal Justice Bill last summer, should have to put up with the problem. We must consider what the Government can do and what the police can do, in co-operation with the local community.
Mr. Toby Jessel: On the question of control, will my hon. Friend the Minister give his observations on what my hon. Friend the Member for Streatham (Sir W. Shelton) said about several prostitutes who are suffering from AIDS or HIV infection and plying their trade in Streatham? That represents a serious risk. What is the Government's view on that? Is there anything that my hon. Friend thinks can be done?
Mr. Patten: That is a matter to which my hon. Friend the Member for Streatham has drawn my attention, and I shall, of course, be drawing it to the attention of those responsible at the Department of Health. If my hon. Friend is implying that the Government should seek, as a matter of policy, to make plying for trade as a prostitute, for example, a criminal offence to a greater degree if the prostitute has AIDS, hepatitis B, gonorrhoea or syphilis, that is an appealing argument, but it raises a difficult question: there is a substantial danger of driving those with such diseases underground and out of the ambit of those who can bring them help.
The advice that we receive from the chief medical officer and others is that one should seek to identify those who have these conditions and try to obtain for them the medical help that they need. However, the matter is of deep concern and we keep it under review. I am not trying, as a Minister, to get out of giving a straight answer by saying "we shall keep it under review". We are reviewing what should he done all the time. That has dealt with one of the points raised by my hon. Friend the Member for Streatham in his litany of constructive suggestions.
My hon. Friend also mentioned the level of manpower devoted to prostitution in the Streatham division: his figures are almost identical to mine. I am advised that there is now a dedicated team of one sergeant and four constables to combat prostitution, but that may change from week to week and month to month. I was not aware of the point that was raised about the van, but I know that the Commissioner recognises the seriousness of the problem in Streatham. As the House knows, the deployment of police manpower is a matter for the Commissioner, and no doubt he will take close account of what my hon. Friend has said tonight, because Hansard's report of his speech will be drawn to his attention.
I can certainly confirm that the figures that my hon. Friend gave for arrests and prosecutions for prostitution in the Streatham division are wholly accurate. It is worth while repeating them because they show that a measure of progress has been made in the past calendar year or so.
1096
Although the problem is still severe from the point of view of my hon. Friend's constituents, the police are beginning to have some effect with their targeting strategy. Targeting is very important, and I was delighted that my hon. Friend chose to pay a warm tribute to the local police.
The number of arrests for prostitution in the Streatham division increased from 239 in 1987 to 803 in 1988 and the number of kerb crawlers prosecuted rose from 76 in 1987 to 180 in 1988. In addition, as my hon. Friend said, during 1988 the Streatham division police sent a total of 102 warning letters to motorists who were suspected of being in the area for the purpose of meeting a prostitute. That is a particularly effective way of dealing with kerb crawlers, which is being used not only in Streatham but in other parts of the country where there is a serious problem. For example, all over the west midlands the police have learnt from the kind of techniques that have been developed in Streatham and are using the method of sending rather obvious letters—to put it mildly—to kerb crawlers. The Government entirely applaud the Metropolitan police on their efforts.
There are some important points to be made about the maximum fines for soliciting and kerb crawling. Under the Street Offences Act 1959, introduced almost 30 years ago now, the maximum penalty for soliciting is £100 for a first conviction, although it is £400 for a second or subsequent conviction. That is exactly the same sum as the maximum penalty under the Sexual Offences Act 1985.
My hon. Friend has complained on his constituents' behalf about what they consider to be the low level of fines sometimes applied by the local magistracy. Magistrates are appointed from the community, and I dare say that they try to reflect as far as possible the views of the community. It is not for me or for the Government to criticise the magistracy, but it is important that the views of my hon. Friend's constituents are brought home to those who sit on the local bench. Of course, magistrates have to weigh up a number of other issues as well. The decision on the fine in each case is a matter not for my right hon. Friend the Home Secretary or me but for the courts.
There are certainly regular complaints about the low level of fines imposed by the courts, which may sometimes be due to the difficulty that they face in trying to establish whether a prostitute has the means to pay a higher fine, and courts may also be aware that high fines are likely to encourage some offenders into further offences to pay them off or result in offenders being committed to prison for the non-payment of fines. My hon. Friend is right to say that the mere act of prostitution is no longer an imprisonable offence, but non-payment of fines can and sometimes does lead to imprisonment.
