Given the pressure to speak in today's debate, I intend to impose a 10-minute limit on speeches between 7 and 9 o'clock. I express the hope that those who speak before that time do not speak for much longer than 10 minutes. Those who exceed that time will prevent their colleagues from participating in the debate.
I beg to move, at the end of the Question, to add:
But noting the economic mismanagement which has brought the worst trade deficit in British history and the highest interest rates of any major industrial country, humbly regret the way in which current policies have pushed up mortgage rates and other prices and charges and have damaged home buyers, low income families, and industry striving to improve competitiveness; further regret the proposals in the Gracious Speech for the privatisation of electricity and water which will put up prices, and are deeply concerned by the absence of any strategy for correcting the mistakes of the last Budget and improving long-term investment for building durable economic strength.
When the Chancellor of the Exchequer presented his Autumn Statement at the beginning of the month, he told us that the balance of payments deficit for the 12 months of 1988 would be £13 billion. Last Friday he had to report that for the first 10 months of the year the deficit was more than £12 billion, the worst trade deficit in British history. The right hon. Gentleman told us also at the beginning of the month that inflation would rise to 6·25 per cent. by the end of the year. By 18 November the rate had already surpassed that figure and was 6·4 per cent., the highest inflation rate in Europe with the exception of Greece. He expressed the hope at the beginning of the month that interest rates would stay at 12 per cent. Last Friday, they went to 13 per cent., making them without exception the highest rates in Europe. Interest rates in Britain are now 2·5 per cent. higher than those in America, 5 per cent. higher than those in France, 7 per cent. higher than those
in West Germany and 8·5 per cent. higher than those in Japan. According to the CBI, these interest rate rises damage the international competitiveness of our industry.
At the CBI conference a few days ago, Mr. Norman Riccard of C. & J. Clarke accused the Chancellor of the Exchequer of gambling with the economy. Mr. David Pennock of Astell Scientific accused him of killing the goose that lays the golden egg. Mr. Terence Lilley complained that the dice are too heavily loaded against British industry. Yet another delegate accused the right hon. Gentleman of strangling the economy.
All that happened before Friday's interest rate rise from 12 per cent. to 13 per cent. It is hardly surprising that, with industrial and borrowing costs up by £1,300 million since June, the CBI should report pessimism among exporters and should predict that investment, high this year, will nearly halve next year and fall to only 1·5 per cent. in the year after that.
The Chancellor of the Exchequer should know all about that. After all, the Financial Secretary to the Treasury said that high interest rates were not only
the last thing that industry wants,
they were also
damaging to economic activity in general and the financial position of companies in particular.
Those comments were made by the Financial Secretary to the Treasury in 1980. The Financial Secretary to the Treasury in 1980 is the Chancellor of the Exchequer before us today.
This Chancellor and the Government told us in the previous Gracious Speech that they would pursue policies
designed further to reduce inflation".—[Official Report, 25 June 1987; Vol. 118, c. 39.]
The policies designed to reduce inflation further have raised inflation from 4·1 per cent. then to more than 6 per cent. now. With inflation blipping at 5 per cent., then 5·5 per cent., then 5·9 per cent. and now 6·4 per cent., and with it due to blip, temporarily of course, again with the rail fare rises in January, oil and food price rises in February, prescription rises in March, rates, rents, water and poll tax rises in April, and with gas and Telecom bills still to come, that is so substantial and sustained a blip that 1989 will be the fourth year in succession when inflation is above the European average. We hear that from the Chancellor—
Will the hon. Gentleman reflect on the inconsistency of complaining about rising inflation and complaining about increased interest rates designed to bring down that inflation rate?
The first effect of rising interest rates has been to push up mortgage rates. That has fed through into the real living costs of people up and down the country.
We hear all this about inflation from the Chancellor who promised us in 1984—repeated in 1987—that he was the Chancellor with the objective of zero inflation.
May I remind the hon. Member for Dunfermline, East (Mr. Brown) of what happened in the House on 25 October, which was the last occasion when the hon. Gentleman opened a major debate for the Labour party. On that occasion he blundered so badly in his speech that after he sat down he had to go upstairs to pressurise the Official Reporters to amend Hansard so that it included words that he had not uttered in the Chamber. All the hon. Member has shown is that—[Interruption.]
On a point of order, Mr. Speaker, which affects every hon. Member. If hon. Members cannot attend debates, they rely on the Official Report to inform them. On 25 October the Official Report contained words purported to have been used by the hon. Member for Dunfermline, East which were not used by him. That fiddling of the record took place at the specific request of the hon. Member for Dunfermline, East—
Order. I know about this. I have looked into the matter and I have had a definite assurance from the Editor of Hansard that no such changes were made by the hon. Member.
Order. What the hon. Gentleman has said is quite correct. I did say that, but I subsequently looked into the matter and I had an assurance from the Editor of Hansard that no alteration was made at the specific request of the hon. Member for Dunfermline, East (Mr. Brown). It was a mistake in the Hansard reporting.
The alteration was certainly not made at the request of a Conservative Member. On referring to the tapes, we found that they recorded something different. The assurance that I seek for the protection of hon. Members who are not present here today is that no Opposition Member will seek to falsify the official record of today's debate.
On a point of order, Mr. Speaker. The hon. Member for Suffolk, South (Mr. Yeo), no doubt completing the task given to him by the Tory Whip, clearly said that my hon. Friend the Member for Dunfermline, East (Mr. Brown) sought to falsify the account. That allegation should be withdrawn, and if he will not withdraw it, he should be withdrawn.
In view of what I have said, and the assurance that I have had from the Editor of Hansard, will the hon. Member for Suffolk, South (Mr. Yeo) withdraw the allegation that the hon. Member for Dunfermline, East (Mr. Brown) asked for the record to be changed?
I am not concerned with that. What I said was that I looked into the matter at the time and I have an assurance from the Editor of Hansard that the hon. Member for Dunfermline, East did not ask for the alteration to be made. All I am asking of the hon. Member for Suffolk, South is, as a matter of honour, to withdraw his allegation against the hon. Gentleman.
I, too, have a letter from the Editor of Hansard, Mr. Speaker, apologising for the mistake that he made. [Interruption.] Since Conservative Members persist in demanding to know what the letter says, it says:
I understand that you may have been caused some embarrassment, for which I apologise. If the issue is raised, please feel entirely free to quote my assurace that the responsibility for this regrettable mishap is entirely mine.
Order. This is an important debate. There is great pressure to speak. The hon. Member for Suffolk, South has withdrawn what he said. We must get on with the debate.
Order. This is a very important debate in which the House and the country have a great interest. There is no point in raising further points of order with me about it. It has been dealt with by me and by the hon. Member for Dunfermline, East.
The House wants to challenge the Government's case on interest rates, inflation and the balance of payments deficit, and deplores the stunts of Conservative Members.
On a point of order, Mr. Speaker. We have had read to the House a letter from the Editor of Hansard in which, by his own admission, he has confirmed that the record was not an accurate account of what took place on that day. Obviously we want to get on with the debate today but I wonder whether I can call upon you, Mr. Speaker, to discuss the matter again with the Editor of Hansard so that the House may know the difference between the BBC tapes and what was reported to hon. Members in writing.
The hon. Gentleman is only wasting time. Issues of this type bring no credit upon the House. A letter from the Editor of Hansard has already been read to the House. The official record is Hansard, not the tapes.
Our case against the Chancellor is not only the clear damage that he has been doing to British industry by high interest rates; it is not only that the expectations he has raised with tax cuts in the spring he has betrayed with price and mortgage rises in the autumn; it is not only that the British people are now paying many times over for his mistakes—as consumers with price rises, as home owners, as families suffering from the freeze on child benefit and as citizens with deteriorating public services. Our case against the Chancellor is that he should have known all along that to engineer a short-term consumer boom that was not underpinned by the strength of long-term, prior and adequate investment was bound to be unsustainable and bound to end in high trade deficits, high interest rates and higher inflation, with other economies, not ours, benefiting from the increased demand in Britain.
Conservative Back Benchers ask the Chancellor whether there will be a hard or soft landing. They should be asking him why there should have to be a landing at all. Higher interest rates, higher inflation and higher deficits are not the result of international events beyond his control. He cannot blame OPEC, oil sheikhs, American Presidents or the lack of international co-operation. The higher interest rates, higher inflation and higher deficits are the direct result of mistakes made in the Treasury—mistakes for which the Chancellor has not yet had to pay but for which millions of British people are already paying dearly. When people ask nowadays what is to be done by the Government, they no longer ask which policies of the Chancellor will succeed but who will succeed the Chancellor.
What is the Prime Minister's policy in all this? What is her attitude to higher interest rates, higher inflation and the state of the pound? Her policy is to bring Professor Sir Alan Walters back to Britain. It is not surprising that Professor Walters has said that he will be taking an increasing role in the British economy. Those are his words. The increasing role he will enjoy at No. 10 will mean a decreasing role for the Chancellor at No. 11. It can hardly have escaped the Chancellor's attention that, although in the past the Prime Minister has applauded the Chancellor as wonderful, brilliant and marvellous, when she went to America and gave half a dozen major interviews, including questions on the state of the economy, she did not think it important to mention the Chancellor's brilliance or even his existence.
There is obviously quite a difference in emphasis.
So said Professor Walters, describing the disagreements between the Chancellor and the Prime Minister. He added:
Timing is, of course, another aspect of the difference.
The difference in emphasis between Professor Walters and the Chancellor is such that the Chancellor believed that close links with the deutschmark were right for Britain. Professor Walters said that that was nonsense, then said that it was "misguided" and then that it had "tragic" consequences. The Prime Minister, it appears, agrees with Professor Walters. The Chancellor thought that reducing interest rates in January was a good idea. Professor Walters and then the Prime Minister thought it was a mistake for which, as Professor Walters said, "We have to atone." Now the Chancellor has been forced to agree with Professor Walters.
The Chancellor thought that a high pound was damaging for British industry, the Prime Minister said that that was mistaken and now the Chancellor has had to
agree with Professor Walters as the pound rises. Professor Walters has left us in no doubt of what he thinks are the Chancellor's prospects. He said:
People are saying he has been there too long.
We know the people in Britain to whom Sir Alan talks. He said:
It may well be that the Chancellor is thinking of moving on.
The Chancellor may already be regretting his remarks during happier times a few years ago at a Conservative party conference, when he said that the good thing about staying at No. 11 Downing street was that there was
no trouble with the neighbours.
Any trouble will not last long, not because relations between the neighbours at No. 10 and No. 11 are always amicable, but because at the will of the Prime Minister they are always terminable. As the Chancellor will find to his cost, the Prime Minister is the one neighbour in Britain with the power of eviction.
This is the Chancellor who, earlier this year, declared the economic problem to be solved; the Chancellor who, even a few days ago during an interview with Sir Robin Day—of which the tape, fortunately, still survives—said that the British economy, under his leadership, had been transformed, that economic performance was the best in our lifetimes and that an economic miracle had been achieved.
How does the Chancellor explain that economic miracle to the family on the average wage with the standard mortgage—and there are thousands like them—who received tax cuts worth £12 in March, who are already being hit with an increase in mortgage repayments of £30 a month and who are now being told that that sacrifice is not enough and that they face additional rises of almost £10 a month? The total increase in repayments this year might add up to £40 a month, yet the Chancellor tells us that his interest rate rises have yet to bite.
What does the Chancellor say about the economic miracle to the first-time buyer, with £50 a month more in mortgage repayments on average, on top of all the other rises, and set against an average of only £7 a month in tax cuts? They will soon face rises in charges for electricity, water, rates, the telephone and gas—and all that from a Chancellor who tells us in the Gracious Speech—
The second battalions have come to assist.
The Chancellor told us in the Gracious Speech that he would bear down on prices. How will he bear down on electricity prices, water prices, rates and the poll tax?
A few days ago the Chancellor spoke about the necessity to educate his Back Benchers. It is not the Chancellor who needs to educate his Back Benchers about the realities of life; it is his Back Benchers who now need to educate the Chancellor about the living costs that people are facing, even as mortgages rise.
All we have from the Chancellor is a call for self-discipline from home owners and for wage restraint from earners. Is it not remarkable that the party that accepts no responsibility for the financial mismanagement that brought these mortgage rises was the very party which said in its 1979 manifesto—when mortgages were lower than they are now:
Mortgage rates have risen steeply because of the Government's financial mismanagement.
Why will the Government not now accept responsibility for the financial mismanagement for which they criticised the Labour Government?
Does the Prime Minister recall her promise of a fixed-rate mortgage of 9·5 per cent.? Does she recall that that promise has been fulfilled in only two months out of the 114 months that she has held office? Does the Prime Minister recall telling us that, under the Tory manifesto policies that she supported in 1974, the great advantage of the mortgage proposals was that
at last the young couple can really budget for the future knowing how much they have to spend"?
Will the Prime Minister now tell that young couple how they will budget for the future when they have had to spend 30 per cent. of their income during the first half of the year on their mortgages and will now have to spend more than 40 per cent. of their income as a result of the mistake?
We know that an engineer on an average wage and with a standard mortgage is facing a fall in living standards of about £1 a week, a teacher of about £4 a week and a shop assistant of about £5 a week. A nurse with a standard mortgage—even after her regrading—will be £1 a week worse off. Those are the economic consequences for the vast majority. That is not the whole story. The many who have gained least are suffering most; but the few who have gained most are gaining even more.
Does the Chancellor agree that, because of his top rate tax cuts and then of his interest rate rises—when the standards of living for shop assistants, teachers, nurses and engineers have started to fall—the standard of living for those lucky enough to be in the top 1 per cent. and have unearned income—the very rich—is rising from anything between 15 and 50 per cent. a year?
I can think of no comparable situation this century when the gains to a few have been so great at the expense of the burdens to be placed on the shoulders of the vast majority.
Yet the one thing that this Government should do is the one thing that they will always refuse to do. The one possible solution that would help to restore the balance in the economy, that would restore the balance between the regions and the south-east—and that would shift resources from top rate tax cuts to investment—is the one measure that the Government will not even contemplate, the withdrawal of top rate tax cuts. When the political imperatives of appeasing the Chancellor's own tiny interest group clash with the economic requirements of the nation, his own small interest group will come first every time. This is the Chancellor who is prepared to make the home owner pay with higher mortgages, prepared to make the commuter pay with deteriorating rail networks, prepared to make the consumer pay with higher prices, especially for public utilities, prepared to make the pensioner pay with lower housing benefits, prepared to make whole communities pay with the poll tax and deteriorating public services, and prepared to make students pay with new loans for their studies, but who is not prepared to make the top rate taxpayer pay his fair share. The Chancellor is prepared to use every fiscal device to maintain and discharge the historic mission of the Conservative party to the very rich.
Our case against the Chancellor is that he is the first Chancellor in history to have the unique opportunities offered by North sea oil, yet under his and his predecessor's leadership a consumer boom has been engineered in which investment has been insufficient to ensure that we have the productive capacity to meet demand. During this year, while consumption is growing as fast as it is among many of our neighbours, our industrial production even now is growing half as fast as that of Japan and the result is that imports are growing fastest of all.
There has been £120 billion from the North sea and £70 billion from North sea tax revenues. Those are resources that no Government have ever had or will ever have again for investment in the future. The real economic miracle is that, with the once-and-for-all investment opportunities that the Chancellor had, he has managed to bring us back to stop-go policies even before the oil has run out. Never before in our history have we imported so much and the balance of trade deficit been so great.
The Chancellor told us last week that the real reason for high growth this year is that investment has been rising so fast. However, the real issue is not the rate of investment in 1988, during and at the end of a boom, but the low rate of investment between 1979 and 1988. Is it not the case that not only has investment in industry as a whole already started to tail off, not only that it has been growing slower than in many of our competitor countries, such as Japan, even from a lower base—if we were investing the same share of our national income this year as other countries, such as France, we would have been investing several billion pounds more—but that the real achievement of the Chancellor for 1988 is that from investing as small a share of our national income in ourselves as Belgium, we are now investing only as big a share as Greece?
I shall tell the Chancellor why the consumer boom that he has engineered cannot be sustained. It is not because our growth rate is too high, but because the capacity of our economy is too low. The capacity of our economy is too low, because our long-term commitment to investment has been too little. Investment in this country should have been made from 1979 onwards—before the consumer boom and not at the end and after it. Even with all the figures for investment that the Chancellor will quote this afternoon, Britain is still investing less of its national income in itself in the oil rich 1980s than it ever did in the 1960s and 1970s. Even if the Chancellor had invested as big a share of our national income as France, we would have today invested £4,000 more for training and research for each worker. If we had invested as much as Germany, it would be £6,000 more per worker. If we had invested as much as Italy, it would be £7,000 more per worker. If we had invested as much as Japan, it would be £20,000 more per worker. It is that investment gap—
The hon. Gentleman says, "So what?". I shall tell the hon. Gentleman so what. So what are the skill shortages that arise from the failure to invest in education? So what is the failure to invest in research and innovation that has put us behind in high-technology industry? So what is the failure to invest in the regions that has caused us the problems that we face today?
The tragedy is that, even when the Government must admit that the private sector is not doing a proper job in research and innovation and in science and technology, even when the Secretary of State for Trade and Industry must concede that the private sector spending on research and development is a smaller proportion of our national income than is the case in other countries and is growing more slowly, and even when it is recognised elsewhere that the market will not do the job itself and public investment, co-ordination and involvement is necessary, this Government are so wedded to free market dogma that they will not bridge the science gap by investing to prepare properly for our future. [Interruption.]
I shall tell Conservative Members about the lack of investment in skills. Why is it that two thirds of firms in the south-east say that they are facing skills shortages? Why is it that 27 per cent. of firms even in the north-east are saying the same? Why is it that skill shortages are so bad that to build the Channel tunnel we have had to recruit engineers from Egypt and Hong Kong? Why is it that the skill shortage and the lack of training is so bad that British firms are considering sending apprentices to Germany for proper training? Most of all, why is it that the director general of the Training Agency, Mr. Roger Dawe, an official of this Government, only a few days ago said at a conference organised by the Institute of Personnel Management, and in advance of the training White Paper:
At every level we are towards the bottom of the training league table, whether in education, youth training, higher levels of skill training or management training"?
Does it make the Chancellor proud that we end the 1980s with a training and skills position that is well below our competitors, even after North sea oil?
Order. I repeat that this debate is of great interest not only to the House, but to the country. I ask hon. Members to give the hon. Member for Dunfermline, East a fair hearing.
What is most worrying as a result of the investment gap of more than nine years, as a result of the waste of North sea oil revenues, as a result of the privatisation proceeds that the Government have enjoyed—proceeds not only derived from industry sales, but the £22 billion they have had from the sale of land and assets—is that the gap in our science provision, in our research and education provision and in our education and skills provision is now such that that is the main reason why imports are growing so much and why we cannot compete properly in our balance of payments. What is most worrying is that that gap in our balance of payments is growing most not in the traditional industries that might be expected to be falling away, but in the new, high-technology industries, such as computers, electronics, data processing and information technology.
As we face 1992 and Europe, our trade gap with our EEC competitors has gone from a surplus to a deficit of £13 billion, rising perhaps to £15 billion—that has happened in eight years. That deficit is now becoming pronounced in chemicals, metal goods, textiles and engineering. How can we possibly compete with the high wage, high employment, high investment, high-technology economies of Europe if we do not prepare properly for the future?
The country wants to hear the debate about what is happening to families up and down the country, and what is happening to industry. This afternoon we have had a deliberate attempt to stop that debate from taking place.
There are a number of questions that the Chancellor should answer this afternoon, questions about matters that command a growing consensus within the country and even within parts of the Conservative party. First, does he agree that he cannot repeat the error of last year's Budget and that he must signal now, when it would have the maximum beneficial effect on interest rates, that the underlying problems of the economy that he has created cannot sustain a tax-cutting Budget in the spring? Secondly, does he agree that, in the policies that are needed to achieve a balanced economic development in this country, the burden should fall not on low or middle-income Britain, which is already paying a high price for the Chancellor's policies, but on those top-rate taxpayers who never needed the tax cuts in the first place?
Thirdly, will the Chancellor act directly on the inflation that he has created by abandoning his further plans in the Autumn Statement for large price rises in the water and electricity industries and in other public services for which he has a direct responsibility?
Fourthly, does the Chancellor agree that his next Budget should, above all, be a Budget for long-term investment and not one for short-term consumption? It should be a Budget for investment with policies to enhance savings and to ease credit. It should be a Budget to target investment, which is now likely to halve next year and then probably, as a result of the Chancellor's policies, to come to a stop. It should be a Budget to address the real capacity constraints in the economy, especially the skill shortages that the Government's mistakes have created. It should be a Budget to address the regional imbalances which distort our country.
Does the Chancellor agree that only with a Budget for investment will he be able to secure long-term, sustainable growth and balanced economic development without running into the very problems of over-heating and inflationary pressures that his policies have now created?
The Chancellor knows about stop-go policies. He made a reasonable living in the 1960s and 1970s castigating its ex-practitioners. He knows about boom and bust. He knows about spending sprees and about inflationary hangovers. He knows all about the cycle of overindulgence and about having to pay the bills later. Yet this Chancellor has become no less a stop-go Chancellor than Selwyn Lloyd, whom he much criticised. He has become no less a boom and bust Chancellor than Lord Barber, whom he and his friends castigated. The most serious charge of all is that he is the only stop-go Chancellor in history who has had the full investment opportunities of North sea oil, opportunities for a real supply side miracle which have been dissipated and squandered. No Chancellor has had better luck and worse judgment.
The Chancellor has claimed only one stated objective and he has chosen to use only one instrument of policy. He has had five years in which to pursue his single goal using his single instrument of policy. Even with the unique advantages available to him, he has failed. All he has done is to create tax opportunities, tailor-made for people with vast fortunes in the City. To the City, sooner or later, the Chancellor will doubtless go. He has failed the country.
We have just heard perhaps the most trivial opening speech—[Interruption.]—in any economic debate on the Queen's Speech that I have ever heard during all my time in the House.
The hon. Member for Dunfermline, East (Mr. Brown), towards the end, asked me four questions. I can answer his four questions with a single answer—there will be no change of policy. [Interruption.] All we had—
We had a speech composed of tittle-tattle and economic illiteracy in equal parts. There was not a hint of any positive policy proposal from the other side, not one—not even after their recent deliberations in a SOGAT convalescent home in Rottingdean. Is the hon. Member for Dunfermline, East not aware that living standards in this country are higher than they have ever been before? Is he not aware of that?
As for investment—the hon. Gentleman took a lot of time over investment, so perhaps he and hon. Members opposite will listen to this. I know that they do not like hearing the truth and I know that it is very painful for them, but I hope that they will listen to this. [Interruption.]
The hon. Member for Dunfermline, East went on at some length about investment. Is he not aware that while Labour were in government public sector investment—to which they attach particular importance—was slashed by 12 per cent. in real terms and total investment, during the whole of their period of office, rose by a princely 1·4 per cent.? That was their record. He asked me about our record during the whole of the period since 1979, so I shall give him that. During the whole of that period since 1979, total investment in this country has risen by 36 per cent. in real terms. That is the truth of the matter and indeed—
Under Labour, it was only in one of their six years that investment was higher than consumption and that was only because consumption did not rise at all.
The most revealing aspect of the long-winded Opposition amendment, against which we shall be voting tonight, is that nowhere does it once mention inflation—not once. And this despite the fact that the risk of a resurgence of inflation is the only real problem facing the British economy today, a risk far greater than any threat arising from the deficit on the current account of the balance of payments. And despite the fact too that it is precisely to avert this inflationary risk and to ensure that, within a matter of months, inflation resumes its downward path that I have sharply tightened monetary policy, culminating in the increase in base rates to 13 per cent. last Friday.
This telling omission from the Opposition amendment reveals once again one of the major differences between the two sides of this House, because the Labour party is at best indifferent to inflation and in practice, as we saw when it was last in office, it is the party of inflation—that is the truth—whereas for us on this side of the House the control of inflation lies at the very heart of our economic policy. So that, Mr. Speaker, is what I turn to first, because that is what the House wants to hear about most.
Over the past five years or so that I have been Chancellor, during a period of almost unparalleled growth in prosperity, recorded inflation has averaged 4¾ per cent. a year. That is a massive improvement over the average inflation rate of 15½ per cent. a year under Labour, a period of equivalent length. But what clearly gives cause for concern is that inflation should now be rising, however gradually, rather than falling.
The key to economic success is confidence. For some years now, confidence in the British economy, among business men and consumers alike, has been rising. But it was not until our third general election victory, in June of last year, that—not surprisingly—confidence moved into overdrive, so much so that there was a real danger that spending would rise too fast, generating inflationary pressures. [Interruption.]
I know that the Opposition do not like the truth, but they are going to get it and I am going to go on.
And so it was for this reason that in August of last year I decided to tighten monetary policy by raising interest rates by a full point—a move which caused no little controversy at the time.
Then came the stock market crash of 19 October, black Monday, and for the first and only time as Chancellor I then judged the risks of recession to be greater than the risks of inflation, and loosened monetary policy in concert with the other major nations.
Today, with the benefit of hindsight, it is easy to say that the stock market crash was merely a financial market phenomenon of no relevance to the real economy. But those who are honest with themselves, and think back to that fragile and difficult time, just over a year ago, will acknowledge that that was not how it looked and felt then. Indeed, I vividly recall that the Opposition were calling on me to do far more than I did in order to avert what they saw as the coming slump.
If I may quote from the right hon. and learned Member for Monklands, East (Mr. Smith) at the time, he said:
Following the crash in the financial markets, and with the threat of an economic crisis looming, the House should concentrate its mind on the lessons to be learnt from the turbulent events of recent weeks with one overriding objective—the urgent steps that need to be taken to ward oil the threat of economic downturn, with the painful consequences for jobs, the standard of living and the national economic strength that would come in train of that."—[Official Report, 5 November 1987; Vol. 121, c. 1084.]
That is what the Opposition were urging at the time.
Given the balance of risks at the time, I believe I was fully justified in doing what I did.
But the outcome, as we now know, was a period of inadequate monetary rigour, and as the economy sailed through the crash with confidence unimpaired, it was that that enabled inflation to edge up again in 1988.
But it is important to see the scale of the new inflationary danger in perspective. Unlike almost all other major countries, we include mortgage interest payments in our retail price index, a perverse anomaly which seriously obscures the underlying trend. Excluding mortgage interest payments, we see that inflation rose steadily during the first half of this year to reach 5 per cent. by July.
On the same basis, it has barely changed since, with the latest recorded figure, for October, standing at 5·1 per cent. Some time during the first half of next year, I would expect the RPI, excluding mortgage interest payments, to peak at around 5½ per cent. before inflation resumes its downward trend.
To be fair, I shall compare that with the lowest underlying inflation figure—that is to say, excluding mortgage interest payments—which the last Labour Government ever secured; and the lowest figure they ever secured in a single month—excluding mortgage interest payments—was 7·7 per cent.
We have, of course, been through this before.
No, I shall not.
There was an inflation blip in 1985. Then, too, the underlying rate peaked at 5½ per cent. before coming down again, and then, too, it was a sharp rise in interest rates which did the trick. For let there be no mistake about it: inflation is a monetary phenomenon. It has to be cured by monetary policy, and that means the vigorous use of interest rates—and interest rates work. They worked in 1985.
They provided the economic success we have subsequently enjoyed, and they will work, if anything, even more effectively today, and provide the basis for our continued economic success.
Higher interest rates have already had a marked effect on the housing market, which is overwhelmingly the principal engine of consumer credit in this country. And the effect will intensify in the new year, as building societies introduce the higher rates for existing borrowers who have hitherto largely been shielded from the rates that new borrowers are already paying.
I have to warn my right hon. and hon. Friends that this will not make us popular. But, as a Government, we have never shirked taking unpopular measures when these are needed. And this is needed now, to defeat the scourge of inflation, which is precisely what it will do.
Nor, incidentally, are credit controls any alternative. Having created the most dynamic economy this country has known by our progressive abandonment of Socialist controls, the last thing we want to do is to go back to that dead end. But even if it were thought desirable, it would not work.
Nowadays, 80 per cent. of all household borrowing is on mortgages. So nothing could be effective that did not cover mortgage lending, too. And to be really effective, as well as equitable, contrary to the bizarre scheme dreamed up the other day by the Leader of the Opposition, it would have to cover existing borrowers as well as new borrowers.
Moreover, all the well advised would readily be able to avoid United Kingdom controls, for example by borrowing offshore—unless, of course, it is suggested that exchange controls should be reimposed at the same time.
The truth of the matter is that interest rates are a singularly well-directed instrument of policy. What the hon. Member for Dunfermline, East totally failed to realise in his earlier remarks is that unlike in 1980, when the company sector was in poor shape and the household sector was a net saver rather than a net borrower, today the company sector's finances are unprecedentedly strong, while the household sector has become, for the first time ever, a substantial net borrower. So it is on consumer spending, and not corporate spending, that higher interest rates will have their principal effect.
The hon. Member for Dunfermline, East seemed concerned about the regional balance so I trust that he will listen to this. Even the regional impact of higher interest rates is well directed. For it is in the south of England that borrowing has risen most, and it is also in the south of England where mortgages in excess of £30,000, the limit of tax relief, are most prevalent. So it is in the south that higher interest rates will have their greatest impact.
The plain fact is that there is no alternative to the use of interest rates to keep the economy on course; and it works, which, of course, is why all other well-conducted economies rely on it—most recently the United States, which only yesterday, like us, raised its interest rates to their highest levels since 1985.
And what of the current account of the balance of payments? [Interruption.]
It is important to recognise, first, that a current account deficit is not like a company running at a loss. 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. A country in a similar position will draw on the savings of the world, which has been greatly facilitated by today's global markets.
Unlike the United States today, however, or the United Kingdom in the 1960s and the 1970s, the present current account deficit is not the counterpart of a capital inflow to finance a budget deficit. On the contrary, we have a substantial budget surplus, which I—[Interruption.]
Our present current account deficit is the counterpart of a capital inflow which is financing a purely private sector deficit: the gap between private sector savings and private sector investment. And this gap in turn has arisen, not so much because private sector savings have fallen, but because private sector investment has risen to some 16 per cent. of GDP, the highest figure ever.
For while personal savings have fallen, as personal borrowing has risen, corporate savings have risen by a roughly equivalent amount.
This does not mean, of course, that the current account deficit is sustainable indefinitely. But what it does mean is that it will in due course correct itself, as personal savings rise again, not least in response to the higher level of interest rates and the end of the great housing bubble. And meanwhile, it is readily financeable.
Our reserves stand at record levels. Our net overseas assets are second only to those of Japan. The world has confidence in us. And sterling is strong—[Interruption.]
As I was saying, our reserves stand at record levels. Our net overseas assets are second only to those of Japan. The world has confidence in us. And sterling is strong. Moreover, I am determined that it shall stay strong for the indefinite future—[Interruption.]
The Front Bench opposite is not the slightest bit interested in a serious debate on the economy. That is absolutely clear.
Those with long memories will know that there is no such thing as a balance of payments crisis; there is only a sterling crisis. And that there is not—[Interruption.]
I see you have a rival Mr. Speaker.
In short, as we win the battle against inflation, the balance of payments will take care of itself.
Finally, the hon. Member for Dunfermline, East sought to make a great song and dance about the inaccuracy of Treasury forecasts. The Treasury forecasts in March, in particular, were indeed inaccurate, as, equally, were all the outside forecasts that were made at that time. But I think it is worth pausing a while to see what we got wrong in the forecast. Certainly we underestimated the growth of total consumption. We forecast that it would rise by 3½ per cent.: it now looks as if it will have risen by 1 per cent. More—4½ per cent.
But the big mistake was in our forecast of the growth of investment. We forecast that that would rise by 6½ per cent. In fact, it now looks as if it will have risen by at least 12 per cent., an error of at least 5½ per cent.
That is why overall spending in the economy has been so high, and why imports have risen so fast. Exports this year have been at all-time record levels, with the deficit entirely attributable to the sharp rise in imports.
I ask you, Mr. Speaker: would it really have been better if investment had risen by only 6½ per cent. in line with our forecast? Would that have been better?
It is extremely valid, Sir. As the only person who can benefit from this performance is the right hon. Member for Hertsmere (Mr. Parkinson), can we take the rest as read and proceed to the debate?
Let me—although I know it is painful for the Opposition—take them back to the period of the last Labour Government. So far as I can recall, their forecasting record was consistently abysmal, but I have not looked it up recently, so let us suppose that in fact they had got all their forecasts exactly right, to the last decimal point. Let us just suppose that. Would that have made their lamentable economic performance one whit less bad, the explosion of inflation one jot less appalling, and the stagnation of living standards one iota less depressing? Of course not.
What matters is not economic forecasts, whose fallibility I have always been the first to proclaim, but economic performance. That is what matters. And the plain fact is that the performance of the British economy over the past five years has been outstanding.
During that time, economic growth has averaged 3½ per cent. a year, with inflation in low single figures—a combination we have not known for generations. As a result, there are today more people at work in this country than ever before in our history, and unemployment continues to fall, as it has done consistently, ever since the hon. Member for Dunfermline, East predicted, in his characteristically forthright and mistaken way:
The Government simply cannot reduce unemployment by present policies".
Since then it has fallen every single month. But you know, Mr. Speaker, it is a funny thing that time was when we heard about nothing but unemployment from the Opposition spokesman during an economic debate. That used to be the pattern. We have heard little about it today—nothing, as far as I can recall—and it is not mentioned once in the Official Opposition amendment. I wonder why. The plain fact is that we welcome the fall in unemployment, even if the party opposite does not.
And what about the nature of the growth we have been enjoying as a nation? I mentioned the rapid growth of investment this year—the biggest increase for at least 20 years. The hon. Member for Dunfermline, East tried to pretend that this was some flash in the pan—that it had suddenly happened this year. That is totally untrue. It is part of a consistent pattern.
Over the past five years as a whole, investment in this country has grown very nearly twice as fast as consumption, which is a very sharp contrast with the performance of the last Labour Government, when consumption, admittedly, grew fairly slowly, but investment scarcely grew at all.
So much for the economically illiterate cry of the hon. Member for Dunfermline, East that what we have is a short-lived consumer boom. That is what he said, and he whole House heard him. It is, in fact, the longest lived investment-led expansion the British economy has experienced for decades.
The only thing that is short is the period since hon. Members opposite first could bring themselves to recognise that the British economy was expanding at all. But then they are very slow. They have only now stumbled, I read, on the phrase "supply side Socialism", at, a time when, for the first time ever, the supply side of the British economy has been transformed, with record productivity growth, record investment, sweeping tax reform, including the ending of penal rates on enterprise, a budget surplus with all the strength that brings, record profitability, and an economy freer of unnecessary restrictions and controls than at any time since the war. Not least by throwing out the Socialist impedimenta they now seemingly wish to bring back, we are well on the way to a supply-side miracle that has the admiration of the world. Compared with what we have achieved here over the past nine and a half years, and will continue to achieve, the slowing down of the growth of demand which is currently required is a simple and straightforward task.
As the Gracious Speech which we are debating today demonstrates, after more than nine years of office it is still this Government who are generating the new ideas and setting the national agenda. We can do so above all because we have the firm foundation of a strong economy and a sound economic policy, one which commands the confidence both of the British people and of the world. That is why we will be victorious not just in the House tonight but in the country in the years to come.
The Chancellor will be well aware that, from 1979, the Treasury received strong support from my party for the doctrine that an annual inflation rate of even 3 per cent. was unacceptable, simply because such a rate halves the value of money within rather less than 25 years. A former occupant of this Bench, Mr. Enoch Powell, was less than successful in preventing the Government from diluting another tenet of economic fact, that inflation is caused by Governments and not by trade unions, employers, bankers or business men.
Over the years, the real culprits have been Governments. In their earlier years, the Government appeared to understand that fact well. Only as a kind of afterthought did they depart from the true faith and begin to babble about wage increases and the like. Although it was always clear that the Chancellor was taking risks with inflation and that, in part—but only in part—his risks have created the present situation, in the end, the real offender will probably turn out to be an obsession with the exchange rate of sterling.
I have not been persuaded that any of the suggested remedies or alternatives to interest rates would succeed in halting and, eventually, reducing inflation. I do not deny that high interest rates can have a painful effect, but roaring inflation on the scale that was experienced in the 1970s would be infinitely more painful to a far wider range of people, including in particular the poorest in our society.
Whatever may be the remedial measures that he has chosen, the Chancellor and his right hon. Friend the First Lord of the Treasury will have my party's full support in resisting the seriously flawed advice of Lord Cockfield. Only a week ago, that outgoing Commissioner asked:
Why should trade and industry in Europe be denied the immense advantages of a single currency simply to preserve the sovereign national rights of finance Ministers to mismanage their affairs?
My answer to his Lordship is that the sovereign national rights of Finance Ministers rank high on our list of priorities. I trust that other right hon. and hon. Members share my conviction.
We are not debating constitutional issues, but, for Treasury control, the threat is real enough. In the debate on the European Communities (Finance) Bill on 27 October 1988, the hon. Member for Newham, South (Mr. Spearing) used a telling phrase. He said:
Powers that we think lie with Whitehall are moving."—[Official Report, 27 October 1988; Vol. 1461, c. 521.]
To any Britisher, that is a chilling phrase.
Lord Cockfield's impatience demonstrates that he knows the truth of that phrase. His complaint is that the powers are not moving fast enough. His bribe to the Treasury is that, if sterling were linked to other European currencies, we would have assistance in forcing sterling down. The Cockfield outburst is of particular interest to the regions of the United Kingdom. If his intention is to deprive the Treasury of what he called sovereign national rights to raise revenue, it follows that the Treasury will have to surrender its right and, in the case of the regions, its duty to allocate moneys to benefit those parts of the nation that have suffered greatly through the encroachment of the European Commission into most aspects of decision-making in member states.
One of my reasons for opposing entry in 1972 was that membership would have the effect of tilting the map table of the United Kingdom towards the south-east, resulting in all the counters sliding towards that corner of England. That belief was not denied then and cannot be denied now that the prediction has been fulfilled. The Government are justified in compensating the regions of England and the other regions represented by the parties situated below the Gangway. I know that I shall be told that the EEC specialises in dispensing charity in the form of regional funds. It would be more accurate to say that, thanks to the determined efforts of the Prime Minister, the nation gets some of our own money back through various channels, schemes and devices.
Would any right hon. or hon. Member concede that the gentlemen in Brussels always know best? Can they really judge the needs of a given constituency better than the Member elected to represent that constituency in this House? I trust that whatever our disagreements in this debate we can at least firmly resolve to preserve the "sovereign national rights" of the Chancellor of the Exchequer and his Treasury colleagues to act in the best interests of the United Kingdom, after taking into account the advice which has been tendered and no doubt will be tendered today.
I trust that the House will feel that I have made a reasonable case for sympathetic consideration to be accorded to the financial needs of the regions. As one would expect, the Gracious Speech avoids inter-party argument over what was called by a former Prime Minister, the "governance of the United Kingdom". But we do the United Kingdom no service if we ignore the political and constitutional considerations which have emerged since the dissolution of the last Parliament. The general election results do not endanger the integrity of the United Kingdom, but real danger could arise from a perception that those results are being ignored. Such a perception should be, and I hope will be, treated with great sensitivity because if it is not, real or imaginary grievances will build up to resentment over the remaining years of the present Parliament to such an extent that there will be a feeling that something has gone profoundly wrong with our common Britishness.
This is not the occasion to propose new structures, but perhaps a pointer may lie in the reference to Northern Ireland in the Gracious Speech which reads that the Government will continue
to give elected representatives greater involvement.
The Single European Act has curtailed that involvement and influence of Members of Parliament in this House, and in local government there has been an erosion of the involvement of elected representatives. As a first step we must halt the drift and then as parliamentarians, hopefully together, carefully consider how we can reinvolve elected representatives in structures that will be of a pattern common to the component parts of this United Kingdom.
I always follow closely what the right hon. Member for Lagan Valley (Mr. Molyneaux) says. He is labouring under one misapprehension in believing that we have no say in the regional grants which are made by the European Community. We have always been able to deal directly with them and they certainly affect Northern Ireland. I would have thought that the right hon. Gentleman would have been prepared to acknowledge the considerable help that Northern Ireland has received from these grants, which have particularly helped its development and its industries. He cannot have any grumble about the arrangements that exist and I do not see that he should regard this as a basic challenge to the sovereignty of the United Kingdom, let alone the position of Northern Ireland. No one would regard the present position in Northern Ireland as entirely satisfactory constitutionally, but that is not a reflection on the European Community. Nor does it greatly help to underestimate what the Community does and is prepared to do in regional policy throughout the country.
I hope that it will not embarrass the Chancellor of the Exchequer if I say that I have considerable sympathy today with his position. Only a few short months ago he was the jewel in the Prime Minister's crown, even if it were pushed a little to the side. Now he is subject to criticism far and wide and largely from his hon. Friends who at the last Budget loudly supported what he was doing. Therefore, I have genuine sympathy with him in the vicissitudes that he is now undergoing. With his knowledge of financial history he will be among the first to agree that his predecessors since 1945 have, almost without exception, undergone the same vicissitudes. What interests me is not so much a condemnation of what the Labour party has or has not done, but how this present difficulty compares with others in the past. There may well be lessons to be learned from it.
In many ways the problems of the present position are on a higher level than ever before. The present position has arisen with unemployment still at 2·1 million. In November 1973, on the then means of calculating unemployment, it was just over 400,000. The Chancellor smiles, but it is not a matter for smiling. That shows one very different factor in the economy at that time. The scale of our present balance of payments deficit was unknown previously. In 1973 the deficit was £112 million whereas now it is already £12·43 billion. Both those factors emphasise my point that these events are happening on an entirely higher level than previously.
Similarly, we lost 20 per cent. of our industrial base at the beginning of this decade because sterling was allowed to rise far too high in relation to the dollar, as many of us said at the time, and our industry was destroyed. Much of our industry believes that it is in the same position today and that with the continuous increase in interest rates much of it is under threat and will be unable to survive. That undoubtedly applies also to many small firms, some of recent creation. That is a bigger threat than previously and all those matters must be taken into account.
At the end of the Chancellor's speech I found myself asking: "Is this a serious position or is it not? Is it serious or even critical or is it not?" The question is important because, whatever policies the Chancellor follows, he must carry the British people with him. Psychologically, the people of Britain are not prepared for a difficult position, let alone for a crisis. That is obvious from their attitude to consumer purchasing.
House ownership has been affected much more. It is no consolation to those who have taken the advice of the Government and bought their own houses, and whose incomes have been so drastically hit by the increase in mortgage rates, to be told that the value of their houses may have increased. The logical deduction is that they can meet their mortgage repayments only by selling their homes, and for most people that would not be a satisfactory conclusion.
One reason for the acute increase in the price of houses has been the shortage of housing, caused not only by the actions of the Chancellor but by actions stretching back over the decade, with local authorities being unable to maintain the supply of houses, many of which have been sold, rightly, to private owners. Nor have construction firms been building as many houses, often because of the increase in interest rates. That has undoubtedly led to the enormous increase in house prices, which may be stabilised—I doubt whether it will be reduced—by the increase in interest rates. A pattern has been developing during the past few years, and it will take a considerable time to put matters right.
The Chancellor ended his speech by saying that it was a perfectly simple and straightforward problem with a perfectly simple and straightforward answer—put up interest rates. It is difficult to share his simplicity of mind, understanding of and approach to the matter. To me, it is much more complicated.
The Chancellor started by saying that there will be no change in policy. There was a noticeable silence among Conservative Members when he said that. The Chancellor has put himself in a very strict, tight box in which he has only one policy. He has insisted, to the disappointment of many in the country as well as in the House and perhaps in the City, that that policy will continue. In golfing terms, the Chancellor could be described as a one-club man, and that club is interest rates. But if one wishes to take on Sandy Lyle and the rest of the world one needs a complete bag of clubs. The Chancellor flatly refuses to have that. He has turned down any other measures to influence the economy.
One reason why I doubt whether interest rates will have the desired effect is that it has not come home to the people of Britain that this is a critical position about which action must be taken. Interest rates will continue to increase to 14 per cent., and perhaps to 17 per cent.—the highest level under this Government—with all the consequences of damaging investment in our industry. The pound will rise so high that our exports will be damaged. The problem with the balance of payments is caused not only by consumer imports, because we no longer have an industrial base to supply our consumers, but by the loss of exports.
I would not wish to do that. Does my right hon. Friend agree that the argument about the quality of British industry relates not only to the Treasury bur, to what industry itself produces? One of our greatest problems is the fact that British industry has not responded to the challenges that have been offered to it during the past 10 years.
I would not quarrel with my hon. Friend on that. Some of us have been saying it for even longer. That is why I started my speech by saying that present events are happening against the background of problems at a much higher level than they were on each previous occasion on which a Chancellor has faced such vicissitudes.
What is the solution to the problems of British industry and its capacity for exporting? We must not forget that, even when industry is efficient and produces quality goods, its exporting capacity is damaged because of the currency rate.
The Chancellor did not mention the fact that, our interest rates having been increased, the Americans are following—
I am sorry if I did not hear the Chancellor make that point. Perhaps I was making a note of his other points.
It is important to ask how much the Americans will have to increase their interest rates to deal with their problems. The Chancellor seemed to be comparatively happy with the American problems. But I doubt whether anyone would wish to be in Mr. George Bush's position now, let alone the position that he will occupy in January, with a budget deficit of that size and a soaring balance of payments problem. It is a terrifying thought that we are entering a currency and interest rate race with the Americans.
Although the Chancellor does not wish to agree with me, I believe that the position is critical. He wants to tell the country, "Keep your nerve and everything will be all right." That is incorrect. To get the country to respond to the measures that must be taken it must be told that the position is critical. The Chancellor must become a full-set-of-golf-clubs man and must use measures in addition to interest rates. For example, I see no difficulty in reducing the credit that is provided. The City believes that and all the experts agree. One can deal with any form of credit if one has the will.
We are all grateful to my right hon. Friend for being here today and for the consolidating effect that his speech has had on the Conservative Benches. In the absence of exchange controls, which existed when he was Prime Minister but which do not exist today—nor, given his enthusiasm for Europe, would he wish to reintroduce them—how could he make those credit controls effective?
Through our banking system—certainly for ordinary credit card holders and consumers. I shall be told that that affects only 5 per cent. of credit, but in these circumstances 5 per cent. is important. The availability of credit is increasing quickly, and the Chancellor cannot dismiss the fact lightly. Most credit card holders would not have a clue what interest they pay on their cards. Some of them might be aggrieved if they knew the rate that they must pay. Credit is an important factor in consumer purchases, which the Chancellor has said he wants to reduce.
The Chancellor said that we have an enormous budget surplus. That is true, but for years we have urged that that money be directed to the infrastructure, which does not cause great import demand and is only the first stage towards consumption. But the infrastructure has been neglected. The south is overcrowded and the north is not, because regional policy has been deliberately neglected.
The country must be warned that it will take a considerable time to resolve the problems. We cannot use only higher interest rates, because when the rates start to take effect we shall have a smaller industrial base, higher unemployment and, because of the level of our currency, our exports will have disappeared. That has been the process in the past and there is no reason to doubt that there will be a repetition of that process in the next few months.
My last comment is about Europe, which has already been mentioned. We must take action over Europe. We cannot go on with a situation in which so much misinformation is being provided to this country about the European Community. Of course there are opponents in the Opposition and on the Government side, but we are indissolubly linked to the other members of the Community by treaty and by the Single European Act, which was ratified by the House. Our job is to make it work. That is what the other member states expect of us. In the worst situation, in which we are not prepared to go along with 1992, the others will go themselves.
Let us look at the position of the Chancellor and the Governor of the Bank of England about establishing a European central bank and a European single currency. My right hon. Friend the Chancellor knows that these things are inextricably bound up with one market. [Interruption.] With respect to my right hon. Friend, I shall argue it out with him at any time.
Because I am allowed only 10 minutes.
The other countries of the Community are determined on this step and they will go ahead. One can say that this needs legal sanction and a unanimous vote, but there are many ways by which they can achieve those ends without a unanimous vote and without alteration of the treaty. If they want to have their central bank, they will have it, and we shall suffer. These matters are to the detriment of Britain but not to the detriment of the other members of the Community. We must accept that basic fact.
I repeat my request to the Chancellor, who is chuckling away at the happy situation in which he finds himself. We are heading for a £15 billion trade deficit this year and we shall probably have a £14 billion or £15 billion trade deficit next year. That is the happy situation. Perhaps he or his right hon. Friend the Prime Minister would take some occasion to explain in detail their exact objections to becoming a full member of the European monetary system. At no time have they been prepared to explain to their colleagues in the Community or to the House why they refuse to join. The answer has always been, "When the time is right." The pound was up to $2·42 and down to $1·05 and showed proportionate changes against other currencies. To be "right", do the Government want the pound to be worth more than $2·42 or less than $1·05? Perhaps the Chancellor could answer that question quite simply when he is winding up. It is disgraceful and an insult to the House that on a major issue such as this for over 10 years neither the Prime Minister nor two Chancellors of the Exchequer have ever been prepared to give their reasons, which could be fully discussed and debated in the House.
I understand that that is what the Chancellor wants. The Chancellor has said that his one golf club is devoted to deflation, to stopping inflation. At one time he wanted to get it down to nil. We have heard a little less about that recently. Full membership of the EMS is essential and I should like to add one political factor. How can we expect the other members of the Community to co-operate with us in what we want in outside affairs? We have a row with the Belgian Government over alleged terrorism. [HON. MEMBERS: "Oh."] I thought that we believed that people were innocent until they were found guilty.
We have differences with other countries, for example, with the Republic of Ireland. Other countries will not respond if we are not prepared to co-operate with them in the bigger matters of the European Community, on which their whole life depends. I know that my hon. Friend the Economic Secretary to the Treasury is politically insensitive and has no idea of how other members of the Community feel when they find that we are first trying to destroy them and then trying to destroy the Community. It is well seen by the Community and I understand that it was said last night on television by my right hon. Friend the Member for Chingford (Mr. Tebbit), that many hon. Members want a free trade area and not a community. There is an essential and vital difference between a community and a free trade area. We had a free trade area and it did not serve our purpose. That is why we went into the Community.
After a moment's thought, my right hon. Friend will want to change slightly what he said a few moments ago. He said, or certainly implied, that the attitude of the Irish Republic or Belgium about the extradition of suspected terrorists was conditioned in some way by Britain's attitude towards the EMS. I am sure that my right hon. Friend did not mean that and I am absolutely sure that it is not true. I should like him to make it clear that he did not mean that.
I meant exactly what I said. The attitude of countries is affected psychologically by how other countries behave towards them, and anybody with experience of international politics knows that full well.
I am not in any way saying that it is a justification, but that it is an explanation of the attitude of many other countries towards us when they find that we are not co-operating with them. That psychology spreads and affects their other activities. My hon. Friend ought to know that.
Will my right hon. Friend consider what he has said? He said that we were not co-operating with the Belgians. Can he tell us what we did when we were asked to extradite the football hooligans who were at the Heysel stadium?
My hon. Friend should look at the campaign carried on as a result of our actions by the British press about the Belgian constitutional and legal systems.
The important thing is to concentrate on the Chancellor's position about the European Community. Again I strongly urge him at least to explain his position, even if he will not reconsider it. He should explain why he continues to stay outside the European monetary system at a time when the use of the ecu is expanding in the City. The banking system wants to go in and recognises that the City of London will not be able to hold its position unless Britain is a full member of the European monetary system. I do not want him to come along and lament that the Community has gone ahead on its own and done it without us. In the words of some members, "Well, if you want to stay outside and be a second-rate state on a second-rate tier, that is up to you. We shall go ahead." That is clearly the mood at the moment, and I want my right hon. Friend the Chancellor to recognise that. Unless he does, our interests will be gravely damaged.
The right hon. Member for Old Bexley and Sidcup (Mr. Heath) had some sympathy for the Chancellor of the Exchequer. I do not know about sympathy, but I think that most of us will have some understanding of the dilemma in which the Chancellor finds himself. The problem now facing both him and the economy is that we have reached the end of the go part of the stop-go cycle. It has been a very long go. Stop-go cycles are usually of a much shorter duration. This is a historically long one, and it has lasted for about five or six years, depending on one's definition. It has lasted longer than any previous cycle because of North sea oil. The oil allowed us to carry on the go part of the stop-go cycle to such an extent.
What has happened is that this stop has marked the end of the hopes that some of us had that North sea oil would be used beneficially for manufacturing industry—the only use of that money that would have produced abiding rewards for our country rather than the short-lived ones of consumerism or remittances obtained for sending oil money abroad. As the right hon. Member for Old Bexley and Sidcup said, the problem now is a familiar one in our post-war economy, but it is a much bigger one. We have to address ourselves to how we control this big expansion of credit and this consumer boom.
When the Chancellor talked about a blip, he did a disservice to the important argument and discussions facing us today. It is incomprehensible to talk about a blip of £12 billion to £14 billion, or maybe even £15 billion. In 1964, we had an £800 million balance of payments deficit. If we exclude capital inflows, it was about £360 million. That is equivalent in real terms to something far below anything in which we are engaged today. It took from 1964 to 1969, and a sterling devaluation, to correct that deficit, which is small by today's standards. Nobody could have called that a soft landing. Indeed, it was a particularly hard one. The soft landing for a balance of payments deficit of the size that we have now, of previously unimaginable proportions, is likely to take longer still unless certain measures are taken.
According to the Chancellor of the Exchequer, the deficit should not have been there at all. His policy, through monetarism and reduction in the PSBR, would bring about the solutions to all our economic problems. The Chancellor now seems to believe, or did until recently, that excessive private expenditure is less serious than high public expenditure. However, he has responsibility for the economy as a whole, whether the spending is private or public. It is not less serious because there is a bigger import content in private expenditure than in public expenditure.
Just to take responsibility for public expenditure and leave private spending to take care of itself is wholly wrong, because the Chancellor knew in March of the problems with which he was being faced. He knew certain of the difficulties of the credit expansion, for example, and if he had considered the possibility of the £4,000 million of balance of payments deficit, which he predicted then, turning into £15,000 million, would he still have made those tax cuts? It is my belief that he made those tax cuts because he thought that early in the life of this Parliament was the only opportunity he would have to effect tax cuts during his time as Chancellor of the Exchequer. It was a miscalculation. There has been a huge expansion of credit, and mortgage relief, which now costs £4·5 billion, is an important element of that credit expansion. The Chancellor says that mortgage relief ought not to be in the retail price index, but he does not take into account the enormous inflation in house prices, which does not show in the retail price index. That is one of the major aspects of inflation.
The Chancellor said in Southport on Saturday 26 November:
We have never never run away from difficult decisions.
A U-turn is a difficult decision, but it is a political decision. It only causes embarrassment. What we need is an economic decision to deal with our economic problems, and those problems stare us in the face. What we need most of all is an autumn Budget. The Chancellor, and the rest of the Government, have scorned all past autumn Budgets, but when there is something unforeseen, one needs an autumn Budget. The Chancellor said that this was unforeseen. If it is unforeseen, that is the case for an autumn Budget. He is prevented from introducing an autumn Budget because of the statement that he has made so frequently and because of the obstinacy and obduracy that the Government have shown in this matter.
I thought that we might have been able to stretch on until the spring, but it seems to me that we cannot wait that long. We need to take action immediately. In the past, one might have been able to deal with the matter by imposing quotas on imports and other such measures, but those options are not available to us today, so we must look at the various possibilities of which we are able to make use. They are fairly restricted—taxation or a monetary squeeze.
As the right hon. Member for Old Bexley and Sidcup said, credit controls have limitations. One cannot do everything through credit controls, but one can make some use of them. The Chancellor said that credit controls were unfair to those who did not have the economic expertise to deal with such matters. It was a touching regard for the unsophisticated, which came oddly from his lips. One can take some action. National savings have for decades been making money from the unworldly people who put money into them. We need some sort of action—limited but valuable, and a useful addition to the kind of controls that might help to reduce the amount of credit in circulation. Hire purchase restrictions and other measures are all options that have been used in the past and they can have some effect.
Then there is taxation. There is nothing to stop the Chancellor using the regulator in an autumn Budget; a budget surplus, which he has enjoyed does not eliminate the need to slow down the economy by other means than interest rates. The give-away to the wealthy did not just mean the £2 billion to £3 billion to them. It generated the view and created the climate among those who benefited and among many others that happy days were here and would stay here, and they went out and spent and spent, and spent much more than they were given in any tax relief.
We need to ensure that we have a clear decision, made by Parliament, that there will be a reduction in the amount of money available to people. Interest rates do not provide that. Interest rates hurt industry, whose investment has to compete with the return from lending money which has jumped from 7·5 per cent. to 13 per cent., and industry has to compete with the banks, who charge businesses 15 to 16 per cent. on the money that they want to invest. Which business can get such a return from investment? The major competitors of many industries are the banks, because one can get a better return from banks than from investing in industry. That is one of the serious consequences.
When the APR on consumer credit is 27 or 28 per cent., a 1 per cent. increase means very little, even if people know about it, as the right hon. Member for Old Bexley and Sidcup said. If people know about it, what does an extra 1 per cent. mean? To investors, it means something. We also have the problem of a failure to invest at a time when there is an economic downsurge. That is the major problem facing us.
High interest rates intended to deter consumption push up the value of the pound. There is no targeting of any of this, but the two go together, and each of them is a deterrent to British manufacturing industry. High interest rates bear upon people's expenditure, the pound goes up and we then have difficulty in obtaining exports, and great difficulty in investment at home.
We have here the classic situation that we had in 1979–81. There is the danger of repetition of something that burnt into my soul, because it transformed the reasonably prosperous town of Ashton-under-Lyne into a town which is far less prosperous today. We are one of the towns that depend very much on small manufacturing industry. We lost 30 per cent. of that manufacturing industry. Small firms, medium-sized firms and medium-tech firms were destroyed by those policies. The demand is now there, but we do not have the capacity or even the industries to meet it. We cannot recreate those industries when the demand returns. The consequence is that we now have to import their goods. With the damage caused by the high pound, import penetration is made easier and home sales are reduced. That is the situation that we face.
At six o'clock on Saturday 26 November, on Radio 4, the Chancellor of the Exchequer said that the
British economy is very strong indeed.
That is one of the most crass remarks that I have heard in my economic experience. We are weak industrially, weak in manufacturing industry and weak in responding to levels of demand that we should have been well capable of meeting. We are squeezed at home and abroad.
The medicine that the Chancellor of the Exchequer is prescribing is the same kind of medicine, under much harsher conditions, that was tried between 1979 and 1981. It was a poison then and it is a poison now. There is only one realistic solution for the Chancellor. He should remove his pride from his now threadbare cloak and bring in an autumn Budget.