The level of fines needs to be debated publicly, and I dare say that the contents of tonight's debate will be drawn to the attention of those in Streatham responsible for the criminal justice system and that those who sit on the local benches will ponder my hon. Friend's remarks. We are dealing with nuisances here. They may be dreadful nuisances, but we are not generally talking about violence—although I realise that prostitution may attract violence—or about serious dishonesty.
I should like prostitutes to be hit harder in their pockets. My right hon. Friend the Home Secretary and I are looking for better ways of achieving that, although it is very difficult. One way of driving prostitutes off the

1097
streets is police targeting. Another way is to hit them hard in the pocket when the police have brought a prosecution successfully. There are a variety of ways of doing this.
My hon. Friend also raised the interesting point of disqualification from driving as a possible sanction against kerb crawlers. That disqualification offence was thought up so that the courts could remove bad drivers from the road. It may also be used, of course—but only by the Crown courts and not by magistrates—for offenders who use motor vehicles to commit serious offences, such as armed robbery. It would be difficult to envisage presently, in any event, disqualification from driving as a penalty for kerb crawling, however much of a nuisance kerb crawlers are.
On the important issue of living off immoral earnings, I wonder whether the proposal to create an offence of receiving immoral earnings in pursuit of immoral earnings would be the answer. Some interesting proposals have been put forward by the Criminal Law Revision Committee for the repeal of the existing offence and its replacement by three offences intended to deal specifically with people who organise prostitution, which may be a better route.
After those particular points, I must tell my hon. Friend that I share his view that the persistence requirement in the 1985 Act to which he referred does indeed reduce its effectiveness. My right hon. Friend the Home Secretary feels the same. We are conducting a review of the Act in the Home Office, and we are looking at ways of strengthening it. However, it is quite clear from what my hon. Friend has said that the Streatham police, by using the second part of the provision, are being quite successful in bringing prosecutions, on which I congratulate them.
I know that some people are under the misapprehension—I should like to take this opportunity to clear that up—that kerb crawling can only happen from a motor car. Subject to the persistence requirement, it is an offence already under the 1985 Act to, as it were, kerb crawl on foot, from a bicycle or in any other manner, which again is something that I believe is not widely appreciated.
My hon. Friend was right to suggest that jail sentences for those who are prostitutes are not the answer. I had not heard before tonight of what to me is a novel and, if I may say so, exceptionally interesting suggestion—the electronic monitoring of offenders. As my hon. Friend probably knows, we are setting up this summer a pilot scheme to test the electronic tagging of offenders on remand. We shall be
1098
using it to reduce the remand population, to be put on bail. If that proves to be successful as a means of enforcing a curfew, we may look at the possibility of wider applications.
I am only speculating, but, if some future Criminal Justice Act or other legislative vehicle by some other name made electronic monitoring possible, I could see that a sentence ordered by the court to someone who was a persistent kerb crawler could involve a number of elements—for example, a fine, some community service work and also a period of six months or a year of curfew in their own homes between say, 7 o'clock at night and 7 o'clock in the morning, which I believe would meet many of my hon. Friend's needs. I am grateful to him, because I had not thought of it in the context of the persistent kerb crawler, and we shall consider that.
Prostitution will never be eliminated. Vigorous enforcement of the law, difficult though it is, will help, but, of course, it may also drive the problem from one area to another, which is what is known in the research trade—for people interested in this—as the "displacement problem". That has already happened. My hon. Friend has referred to the vigorous attacks on the prostitution problem on the Tooting side of the common, displacing perhaps to a certain extent the problem to the other side of the common in Streatham. The Tooting police are devoting considerable activities and resources in trying to deal with the problem. It is now up to the Streatham police to respond with equal vigour, which I believe they are doing.
I greatly regret the way in which the local council has dragged its feet in implementing a traffic management scheme to deal with this problem on the lines of the successful one in Tooting, which would restrict the flow of motor vehicles in the evenings. It would have wide public support. I understand that, at long last, the borough is thinking of doing something about it and that there will be a public meeting. It should have done something a long time ago, because I believe it will help greatly to improve the problem. The council should get on with it and make its own contribution to dealing with the problems on its patch. I am disappointed with the rate of action so far.
I hope that the sort of techniques and the increased police targeting in the area will bring a much happier situation to the residents of Streatham in 1989 than they experienced in 1988 or 1987. I congratulate my hon. Friend on his efforts on their behalf.
Question put and agreed to.
Adjourned accordingly at fifteen minutes to Eleven o'clock.

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  Life Sentence Review Boards
  RUC (Caution)
  RUC (Caution)