I am sure that I was not the only hon. Member today who felt a great deal of sadness that the right hon. and learned Member for Monklands, East (Mr. Smith) was still too unwell to join us in our debates. We miss him. A Labour Member has just said that my right hon. Friend the Chancellor of the Exchequer was rather glad that he was not here. I suppose that that could be true in view of the mess that the latest yuppie on the Opposition Front Bench made of his chance to play understudy to his right hon. and learned Friend. I thought that it was perhaps just my perception, but I am glad to know that it was perceived by some Opposition Members.
I am terribly sorry, but no.
With inflation on the rise and the deficit on our trading account, the hon. Member for Dunfermline, East (Mr. Brown) must have thought that he had the luck to be the first Labour economic spokesman for years to have the opportunity in a debate to have a little straw with which to make his bricks. Unfortunately, he dropped them all even before he had finished making them.
The one thing that I found particularly odd about the hon. Gentleman's speech was his reluctance to give way when he could have been corrected and prevented from making some of his mistakes. In his litany of forthcoming price increases next spring, he referred to increases in Telecom prices. I wonder whether he was aware that the basket of main charges for Telecom has been frozen for the past two years and will remain frozen until August of next year at the very least. When he returns to the Chamber, perhaps he will tell us whether he knew that and when it last happened under a Labour Government or whether it ever happened while the industry was nationalised.
The hon. Gentleman was agitated about inflation. Some of us with longer political memories than his remember that double-digit inflation was a Socialist innovation. Indeed, during the term of the last Labour Government, the RPI rose by 112·3 per cent. in just over six years. This Government have been in office for nine and a half years and the increase in prices is 10 per cent. less than that. When we discuss inflation with Front-Bench Opposition Members, those discussions might at least contain a little humility.
The hon. Gentleman forgot to tell us when the last Labour Government achieved an inflation rate that was lower than the rate about which he was complaining today. I suspect that he forgot to tell us because he could not find the figures in the book.
If the hon. Gentleman will excuse me, I shall treat him with the courtesy with which his hon. Friend the Member for Dunfermline, East treated me.
On the balance of payments, Labour was in deficit every year except one. By the 10th anniversary of this Government, they will have been in surplus for seven years out of 10. What is more, Labour also achieved huge budget deficits whereas my right hon. Friend is achieving substantial surpluses.
However, the hon. Gentleman's speech was devalued because it was so heavy and over the top on forecasts of disaster and so light on firm policy proposals. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made three clear points as policy recommendations. We did hear one from Labour Front-Bench Members. We could perhaps with advantage bring back some of the old men and get rid of some of the young ones.
I have looked back at past debates on the Loyal Address. There is a strong similarity in Opposition speeches over the years with one exception: today there is even less effort than ever before to pose an alternative strategy. In May 1979 the right hon. Member for Leeds, East (Mr. Healey) opened the debate in the light of the first of the three Labour election defeats. He ended his speech with a good question. He said:
the policies to which the right hon. Lady committed herself at the time of the election were tried by her predecessor and failed. Why does she expect to succeed where the right hon. Member for Sidcup (Mr. Heath) was forced to admit failure within 18 months?"—[Official Report, 22 May 1979; Vol. 967, c. 891.]
That is a good question that we might all consider. Perhaps the best replies could be put in over Christmas to one of those contests in the Sunday papers.
It was only a week earlier than that that Mr. Callaghan, as he then was, had observed:
This period of Tory rule will be a brief interruption, and then we shall resume the march forward"—[Official Report, 15 May 1979; Vol. 967, c. 73.]
—in his case, a march forward to the House of Lords. By November 1981, Mr. Silkin, winding up for the Opposition, said:
Import controls and massive public investment are one way.
… Here again the Labour party has a unanimous belief that exchange controls ought to be dealt with, and used in our favour."—[Official Report, 11 November 1981; Vol. 12, c. 617.]
We have not heard those remedies today, so there has at least been some progress in that Opposition Members have no policies rather than those policies. I do not know whether they still share Mr. Silkin's wish, which he expressed that night, that he wanted to restore the top rate of tax to 83 per cent., or whether they wish to restore it to only 60 per cent. However, either way, it is unlikely to happen.
In November 1982, the right hon. Member for Bethnal Green and Stepney (Mr. Shore) opened the debate, full of gloom for the economy and optimism for Labour, which were both falsified. Abusing my right hon. Friend the Member for Blaby (Mr. Lawson), just as he has been abused today, the right hon. Gentleman said:
Who can fail to forget the scream of bubbling optimism that issued from the Chief Secretary in speech after speech throughout the winter and spring of this year, culminating in his famous assertion that he could see signs of recovery everywhere? … The truth is that on present policies, reinforced by the attacks on the publicly-owned industries, there will not be 'a sustainable growth in output' … and there will be no reduction … in the numbers out of work."—[Official Report, 10 November 1982; Vol. 31, c. 560–63.]
The right hon. Gentleman has been proved substantially wrong.
I think that the right hon. Gentleman will agree with me on two points. First, there was no reduction in unemployment between 1982 and 1986. That was a four-year period in which unemployment was around the 3 million mark. Secondly, not even in 1986 had we recovered to the same level of manufacturing output in our industry that we had in 1979.
As my right hon. Friend the Chancellor of the Exchequer says, part of the right hon. Gentleman's intervention was not true. Secondly, he has not met my point, which is that he said that on the policies to which he referred there would be no reduction of unemployment. In fact, there has been a long, continuous and substantial reduction in unemployment.
It is time that a touch of realism was introduced into our debates and I should like to help to introduce it. I shall quote Lord Prior, who was interviewed recently on the BBC. He finished by saying:
As things are at the moment, I think that the economy is overheated. I think the Chancellor's measures will help to bring it back under control. I'm a supporter of the Chancellor in what he is seeking to do. It will now take time to come round and I don't think we can look for instant results and I would expect high interest rates to be with us until the middle of next year.
Lord Prior was speaking, I think, as the chairman of one of the largest manufacturing companies in Britain, not as a politician. Contrary to what has been suggested by the Opposition, there is considerable confidence both in the economy and in the conduct of the economy by my right hon. Friend the Chancellor of the Exchequer by those who are at the sharp end of business, as opposed to those who would not recognise the blunt end of most businesses. As the House will know, I am a director of four major public companies and one private company.
It is possible to criticise any Chancellor of the Exchequer; none of them gets everything right. Indeed, before 1979, some of them managed to get everything wrong. My right hon. Friend the Member for Old Bexley and Sidcup suggested that my right hon. Friend the Chancellor of the Exchequer is a one-club golfer and that he should get some more clubs. I suggest to my right hon. Friend the Member for Old Bexley and Sidcup that the most important thing is to be able to play the game and to have a proven handicap that is better than that of any of the other players in this place for a start.
In the real world, industry and commerce are not in seething discontent. Of course, not everything is perfect. Most of us, except importers, would like sterling to be a bit lower, except when we are buying in foreign components, semi-finished goods or raw materials, when we would like it to be a bit higher. Most of us would like interest rates to be a bit lower. However, the difference in United Kingdom costs from those of our competitors arising from interest rate differentials has proven to be rather less on the whole than the difference arising from differentials in the unit cost of labour. We have made great progress in increasing productivity and holding down unit labour costs, but so have our competitors. I had hoped that there would be some common ground between us all on that, but, sadly, that is not so.
It would have been pleasing recently to hear trade union leaders, whose members have done well in recent years, taking the lead in seeking further ways to cut the costs of industry, not to inflate them. Perhaps whoever replies for the Opposition will say whether the Opposition believe that pay settlements that are well above the retail prices index are benign or damaging to the interests of the economy, or even to those who gain them, unless they are fully justified by productivity advances.
Sufficient to convince my colleagues who hold responsibility for businesses that it is worth while to employ me. The hon. Gentleman is free to apply for a job and to ascertain whether anyone wants to employ him.
What are the effects of the increase in interest rates that my right hon. Friend the Chancellor of the Exchequer has introduced? In my experience, retail sales have slowed sharply but not uniformly, and that is exactly what we should expect. Monthly outgoings for a first-time buyer have increased by about 35 per cent., so the froth is certainly off the house market. Many mortgagors are only just beginning to pay the higher rates, and many will not do so until the new year or even later. The slowdown in retail sales is therefore skewed towards more up-market goods as those other than mortgagors are still enjoying the tax cuts of my right hon. Friend the Chancellor of the Exchequer and are little affected by the increase in interest rates.
Most people do not borrow money on their credit cards, or certainly not into the interest rate range. The majority of card holders clear their account at the end of the month. As my right hon. Friend has said, credit cards are not the major problem of credit control. The major problem of credit expansion has been in lending through building societies and banks. We all know that from the letters that we receive from our building societies in which the society offers to lend us another £5,000 or so for anything we want, such as a holiday abroad or consumer goods. That is where the leakage of cash is to be found.
The boom in the construction industry is still going ahead. It is taking place on the impetus of events before the summer. Undoubtedly there will be a considerable cooling off in that industry next year. From now on my right hon. Friend the Chancellor of the Exchequer must be extremely careful in his use of further interest rate changes, because what he has done already has probably wound a quite powerful deflationary spring. The full effect of past increases in rates has not yet been felt and it may be that it has not been enough. We do not yet know. On the other hand, it would be easy to pile on too much further pressure and then find that the force of the deflationary spring is too great.
All that underlines the fact that the Opposition are hopelessly wrong in their prescriptions, such as they are. If the tax cuts were withdrawn, presumably the Opposition would want not an ever larger Budget surplus but an increase in public spending, much of it putting more spending power into the hands of those who are least likely to be savers, or into non-wealth creating or even wealth-destroying schemes.
My right hon. Friend the Chancellor of the Exchequer has made a trenchant defence of his record and his policy. On form as a Chancellor, and on his handicap in this economic game, he has no equal, certainly not in the House. The Opposition have advanced no alternative policies that we can consider. Presumably that is because those that they cooked up at the SOGAT rest home—how singularly appropriate that it was SOGAT of all unions—were the result of discussing how to improve the supply side of the economy. SOGAT! Oh dear, what ironies we find in the Opposition's actions. Despite that meeting, they have no policies that they yet dare to disclose.
On the record of my right hon. Friend the Chancellor of the Exchequer and on his policies, he has already won the debate. He has won the support of his party and that of a far wider constituency in addition. He has won especially the support of those who are running industry instead of running it down.
The right hon. Member for Chingford (Mr. Tebbit) seemed to have full recourse to his notes as he gave a commentary on what the Chancellor of the Exchequer said earlier this afternoon. It was clearly based on what he had decided to say before the debate began. There was a sting in the tail when the right hon. Gentleman said that the piling on of further interest rate increases, should that be indicated to the Chancellor by further trade deficit problems, which we may well have, could cause serious problems to industry. In a rather more generous way than some other Conservative Members the right hon. Gentleman is giving a not proven verdict. It was the right hon. Member for Worthing (Mr. Higgins), who chairs the Select Committee on the Treasury and Civil Service, who said that the jury was out, considering its verdict on the Chancellor of the Exchequer.
It is an unusual Gracious Speech debate that turns into a confidence debate on the Chancellor of the Exchequer. Ten days ago, it seemed that it would focus on the Chancellor's animadversions on the pensioners. Within a few days a new subject for a confidence debate had been spawned, following the latest trade figures. The message that the Chancellor of the Exchequer has given to Conservative Members is that there will be no change in policy, that "What we shall do will be unpopular" and that "It is all very simple and it will be all right in the end." Those are the key points of the message. The Chancellor of the Exchequer's forecasting record is sufficiently bad for me not to want to concede too much to him. He is right in predicting that what the Government will do will be unpopular. It may be that there will be no change, but it is certainly not simple. To talk about it all being simple was a surprising observation for him to make. I do not believe that everything will turn out all right in the end.
The measure of how far the Chancellor has got it wrong is provided in his Budget speech in March 1988. He said:
inflation is forecast to end the year at 4 per cent. While this is still too high, it is a testimony to the soundness of our policies that the present strong and sustained upswing … has not led to any resurgence of inflation.
Last month inflation rose to 6·4 per cent. and it is unlikely to keep within the Autumn Statement forecast for an average of 6·25 per cent. in the last quarter of 1988. [Interruption.] I see that not only is the jury out, but the defendant is out as well. The Chancellor is leaving the proceedings as he is unable to bear it any longer.
The last Gracious Speech referred to:
Policies designed further to reduce inflation."—[Official Report, 25 June 1987; Vol. 118, c. 39.]
In this Gracious Speech we are only promised policies designed to "bear down on inflation". I do not know what the phrase "bear down" means. If my hon. Friend the Member for Rochdale (Mr. Smith) was "bearing down" perhaps there would be some prospect of inflation actually going down. However, the idea of "bearing down" on inflation as a substitute for further reducing it seems to be an index of how far the Government's targets have slipped.
Later in his Budget speech the Chancellor said:
the current account of the balance of payments is forecast to remain in deficit this year, by some £4 billion, … I foresee no difficulty in financing a temporary current account deficit of this scale."—[Official Report, 15 March 1988; Vol. 129, c. 996.]
Of course, the reality is that after the worst ever figures we are heading for a deficit of £12 billion or perhaps £14 billion in the current year and hence the high interest rates.
When speaking to the Treasury Select Committee in March, the Chancellor said
I am not concerned about overheating in the economy, though one has to be vigilant all the time.
In March, we had a strategy of massive tax cuts against a background of the explosion of credit opportunities which the deregulation had brought about. That created a spending climate. The right hon. Member for Chingford referred to the kind of letters that banks are sending out. It is really quite extraordinary to read what has been sent out in recent months. The post boxes and doormats around the country are littered with computerised letters from banks. I have an example with me from the National Girobank which is still a publicly owned body, although the Government are trying hard to sell it. The letter states:
Do you need money right away?
Like most people, you can probably afford to increase your monthly outgoings because of tax cuts made in the Budget last March. So why not use the extra to improve your lifestyle? After all, you've worked hard for it.
How do they know?
Maybe you would like to replace your car … splash out on a new bedroom or kitchen … enjoy a luxury holiday … or treat yourself to something really special.
An accompanying circular states:
Yes you can replace your car … you can afford that fitted kitchen … you can take a well deserved holiday …
With a Girobank Personal Loan, you can say goodbye to window shopping and buy the things you want right now.
We have all received stacks of those letters. People all over the country have received such material and, along with the tax cuts, these letters create a spending climate. [Interruption.] I must state that I have never paid a penny in interest on a credit card nor have I responded to the invitations from the National Girobank.
The effect of all this is that tax cuts began to fuel consumer spending before the money was in people's pockets. They had that effect before the cuts fed through into pay packets and the effect has continued. Alongside that, there was an abandonment of any real monetary strategy. The only monetary target now referred to is M0, which does not even involve the bank loans or other means of consumer credit. That is a recipe for inflation by anybody's reckoning. That is classic text book, demand-led inflation. Too much money is chasing too few home-produced goods. That problem will now be compounded by the Chancellor's measures feeding through wage bargaining.
The Chancellor is trying to be a post-Keynesian by downgrading demand management to something which he believes is not an essential responsibility of Government. In fact, he has turned himself into a pre-Keynesian by ignoring the effect of fiscal policy on demand in the economy. We are now paying the price for that, and what a price. There have been crippling increases for home buyers, especially those in the south-east, who, because of high house prices, have had to lay out very large sums of money and are committed to the hilt. There has also been a further twist to next year's inflation spiral. I do not know how the Chancellor can say that that is not inflation as other countries understand it. In this country it is Government policy hugely to increase home ownership and in this country home ownership depends on mortgages. Therefore, for many people inflation is drastically affected by the level of house prices and interest rates.
Along with all that there is a potentially serious restraint on investment, especially in smaller businesses. The right hon. Member for Chingford referred to the chairman of GEC. They both speak from the vantage point of being members of the largest companies who, as a result of their exchange rate activities, are best able to insulate themselves from these problems and whose cash flow is the most comfortable at the moment. However, many medium-sized and smaller businesses and many innovative businesses are facing the greatest difficulties in investment in the present circumstances.
There will be short-term upward pressure on sterling which threatens the competitiveness of manufacturing industry. The Chancellor's forecasts are suffused with optimism. I believe that there will be a much larger trade deficit than the Chancellor predicts, that there will be lower output growth than he hopes for and that all this could actually take us to a sterling crisis. It is such a dangerous mix that, rather than be advised from the Opposition Benches to resign, the Chancellor might do well to take that job in the City now and not be around when it all comes to the boil.
The Chancellor is arrogantly unrepentant. The key passage in the Gracious Speech states that public expenditure will continue to fall
as a proportion of national income, thus providing scope for further reductions in taxation, as and when prudent.
Presumably the Chancellor thought that major tax reductions were prudent in the spring which does not say much for his grasp of prudence. He is like someone convicted of driving through red lights who causes a serious accident and who says to the court, "I'll do it again whenever I think it's prudent to go through the red light." That is the message in the Gracious Speech.
What measures could the Chancellor take now to have some effect on the crisis which would make him less dependent on interest rates? First, he could make it quite clear that there will be no income tax cuts next spring unless there is a major turn-round in the economy which none of us, not even he, is now predicting. If he finds any scope to cut the burden of taxes, he could look to employers' national insurance contributions and offer some relief on savings. If he feels it necessary, there are some areas in which he could make useful changes.
Secondly, he could take urgent measures to boost savings. It is evident that high interest rates by themselves have not prevented us from having a very bad savings ratio. He should stop dropping hints about means testing pensioners' benefits. That leads people to believe that saving is not worth while. I am sure that Conservative Members find, as I find, constituents coming to them saying that they have saved all their life but now find that the little bit in the bank stops them getting help even to insulate the loft, let alone receiving benefits being received by people who in reality are better off than them. Many of my elderly constituents have told me that.
The Chancellor is creating a spending climate which does not support saving. He should reverse that and go further by looking for new tax reliefs which offer opportunities to people whom the personal equity plan scheme will not reach. There are opportunities for a much wider range of personal savings designed to shift that adverse savings ratio.
Thirdly, the Chancellor could call in the credit-giving institutions to discuss how credit expansion can be restrained so as to avoid the necessity for cumbersome, uneven and inequitable credit controls. I am no enthusiast for credit controls and I share some of the Chancellor's misgivings about their effectiveness. However, it must be said that credit controls which have some uneven effects might in some circumstances be better than none at all even if their effect was incomplete. However, that is not a measure I would like the country to adopt if we can possibly avoid it. Let us start talking. Let us see the Chancellor and the Bank of England talking to the banks and credit-giving institutions about the kind of nonsense that I read to the House earlier and the high pressure to borrow and spend. Otherwise those institutions may find themselves talking to the Chancellor about cumbersome and highly inconvenient credit control arrangements which the Chancellor may have to devise as an emergency measure.
Fourthly, the Chancellor could show some evidence that he is starting on some of the major long-term tasks that are woefully absent from the Gracious Speech. There should be real efforts about skill training, research and development, investment, improvement in labour mobility and an attack on the regional maldistribution in the economy. He should embark on tax and benefit integration, which will help to ensure that benefits are directed to those who most need them and ensure that they are taken up. He should address, like the right hon. Member for Old Bexley and Sidcup (Mr. Heath), the question of the European monetary system. The Chancellor is making it harder to get Britain into it at the moment. It was ironic that the Prime Minister's only stated reason earlier for Britain not entering the exchange rate mechanism was that the Germans might force us to press down more firmly on inflation than the British Government would want. That is an extraordinary argument for us to have been kept out of the exchange rate mechanism for so long.
Then I want to see the Chancellor attacking monopoly instead of creating more and more and transferring it from the public to the private sector virtually unscathed, as has been the Government's record. Attacking monopoly is one way of attacking inflation, because monopoly is one of the means by which unrealistically high prices are sustained.
I should like to see the Government embarking on many of the wider long-term measures that have economic importance, to which our amendment refers. We have tried to set out some alternatives, a task for which we are equipped. The official Opposition, on their own admission, got it wrong at the election. The hon. Member for Dagenham (Mr. Gould), in a paper which seems to have gained wider circulation than he intended, said:
Before the last election we were vulnerable to the charge that by proposing to raise public spending as a means of reducing unemployment, we were ready to take risks with inflation and the balance of payments.
The hon. Gentleman is now engaged on a perfectly proper and honourable search for alternative measures to those that the Labour party advanced at the election. The problem that he faces is that they have no real ideological base. If he shifts away from the ideological basis on which the Labour party is founded, he will have some difficulty in finding an alternative. That is why I feel much more comfortable advocating policies based on the individual in a free society and in a free market, policies that build on the capacity of individuals to work together to build a fairer society and stronger communities and to obtain a cleaner environment, if those individuals and communities are given power and responsibility.
A primarily collectivist society is not a worthwhile or electable alternative. Ours is, and it is the only viable alternative to the most centralising and arrogant Government in modern British history. It is not just the Chancellor who deserves to go, it is the whole lot, some of them on the ground that they have allowed their Government to bring in measures in which they cannot possibly believe. I urge the House to support the amendment in the name of my right hon. and hon. Friends.
I agree with the criticism made by my right hon. Friend the Member for Chingford (Mr. Tebbit) of the hon. Member for Dunfermline, East (Mr. Brown) that he made no alternative suggestion about how our economy could be improved.
My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) drew our attention to 1973. But, as has been pointed out before, after the U-turn, 1973 did not help our economy much at all. In fact, it subsequently led to our defeat. I am sorry that my right hon. Friend is not here, but he may have noticed that during his speech most of his support came from the Opposition rather than the Conservative Benches. The Labour party's remedy is more taxation. That is always its stance. There is no question but that these were unexpected trade figures and they need more analysis because there must be statistical distortions. High imports, as my right hon. Friend the Chancellor has pointed out on many occasions, are caused not by the Government but by the private sector. There is tooling-up and restocking and last month's figures could have been affected slightly by the postal strike. However, having said all that, the figures are still high and some, including the City, are not sure whether our figures are accurate.
We cannot run the deficit too long, but, as has been pointed out, it is sustainable. At the moment, our gold and dollar reserves are approaching £30 billion and our overseas assets, which have been largely built up since 1979, are approaching the £100 billion mark. There is no crisis, as Opposition Members try to point out. The Opposition and the media have played up the matter, certainly the debate, out of all proportion to the facts of the case.
To a certain extent the deficit is being financed by money coming in from overseas and that shows that the foreigner, if not the Opposition, has confidence in Britain's economy.
No, I shall not give way. We have been asked to be brief, so if the hon. Gentleman will excuse me I would rather not give way.
As has been pointed out, the latest increase in interest rates has slowed down high street sales. I agree with my right hon. Friend the Member for Chingford that the effects of the latest increase must come through the pipeline. Imports ordered today do not arrive for another two or three months and it is only then that we shall know the figures. There is no question but that the properly boom has been stopped, but consumer spending has not. I agree that consumer spending has not been sufficiently curtailed. Consequently, the Chancellor was right to increase the base rate from 12 per cent. to 13 per cent.
It is all very well Opposition Members, and, indeed, some of my hon. Friends, criticising the Chancellor. It is easy to criticise with hindsight. If each of us knew yesterday what we know today, we should all be millionaires. It is easy to know the answer after the event. At the time of the Budget, as the Chancellor has tacitly admitted, future growth in the United Kingdom was miscalculated. Because of that, Britain is now suffering not the "stagflation" that we suffered under the previous Labour Government and successive Labour Governments but "boomflation". [Interruption.] It is easy for Opposition Members to smile and laugh.
I regret that my right hon. Friend the Member for Old Bexley and Sidcup did not mention one good thing about our economy. He did not mention our production, investment, standard of living and the profitability of companies being up and unemployment being down. Such things should be said by a leading statesman such as my right hon. Friend. Consequently, when he makes such a speech it does our economy and our standing in the world no good at all. In fact, the underlying strength of our economy is the envy of the rest of the world and I and most people are convinced—
No, I shall not give way. I do not have time.
We must also remember that inflation is down from 25 or 26 per cent., but, as my right hon. Friend the Chancellor said, it is creeping up and it will probably creep up a bit more. As he rightly points out, if we were to take the tax and prices index, the inflation rate would not be 6·4 per cent., but about 4·5 per cent. If mortgage interest was taken out, it would probably be down to just over 3 per cent. I mention that because Britain's inflation rate and RPI are often compared with those in Germany, France, and so on. If we are going to make such comparisons, they should be on the same basis.
Opposition Members talk about credit controls, but, as has been said, how would we have credit controls without exchange control? Should we reintroduce exchange control or hire purchase control? I remind the House that we have been down that path before but it led us only to the International Monetary Fund. Interest policy is one arm in the fight against inflation. We should not borrow to spend. However, as has been pointed out, my right hon. Friend could consider the position of those in the community who do not have to borrow to spend because they have money. The hon. Member for Berwick-upon-Tweed (Mr. Beith) touched upon the question of saving. The Government and the Chancellor have a first-class record on the business expansion scheme, PEPs, and so on but the savings ratio has gone down. One has only to look at recent statistics to see that.
I must ask my right hon. Friend the Chancellor: "Why cannot we encourage people not to spend the money they already have in their pockets?" I should like more and more pressure to be applied. My right hon. Friend the Chancellor introduced individual pensions which are a great boon to people and the business expansion scheme is a first-class success. If we could copy something like loi monory, we could give those in the middle income bracket the opportunity to save. I know that would cost money but my right hon. Friend is in a position that enables him to be flexible.
I, as most hon. Members know, am a low tax person. I like low taxes, the lower the better. There is one fact that has never been effectively explained to me. If my right hon. Friend the Chancellor of the Exchequer allows me, as he did in the previous Budget, to keep more of my earnings—for which I was most grateful as were we all—and I then spend that money, that is inflationary. However, if I say to the Chancellor, "You keep it, you spend it for me" that is non-inflationary. I cannot see the difference between me spending the money and my right hon. Friend spending it for me. Although I have the greatest admiration for my right hon. Friend the Chancellor, I shall not let him spend any of my money if I can help it.
The Labour party has now, belatedly, become the champion of the owner-occupier—what hypocrisy. When the sale of council houses was introduced not one Opposition Member wanted it. Up and down the country, especially in areas with Left-wing councils, every obstacle in the world was put in the way of council house tenants buying their own houses.
There has been a lot of talk about mortgages. My right hon. Friend the Member for Old Bexley and Sidcup said that if mortgage repayments go up and the value of the house goes up, one can only pay the mortgage by selling the house. That is not so and I was surprised to hear him say it. If one has a mortgage and does not want to increase the monthly repayments, practically any building society in the country will give permission to extend the life of the mortgage. If it runs for 20 years it can be extended to 22 and the same repayment rates can be maintained. The increase in mortgage interest rates is only a temporary measure. I do not know when interest rates will come down. I would be surprised if they do not start to come down within six to nine months.
The danger signal for the future of the economy is high wage demands. That is something we have to watch carefully. It has been said that our manufacturing base is depleted and all we have heard is that it is the fault of the Government and that they have not invested or done this or that. Nobody has said that it was the activities of trade unionism that priced many men out of a job. That is why our manufacturing industry went downhill.
We have a budget surplus and public expenditure is under control. I am sure that we would all like to congratulate not only my right hon. Friend the Chancellor but my right hon. Friend the Chief Secretary on reducing public expenditure below 40 per cent. with the prospect of it going lower still. We take our economic pulse too frequently. Whenever an economic figure is produced we take the pulse and hear gloom and doom. One never sees the Opposition happier than when there is bad economic news. As my right hon. Friend the Member for Chingford said, the Opposition have not mentioned unemployment because it is coming down. It is something about which one should be pleased.
My right hon. Friend the Chancellor said that we were in a similar position in 1985. He took the necessary action then and has done so again now. When action is necessary—all fair-minded hon. Members will agree with this—my right hon. Friend the Chancellor takes the necessary decision whether it is difficult or unpopular. That is something for which the country should be extremely grateful. The Conservative party is certainly grateful.
The debate has been blown up out of all proportion. It is an important debate but my advice to my right hon. Friend is that we should not have any panic measures. Let us stick to the policies he has pursued over the past five or six years and I am certain that the economy will remain as prosperous as it is today.
I do not think that the country or the House has got out of proportion the seriousness of the present economic crisis. I use the word "crisis" deliberately. I am sorry that the Chancellor of the Exchequer is leaving the Chamber because I wanted to tell him to his face that, apart from the bluster, he made an unconvincing and extraordinarily complacent speech which failed to address any of the real problems facing Britain today. He soothed his feelings by drawing upon the analogy with 1985 when there was a surge of inflation and which, by principally raising interest rates, he brought under control during the succeeding 12 months. The problem facing the Chancellor now is far greater than the problem in 1985.
In 1985 Britain was running a balance of payments surplus of the order of £7,000 million to £8,000 million. This time we are running a deficit of what looks like being £14,000 million. In the history of post-war efforts to deal with the periodic balance of payments crises, I can think of no Government that has relied upon simple interest rates to correct a profound imbalance in our current account and trading position. Believe me, we are in a state of profound imbalance at present.
For the Chancellor simply to say that there will be no change of policy and that he will be sticking to what he is doing now, which is relying simply upon what the right hon. Member for Old Bexley and Sidcup (Mr. Heath) described as the one—iron solution—using his golfing analogy—is unconvincing and inadequate. For him to say, as he did, that in time the current account will correct itself is to miss the whole problem that will face Britain not just now but in the future. We will be wrestling with the balance of payments problem from now until the next general election and probably beyond. It will be a number of years before we can begin to get things right after such a severe and damaging current account deficit.
One point on which the House is generally agreed is that there is clearly an excess of purchasing power in the economy. It is that which is putting an upward pressure on prices and the massive pressure, to which I have alluded, on the current trading account. With imports rising at 12 per cent. this year and exports at only 1·5 per cent. and with consumer expenditure rising by 11 per cent. this year and 9 per cent. last year there can be no doubt that excess purchasing power is sucking in imports and diverting exports away from the export to the home market.
What has produced this surge in purchasing power? Three factors have contributed. First, there has been a continuing fall in the personal savings ratio. Since 1979 it has fallen from 12·6 per cent. of personal disposable income to a mere 5·4 per cent. last year and, I believe, the figure will be even lower this year. In 1987 savings fell by no less than £4,000 million. Although I have yet to see the figures for this year, I am sure that there will be the same rate of decline.
Secondly, there has been a massive growth in indebtedness. I shall put aside house prices because they account for a large part of the personal sector indebtness. Nevertheless, since 1979, in real terms, outstanding consumer credit has risen from £16·7 billion to no less than £39·8 billion. That is an enormous and, in many ways, major new factor in the total British economy increase in debt. Since the end of 1986 to this summer, outstanding consumer credit has grown by just over £8,000 million. In addition, there were tax cuts worth £4,000 million in this year's Budget, which further increased purchasing power from June.
Thirdly, there has been an increase in income over and above the rate of inflation, although I hesitate to put a number on that latter factor as I have not seen it properly analysed. The decline in the savings ratio together with the growth of indebtedness and the tax cuts produced an increase in purchasing power of almost £16,000 million this year. In those circumstances, it is no good the Chancellor patting himself on the back for prudence in having achieved a more than balanced budget; a negative public sector borrowing requirement. The truth is that the effects of that have been more than wiped out by the massive personal sector borrowing requirement. What has been gained in public expenditure restraint has been thrown away in an orgy of private sector borrowing and expenditure. The consequences for the current account are clear and have already been discussed.
I wish to emphasise the gravity of the current position. In 1974 Britain did not have a drop of its own oil and the OPEC cartel quadrupled the price of the oil that Britain had to import. There was also a serious problem arising out of the three-day week that operated during the first quarter of the year. Apart from that year, when the British economy was reeling, Britain this year has the biggest trade deficit that it has suffered certainly for the past three decades, and possibly since before the war.
The Chancellor, who has mouthed many strictures of the United States for its large trade deficit, must now recognise that Britain's deficit, as a proportion of gross domestic product—it stands at no less than 3·5 per cent.—has actually surpassed that of the United States. The prospects for next year are not much better. The Chancellor speaks of a reduced deficit to £11,000 million, but even that is challenged by most independent economists.
The Chancellor must face the fact—even if he is not prepared to admit it in public—that there has been a gross failure of economic management and forecasting during the past year. We recall with incredulity what the Chancellor said only eight months ago when he replied to the Budget debate:
The policy that we have been pursuing has already brought economic success. This country is now experiencing an economic miracle, comparable in significance to that previously enjoyed by West Germany and still enjoyed by Japan."—[Official Report, 21 March 1988; Vol. 130, c. 109.]
Such a claim is simply laughable. What the Chancellor has not begun to realise—and it is a fault that he shares with many Conservative Members—is that both Germany and Japan achieved their enormous economic success through export-led growth, accumulating balance of payments surpluses, high investment and low unemployment. Seldom has there been a greater flight from reality or a more hubristic statement than that made by the Chancellor on 21 March. Now, Nemesis has followed and the Chancellor's judgment has been devalued and deflated, not merely in this House but in the country and in the markets.
The question now is whether a similar fate awaits the British economy. How are we to put right such a massive deterioration in our economic affairs? We must increase exports and reduce imports, but to achieve that two things are necessary. First, there must be a reduction in domestic purchasing of goods and services. Secondly, we must ensure that British products are priced competitively in domestic and world markets. The Chancellor's only answer to both those requirements is to raise interest rates—which, as we well know, have already risen from 7·5 per cent. to 13 per cent. That has inflicted great pain upon house purchasers, especially first-time buyers, and there is no sign yet that there has been any significant change in the level of purchasing power. Of course, at some level of interest rates there will be a check on consumer expenditure. There will certainly be a squeezing out of the inflationary forces in the economy. No one should doubt that, if an interest rate policy is pursued ruthlessly enough, it will deal with inflation. The problem is the price that we shall then have to pay.
Those hon. Members who have already spoken properly reminded the House of the appalling damage done in 1979–80 when a massive, strongly applied interest rate policy—leading, as it did, to a massively overvalued exchange rate and a very high pound—led to the annihilation of 20 per cent. of British manufacturing capacity within two years and to a doubling in the number of unemployed to more than 3 million. Surely we should all be desperately anxious to avoid that. I do not refer only to the Opposition because anyone in his senses would not want to repeat the appalling experience of 1979–80.
The trouble with an interest rate policy is that it does not help us to become competitive. It will not lead to the successful transfer of resources into the export market while the pound is forcing up the price of our exports. The CBI's recent survey on British trade prospects drew attention to precisely that point. It expressed concern about the competitive pricing of British products, not simply about the lack of supply.
During the two years since June 1986—and I hate to use a jargon term, but it is the accepted measure of international competitiveness—the IMF's relative normalised unit labour cost index has shown that the price of British goods relative to those of other countries has risen by more than 16 per cent. In other words, there has been an upward valuation of 16 per cent. before this latest rescue operation on the pound and before the raising of interest rates has had time to take effect.
What the Chancellor—indeed, all of us—should be considering is how to reduce purchasing power in the United Kingdom without crippling the competitiveness of British industry. There are many ways to discourage borrowing—although I know that the Chancellor does not like them—without relying on higher interest rates. They may be imperfect, but credit controls, special deposits and other devices are available if the Chancellor has the will to use them. There is also a strong case for raising taxes. Despite the immediate adverse effect on the retail prices index, there is a great deal to be said for reconsidering the levels of VAT and Excise duties—assuming that we are still free agents in adjusting the level of such taxes and that they have not already been harmonised or frozen at their present level by agreement in the EEC.
There is a larger lesson to be learnt from this year's crisis. Is it not extraordinary—this point was made by the right hon. Member for Old Bexley and Sidcup—that, when more than 2 million people are unemployed in the United Kingdom, we are experiencing this massive excess of demand over supply? There is an unused resource of human beings, but we are experiencing a massive demand inflation. I believe that the chickens have come home to roost. They are not simply due to misjudgment this year and last year, but they are the failures of economic management during the entire period of Conservative Government. I hope that I am not making simply an old point, because I want people to think about this.
I have mentioned already the loss of capacity in 1979 and 1980, but the fact is that in every year since 1982 when we began, in the Chancellor's words, "to recover", investment in manufacturing industry failed to reach the levels of 1978 and 1979. Therefore, it is not surprising to find that the output of Britain's manufacturing industries has been less in every year between 1980 and 1987 than it was in 1979. That was the effect of that earlier disaster and the subsequent lack of adequate investment. Until this year, we had a smaller output to meet the surge of demand than we had even in 1979. There should not be much surprise that demand has outstripped supply in British industry this year.
The final lesson that we should draw relates again to our trade deficit. It is not just the way in which it has proceeded this year, but in 1983, for the first time in our history, we had a minus balance in our trade in manufactured goods. Since then the situation has worsened year by year. In 1986 our trade deficit in manufacturing had risen to more than £5,000 million, in 1987 to more than £6,500 million and so far this year has reached £9,700 million. That is an annual rate of about £12,000 million in manufactured goods, which until 1983 we produced ourselves and were always in surplus.
This is a worrying situation. Of course, the deterioration in our trade position was masked from 1979 to 1986 by the massive output and benefit of North sea oil, which yielded some £120 billion worth of productive wealth in both import saving and exports of oil. Deterioration in our trade has now reached a point where, notwithstanding North sea oil, a massive and unprecedented deficit has been allowed to accumulate. It is anticipated that this year it will be £13,000 million to £14,000 million.
It is not, therefore, only the grievous errors of this year that need to be put right by new actions and policies, but there is a desperate need for new and realistic policies to ensure the growth of real wealth in our society and a sustained increase in investment in research and development and in education and training for our work force. To achieve that, we shall need not just a new Chancellor but, I fear, a new Government.
It is traditional to debate economic affairs on the final day of the debate on the Loyal Address, but the tradition, too, is that my right hon. Friend the Leader of the House replies and comments on matters of concern to the House.
I shall begin by raising two points to which I hope my right hon. Friend will respond. I believe that in many respects the accountability of the Government to the House has improved in the past decade. The Select Committee system, which is departmentally related, has been established, and we have introduced the Estimates Day procedure. Most recently, the Government have accepted that an agency set up under the Next Step proposals should be accountable directly to the Public Accounts Committee through its own accounting officer. However, there is a considerable danger in that the House and its Committee system have been put under pressure because of the amount of documents coming from the European Economic Community. This is putting a tremendous burden on the Scrutiny Committee, which is so admirably chaired, and carries out such important work. Therefore, I hope that we can consider—preferably through improvements in the Scrutiny Committee's work and that of the departmental Select Committees—the way in which we achieve effective accountability of the EC to the House.
Secondly, the Government have recently reorganised their affairs and split the Department of Health and Social Security. That raises the question whether there should be a corresponding division of the Select Commitees, because to a considerable extent the system of Select Committees is departmentally based. Of course, this is a matter for the House, not for the Government, but my right hon. Friend the Leader of the House has an important role to play, and I should welcome his views. Because of the high percentage of expenditure and responsibility which falls on both the Department of Health and the Department of Social Security, there is a case for a corresponding division of the Committee. Having said that, I should add that it is clear that the existing Health and Social Security Committee is already engaged in studies covering the two Departments. It would he unfortunate if that work were lost. Perhaps, too, it would wish to consider whether the Department should have been split in the way it has been. I believe that it would be appropriate to make clear at an early stage—even today—that the Committee should eventually be divided but leave the amendment of Standing Orders until a later date when the Committee has concluded its existing work.
The Treasury Select Committee is proposing to take evidence tomorrow on the economic policies contained in the Chancellor's Autumn Statement. However, without pre-empting in any way the report that will be produced, it is appropriate for me to make some comments today.
It is quite extraordinary that the Opposition Front Bench spokesman made such a speech today. I believe that there is little benefit in going back over the record of the Labour Government, because it is a diminishing asset in political terms. Many of my constituents who now vote are not old enough to remember anything about it. It is extraordinary that, far from adopting a policy of happy is the party that has no history, the Labour party appears to be in the position of happy is the party that has no policy. The policies proposed by the right hon. Member for Bethnal Green and Stepney (Mr. Shore) of special deposits and credit controls belong to a bygone age. The system now is far too open—in 1992 it will become even more so—for it to be considered that credit controls or special deposits would be an effective way of dealing with our problems.
I supported the Chancellor in putting up interest rates last week. It was the right thing to do. I am rather more doubtful about his presentation of that matter, because he is inclined to say, "Short-term interest rates are the only weapon which has been available." It has been suggested that this is a sort of one-club golfer approach to the problem. I am worried about analogies to golf, because in the first match that I played in my constituency I received a prize for the highest score at any one hole. Be that as it may, it is much easier to play golf with just one club if one can determine the shape of the course. My right hon. Friend is not dealing only with interest rates, because they must be considered within the framework of fiscal policy. He is wrong to underestimate the importance of that policy and that has led to some confusion.
Although the Opposition complain about the size of the tax cuts in the last Budget, the combination of the present level of taxation and public expenditure means that we are now running a massive budget surplus. That is also bearing down on inflation and it is important to economic management. We are not faced with the problem of too much public borrowing—a problem that has beset us for many years—because the Government are now making massive debt repayments. The problem, as pointed out by many hon. Members, is that there is too much private borrowing to pay for consumption. In that context, the increase in the rate of interest will undoubtedly have an effect. It may not deter the person who intends to buy a washing machine with a credit card because, in many cases, those interest charges are already extortionate, but it will affect those who are borrowing on mortgages and therefore it will affect their ability to consume.
I believe that the measures that the Chancellor has taken will affect the general level of demand and bring us back on course. The problems of forecasting make it difficult to predict the rate of economic growth and I am sure that all hon. Members would accept that. Therefore, our present economic position is not as envisaged.
We face problems with the savings ratio. People are not only borrowing too much, but they are saving too little. I know that my right hon. Friend will be making a review of the economy ahead of the next Budget and I hope that he will consider incentives for saving. They deserve review. In that context, I have considerable doubts about whether he is right to press ahead at this time with some of his proposals to change the taxation position of life insurance companies. Life insurance policies are an important feature of our savings structure and it would not be appropriate to alter their tax position now.
It is important to stress that the present pattern of interest rates is not what it used to be. The Chancellor is using short-term interest rates to determine the way in which the economy operates. None the less, the longer-term interest rates are significantly lower and the yield curve is unusual. For industries the longer-term interest rates are more important than the short-term interest rates.
My right hon. Friend was right to take action last week on the interest rate, given the balance of payments figures. If he had not taken such action it is likely that the exchange rate would have declined. That would have meant that he substantial exports that are already in the pipeline would have produced less. In the short term, that would not be a favourable state of affairs. Therefore, the tactical decision taken by my right hon. Friend was appropriate. We do riot know how long my right hon. Friend will need to sustain interest rates at their new level, but in the context of last week's announcement, my right hon. Friend's action was correct.
For the long-term future of industry a crucial aspect is not simply interest rates, but wage settlements. Such settlements give cause for concern and of particular concern is the fact that the retail prices index includes mortgage payments. I was surprised when my right hon. Friend referred to that. If one wants to understand the danger in specific terms, one should consider what happened with the Ford pay settlement the other day. That settlement is a certain number of percentage points above the RPI and the RPI happened to jump at the time that that settlement was negotiated. It did not jump because of the underlying rate of inflation, but because of the increase in mortgage interest rates. Of course we shall not see a corresponding reduction in the pay of Ford workers if the mortgage interest rate comes down. Therefore, the inclusion of mortgage interest rates in the RPI causes a ratchet effect. As mortgage interest rates go down as well as up in the normal course of events, we must consider whether it is appropriate to include them in the RPI. For that reason I was interested in the comments that my right hon. Friend made.
I shall not give way as I always get worried when Privy Councillors go on too long. In any event, I am about to conclude.
The overall position that the Chancellor has adopted on interest rate policy is correct. The current fiscal framework, which shows that we have a massive surplus compared with previous periods, is the appropriate one for the present time.
It is odd that the Opposition appear to be arguing that we should have an even bigger surplus because there were too many tax cuts in the Budget. As the late Iain Macleod always said, Labour Governments put up taxes and Conservative Governments reduce taxes. That is the correct strategic approach. Obviously we shall need to review taxation in the context of the next Budget and I look forward to my right hon. Friend presenting it.
The right hon. Member for Worthing (Mr. Higgins), the Chairman of the Select Committee on the Treasury and Civil Service, of which I am a member, talked about accountability. The way in which it works is like this: he drafts the report and then uses his Conservative majority—some of them are here—to get it through. If the next report expresses what the right hon. Gentleman has said this year, we shall have a report of such sycophancy that some of us shall be asking Alice to pass the sick bag.
When I heard the Chancellor today all bubbly and bright, when I thought that he would have a hangover, I was reminded of the aphorism of Alexander Pope in his epistle to Dr. Arbuthnot:
Take it for a rule
No creature smarts so little as a fool".
I note that the Chancellor has just left the Chamber.
When the Chancellor goes to meet his maker—perhaps if the Prime Minister has any say in this matter it will not be too long hence—I believe that his row will not be with the modern poets so much as with the philosophers of antiquity. Frankly, I doubt whether Aristotle, the logician and the great creator of the syllogism, will ever forgive the Chancellor of the Exchequer for what he has done this year.
When the Chancellor of the Exchequer first came to office he gave us a breathless syllogism. It was irredeemably strong, irreducibly simple and ineradicably true. He said, "All countries of low inflation are competitive. All countries which are competitive do not have a balance of payments problem. Britain has low inflation and does not have balance of payments problems." Here was a syllogism that scintillated. He united Aristotle with the classical economists, the Keynesians, the neo-monetarists and even the new Tories from Marxism Today. But—there is always a but when con artists are concerned—somewhere along the line someone forgot to tell the Chancellor that for a conclusion to be not only deducible from its premises, but correct in its application to the world which it purports to describe, its premises must be capable of empirical verification. Deduction and induction must at some stage during the argument synthesise.
The Lawson fallacy has been to move from false premises to false conclusions by suspect processes of logic. I believe that the purpose of this debate is to teach the Chancellor not only a few lessons in elementary economic theory in practice, but a few lessons in elementary logical analysis.
I begin with a succinct premise born of dispassionate analysis with which I believe every hon. Member would agree given the events of the past year. It is a simple one: "The Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson), is an economic illiterate". Does it really matter if that is so?
I do not wish to place too much faith in economists. I am rather inclined to the view that Sir Kenneth Berrill, the former chief economist to the Treasury, gave me over a pint of beer at Sunningdale one day. He said that the difference between a scientist and an economist is that scientists sometimes get it right. Nevertheless, I believe that the Chancellor's ignorance in economic affairs is gross, excessive and offensive.
I shall deal first with economic forecasting. When I was 16, my economics tutor at school said to me "Sedgemore, in the hands of a professional, economic forecasting is a dangerous business. In the hands of an ambitious politician, it gives rise to self-delusion, followed by deceit, ending up in catastrophe." The Lawson catastrophe is surely living proof of what a wise old owl my tutor was.
Let us first consider the Chancellor's forecast for the balance of payments deficit. Assuming that the outturn will be £16 billion—my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) is always too kind, and I think that it will be more than he said—that is not 100 per cent., 200 per cent. or 300 per cent. wrong; it is 400 per cent. wrong.
Let us suppose that the chief economist to the National Westminster bank goes to his chairman, Lord Boardman, at the other end of the corridor and says, "Mr. Chairman, your Lordship, I've got my economic forecast for the year, and here it is, but I must tell you that the margin of error is plus or minus 400 per cent." Let no one tell me that that chief economist would keep his job. What worries me, as I look at the Government Benches, is that not a single Conservative Back Bencher—except perhaps the right hon. Member for Old Bexley and Sidcup (Mr. Heath)—feels any guilt, shame or worry that there is a 400 per cent. margin of error in the forecast which has serious repercussions for the economy.
The matter is worse than that. When the Chancellor came to office, he forecast zero inflation in some years' time. I do not know how many mathematicians there are in the House. If there are any, they will know that the difference between zero inflation and the current rate of inflation is not 100 per cent., or 1 million per cent., or 1 billion per cent.; it is an infinite per cent. What can one say of a Chancellor who, on proven mathematical formulae, gets it infinitely wrong?
Let us consider the cure for inflation. Many cures for rising prices have been put forward by economists through the ages. As far as I am aware, the Chancellor is the first person in human history to say that the only cure for rising prices is to push prices even higher. That must be the own goal of the century. Let us imagine that England are playing West Germany at football and that Bobby Robson—one of the greatest failures of our time, as the Chancellor will be proved to be by history—comes into the dressing room and says, "Lads, this West German side is damned good, but when the players become over-confident they become vulnerable. Here's the game plan. If they don't score in the first 10 minutes, weácurate;ll put the ball into the back of our own net. Then they'll become over-confident and vulnerable."
I do not want to be unfair to the Chancellor because he has an answer to my criticism. I shall paraphrase his answer, but it is an honest paraphrase. He says, "When I push up prices by pushing up the cost of borrowing and when I push up mortgage rates so that Sedgemore, who paid £464 in November 1987, now pays £505 and in January of next year will pay even more, I am actually lowering prices and only the mad, the bad, the sad and prats like Sedgemore believe that I am doing otherwise." When the Chancellor says that when he gives us poison in the short term he is really giving us medicine in the long term, he reminds us of Father William in "Alice in Wonderland"—I am sure that all hon. Members have read that book, although they are not all mathematicians:
'You are old, Father William', the young man said,
'And your hair has become very white;
And yet you incessantly stand on your head—
Do you think, at your age, it is right?'
'In my youth; Father William replied to his son,
'I feared it might injure the brain;
But now that I'm perfectly sure I have none,
'Why, I do it again and again.'
It must be because the Chancellor's brain has gone missing—"Spitting Image" has got it wrong—that interest rates have been put up again and again.
I shall again paraphrase what the Chancellor said on television last week about the relationship between wage pressures and inflation. He said, "I shall reduce wage pressures by increasing them through higher mortgage rates and higher inflation." I used to think, being a gentle man, that despite the fact that I sometimes came to verbal blows with the Chancellor, he was a lovable, Rabelaisian roué. But the more I think about it now, the more I believe that he is a devious and sinister Schiller-like figure and, like the gods, I begin to despair. As Schiller wrote,
Mit der Dummheit kiimpfen Gutter selbst vergebens.
That is, against stupidity, even the gods struggle in vain.
When one considers the balance of payments, which has been a major issue today, the gobbledegook not only from the Chancellor, but from his chief economic adviser, Sir Terence Burns, becomes even worse. Sir Terence gave evidence to the Select Committee on the Treasury and Civil Service last week. I shall paraphrase what he said to me. "When the statisticians correct the figures, things may not be as bad as they seem." That is economics on a wing and a prayer. Last week, the Chancellor said—I shall again paraphrase—"The balance of payments deficit is a sign of the success of our policies. All I need to do is to make a few adjustments." That is economics by hunch, by guess and by god. I prefer it by somebody else.
Last week, the Chancellor said on radio—I am paraphrasing—"I'm so happy with things as they are that I'd willingly give up my job and make money in the City." That is more honest and that is the economics of blue funk. The Chancellor is the first economist in history to insist that the only cure for the balance of payments is to raise interest rates.
At the Treasury—there are a few Treasury officials sitting in the Box—there used to be textbooks on the walls. I am sure that the textbooks did not say that the only way to deal with a balance of payments crisis was to raise interest rates. In the textbooks that I read, the authors used to give many options. They said, for example, that there could be currency depreciation, devaluation, import control by administrative means, price or quota, or deflation. In an arrogant fit of pique, the Chancellor has burnt all those books, so he need not admit that he has made a mistake. Those books are no longer on the library shelves. When I asked Sir Terence Burns about the textbooks, he did not know anything about them and said that they were no longer relevant.
On the subject of the consumer boom, the Chancellor is the only economist in history to say that the only way to cure it is to raise interest rates. The textbooks would tell another story, if they existed, and would suggest a whole battery of fiscal policies that could be used. They would say that monetary conditions can be altered by credit control, with or without exchange controls. They would say, even more importantly, that the propensity to imports can be changed either by switching from consumption to investment or by switching from consumption to public expenditure. That meets one of the sillier points made by the hon. Member for Croydon, South (Sir W. Clark).
Having abandoned the sum total of human knowledge as set out by economists around the world throughout history, the Chancellor is surprised that he now begins to get everything wrong, that he is the laughing stock of G7 Ministers, that the people from the International Monetary Fund who have just come to this country are beginning to find him an object of scorn and that he is the butt of cartoonists in our national newspapers.
The underlying reason for all that is simple. The Chancellor is driven by one linked belief—a belief in markets, deregulation and the idea that monetary control is the only control of the economy. He has tried it nine times and has failed. He tried M3, and when that failed he tried MO; when that failed he tried M1 and when that failed he tried M2; when that failed he tried M4 and when that failed he tried M5; when that failed he tried PSL1 and when that failed he tried PSL2—and when that failed he tried DCE.
We are coming up to Christmas and I am prepared to offer £10 to a charity chosen by any Conservative Back Bencher who can now interrupt me and give me a definition of each and every one of the Chancellor's monetary variables. Is it not extraordinary that not one Conservative Back Bencher knows what the Chancellor of the Exchequer has been talking about for the past five years? They go back to their constituencies every week and preach monetarist dogma, but they cannot define the basic definitions.
Does the hon. Gentleman agree that his party's addiction to Keynesian economics is just as indecipherable, inscrutable and completely unintelligible to the man in the street?
As I am never quite sure what my party is addicted to these days, the hon. Lady must forgive me if I do not respond. I like Keynes and think that he was a great person. Indeed, I believe that we want a combination of Keynes and Marx, and that is what I am working on. If the hon. Lady has a little faith, the right policies will come along.
The last curse of the Chancellor is that he is now corning here with the ultimate lunacy. He told us this afternoon that he can control each and every one of these economic variables all the time and at the same time, and that, although there is not a shred of empirical evidence that there is any relationship between one or all of the variables and the rate of inflation or the balance of payments, that will effect a magical economic cure. What is wrong with that is quite simple: it is economics by formulae, whereas we want economics by judgment. It is because the Chancellor of the Exchequer is wholly lacking in economic judgment that we shall oppose the Government tonight.
The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) told us that he very much admired his economics tutor, but he did not tell us what his economics teacher thought of him. I can only guess from his fluent command of German that his economics tutor shunted him off as soon as he possibly could.
Last October, most of us were concerned about the effect of the crash and what it might do to the world economy. Although there were signs of monetary overheating, the judgment of the House—this was certainly true of the Opposition at the time—was in favour of keeping the economy going, and that was the view of other countries also. I know that by the Budget earlier this year it was clear that the world economy had recovered and that all might be well, but there was nevertheless some doubt about that.
Therefore, it was perfectly proper for my right hon. Friend the Chancellor of the Exchequer to remind us earlier today that on balance he thought that reducing the rate of interest to 7·5 per cent. was the right thing to do. If he had reduced the rate of interest to 7·5 per cent. and combined that with an announcement that we were to join the European monetary system and have a close association with the deutschmark, that would have had a salutary effect on inflation prospects. Unfortunately, that was not done.
In retrospect, it is easy to see that reducing the rate of interest at the time of the Budget without an accompanying commitment to the deutschmark or to joining the EMS was a mistake. Indeed, my right hon. Friend the Chancellor has cheerfully admitted that.
Looking at this crisis—as the Opposition call it—and comparing it with others—many right hon. and hon. Members present can remember former crises—the question that arises is how serious a crisis is it. The one thing that distinguishes former crises from the present situation is that in each and every one of those crises there was a large public sector deficit and a significant public sector borrowing requirement.
Those deficits drew the attention of the International Monetary Fund and created real problems for the Governments of the time. My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) reminded me of that, but did not say that the distinction between the current position and that in 1973–74 is that out of our total revenue in 1973 of £24 billion, our PSBR was £2·2 billion—nearly 10 per cent. In 1974, the PSBR was £3·5 billion out of a total revenue of £29 billion—well over 10 per cent. If that did not set the alarm bells ringing, I do not know what should have set them ringing. It certainly alarmed me and some of my hon. Friends.
If one contrasts the position of the early 1970s with the later 1970s when we saw the large PSBR difficulties and the deficit of the Labour Government with our position today, one must admit that there has been a most remarkable transformation. I did not think that we would see the day when we would be repaying our public sector debt at the level that we are. I believe that it is £10 billion this year—and not all of that is money drawn from the sale of nationalised assets. Even if we do not take those into consideration, I believe that we are repaying about £4 billion.
It is not possible to minimise the importance of the public sector surplus and the way in which it is being treated. My right hon. Friend the Chancellor is perfectly justified in taking credit for that. If that large sector of the economy—the public sector—is in surplus, where do we look for the trouble spots in other parts of the economy? Companies are a very important part of our economy and it is clear that we are in substantial surplus in that area also. In 1983, company savings amounted to £25·9 billion, less capital investment of £15·8 billion. Last year, company savings were nearly £46 billion—by far the largest ever—and our capital investment was £30·7 billion—again by far the largest ever. In the second quarter of this year, both savings and capital investments in the company sector have been higher. Therefore, we are in an extremely strong position in both the public sector and the corporate sector. Indeed, I do not believe that the corporate sector has ever been as healthy as it is today.
One can draw a sharp distinction between today's position and what used to happen in the 1970s. That distinction is important and significant. However, we have a particular problem with the personal sector and I do not think that it is right to minimise that. In 1983, personal sector savings were £21·3 billion, but last year they had fallen to £14·8 billion. However, the figures for borrowing for house purchases were £14·5 billion in 1983 and they have risen to £29·6 billion. Therefore, not only had savings in the private sector reduced significantly, but borrowing for house purchase and other activities had increased markedly. In fact, borrowing for house purchase was twice the level of private sector saving. The Government must take account of that fact.
We need to address the matter of borrowing for consumption. In 1987, such borrowing totalled £8·7 billion and in the first three quarters of this year it was £9·3 billion. That shows an extraordinary increase which far exceeds the rate of saving. Therefore, if we have to distinguish the parts of the economy that are doing pretty well and are comfortably well off, they would be the public and corporate sectors.
When Opposition Members talk about the damage caused by higher interest rates, they should bear in mind the level of corporate sector savings. I do not think that they have ever been quite so healthy. It is quite clear that corporations are increasingly financing themselves not through borrowing but through retaining cash. Contrary to what Opposition Members say, the corporate sector will not find much of a squeeze for the moment. Smaller companies and individuals may do so, but, in the sector as a whole, companies will not find all that much difficulty.
What is to be done in the private sector? My right hon. Friend the Member for Worthing (Mr. Higgins) and other hon. Members touched on this matter. We need a two-pronged attack to increase the level of private sector savings and to diminish private sector expenditure. If we can improve the rate of savings by a significant amount, the consumer boom will diminish, and if we can discourage people from spending as much as they do at present we shall enlarge the effect.
Let us examine the prospects. With interest rates as high as they are now, they must be an attractive proposition for private savers. We should not forget that there are rather more private sector savers than borrowers, and I expect them to increase thir savings. The private sector is quite well off at the moment, with wage increases going on as fast as they are. That is another point that we must have in mind. It is right to use interest rates to discourage expenditure.
My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) thought that the Chancellor was using only one golf club. I inform my right hon. Friend, who used all kinds of devices, including prices and incomes policies and other things that did not work, that it is much better to go around a golf course with one club—I speak with my enormous handicap as the parliamentary golf champion—than it is to go around with a sand bag and axe in one's golf bag, which is what my right hon. Friend the Member for Old Bexley and Sidcup did.
I conclude my remarks. I had no idea that I had taken so long, and I apologise for doing so. I have made the important points that I wished to make.
I start by referring to a couple of points that affect my constituency and Scotland, and use them to instance where things are going wrong in the economy. One matter about which people have not talked much, but which I find disturbing, is the of takeover mania that has been going on. I refer to a quite small takeover, whereby the French firm Kelt has been trying to take over the British oil firm Carless. In Old Kilpatrick, in my constituency, there is a small oil refinery that Kelt has never heard of. One of those high leverage bids is in progress. A bid of £206 million has been put in, and, to finance it, Kelt must borrow £191 million, which must be paid back in total within 12 months. It is quite staggering. There is only one way in which that can be done, and that is by selling the assets of the company that is being bought. It means that, in a sense, Kelt has quite honestly declared that it has no interest in downstream activities—oil refineries, oil products and so on. It is interested only in drilling rights. My constituents, along with those of many other hon. Members, have found that a firm is being sold off.
What are the prospects for that firm? Carless behaved in an exemplary way. It had taken over an oil refinery that was going nowhere. It invested heavily in it, and saw that there could be a long-term market—already employing 100 people in my constituency—in producing specialist oils, napthenic oils, and transformer oils, for which it had a market lead. It is clear that if the bid goes through the company will be sold, either at a cheap rate—in which case, it will eventually close—or to a foreign competitor.
What is the relevance of that kind of takeover to the future prosperity of the country? Who benefits from that kind of takeover? The Chancellor is turning a blind eye. That is one illustration of how the economy is working.
Another illustration has an insidious effect on the social fabric of the country. We heard the right hon. Member for Worthing (Mr. Higgins) and other hon. Members refer to wage rises and how they are pushing up inflation. I refer to the behaviour of the directors of Scottish and Newcastle Breweries. As it happens, the great mass of Scottish Members support Scottish and Newcastle in its resistance to Elders bid. But what have the directors of Scottish and Newcastle done to command support?
A group of people were already in a position to set their own salaries and to say what they were worth. How lovely it must be for one to say how much one is worth and how much one can be paid. Then along came the Chancellor who said, "You are not worth as much as you once said you were; you are worth more." Then along came Elders. This year we have been inundated with rumours about the takeover of Scottish and Newcastle by Elders or others. The directors of Scottish and Newcastle were issued with privileged shares. What did they do? They sold them at a profit of £560,000, individually making £80,000 profit.
On 17 December, the chief executive of Scottish and Newcastle, Mr. Rankin, exercised his right to buy 100,000 shares at 110p. He sold them the same day for 214p, netting £104,000 profit. On 22 March, the managing director exercised an option over 80,000 Scottish and Newcastle shares at 110p, and sold them the same day at 280p a share—a profit of £136,000 on one day.
In that sort of climate, in which the force of Thatcherism has been set loose, it ill-behoves Conservative Members to talk about holding back wage demands.
Let us examine another way in which the events of that crisis are bothering my constituency and many other Scottish constituencies. It means that, perhaps, we are heading not only for a slow down in the economy but for a full stop as the forces of higher interest rates operate. There will be considerable difficulty for areas that have not yet benefited from any northward spread or ripple in the economy. I am particularly keen to change the Government's belief that urban regeneration in the north and in Scotland and Wales can be private sector-led.
The chairman of the Scottish CBI, Mr. William Hughes, pointed out that Glasgow was the best example of what public and private partnership could achieve. He acknowledged that the Scottish Development Agency, Strathclyde region and Glasgow district had been the prime movers in starting Glasgow's remarkable investment programme. He stated:
Business contributed its energy, enterprise and capability. It is not necessary that we bring cash to the partnership.
It is essential that someone brings cash to the partnership, that we stop the abuse of local government which Mr. Hughes recognised was causing the turnround in Glasgow, and that this regeneration is not stopped because the south-east starts to overheat. We shall look for a change of policy by the Government in that respect.
We have heard about economic miracles, but what economic miracle do we have? No other advanced country has neglected manufacturing industry as we have, and we claim an economic miracle when the British public cannot or will not buy British goods. We have heard about increases in productivity but, as John Banham said, our productivity is still 10 years behind French and West German levels and 20 years behind the Japanese level. Our productivity has increased but from a low level.
We hear about 1992 which holds considerable dangers as well as opportunities. Banham says that German social costs and legislation, together with United Kingdom productivity, would be a lethal combination. Is it any wonder that the Chancellor is worried about 1992?
I think that my right hon. Friends the Chancellor of the Exchequer and the Member for Chingford (Mr. Tebbit) were a bit rough with the hon. Member for Dunfermline, East (Mr. Brown) in saying that he did not produce any policy. The fellow was doing his best and he produced a policy in the middle of his speech as the answer to our immediate problems. It was one that he had inherited from previous Labour Governments: to increase taxes and reverse tax cuts. We have heard that before.
The Labour party has been through a good many rethinks recently, some of which are rather heartening. For example, I like the way that it is beginning to take Europe seriously, even if it is attracted by some aspects which do not attract me. But it has not yet grasped the central point about taxation policy, which my party and the Government have grasped, and that is that if one reduces the rates, one raises the yield. The Labour party should grasp that point by studying the facts of recent developments here, in the United States, West Germany, France and Japan. Again and again low-tax societies are seeing an acceleration in revenue, and until the Labour party grasps that, it will be in a constant muddle.
I cannot because we are in the sprint section of the debate and we have to scramble on. I do not like it, but that is how the debate is organised.
We face ferociously unstable world conditions. Ours is a medium-sized economy in a big sea and the high ambitions of any economic task today must be to keep the boat afloat rather than to be precise about where we can land it.
There runs through these debates nowadays a grossly exaggerated view of what national economic managers can achieve either by manipulating Keynesian or monetary aggregates. The hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) treated us to an endearing and entertaining speech which we enjoyed but which was riddled with that concept which Marx to some extent entertained. Equally, Keynes saw, because that was the world in which he lived, that each economy was an autonomous unit which could be managed and turned up and down by pressing the appropriate monetary or Keynesian levers. That age has completely disappeared.
We are now in an enormous and uncertain global environment in which appalling crises come along, forecasting is virtually impossible and statistics are wildly wrong. I believe that the Central Statistical Office is still revising the figures of 10 years ago and finding them wrong. We face great uncertainties, not least across the Atlantic with the new President shaping up to his huge budget deficit, the continuing imbalances of both Japan and the United States, the looming crisis over leverage buy-outs—another big crisis involving billions of the American thrift institutions which have all been taken for a ride—and plenty more crises beyond that, all occasionally erupting into financial instability.
The Chancellor had to make his judgment a year ago in the context of black Monday and everyone, but everyone, was saying that we must avoid a repeat of 1929. There was universal acclaim for the skill with which he and other G7 Ministers organised finances to prevent economic slump following financial slump. It is no good today saying that we have forgotten all that and we shall judge 'him on different criteria. A year ago everyone—not least the Labour party and many of my hon. Friends—was full of wisdom that that was the line that he had to take. Now the pattern has changed and expansion has been far more vigorous than anyone predicted. We face overheating which has given rise partly to the trade deficit and to the theme of this debate.
Interest rates of 13 per cent. are probably the top and high enough to satisfy the international holders of sterling and to cool the economy. Although my hon. Friend the Member for Horsham (Sir P. Hordern) is a great expert on these matters, I do not think that that rate provides much of a savings incentive. An individual would receive 8·5 or 9 per cent. interest from a building society or high interest bank account, but when one knocks off 25 or 40 per cent. income tax it hardly leaves a real return, so that will not help the drive for savings.
What then do we do? All hon. Members have rightly said that this is not 1974 or 1981 but an entirely new situation both globally and locally. It is new because we have some of the strongest public-sector finances in the world with a colossal surplus. The public sector is saving and is not in debt and the corporate sector is saving massively and is not in debt. Some experts say that that is an inevitable reflection of the fact that the private sector and consumers are not saving.
The corporate sector is sitting on billions of retained profits. Mr. Tim Congdon, in an interesting article in The Times, pointed out that perhaps all our views of the low personal savings ratio here and in the United States are badly wrong. Bearing in mind his warning that the situation may not be as bad as we think, the next move in the evolution of Government strategy, having so far rightly put all the emphasis on interest rates, should be to give some indication of thinking about how to raise personal savings. In short—and my Conservative colleagues should be particularly enthused with this thought—we should consider how to get savings out of the state sector and into private hands without it leading to more consumption.
There are ways of doing that and they should be discussed in preparation for policy makers to develop them in time for the Budget. In particular, we should think of ways of encouraging savings in shares, unit trusts and various assets, as they have gone into housing. I should like to see a levelling up rather than a levelling down of tax reliefs. As others have suggested, I should like to see limited front-end tax relief for savings for millions of people similar to the system introduced in France in the early 1980s, which was called the loi monory.
We should encourage a much greater expansion of personal pension schemes—the self-employed pension schemes that involve putting money aside to add to one's own pension. The trouble is that the fiscal structure is geared away from encouraging personal savings and towards institutional savings. Again, there should be a levelling up rather than a levelling down. Unless we change that pattern, far from wider share ownership there will be narrower share ownership. That is happening already, with 80 per cent. of equity being held by institutions. That is much higher than even five years ago, and the pace in that direction is increasing. If my right hon. and hon. Friends on the Front Bench wish to maintain steam in the direction towards wider personal share ownership, they will have to have some new thoughts about personal savings incentives to make them at least as good as the incentives to save through institutions. The latter increasingly dominate our economy—much more so than many other economies.
I have talked about savings for people who pay tax, but we must not forget that many millions of people do not pay tax. The social security system is geared to discourage them from saving and to push them into a poverty and savings trap. That is highly undesirable and should worry the Conservative party more than it does. If we wish to extend the philosophy of more personal savings and wider share ownership to all levels of society, we must reform the tax system and the social security benefits system together, which at present are too discouraging to those who save a little. Their savings deny them a range of benefits.
That poverty trap is much too deep in our society, and it is made deeper by too much targeting. I am all for targeting the elderly, but if we target too much those of working age we shall create an even bigger poverty trap and greater discouragement for millions of people to save money and join in the ownership economy that we wish to create.
In the Gracious Speech the Government said that they would bear down on inflation and foster conditions for sustained growth. But we are in the midst of a crisis of inflation. Barely a week ago, we were told that everything was fine and that we need only keep our current policies on course to reach a point where inflation would be much lower than it is now. We were told that unemployment would continue to fall and that, perhaps before the next election, it might be as low as it was when the Labour Government were in power. But the balance of payments deficit and the I per cent. increase in interest rates, which is likely to lead to an increase in the mortgage rate of 0·5 or 0·75 per cent. next year, following more than half a dozen increases since May, mean that we are in the middle of a crisis. But the Government pooh pooh that notion and try to push it to one side.
Suddenly it has become wrong to include mortgage interest increases in the cost of living index. Tell that to home owners who must dig deeper into their pockets to pay increased mortgage charges. Of course, the mortgage rate is part of their cost of living. Any attempt to take it out of the retail prices index would echo the tricks used by the Government to reduce the real rate of unemployment. They are merely shuffling the figures. Let us not push aside the increase in mortgage rates as being of no importance. What price does the Chancellor put on the property-owning democracy that he is so keen to encourage?
The Chancellor's policies are in shreds. He cannot admit it, but almost every forecast that he made in the Autumn Statement has already gone hopelessly wrong. He says that he has never laid importance on forecasting, but as Chancellor of the Exchequer he must develop policies based on forecasts of what he believes may happen. At one time, the Chancellor hoped that inflation would be zero, and later he thought that it might be about 4 to 5 per cent. It is now nearly 6·5 per cent. and is likely to go much higher during the year. Unemployment, which was showing a downward trend, is likely to increase again. Perhaps when the Leader of the House replies to the debate he will forecast what will happen to unemployment. Dare we ask for a forecast of the trade deficit? Will the Government give us any idea of what they believe will happen? If the policy of increasing interest rates is the only one that the Government have, what effect will it have on the British economy? What effect will it have on inflation and on unemployment during the next three months, six months or the coming year?
It is especially important for the regions of the United Kingdom to know what those forecasts are. Most jobs have been created in the south-east. Outside the south-east, there are far fewer jobs than there were in 1979. Despite an expansion in part-time jobs, in Wales there are 130,000 fewer jobs than there were in 1979. In Scotland, the comparable figure is 173,000. In almost every standard planning region in England, above the line drawn from the Severn to the Wash, there are fewer jobs than there were in 1979. Will the Chancellor's policy of a 1 per cent. increase in interest rates now, perhaps with later increases, do anything to create jobs, especially north of that line from the Severn to the Wash? I want to hear answers to those questions tonight.
What will the increase in interest rates do to Government revenue? Although it may be the most fiendishly difficult area in which to make forecasts, it is thought that if domestic demand is reduced—that is what the Government hope will happen—by about 2 or 2·5 per cent., it could reduce Government revenue by almost £2 billion. We have many questions to ask the Government about how their current policy will affect the economy, especially the economy of the regions.
The Government's regional policy has resulted in real-terms spending on the regions being cut by two thirds since they came to power. What are the alternative policies? Virtually everybody outside the Tory party and its running dog economists forecast that the cuts in tax rates would lead to a consumer boom and to pressure on the balance of payments. An even more conservative body than the Tory party is the House of Lords, and its Select Committee on Trade and Industry said in 1985 that under the Government's current policies there was bound to be a problem in sustaining exports and controlling imports.
The chickens are coming home to roost and there is no point in the Government saying that their interest rate policy is the only one that they have. There is no point in Conservative Members and the Chancellor saying that the mortgage interest rate should be taken out of the retail price index because it does not really count and that things will be better if it is removed. The high mortgage interest rate means that it is costing people more to live in Britain and it is resulting in higher unemployment outside the south-east. Because of dramatically overheating pressures in the south-east, people from Wales, Scotland and the north cannot afford to go south to take up jobs.
Some of my constituents have written to me asking if I can find them a home that they can afford in London. They say that they have jobs here, but cannot bring their families to live in London. That will remain a constant problem for the Government. I hope that the Chancellor will have some humility and will realise that what he has done so far is wrong. I hope that he will adjust his course so that we can get more public investment because that will create more jobs and will not lead to a vast increase in imports. I hope that the Chancellor is listening.
I should like to speak about competition policy and ought therefore to declare an interest, albeit a rather indirect one. For some years I was a director of Morgan Grenfell, the merchant bankers. I resigned from the board a few months after being elected to the House last year, but I am still a consultant to my former firm. I am also a director of Dewe Rogerson International which has advised many major companies on the communication aspects of bids and mergers. I emphasise that neither of those companies had the faintest idea that I would seek to speak in the debate and neither knows what I am about to say, except in so far as my former colleagues may know my general ideas on the subject.
1 congratulate the Government on what appears to have been a robust response to the nervous bleatings that we heard the other day from some members of the Confederation of British Industry who appear to be afraid of being taken over. The existence of a public market in mergers and acquisitions is an important element in the motivation of top management. I can think of few better ways of blunting the cutting edge of management aggressiveness than sending out a clear signal to top managers that they are secure in their jobs indefinitely and can sit back comfortably until the end of their careers.
Mergers and acquisitions are also an important element in the essential process of readaption and renovation of industry. Traditionally we used to think of mergers and acquisitions as leading to the concentration of industry. Of course that is the Marxist tradition in which some Opposition Members were brought up. We now see increasingly—and the examples in the United States are particularly encouraging—that mergers and acquisitions can just as readily be about the disaggregation as about the concentration of industry. Sometimes they are the only effective way of breaking up conglomerates that have lost their rationale or perhaps never had a great rationale. They can release the component businesses to develop their own focus without the encumbrance of the constraints and the avoidable overheads from which they previously suffered.
Where mergers or acquisitions involve management buy-outs, whether because management instigates the bid or because a successful bid clears the way for a management buy-out, a most interesting and encouraging phenomenon occurs. The businesses concerned are returned to the entrepreneurial model of business leadership that was the basis of our industrial revolution and the model within which most firms have known their fastest periods of growth.
Mergers and acquisitions are thus an important and useful engine of economic progress and it is important that competition policy should not act as an undue brake on that engine.
Against that background I should like to draw the attention of the House to a major qualitative change in this area which we are now forced to recognise. It is the international dimension to competition policy. Global markets—financial, industrial and commercial—appear to be here to stay and I thank God for it. We no longer therefore have the luxury of conducting a pure competition policy within national boundaries.
I draw to the attention of the House two aspects of this internationalisation. One is the impact of the choice of a geographical perimeter or horizon for competition policy on industrial structure. I shall quote one brief example. At the time of the Nestlé bid for Rowntree it was widely theorised that an alternative might have been a merger between Cadbury Schweppes and Rowntree. I have no idea how seriously that possibility was examined by those firms. However, it had been considered axiomatic in the City for a long time that such a merger would have been excluded by competition policy because in Britain those two firms combined would have had a dominant market share, or would have been considered to have such a share.
In the international context or in the context of the European Community, however, a merger between Cadbury Schweppes and Rowntree would have had less of an impact on competition than the merger between Nestlé and Rowntree which took place. I pass no judgment on the merits of that merger, but draw to the attention of Ministers whose responsibilities lie in this direction that competition policy, as it is presently structured, effectively excluded the option of the emergence in Britain of a major international confectionery grouping, a British Nestlé or a British Jacobs Suchard. I regret that, and in that context I am delighted to see that the Government are taking part in discussions with our Community partners with a view to producing a regime under which major mergers with sales of more than 1 billion ecus and considerable transnational business will in future be examined on a Communitywide basis. I am convinced that that is in the interests of British industry.
Another aspect of this international dimension is the whole issue of reciprocity. At the time of the Nestlé bid, general attention was focused on the fact that many Swiss and Scandinavian companies have articles of association or foreign exchange regulations that prevent foreigners from buying certain classes of their shares. It is much less well known that even within the European Community many public companies, and the majority of such companies in Holland and Germany, have provisions that prevent any shareholder holding more than 3 or 5 per cent. of their stock. Effectively that means that those companies are proof against takeovers. That presents a dangerous and unfair constraint on British industry. It means that the acquisition and merger flows can go in only one direction. It also means that if major international industrial groupings are to be formed by means of acquisition in the European Community, they will be based on the continent and not here.
I ask for no privileges for British industry but only that it should not be asked to play on a field where the other side plays in front of a closed goal. I beg Ministers who have these responsibilities to consider with some urgency, whether in the context of a new European company law or otherwise, how we can get back to having Queensberry rules in this area. That would be in the interests of the whole of the European Community.
The silence which greeted the Chancellor's speech from those on the Benches behind him was eloquent testimony of the scale of the difficulties that he now faces. This is a cruel place, and those who cheered his tax cuts to the roof last April were noticeably silent as he dug the pit deeper today. Perhaps they got a glimpse of the future, and did not like what they saw.
I shall forgo the temptation to sympathise with the Chancellor of the Exchequer. He is in the process of getting his come-uppance. It is long overdue and it could not have happened to a nicer fellow. However, no one should suffer from the delusion that the scale of the difficulties that we now face is down to him alone. He is only the most conspicuous representative of an immoral philosophy shared by at least two thirds of Tory Members, which has at its core the remorseless pursuit of the fast buck in the shortest possible time without regard to the social consequences.
Whatever his fate, the Chancellor will not be the one to pay the price for the folly that he has pursued. That fate will be suffered by the millions of shattered lives that are a consequence of his economic policy. It will be left to others to clear up the mess. It cannot be said too often, and it has been said today, that the alleged economic miracle is based on a number of unique factors that have given the Chancellor resources that no other Chancellor before has had, and that no Chancellor after him will have, at his disposal. He has had from oil revenue at least £65 billion, and, taking account of savings as a result of not having to import oil, the figure amounts, as my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) said, to £120 billion.
The revenue from privatization—there is no better example of the short-term folly that he has pursued than the sale of public assets—amounts to about £25 billion. Some £7·7 billion of it came from the sale of British Gas, £3·6 billion from the sale of British Telecom and at least £1 billion from the sale of Britoil. The Gracious Speech refers to the privatisation of water and electricity, and no doubt that will accrue other enormous short-term revenues, which will be squandered in the same fashion as the revenue so far accumulated.
In addition, the Chancellor has had at his disposal £31,000 million arising from the cuts that he has made in the rate support grant over the past few years, the results and the social consequences of which are clear to all, particularly to those of us who represent poorer and less prosperous areas. The provision of public housing is grinding to a halt, our inner cities are decaying, our social services are unable to cope with the casualties. Many Labour Members have been reduced to being well-paid social workers clearing up the mess created by the Chancellor and his colleagues.
All these revenues provided the Chancellor with an unprecedented opportunity and one that has never been enjoyed by any other Chancellor before him. It could have been invested in creating a sound infrastructure for future generations, in creating a strong economy able to compete with the rigours of 1992, about which we hear so much, or in providing decent living standards for all our people. What has happened? It has been used to purchase the votes of the southern middle classes with tax cuts and windfall dividends. The idea is widely abroad that one can get something for nothing—something that the Prime Minister used to deprecate. That idea will shortly be punctured, but many people have already gained something for nothing as a result of the reckless folly of selling off public assets.
At the core of what the Chancellor and his colleagues have done, which perhaps sums up the entire philosophy of the Prime Minister's Government, is that they have ruthlessly and cynically mobilised the fortunate against the unfortunate. Since, for the time being and for some years in the past, the fortunate have been in the majority, it was always inevitable that they could be mobilised by a sufficiently cynical Government. They have unleashed on our economy every species of spiv and conman known to civilisation, and created an ideology not of the wealth producer but of the looter. They have resolved the historic conflict within the Conservative party, and in the country, between the industrialists and the bankers, finally and conclusively in favour of the bankers at the expense of those who produce.
If one seeks evidence for what has happened to our country over the past nine or 10 years, one of the better illustrations is to be found in the magazine section of a W. H. Smith bookshop. There was a time when one could find many magazines devoted to the pursuit of ideas, both Left and Right. They have nearly all disappeared and they have been replaced by consumer magazines—What Car?, What Computer?, What This? and What That? I saw one the other day entitled simply More. I can think of no better epitaph for the economic policies of this Government.
As has been widely remarked, all this has given rise to a new breed of Conservative Members of Parliament. The gentlemen of the old school, while they still exist, have been replaced by philistines and barbarians who do not believe in treating people decently. I concede that many Tory Members believe in treating people decently, but they are a dying breed.
Where will it all end when there is nothing left to privatise, when the oil revenue is gone and when every conceivable asset has been stripped? It is no good replying, as the Chancellor sometimes does, that we have sold the assets abroad and can live on the dividends. What makes him think that the dividends will be repatriated to an economy that is on its knees?
When the time comes to clear up this mess, those who pay the price must be those who benefited. The burden must not fall, as I suspect that it may, on those who have already suffered so grevously from the Government's policy. If I seek a lasting image for the Government of the past 10 years and the economic policy that they have pursued, it is of a young couple whom I saw last week when I drove to my home in Sunderland, who were picking rubbish out of the litter bags left out in the back alleyway behind my house. They were not old; they were young.
My wife comes from Vietnam, one of the poorest countries in the world. She has lived in this country for only 18 months. The other day we saw a man picking food out of a litter bin in Hyde park and she asked me, "How is it possible in a country as rich as this for that to happen?" I had no satisfactory answer to that question. I do not understand, and it is symptomatic of the economic policy pursued by the Government that some people have to eat by taking the leftovers from litter bins.
At this late hour I shall deal only with one point that has been raised by a number of hon. Members—concern about the overall competitiveness of our economy and especially of our manufacturing industry. I have shared that concern for many years.
There has been a great improvement since 1979, but it is not enough because our competitors have not been resting on their laurels for the past nine years and we still have not caught up with our leading competitors, the Germans, the Americans and the Japanese. I shall not detain the House by quoting figures in support of that contention, but those of us who are close to manufacturing industry are aware of them.
The abiding doubts about our economic performance as measured against those leading competitors arise as much from cultural as from economic reasons. The problem lies in our national attitude to business and especially to manufacturing industry. As a nation, we do not admire business; at best, we tolerate it and at worst we scorn it.
I have in the past drawn the House's attention to the curious alliance between the aristocratic Right and the intellectual Left, which acknowledges rationally the necessity for business, but rejects it emotionally. We see the same attitude reflected in the media which treat business with lofty and unconcealed disdain as a sort of lumpen proleteriat of our society.
I came to the House from industrial management and I have retained some contact with it. As a general rule in industry, we still require no proper management qualifications from those whom we appoint as managers. I declare an interest here as a vice-president of the Institution of Industrial Managers. We at least try to get more professionalism into industrial management, but we are by no means supported by everyone. We must beef up the professionalism of our management in industry and do more to attract a higher percentage of the brightest of our people into engineering and industrial management. We underpay our engineers and overpay our accountants. Who are accountants anyway? They are only bookkeepers with social aspirations. Until we demand higher standards of industrial management and pay for them, we shall not be truly competitive with the Americans, the Germans and the Japanese.
Those important matters are largely beyond the remedial grasp of any Chancellor of the Exchequer. They probably lie closer to that of the Secretary of State for Education and Science because their origins lie deep in our culture, in our schools and universities. Those cultural problems affect adversely our economic performance and they are further reasons for doubting whether it is given to any Government to fine-tune the economy. I do not believe that Governments have either sufficiently accurate or up-to-date information or sufficiently sensitive regulators at their disposal to fine-tune it. It is an illusion. In all my years here I have never seen a Government be successful in fine-tuning the economy. At best, they have crude instruments to work upon.
Lewis Carroll put the case graphically, as he put many other truths so graphically. When describing the little croquet match, he said:
The chief difficulty which Alice found first was her flamingo … generally, just as she had got its neck straightened out, and was going to give the hedgehog a blow with its head, it would twist round and look up in her face.
That has been the experience of many Chancellors of the Exchequer. The flamingo looks up in the Chancellor's face just when he thinks that his policies will work. We must therefore accept the Government's inability to fine-tune the economy and accept that the best that they can do is something relatively crude because so much of the action is outside their scope.
The problem of the cultural attitude to business and, above all, to manufacturing industry is one that we must solve. It will be solved not by the Chancellor of the Exchequer, but by political leaders in this House showing more interest in industry and business and not making the contemptuous remarks that we so often make about those who are successful in both those endeavours.
Tonight's debate is very significant. It opens the final act in an unfolding drama—the steepest drop in the reputation of any Chancellor of the Exchequer since the war.
Just seven months ago, the Chancellor was the toast of the City, the yuppie and the Tory Back Bencher. Tonight, his fair-weather friends on the Back Benches are sitting in sullen silence when they are not stabbing him in the back. Every prediction and boast that the Chancellor has made has been shown by events to be worthless. The Chancellor says that these are the problems of success. We see that the British economic miracle of which he boasts has been exposed as a blip in his imagination.
Let us examine the nature of the success that has given us so many problems. First, let us take inflation. The Government are presiding over an inflationary spiral unparalleled in Western Europe. Britain's inflation is now the highest of the top seven industrial nations. At 6·4 per cent. and rising to 8 per cent., according to a recent Phillips and Drew prediction, we are falling behind France, Italy, Germany, Japan and the United States.
It is simply not the case that British growth in the past couple of years has been exceptional. It has been part of a spurt of similar growth enjoyed since 1987 by other European economies, among them Spain, Portugal, Italy and even Ireland. Those economies are traditionally considered to be smaller, weaker and possibly even backward.
I do not want to stress the comparison between the British economy and those other economies. Whereas those economies will continue to grow next year by 3 or 4 per cent. according to EEC forecasts, we in the United Kingdom face yet another painful slump as the Chancellor gambles on a recession to correct his past errors. If we want to marvel at a real economic miracle, or an economy with a greater claim to an economic miracle, we should look at Italy whose economy is forecast to grow at a higher rate than ours both this year and next year. The difference is that it is growing at that rate with lower inflation and a trade deficit of less than 2 per cent. of GDP compared with our deficit which is already heading for 4 per cent. of GDP.
Every boast and claim of the Chancellor has been successfully discredited. The Government should not take refuge in their boast about the budget surplus which was achieved only through their cruel meanness towards the benefit claimants and old-age pensioners who alone have lost £4 billion since the Government stopped linking their pensions with their earnings. Even the Chancellor's proud boast that this is a tax-cutting Government is rejected by his friends when the total of the direct and indirect tax burden remains
higher than at any time under the last Labour Government.
That is not my opinion, but the judgment of Sam Brittan, writing in the Financial Times. Taxes, including social security contributions and rates, are equivalent to 38 per cent. of GDP, which is higher than in 1979 and higher than at any time during the period of the last Labour Government. Even the money supply, the favourite indicator for monetarists everywhere, is now growing beyond the Chancellor's prediction and at the same rate as in 1972 under the very Government that this Government so much deride. As for the balance of payments, the trade deficit is now £14 billion or £15 billion. There is no economic miracle. Instead, we see the return of the same old British disease, and it is returning with a vengeance.
No. I have only 10 minutes and I shall press on.
The Government's entire strategy is now in complete disarray. The much-vaunted economic miracle is sadly just another old-fashioned consumer boom, a Barber boom mark I I. That judgment is not confined to Labour Members and political allies of the Labour party. It is arrived at even by the Government's friends. Lord Rees-Mogg made the same point in an article in The Independent.
Now is the time for the Chancellor of the Exchequer to introduce a mini Budget to restore investment in neglected roads and railways, in training and in education. Without investment in basic economic assets, the country can have no future. Of course, the Chancellor of the Exchequer does not like mini Budgets. During his Budget speech, he boasted that the Government kept to one Budget a year. The right hon. Gentleman argues that interest rates are the only feasible economic tool worth using. It could be said that each interest rate increase is for the Chancellor of the Exchequer a mini Budget. Until last week, we had had 12 interest rate rises in the year. We now have the 13th and the rate is 13 per cent. In the words of President Reagan, when it comes to interest rates, it appears to be a case of making it one more for the Gipper. Surely the time has come for the Chancellor of the Exchequer to follow the path of his equally erring predecessor, Lord Barber, out of the Treasury into a quiet and undeservedly well-paid sinecure in the City.
One of the themes that has run through the debate is inflation, and many of us remember the times of high inflation and the tremendous hardships that that brought. The argument has been less about the disease—I think that we all realise the evils of inflation—and more about the nature of the possible cures that are available to us. To take the analogy of my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath), how many different types of golf club does my right hon. Friend the Chancellor of the Exchequer have to tackle the problem?
The two remedies that have been most cogently argued by Opposition Members as alternatives to the path chosen by my right hon. Friend the Chancellor of the Exchequer are the old remedies of higher taxes and a credit squeeze. We remember the remedy of the credit squeeze from the 1960s and 1970s. Higher taxes have a serious effect on the economy. We remember the experimentation in high taxes which started after the 1964 general election, when direct taxes were raised to an extremely high level to fund a massive increase in public expenditure. Those taxes cut growth in the economy. They caused a wage-price spiral and increased the expectations of many people who did not regard what they were earning as a gross figure, as economists told them that they should, but took the more rational view that the sum that they received after paying tax was more important.
Higher taxes have two effects on the economy, both of which are bad. The problem is made the greater because of the way the Government spend the taxes that they raise. Consumer spending is increased because of the redistribution that may occur through indirect taxation and Government expenditure.
Credit controls are a much more interesting experiment, and the Opposition have been suggesting that they are a potential alternative to raising interest rates. We have tried introducing credit controls on many occasions in the past. Indeed, they had a certain ability to work in the economy as it once was. I am talking of the time when the economy was much more closed than it is now. My hon. Friend the Member for Horsham (Sir P. Hordern) said that when we had a closed economy we could restrict the ability of domestic banks to lend. We could put political pressure on them. We could even put laws into place to stop domestic banks being able to provide the credit that was demanded by domestic consumers especially. If we were not careful, credit controls cut credit to industry. That meant that we ended up with many exceptions to the controls. We found that the exceptions started to outnumber the opportunities for restricting the availability of credit to such an extent that the controls ceased to be effective.
We now have an open market. No longer do we have the ability to stop those who are denied credit from one source obtaining it from another. The credit can be found from overseas from foreign banks, which may be active in our domestic market, or through the various financial intermediary mechanisms that are now so sophisticated that even the domestic mortgage market is increasingly financed by money that originates from outside the United Kingdom. We have an open market and credit controls would be an impossibility. Indeed, they would have no chance of working without the imposition, or reimposition, of exchange controls.
Exchange controls had ceased to work to any real extent when they were abolished in 1979. They were a problem for tourists who wished to leave the country to travel and spend money overseas, but they had ceased to be a problem for any company that wished to raise money overseas. Similarly, they had ceased to be a problem for any foreign company that wished to raise sterling in this country. Any method of exchange control that was introduced had to have many loopholes if it was to circumvent the real demands of the international market.
We have had some comments about the problems that may be created in the City and the benefits that the City may derive from high interest rates. It is worth remembering that the City, or the financial sector, employs over 1 million and generates over £5 billion in net earnings. The development and growth of the City is something that we should and need to protect. That is one reason why exchange controls should not return.
Exchange controls lead on, perhaps, to the other solution that is sometimes suggested, which is the manipulation of the exchange rate. That manipulation is now an impossibility, if only because the volumes that are traded in the international market are so large. It has been suggested that we should push down our exchange rate or fix it against other currencies. That is fine at an instant in time, but it is difficult, as we have seen with the rise in United States base rates, to predict what will happen to other currencies. It is rather like looking at the bird in "Alice's Adventures in Wonderland" that turns its head and stares at us. We may think that we have one solution, but the other countries against whose currencies we have fixed sterling may manipulate their currencies away from sterling.
The real problem is house mortgage lending and the leakage from it. The leakage in 1987 was about £14·6 billion, which was half the total sum raised in the house mortgage markets and about three times the rise in consumer credit. It is that leakage which has led to consumer spending, which to a large extent has led to the balance of payments problem that we now face. How best do we control the leakage? My feeling is that the leakage itself is not that much of a problem. If we examine the asset base that underlines the leakage and the borrowing that the house mortgage market represents, the gearing for the borrowing is only about 17 per cent. That is still a relatively low level, although I quite accept and understand that on an income basis the strain on the income ratio is actually higher and more serious. However, that is a short-term problem rather than a structural problem. If there were a higher ratio on the asset base, there would be a more serious problem.
The real difficulty arises from the low savings ratio. Our savings ratio is a highly questionable figure. Many areas of dispute have arisen over the accuracy of our savings ratio figure, if only because the figure is calculated by subtracting one very large number from another and is therefore subject to the inherent volatility and uncertainty of those two numbers. I suspect that we would all agree that the personal savings ratio is too low.
One of the major challenges facing the Government is to raise the personal savings ratio. High interest rates are a start and I believe that they will push up the savings ratio—[Interruption.] I beg the House's pardon for the frog in my throat. It must have been caused by the comments made yesterday by the hon. Member for Copeland (Dr. Cunningham) about the frogs that left the marshes as they were drained. I should like to see measures taken to increase the savings ratio and to encourage personal savings.
I want to comment first on the behaviour of Conservative Members during the speech made by my hon. Friend the Member for Dunfermline, East (Mr. Brown). I do not normally make attacks on Conservative Members because that is usually a waste of time and is non-productive. Today, however, we saw a concerted and disgraceful attempt by Conservative Members to disrupt my hon. Friend's speech. That was clearly a tremendous compliment to my hon. Friend because it showed that Conservative Members feared his effectiveness in exposing their economic mismanagement and the Chancellor's incompetence displayed in his Budget speech. At one point this afternoon, Mr. Speaker urged the Front Benches to set the lead. The Government Front Bench set an example by smirking and sniggering during the organised disruption of my hon. Friend's speech. That suggested foreknowledge of what was about to happen.
Many people feel that the Government would stoop to any level to silence criticism of their record. I know that the Chancellor of the Exchequer does not like it, but his track record merits repeated examination. His Budget forecast the trade deficit at £4 billion, his Autumn Statement forecast £14 billion, and after the latest figures who knows what the ultimate figure will be—certainly not the Chancellor who is supposed to be in the economy's driving seat.
Imports have flooded into Britain, increasing by 12 per cent. this year while in contrast exports have risen by only 1·5 per cent. The Chancellor has increased demand far beyond the capacity of our industry to supply that demand. Those bottlenecks reveal the lack of investment in industry and training that has occurred under this Government. The lion's share of the deficit lies in Britain's manufacturing. The balance of trade in manufactured goods fell sharply into deficit in 1983 and has continued to deteriorate. That reflects the disastrous and dogmatic approach of the Government in 1979 towards manufacturing industry when they pursued their monstrous economic dogma and slaughtered manufacturing industry in this country.
The Chancellor's only response to the deficit has been to raise interest rates again and again. Home buyers and industry are hardest hit by the interest rate rises. The average mortgage payer faces a monthly increase of £30. That should be contrasted with the £12 a month in tax cuts. Even people regarded as the Government's friends, like the CBI, have responded. At the recent CBI conference industrialists warned that high borrowing costs were strangling their companies. They even passed democratically a resolution complaining that the level of interest rates has damaged the international competitiveness of sterling.
Another criterion by which we can judge the Chancellor is inflation. Inflation is now 6·4 per cent. and rising. The Chancellor has admitted that it may reach 7 per cent. in the next seven months irrespective of any other independent forecasts. As hon. Members have rightly stated during the debate, the United Kingdom's inflation level is among the highest of our industrial competitors. Charges for water and electricity are being pushed up in preparation for give-away privatisation and we have seen the onward thrust of inflation as the result of the Government's policies. The mortgage rate increases are the biggest single contribution to the rise in inflation. No wonder the Chancellor would like to remove mortgage rates from the retail prices index. That is another case of Nero fiddling the figures while the country suffers.
Let us be clear. The rise in the inflation rate has been stoked by the Government. If we consider the balance of trade, interest rates and inflation, it is obvious that they have all been a disaster for the Chancellor and hardly merit the description of brilliant.
The Chancellor strutted on to the parliamentary stage on the day of the Budget as the hero of his Back Benchers. What a contrast now. The jury is indeed out on the Chancellor and the forewoman of that jury is waiting for the opportunity to announce the verdict, and is desperate to carry out the sentence.
The Government's strategy gives no hope to the unemployed and it accentuates the north-south divide. We have levels of unemployment in Scotland well above the national average. The Government are doing nothing to give hope to us or to the more deprived areas of England. The tragedy is that ordinary people are suffering and the Government refuse to act, purely and simply to try to preserve their fig leaf of economic credibility.
The events this year have been a watershed in the public's perceptions of the Tories' handling of the economy. The Government continue to make comparisons with the Labour Government, but they forget to mention that they have had the benefit of North sea oil and the massive income from selling the nation's assets even at knock-down privatisation prices. The Government have used those benefits to bribe the electorate to achieve election victories, as all Tory Governments have done in the past.
The reaction on the Conservative Benches to my hon. Friend the Member for Dunfermline, East shows that they understand that they have reached the end of the road. An old cliché states that when the going gets tough, the tough get going. The country is getting it tough, but the Chancellor should be going, right out of No. 11 Downing street.
The speech opening the debate from the hon. Member for Dunfermline, East (Mr. Brown) would have gone down well in a debating chamber if the audience had no knowledge of economics or economic policy. Sadly for him that was not the case today, and I suspect that that is why he did not give way when some of us tried to help him understand the statistics that he was abusing. He simply failed to admit that the economy is intrinsically extremely healthy. It is not only Conservative Members who state that. The most recent survey from the OECD highlighted the supply side impact on the economy of the Government's policies which have been most important in our progress since 1979.
In comparison with 1979, we now have a shrunken state sector; a public sector budget surplus; less interference in industry; fewer regulations and controls; lower personal and corporate tax rates and fewer tax-induced distortions. The restoration of the market economy has been supported by a reduction in trade union restrictive practices and the deregulation of the labour and financial sectors.
That is an extremely good record, of which we can be justly proud. It has had some very important net effects. For example, Opposition Members have not noticed that investment in this country is ahead of consumption. That is a key indicator. Manufacturing investment in the past 12 months has been up 18 per cent. Productivity is high and likely to stay high. It is important to analyse imports in the latest trade figures because imports of capital goods rose 4 per cent. during the past three months, and that increase in investment shows that the continuing increase in productivity is likely to be secured.
If it is true—I concede that it is—that in our economy consumption has run ahead of domestic supply, who is borrowing more and saving less? It is clearly not industry. Industry has restored cash balances. There was a net real rate of return for industry of just over 9 per cent. in 1987, the highest for 20 years—a significant factor which should be taken into account when considering the impact of interest rates. In 1987, according to the latest figures, corporate savings were £46 billion out of a total of £69 billion of trading profits—a remarkable percentage.
Therefore, industry is not likely to be as damaged as it was before by higher interest rates. It may be that they will cause industry difficulty with its exports because of an increase in the value of sterling, but higher interest rates are more likely to force companies to restrain their wage increases and in those circumstances they will not find their export opportunities damaged. Some Opposition Members would find it instructive to look closely at the policies of Ludwig Erhardt in Germany in the 1960s when he pursued policies that had a similar virtuous effect on German exporters.
It is also important to note that industry is hurt several times more by a 1 per cent. increase in wages than by a 1 per cent. increase in interest rates, something that I hope industrialists will bear in mind if they ever try to complain to the Chancellor about his current policy.
Secondly, is it the Government who are borrowing too much and spending too much? The answer is no, because the public sector surplus is £10 billion and there is a declining trend in public expenditure as a proportion of national income. That gives expenditure programmes greater flexibility without an increase in total spending because of the reduction in debt servicing costs. That is an important point, which again seems to have escaped those Opposition Members who have spoken today.
Thirdly—here I accept that there is a difficulty—there is the private sector. In the past three years the personal savings ratio has fallen from 10 per cent. to 4 per cent. That fact alone has led to a 2 per cent. per annum rise in consumption. I understand that, as my hon. Friend the Member for Fulham (Mr. Carrington) said, the figures may be unreliable and Tim Congdow has recently done some interesting work on the personal and corporate savings ratios. But there is no doubt that the Government's overall thrust should be to tackle the increase in personal consumption.
I support the use of higher interest rates. That policy is also supported by Professor Alan Budd, whose recent work has shown that in the short run high interest rates nowadays bear more heavily on consumption than on investment. He also demonstrates that income tax changes unequivocally bear more heavily on consumption than investment, but they take a long time to do so and to do a deflationary job. Therefore, the Government's interest rate policy is the right one.
Several Opposition Members bemoan the fact that the Chancellor cut the highest rates of tax, thus stimulating the economy in the long term. But even if one assumes that the £1 billion that was raised from tax cuts went entirely in consumption this year, it would have had only a marginal effect on the current balance of payments problem. Opposition Members have things completely out of perspective. I wish that they would try to look at the figures in the right context.
There is another weapon that the Chancellor can use and I hope that, given the time that interest rates will take to bite properly into personal consumption, he will be able to look at this at the next Budget. Like other right hon. and hon.Members, I am referring to savings.
It is especially important when trying to encourage personal savings to promote investment in risks—in other words, equities. Let me be controversial and ask the Chancellor to look closely at whether we should allow the £30,000 mortgage relief to be available on share investments as well. Let me ask the Chancellor to look closely at the personal equity plan and dramatically to change the limits that are currently imposed on it. Will the Treasury consider profit-related pay and, instead of making it possible to have a cash bonus, make those bonuses payable in shares, particularly in shares in the company for which people work?
I have recently written a pamphlet "Fair Shares for all the Workers" urging employee share ownership schemes. The House will be glad to know that I do not have time to read it out, but I hope that they will avail themselves of the copy that is in the Library. Employee share ownership schemes are an important way not only of increasing the access to capital investment by the British people, but of giving them a greater commitment to the success of the company for which they work, and I commend them.
Saving encouragement should be used to bring the personal sector in line with the prudence shown by industry and Government. The economy is fundamentally sound. We have a problem with personal consumption and that has caused a difficulty on the overall balance of payments. But it is clear that we have a Chancellor who is prepared to take the right action when the statistics show that it needs to be taken, and who will not throw away the tremendous developments that Britain has made since 1979 in freeing the economy and giving the British people not only a pride in their country but an ability to participate in it through the wider share ownership and other schemes that the Government have introduced.
It is a little over a year since black Monday 19 October 1987 and the stock exchange collapse which wiped about $2 trillion off the value of shares on the world exchanges in three days.
In the words of the Financial Times a couple of weeks ago:
At the time it looked … and felt … like an earthquake, an event that would change the economic direction of the world.
The spectre of another 1929, of a stock exchange collapse followed by a world economic slump, was propounded on both Left and Right in the House and outside.
Instead, paradoxically, we have seen a further expansion of the economies of the western world, with an average growth rate of 3·5 per cent. in developing countries which is expected to rise to 4 per cent. next year.
What is really interesting is that the doubts that were expressed 12 months ago still remain. The attention that today's debate has received demonstrates that, and rightly, because the problems that faced us some 12 months ago are far from solved.
The Chancellor is no longer the emperor of the world. Even within the Conservative party the critics and the doubters multiply. Among the more sober analysts outside the House, that trend is much more marked—indeed, it is exponential. During the Budget debate I hazarded the idea that the Chancellor would become known as the emperor without any clothes, and that is becoming more and more evident every day, even if it is not a particularly pretty thought.
Before the stock exchange collapse in 1929 the economic cycle had already begun to plummet, unlike in October last year. Production reached a peak in April 1929 in Germany, in June in America and in July in Britain. In America, manufacturing production dropped 20 per cent. between August and October 1929. The crash that followed was based on a tight money policy which led to a large number of bankruptcies. It led to the Smoot-Hawley Act of 1930, which provoked a world trade war. Protectionism, competitive devaluation and similar measures transformed the recession into a deep slump in which millions of people throughout the world suffered.
Sixty years on we have a different world with a more integrated economy. That was shown by the suddenness and universality of the October 1987 crash. On that occasion the group of seven countries attempted to learn from the experience of 1929 and tried to ward off the recession by pumping $100 billion into the United States economy. At the same time, particularly in this country, there were policies of increased Government spending, cheaper credit and tax handouts to the rich. There has been a reflation in all major Western economies, but nowhere more than in Britain where the Government have doubled the money supply over the past two years.
The fact that there has not been a similar increase in the production of capital goods and commodities has led to an increase in inflation. It is already 6·4 per cent. in Britain and 4·6 per cent. in America. With the exception of West Germany, it is rising in all the countries of the Western world.
The Chancellor said there will be no change. In fact, since last October the Government's policies have marked a fundamental change in the monetarist policies that the Government followed in the previous eight years. Continuing to reflate will lead to the same consequences as those which occurred in 1973 and 1974 when inflation in the OECD countries averaged 14 per cent. and reached 25 to 30 per cent. in some countries, including Britain. After a small change in policy towards inflation the Chancellor is now using the crudest of monetary weapons—a rapid increase in interest rates and a return to stop-go policies, which he has decried in the past.
The Chancellor faces a twin dilemma. There is stagflation—economic stagnation with high inflation—or a continuation of high interest rates which, as has been said, will lead to a fall in investment in productive industry, over-valuation of the pound, a fall in British exports, and an increase in our trade deficit.
The Chancellor talks as if Britain is an isolated island cut off from the rest of the world and as if it did not feel the effects of the American economy. In America the trade deficit is rising. It is over $170 billion and the budget deficit is $135 billion. American interest rates are rising as our interst rates rise, and the strength of the dollar increases as the strength of the pound increases. However, there is still the danger, as there was a year ago, of an increasing trade war and restrictions on world trade which will lead to a world recession. That would have appalling consequences, particularly for Britain. Countries such as Japan will have to seek other markets in Europe, as will West Germany. Thirty per cent. of our manufacturing base has been destroyed and our productivity is one third to a half less than that of our major competitors. Manufacturers are already complaining about the lack of a skilled or trained work force.
With those problems Britain will face a desperate economic position. Those who want to talk about a market economy should look at the world in which we live with its booms and slumps which affect the lives of millions. There is a net transfer of financial resources from developing to advanced countries in excess of $30 billion per year. That is leading to appalling conditions in those countries. There are still 20 million people unemployed in the OECD countries, and in Britain at least one third of the population lives in poverty and at least two fifths have not benefited from the policies of the Government and have lower living standards.
We should not forget the social consequences of the Government's policies. In an editorial in The Sunday Telegraph Peregrine Worsthorne said that the Government
fail to grasp the depth of outrage done to socialist-minded people by this Government; far greater outrage than was ever done to Tory-minded people by any Labour Government. Just imagine what the state of Tory opinion would have been if a Labour Government had ever felt strong enough to introduce a swingeing wealth tax, abolish the public schools, nationalise the Oxbridge colleges, prohibit fox hunting, proscribe titles and turn Whites' Club into a GLC creche".
He went on to say:
There is no gratitude in politics. Those who have benefited from the Thatcherite revolution won't thank her if they see their gains eroded".
He ended by saying:
Not only has she trampled on genuine ideals with deep roots in our national history but enjoyed doing so. In economic good times this did not matter. But if economic times turn downwards … it could matter a lot.
The Government's economic philosophy is based on the belief that there is a choice between the bureaucratic state-owned economies of the East and the free-for-all market economy they preach. I believe that there is another choice—a democratic socialist choice—where the state intervenes in society, not in a bureaucratic way but democratically, with the full involvement of the producers and consumers in our society.
I wish to contribute to the debate from the perspective of someone who spent 15 years of her working life before coming to the House in business. I started a business from scratch and worked it up producing goods, selling them, importing, exporting, understanding the significance of the value of money, and buying and selling foreign currencies in order to trade.
There has been much talk today based on political or economic dogma, whether it is Marxists who believe that one should control everything, including exchange, the Keynesians who believe that one can manufacture money and create businesses out of that, or the monetarists who believe that one can manipulate the money supply to control the economy.
I started my business in the early 1970s and lived through the horrors of the rampaging inflation experienced under the Labour Administration. Wilson's weasel words about the pound in our pockets not being devalued are carved on my heart because at that time I was heavily involved in importing bits and pieces and I suffered badly. I almost lost my business as a result of that economic interference. Therefore, I am no lover of Government interference in the economy.
The tremendous success that our Government have achieved in righting the economy was predicted on the degree to which they left the economy alone. They reduced tax rates so that people could make their own decisions about what to do with their money. The Government abolished exchange controls, which was a brilliant move by my right hon. Friend the Chancellor's predecessor. It freed people to spend money in the world market as they saw fit. The golden thread that has run through our economic success has been lack of intervention in economic matters. It is for that reason that it troubles me that we have now taken to the "touch on the tiller" mentality, which is what altering the interest rate is about.
We are in danger of impaling ourselves on that dogma. It is extremely important to take stock of the effect that such an idea is having on our business community. Business is about producing and exchanging goods. In reality it does not matter whether it takes place with foreigners or within our domestic market. It is nonsense to suggest that exporting has some intrinsically greater value than does selling goods domestically. That is like saying it is better to sell in Billericay than in Birmingham, Bradford or anywhere else. It is a subjective judgment of what economics and the economy, the business world, is all about.
If I had to buy foreign currency to purchase goods abroad, the money markets would adjust their values accordingly. If I wanted to buy an Hitachi television set, that would be taken into account by those who deal in currencies. To create artificial values for currency is to interfere with the natural market process. To try to tie the rudder of a ship so that it can no longer steer between the rocks is very dangerous. The same is true of trying to control exchange or interest rates in the interests of balancing the economy.
The concept of the balance of the economy is absurd. It really does not matter whether, at any particular time, we export more than we import or vice versa. If the economy is left to settle, it will balance itself. The level of the exchange rate—the value of money—shows what the world market thinks about the way our economy is going. That is what should decide the issue. To try to control that pivot point create difficulties.
Why are we trying to control the economy? Is it because of inflation? We all know, because my right hon. Friends the Prime Minister and the Chancellor have said so often, that inflation is created by politicians, not by business men, the greedy consumer who wants to buy more goods. or even trade unionists. It is an artificial extension of the money supply. Only the Government, by reducing the difference between their expenditure and taxation, can do anything about that. Trying to manipulate people's buying habits—which, to some extent, we are doing by raising the cost of money—will not succeed. We should allow exchange and interest rates to float and then the economy will balance.
We have heard a great deal about the need to increase savings. It has been said that raising interest rates will somehow induce people to save more. Japan faced many economic problems during the 1950s. In an attempt to encourage savings, which I accept is an important aspect of a healthy economy, it exempted interest on savings from taxation. That had a stunning effect on the level of savings which, in turn, produced the capital on which the success of the Japanese economy since then has been based. In addition, the then Japanese Chancellor reduced and stabilised the rate of taxation to a flat rate of 30 per cent. Those are the sorts of measures that will bring the economy into balance.
I do not believe that manipulating interest rates is the way out of what we perceive to be a dilemma, although I do not think that there is a balance of payments crisis. We have a healthy economy and we have put more money into people's pockets. People naturally want to spend it, which in turn increases the domestic market. Of course, some of that money will be spent abroad, and there is no great harm in that. It is not a tragedy. The Japanese do not eat the money that they obtain from our buying their goods and services; they do not stick it in a box under the bed—they spend it in Britain by investing in factories or buying our goods. They exchange it in the money markets for other currencies. It is absurd to suggest that there is something intrinsically bad about importing goods.
Increasing interest rates causes many difficulties for the business community. Big businesses may well have large savings, but small businesses are almost always working on overdrafts. Before my right hon. Friend thinks of raising interest rates again, I ask him to consider the basic policy of the economist Hayek, whose views I greatly respect, which is to allow the exchange and interest rates to float.
Today, in the face of another devastating and effective critique of the Chancellor's strategy, the right hon. Gentleman's credit ran out. It was foolish of him to claim that the Opposition motion does not refer to inflation when it specifically regrets
the way in which current policies have pushed up mortgage rates and other prices and charges".
Some of us had previously only suspected that the Chancellor was an economic illiterate. If the recent price rises do not constitute inflation, the Chancellor must explain what does.
The truth is that the term "inflation" is now as embarrassing to the Government as the term "unemployment" has been hitherto. It will have come as no surprise to the House today to hear the Chancellor attempting to modify the definition of "inflation"—no doubt the first of many—so that he could achieve a reduction in the same way that the Government changed the methods of recording unemployment to mask its real level.
If the Chancellor is right in saying that the real level of inflation is less than the Treasury figures because mortgage rises are included, how will he explain that to the millions of families in London who are now paying £20 a week more for their mortgages than they were at this time last year? How can he say that that is not inflation? For the 100,000 home owners in Edinburgh, and almost 1 million throughout Scotland, the rise in mortgage rates since the Budget has burdened them with an average monthly increase of £30. For thousands of home owners in my constituency and others, the rises so far this year have added £1,000 to £2,0000 to their annual repayments. The next mortgage rate increase will be a direct result of the Chancellor's 1 per cent. increase last Friday. That will deal a crippling blow to hundreds of thousands of home owners. The Chancellor will add another record to his collection—the record number of mortgage defaults, although in fact he already holds that record.
The Chancellor will live to regret his failure today to take action to help mortgagors. Many of the poorer home owners cannot live with that. Indeed, it is not only home owners who have suffered since the March Budget—tenants have had to bear rent increases of more than 8 per cent., almost twice the March rate of inflation, and electricity price rises of 9 per cent. That has also hit industrial and commercial competitiveness. The householders who have been hardest hit by the price rises that the Government have forced on consumers are the 10 million senior citizens who spend a higher proportion of their income on fuel than do the remainder of the population.
One of the 14,000 senior citizens in my constituency telephoned me this morning to comment on the latest pronouncement emanating from the Parliamentary Under-Secretary of State for Health, who said at the weekend that fuel costs were low and that state benefits meant that old people should have no problems keeping warm. This latest advice is part of a series of advisory notes, including advice to pensioners to start knitting to beat the winter chill and to sell their assets so that they can take out health insurance in the private sector.
Like the Chancellor. the Under-Secretary is out of touch with reality. As Age Concern has said today, the reality is benefit cuts, with senior citizens waiting months for any cash help. The reality is that the Help the Aged's winter warmth line has received more than 1,000 calls in the past 10 days from people who cannot afford to heat their homes. The reality is that pensioner couples should have had in their hands every week £18 more from this Government to spend on their fuel bills, but the breaking in 1980 of the link between pay and pension rises has allowed the Chancellor an extra £5 billion this year alone. Last Friday the Chancellor said that from next October £200 million of that would go back to the pensioners.
Today, the Chancellor had the chance to state how he would use the remaining £4·8 billion that he has taken from the pensioners to help them. However, as we know, the Chancellor has already given that money to help those on top earnings. He has not invested in our senior citizens or in industry. Indeed, the right hon. Member for Old Bexley and Sidcup (Mr. Heath) said that industry was destroyed in this country in the 1980s—and all to no purpose. It is no wonder that the Chancellor declined to take any interventions today, especially from his hon. Friends. He knows that, however cogent the arguments and no matter how scathing the criticism of him by the Opposition, it is nothing to the criticisms coming from his own side. He knows that when his right hon. Friend, the former Prime Minister, criticised the Chancellor's "insensitivity to other members of the Community", he was referring to the EEC, but it is equally true that the Chancellor is insensitive to the needs of our own community.
The nine increases in interest rates since the March Budget have made it impossible for the business community to finance investment by borrowing. The millions of men and women languishing on the dole know the real price of the Government's economic failure.
The Chancellor has recently received some bad news and some very bad news. The bad news came in the widespread criticism of his policies by his right hon. Friends the Members for Guildford (Mr. Howell) and for Brentford and Isleworth (Sir B. Hayhoe). The very bad news is that he now has some support from the City—from those very people who less than a month ago he was castigating as making forecasts that were even more inaccurate than his own.
Today, the Chancellor had two opportunities. One was to announce an investment programme for training and for industry, to stop almost limitless credit eroding our home economy, to take action to reduce interest and mortgage rates and to help businesses and people. The other was for the Chancellor to help himself by giving a convincing defence of his financial strategy. He has failed, and the country is paying for his failure.
The hon. Member for Western Isles (Mr. Macdonald) said that Conservative Members were sitting sullen faced and were fair-weather friends to the Chancellor. I wish to place on record the fact that I support the Chancellor in what he is doing now, as I did in March. I do not believe that the Chancellor has it wrong in having to temper the economy slightly because of the large balance of payments deficit. Some of us are determined to defend the Government's record, believe that we have it right, and that the economy is still strong.
Of course, the Labour party has a considerable problem. My hon. Friend the Member for Esher (Mr. Taylor) said that the hon. Member for Dunfermline, East (Mr. Brown) knew no economics. He certainly knows no economic history, because those Conservative Members who remember the last Labour Government will recall the appalling record left to us in 1979. We will take no lectures from the hon. Member for Dunfermline, East or from his right hon. Friend the Member for Leeds, East (Mr. Healey, who has been noticeable by his absence from every economic debate since he left office as Chancellor of the Exchequer in 1979.
All the indicators as to the prosperity of our economy show just how well off people are. Since 1979 the man on average earnings has had a 27 per cent. increase in his take-home pay, after taking account of price rises. A man on half average earnings is 20 per cent. better off in real terms and pensioners, whom the Opposition often use as a pawn in their campaigns, are 25 per cent. better off.
One has only to look around Britain today to see the prosperity. Some 67 per cent. of people own their own homes, which is a larger percentage than in any other European country. That is the mark of wealth creation and the wealth of interest in home ownership that ordinary people have. I am delighted that this party has been the party for a home-owning democracy in spite of the objections from the Opposition, who when we started to sell council houses objected and said that the tenants would not buy them. Yet eight or nine years later 1 million tenants own their own homes and have a stake in our society.
The Opposition have complained about the increase in mortgage rates, but only a few weeks ago they were complaining about the increases in house prices. They should make sure that they look at both sides of the coin. Of course mortgage rate increases are not welcome to any of us who own our homes and who know about the problems of our constituents.
Labour Members have complained about the north-south divide and the fact that house prices in the north are cheaper than in the south. They then complained, however, when house prices started to go up. Now that we are taking measures to ensure that house price increases slow down, as they are doing, they complain about that.
The Opposition have also complained that, in recent months, working people have had a certain amount of money taken from their pockets. Of course everyone regrets that mortgage rates have gone up, but we should also remember that the Labour party has voted against every tax cut since 1979. If it had had its way, we would have a tax rate of 34p in the pound. For Opposition Members to complain about people having to pay extra in mortgage interest is rich when they have objected to any cut in people's income tax rate since 1979. Those cuts have put money in people's pockets. I find it astonishing that Opposition Members can look us straight in the face.
The Opposition have complained about inflation. I concede that the inflation rate has run between 6 and 7 per cent. and that is unacceptably high, but there is not one month in this Parliament when it has come within a mile of the Labour party's record when it was 9 per cent. at its lowest rate. How dare the Opposition lecture us about inflation when, in five years, the Labour Government never got the inflation rate down to anywhere near what the Chancellor of the Exchequer has achieved.
Concern has been expressed about the effect of interest rates on small businesses. I have grave concern for the small businesses of my constituency and the family farms which suffer when mortgage and interest rates increase. The Labour party has failed to recognise, however, that 80 per cent. of the increase in the balance of payments deficit has been caused by demand from the consumer. Therefore, it is obvious that if interest rates, which affect the mortgage rate, are increased, that has a quicker and more effective dampening effect on consumer demand than any other measure.
Today business liquidity means that industry is much better able to stand up to an increase in interest rates than it ever was when the Labour party was in office. Opposition Members should consider their party's record before they lecture us.
The hon. Member for Dunfermline, East called for top taxpayers to have their tax cuts taken away. That policy equals cutting off one's nose to spite one's face. Opposition Members have not noticed that all the evidence, international and national, suggests that, when taxes are cut, the tax yield increases. That is true in this country where the top taxpayers, instead of paying 24 per cent. of the total tax yield, now pay 29 per cent. That is true of the far east, Japan, and the United States, and of every country where taxes have been cut. Conversely, in Belgium and Ireland where taxes have been increased, the tax yield has fallen. That is a recipe for disaster.
A tax-cutting policy has been successful, but tax increases would have the opposite effect. It is strange that, even after all the international evidence, Opposition Members continue to believe that theirs is the right policy.
I believe that tax cuts are a moral imperative. We are talking about the earnings of individual people. The state does not own people's earnings. The Opposition believe that the public are only entitled to pocket money which can be taken away from them at the whim of the state. In 1947, Douglas Jay put it better than anybody else in the "Socialist Case" when he said that the men in Whitehall knew best. Some 40 years on, the Opposition still believe that, despite nationalisation and all the disasters of state control. They still believe that the Government can put their hands into people's pockets and control their money. It is no accident that it is in those countries where the state controls people's earnings, their jobs and their homes that political freedom is largely negated. Contrast this with countries where people keep their own money and they have democratic freedom as well.
We must remember that we have a problem with the balance of payments—2·75 per cent. of gross domestic product. But I remember that, under the Government led by my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) and the previous Labour Government, it was 3·8 per cent. of GDP in 1974. In fact, in four out of the five years of the previous Labour Government, there was a balance of payments deficit at a far higher percentage of GDP than there has ever been under this Government. Let us remember that. When we consider the Government's record, we should contrast it with the alternatives that have been put forward in the past few years and support the policy of my right hon. Friend the Chancellor.
This debate has now lasted for nearly 40 hours and no fewer than 137 right hon. and hon. Members have taken part. With due deference to the brilliant contribution of my hon. Friend the Member for Dunfermline, East (Mr. Brown), it is fair to say that no speech exceeded in wit and wisdom that of the hon. Member for Pudsey (Sir G. Shaw), at the beginning of the debate.
The debate has been long and, at times, interesting. It has been so long that when it began the words "last month's trade deficit" meant only £500 million and the Chancellor's pallid features were attributed to a night on the tiles which, by coincidence, was in my constituency. He did not tell me that he was visiting Camden Town, but I suppose that he can claim that a 1960s night at the Camden Palace scarcely counts as an official visit by the Chancellor of the Exchequer. Whatever the original causes of the Chancellor's pallor, we can be sure that when he heard the latest trade figures, in the words of Procul Harum's 1967 hit,
His face at first just ghosty turned a whiter shade of pale.
The Chancellor could scarcely listen to the other chart-topping hits of 1967 without an uncanny feeling that they were predicting what has happened to him this year, starting with "I'm a Believer", moving on to "Puppet on a String", then—I assume a reference to the tapes—"Silence is Golden" and ending the year with "Let the Heartaches Begin".
On the strength of the ministerial contributions to this debate—not many of the contributors are present—I have increasing sympathy with the Prime Minister's view—she is not present either—that no one in the Cabinet is fit to be Prime Minister. Unfortunately for the right hon. Lady, to judge by her speech, that goes for her as well. If we look at the Treasury Bench, which is finally adorned by the Chancellor, it is easy to discern—or would be if they were here—several examples of the saddest of all Cabinet creatures—former next leaders of the Tory party. It is hard to see who is still left in the race. If I were asked where the smart money should go, I would suggest that Catford dog track any Monday, Wednesday or Saturday was a better bet than any of the Tories present.
The Secretary of State for Social Security, who is a television voice-over made flesh, was tipped as a likely successor to the Prime Minister just 18 months ago. Now, ravaged by circumstance and by my hon. Friend the Member for Livingston (Mr. Cook), he seems only half the man he was and the Prime Minister has made certain that he is only half the Secretary of State he was.
Next, we should consider the new half of the Department of Health and Social Security job-share, the right hon. and learned Member for Rushcliffe (Mr. Clarke). As many hon. Members know, it is not difficult to be an unpopular Minister if one is strapped for cash, but it takes real genius to give the nurses what he claims is an almost £1,000 million pay increase and to be even more unpopular. One of his hon. Friends told me that he is being tough with the nurses to promote his chances of becoming Prime Minister. What an illustration of the state of mind of Tory Back Benchers!
We are told that the Secretary of State for Education and Science has ambitions in the direction of 10 Downing street. His friends told him that if he really wanted to get there, he would have to make the supreme sacrifice. Nothing daunted, he did. He sacrificed the education of a generation of children to the turmoil of competitive tests for seven-year-olds, open enrolment and opting out. To add insult to injury, he then asserts that progressive education authorities, such as the Inner London education authority, are spending too much money educating each secondary school child—that is despite spending at least twice as much himself on the education of each of his children.
I turn now to the Secretary of State for the Environment, who is also not gracing us with his presence tonight. Even his best friend would not dream of suggesting him as a suitable leader for the Tory party—at least not since the passage of the Reform Act 1832. He is a man so arrogant that he was once accurately described by my hon. Friend the Member for Sheffield, Hillsborough (Mr. Flannery) as the only man in the world who can strut sitting down.
The right hon. Gentleman does not let his principles get in the way of his seat in the Cabinet. We remember him of yore as deregulator Ridley, the bonfire of controls, who said that everything should be left to market forces. He presents an unconvincing face as the Lord Protector of the Environment and purveyor of sweet water to the lower classes. He is the man who produced a White Paper on housing without mentioning the homeless—the people most in need of a home of their own. That may have been carelessness but his omission of another word is criminal negligence.
In 1985, the right hon. Gentleman set the priorities for London Transport in an 838-word letter. The one word that he never mentioned was safety. The fire at King's Cross killed 31 people because, like him, London Transport did not think that safety was important. Many more would have died but for the presence of mind of the station staff, police, fire fighters ambulance staff, doctors and nurses. Anyone who reads the Fennell report will know that deeds were done that night that went far beyond the call of duty. Later, to their credit, the chairmen of London Regional Transport and of London Underground accepted their share of the blame and resigned. Why did the buck stop there? What about the man who set their priorities and fixed their budgets, and who told the House that he would be accountable to this House? If he has a shred of the honour that right hon. and hon. Members are supposed to have, he would join the other Ridley and resign.
Another who should resign, but will not, is the Chancellor. Virtually everybody would agree that his last Budget was unfair—rewarding the rich and penalising the poor. However, at the time, many people including those wonderful youthful experts in the City described it as brilliant. They proclaimed the Chancellor "Man of the Year" and "Chancellor of the Century". A century is a long time in politics. Just last year the Chancellor was chosen as "Parliamentarian of the Year" by the Spectator. This year, I believe that he was not even invited to the lunch—[Interruption.] I had the pleasure of sitting next to the Chancellor's son and found him infinitely more charming than his father.
Last month's trade deficit of £2,400 million has been exceeded only twice in this country's history in a whole year. One of those years was last year, for which the Chancellor was also responsible. The only previous occasion was in 1974 as a result of the oil price increases and I shall return to the subject of oil in a minute.
Why is our balance of trade so bad? It is partly because, for electoral reasons, the Chancellor created the biggest credit boom in history. On top of that, his tax changes poured money into the pockets of the best-off and increased their spending power. What has happened to all that credit and all that extra disposable income in handbags and pockets? Most of it has been spent on buying houses and goods. The record amount of credit combined with the low number of houses being built has led to record house prices.
The record amount of credit has also led to our shops being filled with goods from abroad. Why is that? The main answer is that a lot of the goods that people want to buy are not made in this country any more. That is because 2 million fewer people are now employed in manufacturing industry than when the Tories first came to office. There are now 2 million fewer people making things for others to wear or use. People ask why they cannot buy British any more. The answer is that the Government deliberately shut down large parts of British industry.
In Scotland, 200,000 fewer people are making things, and there are 150,000 fewer making things in the north. But it is not just there—500,000 manufacturing jobs in the midlands and another 500,000 here in the relatively prosperous south-east have gone.
Labour warned what would happen. We said that a country with a large population cannot get by without a prosperous manufacturing base. We said that Britain could not prosper just by selling one another hamburgers, insurance policies and pension schemes.
I have got that.
We said that the money spent had to be earned. We said that we should devote the one-off bonus of North sea oil to tooling up our industry and training our people. When we said that, we were laughed to scorn by people who should have known better, and by the Chancellor. In February 1984, he told the House that he was at a loss to understand the selective importance attached by Labour and, to be fair, by some Tories to the manufacturing sector. In Washington later that year, the Chancellor warned that the world should not
be seduced by the wonders of high-tech into overlooking the fact that many of the jobs of the future will be in labour-intensive service industries which are not so much low-tech as no-tech.
With iron resolve hitherto unknown outside a nunnery, his Cabinet colleagues joined him in resisting the seductions of high technology. Not for them the primrose path of dalliance with high-tech investment, high-quality training and high quality research. No, they left that to Japan, Korea and Taiwan.
During the period of this Government, our imports from Japan have risen by 267 per cent., imports from Korea have risen by 247 per cent., and imports from Taiwan have risen by no less than 362 per cent., to replace the goods that 2 million British workers used to make. The goods that we are importing are not no-tech.
No, I shall not give way. The right hon. Gentleman can make a telephone call later. No doubt he will get it at a cheap rate from his employers.
On a point of order, Mr. Deputy Speaker. When an hon. Member makes an untrue assertion about the personal conduct of another hon. Member, that hon. Member is entitled to some redress. If the hon. Gentleman does not have the guts to allow me to intervene, he should at least have the guts to put things right when he says things that are untrue. The hon. Gentleman is gutless and he does not know what he is talking about.
I am sorry. If British Telecom charges the right hon. Gentleman for his calls, he suffers as much as we do, no doubt.
Order. It is contrary to our conventions for any right hon. or hon. Member to reflect adversely on the conduct, character or integrity of another hon. Member, but I did not hear any such remark.
The goods that we are importing are not no-tech. Some are low-tech, but most are high-tech products produced on equipment more up-to-date than ours and by a work force increasingly better trained than ours. Those imports are the products of the deliberate policies of the Chancellor which he outlined so succinctly in Washington four years ago.
The next question that the Chancellor has to answer is: where would he be without North sea oil? If we discount oil exports from the trade figures of last month the deficit would be £2,800 million instead of the already record-breaking £2,400 million. If we make a proper comparison with the period before North sea oil and add our oil consumpution for last month to our import total, the total trade deficit for last month would be £3,200 million. That would give a January to October trade deficit, not of £12,000 million but of £21,000 million and shows what a catastrophe the Government's policies have been for the non-oil economy.
To pay for this incompetence house buyers now face enormous increases in the costs of their mortgages. I heard that the Chancellor was "relaxed" about the impact of the interest rate increases on the cost of mortgages. Relaxed, is he? The real rate of interest, the difference between the inflation rate and interest rate, is now 6·5 per cent. If he is relaxed about that, he must have been delirious in 1965 when he obtained a famous mortgage. You may recall, Mr. Deputy Speaker, that the right hon. Gentleman got a £20,000 council mortgage from Kensington and Chelsea at 6·5 per cent. The rate of inflation then was 3·9 per cent., giving a real interest of 2·6 per cent. No wonder he went to the Camden Palace last week to celebrate the 1960s. Most young couples would celebrate with him if they could get a mortgage at a real interest of 2·6 per cent. I note in passing from an article that he penned with his own fair hand for The Spectator at the time that he justified his borrowing from the public sector because
the private sector is failing the nation.
Times have changed almost as much as the views of the Chancellor. In London last year, before things got half as bad as they are now, no less than 54 per cent. of would-be first-time buyers could not afford what the Association of District Councils called the cheapest common type of house. In Surrey the figure was 64 per cent., in Essex 56 per cent. and in Hertfordshire 49 per cent.
Is it fair to blame the Chancellor or the rest of the Cabinet for all this? We all know who takes the decisions—the Prime Minister. Nobody writing a book these days on British Government would come up with the idea that the Prime Minister is primus inter pares or, for the non-classical scholars opposite, first among equals. No, she got rid of the equals and got in the yes men, giving our language a new collective noun—a cringe of Cabinet Ministers. These days she does not communicate through the House. We have heard from her only 13 speeches in five and a half years. She feeds out information through a Mr. Bernard Ingham, the Official Deceiver. This extra-parliamentary functionary is no longer content to authorise leaks of confidential legal advice from the Law Officers of the Crown. Apparently he now has the authority of his mistress at 10 Downing street to embarrass the Queen, announcing off the record that the Queen would not be allowed to visit the Soviet Union. It is about time that the Prime Minister remembered that she swears an oath of allegiance to the Queen. It is not yet the other way round.
Before the right hon. Lady became Prime Minister and could use public officials for party purposes, the Tory
party put out a press release in April 1979 giving her attitude to manufacturing industry. I hope that Conservative Members will listen to her pearls of wisdom. She said:
We are going to do it by creating the conditions for real jobs, not artificial ones, so that once again the products stream from our factories and workshops while the customers of the world scramble over each other to buy them.
That was what she said when she was Leader of the Opposition. A likely trade deficit of more than £15,000 million suggests to me that few customers of the world are getting killed in the scramble to buy British. No wonder, with all the obstacles that her Government have put in the way of exporters—British exporters.
Much attention has been paid to the Prime Minister's trips abroad. Her favourite venue seems to be Washington. She is very popular there. It would be the grossest ingratitude on the part of the United States Government if she was not popular there. It is not just that she will go along with any aspect of American foreign policy as long as they promise her Trident. Like her, the American Government have a balance of trade problem. The Prime Minister has been very generous to President Reagan. She had done more to solve his trade problems than she has done to solve ours. During the period of her Government, United States exports to Britain have almost doubled. By those standards, she should be even more welcome in West Germany, whose exports to Britain have increased by 172 per cent., or in Italy and France, whose exports to us have more than doubled. There is a rumour that the Prime Minister will be offered the post of honorary president of the Japanese chamber of trade for services to exports—Japanese exports.
We are told that when the Prime Minister goes abroad she is batting for Britain—Mr. Bernard Ingham again, I believe. But a glance at the scoreboard shows that the bowling is usually too good for her. She may sneak a few export orders, but the people whom she meets end up exporting far more to us. To take Turkey as an example, the Prime Minister said that she visited that country to build bridges. Since she came to office, Turkey's exports to Britain have increased by 767 per cent. Other countries to benefit from such visits are China, at 187 per cent., Singapore at 155 per cent. and Hong Kong at 122 per cent. It appears from the figures that one visit from our Prime Minister and their goods come flooding into Britain. Under her Government, whatever else we have done, we have become brilliant at—how did she put it?—"scrambling over each other" to buy foreign people's goods.
All that was predictable, and it was predicted not just by the Labour party but in 1985 by the House of Lords Select Committee on Overseas Trade. It feared a current account deficit of £13,000 million a year by 1990. It said that the position was not self-correcting and would not come right on its own. It called for the manufacturing base to be enlarged, import penetration to be combated and manufacturing exports to be stimulated. Like us, the Committee was derided and ignored.
The Prime Minister ignored all that, preferring the seductive attractions of guards of honour mounted by foreign Heads of Government who know that Britain is becoming the export pushover of the world. They are happy to nod when she tells them that our economy is strong. But what else does she tell them about our country? More important, what does she leave out of all those speeches spattered with the royal "we"? I have not heard it reported that she has told any Heads of Government that within two miles of her official residence whole families of her fellow citizens made homeless by her housing policies live, eat, drink, wash and sleep in single, squalid, insanitary rooms in rundown bed-and-breakfast hotels. She does not tell them that those hotel children, who cannot sleep at night, cannot get exercise, cannot relax and cannot develop must attend schools where the Government have cut funds to help those children, and whose teachers are accused of incompetence and worse by her Secretary of State for Education and Science, who paid to make damn sure that his children did not share their classrooms with the children of the homeless.
It is not just that recent events have shown the shortsighted incompetence of the Government. They also show the Government's arrogant unconcern for the unemployed and the underpaid.
Recent events have also shown the eroding of ancient rights and liberties and the concentration of power in the hands of Government and, within the Government, the concentration of power in the hands of the Prime Minister. As far as I can see—and this is to the Prime Minister's credit—she displays little personal vanity, certainly less than many of her predecessors. But she is puffed up with political vanity. She has laid claim to credit for anything in our country that seemed worthwhile or that appeared to be doing well. There is no point in her pretending when things are going wrong that it is not her fault. The responsibility is hers. The Gracious Speech is hers. If put into practice it will hurt the weak, punish the caring and reward the rich and selfish. It truly epitomises all that the Prime Minister stands for. Both she and it are a national disgrace.
I shall begin by reminding the House of the way in which this debate started last Tuesday with excellent speeches from my hon. Friends the Members for Pudsey (Sir G. Shaw) and for Lewisham, West (Mr. Maples). It is not their fault if the debate did not always live up to the start that they gave to it. They both spoke with humour and insight about their constituencies. Their speeches will have enhanced the already high regard in which they are held in all parts of the House.
I should also like to mention the nearest thing that we had to a maiden speech in the debate, the retread speech by the hon. Member for Glasgow, Govan (Mr. Sillars). His speech was characteristic and Conservative Members look forward to hearing from him again even if Labour Members are not so keen to do so.
Today's debate on the economy has been much heralded, but very little in the way of constructive alternative policies emerged from the Opposition Front-Bench spokesmen. The right hon. Members for Ashton-under-Lyne (Mr. Sheldon) and for Bethnal Green and Stepney (Mr. Shore) showed the whizz kids on the Opposition Front Bench what opposition should be about. They made constructive speeches, although I disagreed with most of what they said.
I intend to devote the second half of my speech to dealing with economic questions. As Leader of the House winding up this six-day debate, there are three things that I should like to mention first. The House may wish to reflect on the fact that we are completing what may be the last untelevised debate on the Loyal Address. The Select Committee on the Televising of Proceedings of the House is making progress as fast as it reasonably can, but the House will appreciate that there are complex issues with wide-ranging implications to be addressed. In this context, I note the report from the Procedure Committee on the implications for procedure of televising the House. That report will, no doubt, be relevant to tomorrow's debate, but I shall just say that I am sure that the Committee is right not to suggest any premature changes, and that any changes that may be made should be for the convenience of the House rather than the convenience of the broadcasters.
Secondly, my right hon. Friend the Member for Worthing (Mr. Higgins) raised the question of the organisation and functions of Select Committees as a result of the splitting of the old DHSS into the Department of Health and the Department of Social Security, and the increasing effect of Europe on the work of our Select Committees. I agree with my right hon. Friend's logic about the split into two Select Committees—one to deal with health and one to deal with social security. We have to consider the timing of such a change, and that needs to be discussed.
My right hon. Friend was right to raise the issue of the best way to deal with European questions, but that is something that I should like to discuss with him, as Chairman of the Liaison Committee, after I have heard the views of the House in tomorrow's procedure debate.
I must now say something about the forthcoming legislative programme in this Session, which will occupy most of our time until next summer. The programme for this Session is deliberately a balanced one. It contains measures and policies covering four areas of concern both to the House and to the general public. The first theme is that of continued economic progress through the pursuit of policies to control inflation, foster enterprise and promote employment. In that connection, I would mention the Bills relating to the employment of women and young people and to training, the Social Security Bill, the Bill relating to company law and the law on mergers. Above all, there are three privatisation measures.
Secondly, there are measures that concern the application of the criminal law to maintain security and order while protecting individual liberty. In that context, let me mention our plans to replace section 2 of the Official Secrets Act 1911 with provisions which prohibit only those disclosures of information that would be harmful to the public interest. It is a civil liberties measure which greatly limits the present scope of the criminal law and is also—and unashamedly—a measure which protects the vital interests of a democratic Government in a free society.
There are also measures relating to terrorism: the replacement with permanent arrangements of the Prevention of Terrorism (Temporary Provisions) Act, which has saved so many lives and which—to its shame—the Labour party has consistently refused to support. I draw the House's attention, in particular, to the provisions aimed at intercepting the flow of funds to terrorist organisations. The courts will have the power to order forfeiture of money or property. Similar provisions have been applied to the funds of drug traffickers and—in the Criminal Justice Act—to the loot from other crimes. The level of remission for terrorist offences is also being reduced. We are introducing other measures, too, relating to Northern Ireland to secure fair employment there and to require from local government candidates declarations against terrorism.
Another important measure is designed to deal with football hooligans. We are proposing a national membership scheme of clubs to control admission to football matches. The scheme will deter troublemakers, both inside and outside the grounds. That will release police manpower and effort to deal with other offences.
The third theme of our proposals is the care of those in need. That applies particularly to the protection of children and the rights of parents. The present child care law both inadequately safeguards the welfare of children at risk and is unfair to parents. The widespread concern at the handling of the Cleveland child abuse cases, shared on both sides of the House, should make these proposals particularly welcome. My right hon. Friend the Lord Chancellor has also issued a consultation document on the proposal for an office of child protection to be established within the courts system.
This Session will also see decisions announced following the Government's Health Service review.
The final theme is the continuation of our policies for progress on arms control achieved from a position of strength and for continued good relations with both the super powers. My right hon. Friend the Prime Minister has already met President-elect Bush and reaffirmed our strong commitment to NATO and our American partners. Relations with the Soviet Union will, we hope, be further enhanced by the visit of Mr. Gorbachev.
Which of her two personalities will the Prime Minister adopt when President Gorbachev comes here? Will she be the person who says, "We can do business with this man" or will she show the other side of her personality when she starts making up fanciful and ridiculous demands—for example, when, as the Queen's minder, she is liable to say that the Queen cannot go to Moscow unless President Gorbachev reinstates a Cossack regiment in the Red Army? Is she going to be Mrs. Nice or Mrs. Nasty?
My right hon. Friend will do what she has done all the while she has been Prime Minister. She will negotiate on behalf of Britain and will produce for this country the best agreements available which will be substantially better than anything that the Labour party could dream of producing.
I turn now to the three privatisation measures in this Session's programme. The House well knows that privatisation is a key element in our economic strategy. Industry operates better if it is freed from political interference and is subject to the competitive pressures of the market. Eighteen major companies have now been privatised. Almost 40 per cent. of the state sector that we inherited has been returned to private ownership.
In 1979, state-owned industries accounted for 11·5 per cent. of Britain's GDP and employed some 7 per cent. of the total work force. Many of those industries were grossly inefficient and losing vast sums of taxpayers' money. In 1979, the nationalised industries were costing taxpayers £4·5 billion a year at today's prices.
Since privatisation, industries which drained the public purse are now filling it by making large contributions to the Exchequer through taxation. British Telecom, for example, is now contributing far more to the Government through corporation tax than it ever did when it was state-run. Since 1979, the Exchequer has benefited by more than £22 billion from privatisation.
However, the case for privatisation is emphatically not about raising money but about making industry work better. The balance of reasons may be different for complete or near monopolies from what it is for businesses which operate in a free market. That applies to the three industries mentioned in the Queen's Speech.
If, among a list of past and projected privatisation issues, Jaguar is still considered the paradigm by the Government, will the right hon. Gentleman explain the benefits of private ownership which have now led to 1,200 workers at that company being declared surplus to requirements in the next two and a half years and, in a six-week period before Christmas last year, to 17 shop-floor workers at Jaguar dying of strokes and stress-induced illnesses because of the speed-ups of the track? Where are the benefits of privatisation in car industries such as Jaguar?
One of the major problems of British industry over many years has been the car industry, but, since privatisation, Jaguar has at least shown a lead on how a car company can operate in this country, and it should have the full support of all hon. Members.
The Scottish Bus Group should never have been publicly owned to begin with. The 10 private companies that will be formed from the Scottish Bus Group will improve still further the competition which has already come from deregulation.
The case for privatising the water industry is different. It is not mainly based on competition, as the water authorities are natural monopolies. Instead, the case for privatisation is based on the need to free the industry from political control. The water industry has a turnover of £3 billion a year. There is no reason for this huge undertaking to be Government owned. Above all, the industry should be able to make its own decisions and set its own priorities as regards investment and borrowing. Privatisation will allow it to do so.
The Water Bill is not just about privatisation. It is also a major environmental measure. Privatisation of natural monopolies can be combined with tough regulation to protect consumers and improve the quality of life.
I have given way rather more than Opposition Front-Bench Members did and I ought to get on.
The Bill to privatise the electricity supply industry will bring about the largest privatisation ever. The principles behind the Government's proposals were set out by my right hon. Friend the Secretary of State for Energy in February and are contained in the White Paper. The case for privatising electricity is based fundamentally on the arguments for competition. The distribution and transmission of electricity are largely natural monopolies, but there is no such monopoly in electricity generation. And so the CEGB, under our proposals, will be split into two competing generating companies.
All three privatisations will make the industries work better. All three—but especially those of the water and electricity industries—will spread share ownership, the wider ownership of property, shares, pensions and savings. In short, the creation of a property-owning and capital-owning democracy is not merely an economic but a social policy of immense benefit to the British people.
Most of the debate today has been focused on the economy. Since the beginning of the previous Session, Britain's dynamic economy has produced more jobs—[Interruption.] Opposition Members may not like this, but they will get it. It has produced more jobs, more investment and more growth. Prudent financial policies have allowed us to cut tax rates, repay debt and increase spending on priority programmes.
The Opposition parties spend a great deal of time talking about inflation and the balance of payments deficit. So let me deal with those issues.
Yes. I hope that the right hon. Gentleman will listen.
Inflation has risen and we need to reduce it. My right hon. Friend the Chancellor of the Exchequer has raised interest rates to do just that. It should fall again in the fourth quarter of next year. Let there be no doubt that the control of inflation remains the Government's top priority. That is why we have brought it down to less than one quarter of the peak that it reached under the irresponsible policies of the Labour Government. That is why, even though it is still too high, it is lower now than at any time during the term of the Labour Government.
My hon. Friend the Member for Croydon, South (Sir W. Clark) was right to bring some balance into our discussions. Unlike the Labour party, the Conservative party carries credibility when it pledges lower inflation. In 1985, inflation rose a little and we took swift action. It touched 7 per cent. before falling back to just over 2 per cent. We tackled inflationary pressures then and we shall tackle them now with the same instrument—interest rates. We stuck to our policies then and we shall stick to them now. They are policies that have brought success that the Labour party can only envy.
My right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) and others have called for what might be referred to as the golf club solution. That is for some instruments to be used, as well as interest rates, to slow down the economy and to reduce inflation. As my right hon. Friend the Chancellor of the Exchequer made clear on several occasions, no such instruments exist. Credit controls, for instance, would create inefficiencies and distortions in the market while acting as a disincentive to borrowers and savers alike. They did not work properly even in the 1970s, when we had a battery of restrictions to back them up, and they would be still less effective today. To the extent that they did work, they would be unfair. Respectable lenders would charge cheaper credit to the safest borrowers while less well-placed borrowers would have to pay more, and would he driven to the loan sharks.
Some hon. Members have suggested the use of fiscal policy. The proper role of that policy is to create a stable medium-term framework for business. It is not a short-term measure to fight inflation. During the 1960s and 1970s Governments tried to use fiscal policy for short-term demand management, and the lesson to be drawn from the failures of that period is clear. Moreover, fiscal policy is already tight. My right hon. Friend the Chancellor budgets for a surplus £3·25 billion and that is now expected to turn out at some £10 billion.
I reiterate what my right hon. Friend the Chancellor has said. The control of inflation is a job for monetary policy, which means interest rates. Eighty per cent. of all household borrowing is on mortgages and my right hon. Friend the Member for Chingford (Mr. Tebbit) was right: credit cards represent only 5 per cent. of total credit. The hon. Member for Berwick-upon-Tweed (Mr. Beith) was also correct to state that many people, including himself, do not pay interest on their credit cards because they pay on time. I agree with that view.
We are told that the balance of payments deficit is too big. Again, that is rich coming from the Labour party. Labour Governments usually had deficits which rocked the markets. Furthermore, their trade deficits were fuelled by a huge budget deficit which reached 9·25 per cent. of GDP. There could not be a bigger contrast now. Public finances are stronger now than at any time in living memory.
The standard of living of our people has continued to rise. The real take-home pay of the average family with two children has risen by well over a quarter since we took office. A similar family on half-average income has seen it rise by 23 per cent.
Those are the facts, and the achievements reflect the sound economic policies which we shall continue. Ten years of hard work have brought those rewards. The last five years have seen some of the most astonishing successes and achievements for the British economy in living memory, but it has not been easy.
We have faced a miners' strike aimed at nothing less than the overthrow of the elected Government. We have also seen the turbulence in the world's currency markets, with first a surge and then a collapse in the dollar. Only a year ago we faced a spectacular stock market crash which many thought was the prelude to a return to the depression of the 1930s.
None the less, the past five years have brought record increases in productivity; record falls in the level of unemployment; record growth; record levels of investment; and record increases in living standards. As my right hon. Friend the Chancellor of the Exchequer passes his 2,000th day in office this week, he is the longest serving post-war Chancellor. He has a brilliant record of achievement which few Chancellors could match and which no Labour Chancellor could more than dream about.
The measures this Session will carry forward our radical programme for change. They will improve our economic performance and widen ownership. They will protect the environment and improve the quality of life. They will be underpinned by a vibrant, strong, sound economy which will pay for pensions and benefits and a more efficient Health Service. There are measures to combat violence, particularly the scourge of terrorism.
That is a programme which bears the mark of a Government who retain the confidence of the people and the respect of our neighbours. It is a businesslike programme for a Government who mean business and are know to do so, and as such I commend it to the House.
|Division No. 3]||[10.00 pm|
|Abbott, Ms Diane||Faulds, Andrew|
|Adams, Allen (Paisley N)||Fearn, Ronald|
|Allen, Graham||Field, Frank (Birkenhead)|
|Alton, David||Fields, Terry (L'pool B G'n)|
|Anderson, Donald||Fisher, Mark|
|Archer, Rt Hon Peter||Flannery, Martin|
|Armstrong, Hilary||Flynn, Paul|
|Ashdown, Paddy||Foot, Rt Hon Michael|
|Ashley, Rt Hon Jack||Forsythe, Clifford (Antrim S)|
|Ashton, Joe||Foster, Derek|
|Banks, Tony (Newham NW)||Foulkes, George|
|Barnes, Harry (Derbyshire NE)||Fraser, John|
|Barnes, Mrs Rosie (Greenwich)||Fyfe, Maria|
|Barron, Kevin||Galbraith, Sam|
|Battle, John||Galloway, George|
|Beckett, Margaret||Garrett, John (Norwich South)|
|Beggs, Roy||Garrett, Ted (Wallsend)|
|Beith, A. J.||George, Bruce|
|Benn, Rt Hon Tony||Gilbert, Rt Hon Dr John|
|Bennett, A. F. (D'nt'n & R'dish)||Godman, Dr Norman A.|
|Bermingham, Gerald||Gordon, Mildred|
|Bidwell, Sydney||Gould, Bryan|
|Blair, Tony||Graham, Thomas|
|Blunkett, David||Grant, Bernie (Tottenham)|
|Boateng, Paul||Griffiths, Nigel (Edinburgh S)|
|Boyes, Roland||Griffiths, Win (Bridgend)|
|Bradley, Keith||Grocott, Bruce|
|Bray, Dr Jeremy||Hardy, Peter|
|Brown, Gordon (D'mline E)||Healey, Rt Hon Denis|
|Brown, Nicholas (Newcastle E)||Heffer, Eric S.|
|Brown, Ron (Edinburgh Leith)||Henderson, Doug|
|Bruce, Malcolm (Gordon)||Hinchliffe, David|
|Buchan, Norman||Hogg, N. (C'nauld & Kilsyth)|
|Buckley, George J.||Holland, Stuart|
|Caborn, Richard||Home Robertson, John|
|Callaghan, Jim||Hood, Jimmy|
|Campbell, Menzies (Fife NE)||Howarth, George (Knowsley N)|
|Campbell, Ron (Blyth Valley)||Howell, Rt Hon D. (S'heath)|
|Campbell-Savours, D. N.||Howells, Geraint|
|Canavan, Dennis||Hoyle, Doug|
|Carlile, Alex (Mont'g)||Hughes, John (Coventry NE)|
|Cartwright, John||Hughes, Robert (Aberdeen N)|
|Clark, Dr David (S Shields)||Hughes, Roy (Newport E)|
|Clarke, Tom (Monklands W)||Hughes, Sean (Knowsley S)|
|Clay, Bob||Hughes, Simon (Southwark)|
|Clelland, David||Illsley, Eric|
|Clwyd, Mrs Ann||Ingram, Adam|
|Cohen, Harry||Janner, Greville|
|Coleman, Donald||John, Brynmor|
|Cook, Frank (Stockton N)||Johnston, Sir Russell|
|Cook, Robin (Livingston)||Jones, Barry (Alyn & Deeside)|
|Corbett, Robin||Jones, leuan (Ynys Môn)|
|Corbyn, Jeremy||Jones, Martyn (Clwyd S W)|
|Cousins, Jim||Kaufman, Rt Hon Gerald|
|Crowther, Stan||Kennedy, Charles|
|Cryer, Bob||Kinnock, Rt Hon Neil|
|Cummings, John||Kirkwood, Archy|
|Cunliffe, Lawrence||Lamond, James|
|Cunningham, Dr John||Leadbitter, Ted|
|Dalyell, Tam||Leighton, Ron|
|Darling, Alistair||Lestor, Joan (Eccles)|
|Davies, Rt Hon Denzil (Llanelli)||Lewis, Terry|
|Davies, Ron (Caerphilly)||Litherland, Robert|
|Davis, Terry (B'ham Hodge H'l)||Livingstone, Ken|
|Dewar, Donald||Livsey, Richard|
|Dixon, Don||Lloyd, Tony (Stretford)|
|Dobson, Frank||Lofthouse, Geoffrey|
|Doran, Frank||Loyden, Eddie|
|Douglas, Dick||McAllion, John|
|Duffy, A. E. P.||McAvoy, Thomas|
|Dunnachie, Jimmy||Macdonald, Calum A.|
|Dunwoody, Hon Mrs Gwyneth||McFall, John|
|Eadie, Alexander||McGrady, Eddie|
|Eastham, Ken||McKay, Allen (Barnsley West)|
|Evans, John (St Helens N)||McKelvey, William|
|Ewing, Harry (Falkirk E)||McLeish, Henry|
|Fatchett, Derek||Maclennan, Robert|
|McNamara, Kevin||Rogers, Allan|
|McTaggart, Bob||Rooker, Jeff|
|McWilliam, John||Ross, Ernie (Dundee W)|
|Madden, Max||Ross, William (Londonderry E)|
|Mahon, Mrs Alice||Rowlands, Ted|
|Marek, Dr John||Ruddock, Joan|
|Marshall, Jim (Leicester S)||Salmond, Alex|
|Martin, Michael J. (Springburn)||Sedgemore, Brian|
|Martlew, Eric||Sheerman, Barry|
|Maxton, John||Sheldon, Rt Hon Robert|
|Meacher, Michael||Shore, Rt Hon Peter|
|Meale, Alan||Short, Clare|
|Michael, Alun||Skinner, Dennis|
|Michie, Bill (Sheffield Heeley)||Smith, Andrew (Oxford E)|
|Michie, Mrs Ray (Arg'l & Bute)||Smith, C. (Isl'ton & F'bury)|
|Mitchell, Austin (G't Grimsby)||Smyth, Rev Martin (Belfast S)|
|Molyneaux, Rt Hon James||Snape, Peter|
|Moonie, Dr Lewis||Spearing, Nigel|
|Morgan, Rhodri||Steel, Rt Hon David|
|Morley, Elliott||Steinberg, Gerry|
|Morris, Rt Hon A. (W'shawe)||Stott, Roger|
|Morris, Rt Hon J. (Aberavon)||Strang, Gavin|
|Mowlam, Marjorie||Straw, Jack|
|Mullin, Chris||Taylor, Mrs Ann (Dewsbury)|
|Murphy, Paul||Taylor, Matthew (Truro)|
|Nellist, Dave||Thomas, Dr Dafydd Elis|
|Oakes, Rt Hon Gordon||Turner, Dennis|
|O'Brien, William||Vaz, Keith|
|O'Neill, Martin||Walker, A. Cecil (Belfast N)|
|Orme, Rt Hon Stanley||Wall, Pat|
|Owen, Rt Hon Dr David||Wallace, James|
|Paisley, Rev Ian||Walley, Joan|
|Parry, Robert||Wardell, Gareth (Gower)|
|Patchett, Terry||Wareing, Robert N.|
|Pendry, Tom||Welsh, Andrew (Angus E)|
|Pike, Peter L.||Welsh, Michael (Doncaster N)|
|Powell, Ray (Ogmore)||Wigley, Dafydd|
|Prescott, John||Williams, Rt Hon Alan|
|Primarolo, Dawn||Wilson, Brian|
|Quin, Ms Joyce||Winnick, David|
|Radice, Giles||Wise, Mrs Audrey|
|Randall, Stuart||Worthington, Tony|
|Redmond, Martin||Wray, Jimmy|
|Rees, Rt Hon Merlyn||Young, David (Bolton SE)|
|Reid, Dr John|
|Richardson, Jo||Tellers for the Ayes:|
|Roberts, Allan (Bootle)||Mr. Frank Haynes and|
|Robertson, George||Mrs. Llin Golding.|
|Adley, Robert||Boscawen, Hon Robert|
|Aitken, Jonathan||Boswell, Tim|
|Alexander, Richard||Bottomley, Peter|
|Alison, Rt Hon Michael||Bottomley, Mrs Virginia|
|Allason, Rupert||Bowden, Gerald (Dulwich)|
|Amery, Rt Hon Julian||Bowis, John|
|Amess, David||Boyson, Rt Hon Dr Sir Rhodes|
|Amos, Alan||Braine, Rt Hon Sir Bernard|
|Arbuthnot, James||Brandon-Bravo, Martin|
|Arnold, Jacques (Gravesham)||Brazier, Julian|
|Arnold, Tom (Hazel Grove)||Bright, Graham|
|Ashby, David||Brittan, Rt Hon Leon|
|Aspinwall, Jack||Brooke, Rt Hon Peter|
|Atkins, Robert||Brown, Michael (Brigg & Cl't's)|
|Atkinson, David||Browne, John (Winchester)|
|Baker, Rt Hon K. (Mole Valley)||Bruce, Ian (Dorset South)|
|Baker, Nicholas (Dorset N)||Buck, Sir Antony|
|Baldry, Tony||Budgen, Nicholas|
|Banks, Robert (Harrogate)||Burns, Simon|
|Batiste, Spencer||Burt, Alistair|
|Beaumont-Dark, Anthony||Butcher, John|
|Bellingham, Henry||Butler, Chris|
|Bendall, Vivian||Butterfill, John|
|Bennett, Nicholas (Pembroke)||Carlisle, John, (Luton N)|
|Benyon, W.||Carlisle, Kenneth (Lincoln)|
|Bevan, David Gilroy||Carrington, Matthew|
|Blaker, Rt Hon Sir Peter||Carttiss, Michael|
|Body, Sir Richard||Cash, William|
|Bonsor, Sir Nicholas||Chalker, Rt Hon Mrs Lynda|
|Chapman, Sydney||Hayhoe, Rt Hon Sir Barney|
|Chope, Christopher||Hayward, Robert|
|Churchill, Mr||Heath, Rt Hon Edward|
|Clark, Hon Alan (Plym'th S'n)||Heathcoat-Amory, David|
|Clark, Dr Michael (Rochford)||Heddle, John|
|Clark, Sir W. (Croydon S)||Heseltine, Rt Hon Michael|
|Clarke, Rt Hon K. (Rushcliffe)||Hicks, Mrs Maureen (Wolv' NE)|
|Colvin, Michael||Hicks, Robert (Cornwall SE)|
|Coombs, Anthony (Wyre F'rast)||Higgins, Rt Hon Terence L.|
|Coombs, Simon (Swindon)||Hill, James|
|Cope, Rt Hon John||Hind, Kenneth|
|Cormack, Patrick||Hogg, Hon Douglas (Gr'th'm)|
|Couchman, James||Holt, Richard|
|Cran, James||Hordern, Sir Peter|
|Currie, Mrs Edwina||Howard, Michael|
|Curry, David||Howarth, G. (Cannock & B'wd)|
|Davies, Q. (Stamf'd & Spald'g)||Howe, Rt Hon Sir Geoffrey|
|Davis, David (Boothferry)||Howell, Rt Hon David (G'dford)|
|Day, Stephen||Howell, Ralph (North Norfolk)|
|Devlin, Tim||Hughes, Robert G. (Harrow W)|
|Dickens, Geoffrey||Hunt, David (Wirral W)|
|Dicks, Terry||Hunt, John (Ravensbourne)|
|Dorrell, Stephen||Hunter, Andrew|
|Douglas-Hamilton, Lord James||Hurd, Rt Hon Douglas|
|Dover, Den||Irvine, Michael|
|Dunn, Bob||Irving, Charles|
|Durant, Tony||Jack, Michael|
|Dykes, Hugh||Jackson, Robert|
|Eggar, Tim||Janman, Tim|
|Emery, Sir Peter||Jessel, Toby|
|Evans, David (Welwyn Hatf'd)||Johnson Smith, Sir Geoffrey|
|Evennett, David||Jones, Gwilym (Cardiff N)|
|Fairbairn, Sir Nicholas||Jones, Robert B (Herts W)|
|Fallon, Michael||Jopling, Rt Hon Michael|
|Favell, Tony||Key, Robert|
|Fenner, Dame Peggy||Kilfedder, James|
|Field, Barry (Isle of Wight)||King, Roger (B'ham N'thfield)|
|Finsberg, Sir Geoffrey||Kirkhope, Timothy|
|Fishburn, John Dudley||Knapman, Roger|
|Fookes, Miss Janet||Knight, Greg (Derby North)|
|Forman, Nigel||Knight, Dame Jill (Edgbaston)|
|Forsyth, Michael (Stirling)||Knowles, Michael|
|Forth, Eric||Knox, David|
|Fowler, Rt Hon Norman||Lamont, Rt Hon Norman|
|Fox, Sir Marcus||Lang, Ian|
|Franks, Cecil||Latham, Michael|
|Freeman, Roger||Lawrence, Ivan|
|French, Douglas||Lawson, Rt Hon Nigel|
|Fry, Peter||Lee, John (Pendle)|
|Gale, Roger||Leigh, Edward (Gainsbor'gh)|
|Gardiner, George||Lennox-Boyd, Hon Mark|
|Gill, Christopher||Lester, Jim (Broxtowe)|
|Gilmour, Rt Hon Sir Ian||Lightbown, David|
|Glyn, Dr Alan||Lilley, Peter|
|Goodhart, Sir Philip||Lloyd, Sir Ian (Havant)|
|Goodlad, Alastair||Lloyd, Peter (Fareham)|
|Goodson-Wickes, Dr Charles||Lord, Michael|
|Gorman, Mrs Teresa||Lyell, Sir Nicholas|
|Gorst, John||McCrindle, Robert|
|Gow, Ian||Macfarlane, Sir Nell|
|Gower, Sir Raymond||MacGregor, Rt Hon John|
|Grant, Sir Anthony (CambsSW)||McKay, Allen (Barnsley West)|
|Greenway, Harry (Ealing N)||Maclean, David|
|Greenway, John (Ryedale)||McLoughlin, Patrick|
|Gregory, Conal||McNair-Wilson, Sir Michael|
|Griffiths, Peter (Portsmouth N)||McNair-Wilson, P. (New Forest)|
|Grist, Ian||Madel, David|
|Ground, Patrick||Major, Rt Hon John|
|Grylls, Michael||Malins, Humfrey|
|Gummer, Rt Hon John Selwyn||Mans, Keith|
|Hamilton, Neil (Tatton)||Maples, John|
|Hampson, Dr Keith||Marland, Paul|
|Hanley, Jeremy||Marlow, Tony|
|Hannam, John||Marshall, John (Hendon S)|
|Hargreaves, A. (B'ham H'll Gr')||Marshall, Michael (Arundel)|
|Hargreaves, Ken (Hyndburn)||Martin, David (Portsmouth S)|
|Harris, David||Maude, Hon Francis|
|Haselhurst, Alan||Mawhinney, Dr Brian|
|Hawkins, Christopher||Maxwell-Hyslop, Robin|
|Hayes, Jerry||Mayhew, Rt Hon Sir Patrick|
|Mellor, David||Smith, Sir Dudley (Warwick)|
|Meyer, Sir Anthony||Smith, Tim (Beaconsfield)|
|Miller, Sir Hal||Soames, Hon Nicholas|
|Mills, Iain||Speed, Keith|
|Miscampbell, Norman||Speller, Tony|
|Mitchell, Andrew (Gedling)||Spicer, Sir Jim (Dorset W)|
|Mitchell, David (Hants NW)||Spicer, Michael (S Worcs)|
|Moate, Roger||Squire, Robin|
|Monro, Sir Hector||Stanbrook, Ivor|
|Montgomery, Sir Fergus||Stanley, Rt Hon John|
|Moore, Rt Hon John||Steen, Anthony|
|Morrison, Sir Charles||Stern, Michael|
|Morrison, Rt Hon P (Chester)||Stevens, Lewis|
|Moss, Malcolm||Stewart, Allan (Eastwood)|
|Moynihan, Hon Colin||Stewart, Andy (Sherwood)|
|Mudd, David||Stokes, Sir John|
|Neale, Gerrard||Stradling Thomas, Sir John|
|Needham, Richard||Sumberg, David|
|Nelson, Anthony||Summerson, Hugo|
|Newton, Rt Hon Tony||Tapsell, Sir Peter|
|Nicholls, Patrick||Taylor, Ian (Esher)|
|Nicholson, David (Taunton)||Taylor, John M (Solihull)|
|Nicholson, Emma (Devon West)||Taylor, Teddy (S'end E)|
|Onslow, Rt Hon Cranley||Tebbit, Rt Hon Norman|
|Oppenheim, Phillip||Temple-Morris, Peter|
|Page, Richard||Thatcher, Rt Hon Margaret|
|Paice, James||Thompson, D. (Calder Valley)|
|Parkinson, Rt Hon Cecil||Thompson, Patrick (Norwich N)|
|Patnick, Irvine||Thorne, Neil|
|Patten, Chris (Bath)||Thornton, Malcolm|
|Patten, John (Oxford W)||Thurnham, Peter|
|Pattie, Rt Hon Sir Geoffrey||Townend, John (Bridlington)|
|Pawsey, James||Townsend, Cyril D. (B'heath)|
|Peacock, Mrs Elizabeth||Tracey, Richard|
|Porter, Barry (Wirral S)||Tredinnick, David|
|Porter, David (Waveney)||Trotter, Neville|
|Powell, William (Corby)||Twinn, Dr Ian|
|Price, Sir David||Vaughan, Sir Gerard|
|Raffan, Keith||Viggers, Peter|
|Raison, Rt Hon Timothy||Waddington, Rt Hon David|
|Rathbone, Tim||Wakeham, Rt Hon John|
|Redwood, John||Walden, George|
|Renton, Tim||Walker, Bill (T'side North)|
|Rhodes James, Robert||Walker, Rt Hon P. (W'cester)|
|Riddick, Graham||Waller, Gary|
|Ridley, Rt Hon Nicholas||Walters, Sir Dennis|
|Ridsdale, Sir Julian||Ward, John|
|Rifkind, Rt Hon Malcolm||Wardle, Charles (Bexhill)|
|Roberts, Wyn (Conwy)||Warren, Kenneth|
|Roe, Mrs Marion||Watts, John|
|Rossi, Sir Hugh||Wells, Bowen|
|Rost, Peter||Wheeler, John|
|Rowe, Andrew||Whitney, Ray|
|Rumbold, Mrs Angela||Widdecombe, Ann|
|Ryder, Richard||Wiggin, Jerry|
|Sackville, Hon Tom||Wilkinson, John|
|Sainsbury, Hon Tim||Wilshire, David|
|Sayeed, Jonathan||Winterton, Mrs Ann|
|Scott, Nicholas||Winterton, Nicholas|
|Shaw, David (Dover)||Wolfson, Mark|
|Shaw, Sir Giles (Pudsey)||Wood, Timothy|
|Shaw, Sir Michael (Scarb')||Woodcock, Mike|
|Shelton, William (Streatham)||Yeo, Tim|
|Shephard, Mrs G. (Norfolk SW)||Young, Sir George (Acton)|
|Shepherd, Colin (Hereford)||Younger, Rt Hon George|
|Shepherd, Richard (Aldridge)|
|Shersby, Michael||Tellers for the Noes:|
|Sims, Roger||Mr. Michael Newbert and|
|Skeet, Sir Trevor||Mr. Alan Howarth.|
Amendment proposed, pursuant to Standing Order No. 32 (Calling of amendments at end of debate), at the end of the Question to add:
But humbly regret that the Gracious Speech did not contain any proposal to combat the environmental crisis; call on the Government to take immediate action to join the 30 per cent. club, control the transport and disposal of hazardous wastes, develop a coherent planning strategy to protect green field sites, promote the use of unleaded petrol
and improve energy efficiency; further regret the absence from the Gracious Speech of any measures to tackle rising homelessness and poverty or measures to correct the mistakes of the March budget which are leading to rising inflation and a record payments deficit; believe that the Government's negative aproach to European co-operation is damaging the United Kingdom's best interests; further believe that measures outlined in the Gracious Speech for the privatisation of the water and electricity industries will lead to lower environmental standards, inadequate competition and higher prices for the consumer; further call for a Government sponsored Charter of Rights for the consumer in the market place; regret the absence from the Gracious Speech of a Freedom of Information Bill; and call for a programme of constitutional and electoral reform, including Parliaments for the nations of Scotland and Wales, which would protect the liberties of the citizen in the face of further restrictions proposed in the Gracious Speech."—[Mr. Wallace.]
|Division No. 4]||[10.15 pm|
|Alton, David||Livsey, Richard|
|Ashdown, Paddy||Maclennan, Robert|
|Barnes, Mrs Rosie (Greenwich)||Michie, Mrs Ray (Arg'l & Bute)|
|Beith, A. J.||Owen, Rt Hon Dr David|
|Bruce, Malcolm (Gordon)||Salmond, Alex|
|Campbell, Menzies (Fife NE)||Steel, Rt Hon David|
|Carlile, Alex (Mont'g)||Taylor, Matthew (Truro)|
|Cartwright, John||Thomas, Dr Dafydd Elis|
|Fearn, Ronald||Welsh, Andrew (Angus E)|
|Howells, Geraint||Wigley, Dafydd|
|Hughes, Simon (Southwark)|
|Johnston, Sir Russell||Tellers for the Ayes:|
|Jones, Ieuan (Ynys Môn)||Mr. James Wallace and|
|Kennedy, Charles||Mr. Archy Kirkwood.|
|Adley, Robert||Brooke, Rt Hon Peter|
|Aitken, Jonathan||Brown, Michael (Brigg & Cl't's)|
|Alexander, Richard||Browne, John (Winchester)|
|Alison, Rt Hon Michael||Bruce, Ian (Dorset South)|
|Allason, Rupert||Buck, Sir Antony|
|Amery, Rt Hon Julian||Budgen, Nicholas|
|Amess, David||Burns, Simon|
|Amos, Alan||Burt, Alistair|
|Arbuthnot, James||Butcher, John|
|Arnold, Jacques (Gravesham)||Butler, Chris|
|Arnold, Tom (Hazel Grove)||Butterfill, John|
|Ashby, David||Carlisle, John, (Luton N)|
|Aspinwall, Jack||Carlisle, Kenneth (Lincoln)|
|Atkins, Robert||Carrington, Matthew|
|Atkinson, David||Carttiss, Michael|
|Baker, Rt Hon K. (Mole Valley)||Cash, William|
|Baker, Nicholas (Dorset N)||Chalker, Rt Hon Mrs Lynda|
|Baldry, Tony||Chapman, Sydney|
|Banks, Robert (Harrogate)||Chope, Christopher|
|Batiste, Spencer||Churchill, Mr|
|Beaumont-Dark, Anthony||Clark, Hon Alan (Plym'th S'n)|
|Beggs, Roy||Clark, Dr Michael (Rochford)|
|Bellingham, Henry||Clark, Sir W. (Croydon S)|
|Bendall, Vivian||Clarke, Rt Hon K. (Rushcliffe)|
|Bennett, Nicholas (Pembroke)||Colvin, Michael|
|Benyon, W.||Coombs, Anthony (Wyre F'rest)|
|Bevan, David Gilroy||Coombs, Simon (Swindon)|
|Blaker, Rt Hon Sir Peter||Cope, Rt Hon John|
|Body, Sir Richard||Cormack, Patrick|
|Bonsor, Sir Nicholas||Couchman, James|
|Boscawen, Hon Robert||Cran, James|
|Boswell, Tim||Currie, Mrs Edwina|
|Bottomley, Peter||Curry, David|
|Bowden, Gerald (Dulwich)||Davies, Q. (Stamf'd & Spald'g)|
|Bowis, John||Davis, David (Boothferry)|
|Boyson, Rt Hon Dr Sir Rhodes||Day, Stephen|
|Braine, Rt Hon Sir Bernard||Devlin, Tim|
|Brandon-Bravo, Martin||Dickens, Geoffrey|
|Brazier, Julian||Dorrell, Stephen|
|Bright, Graham||Douglas-Hamilton, Lord James|
|Brittan, Rt Hon Leon||Dover, Den|
|Dunn, Bob||Irvine, Michael|
|Durant, Tony||Irving, Charles|
|Dykes, Hugh||Jack, Michael|
|Eggar, Tim||Jackson, Robert|
|Emery, Sir Peter||Janman, Tim|
|Evans, David (Welwyn Hatf'd)||Jessel, Toby|
|Evennett, David||Johnson Smith, Sir Geoffrey|
|Fairbairn, Sir Nicholas||Jones, Gwilym (Cardiff N)|
|Fallon, Michael||Jones, Robert B (Herts W)|
|Favell, Tony||Jopling, Rt Hon Michael|
|Fenner, Dame Peggy||Key, Robert|
|Field, Barry (Isle of Wight)||Kilfedder, James|
|Finsberg, Sir Geoffrey||King, Roger (B'ham N'thfield)|
|Fishburn, John Dudley||Kirkhope, Timothy|
|Fookes, Miss Janet||Knapman, Roger|
|Forman, Nigel||Knight, Greg (Derby North)|
|Forsyth, Michael (Stirling)||Knight, Dame Jill (Edgbaston)|
|Forsythe, Clifford (Antrim S)||Knowles, Michael|
|Forth, Eric||Knox, David|
|Fowler, Rt Hon Norman||Lamont, Rt Hon Norman|
|Fox, Sir Marcus||Lang, Ian|
|Franks, Cecil||Latham, Michael|
|Freeman, Roger||Lawrence, Ivan|
|French, Douglas||Lawson, Rt Hon Nigel|
|Fry, Peter||Lee, John (Pendle)|
|Gale, Roger||Leigh, Edward (Gainsbor'gh)|
|Gardiner, George||Lennox-Boyd, Hon Mark|
|Gill, Christopher||Lester, Jim (Broxtowe)|
|Gilmour, Rt Hon Sir Ian||Lightbown, David|
|Glyn, Dr Alan||Lilley, Peter|
|Goodhart, Sir Philip||Lloyd, Sir Ian (Havant)|
|Goodlad, Alastair||Lloyd, Peter (Fareham)|
|Goodson-Wickes, Dr Charles||Lord, Michael|
|Gorman, Mrs Teresa||Lyell, Sir Nicholas|
|Gorst, John||McCrindle, Robert|
|Gow, Ian||Macfarlane, Sir Neil|
|Gower, Sir Raymond||MacGregor, Rt Hon John|
|Grant, Sir Anthony (CambsSW)||MacKay, Andrew (E Berkshire)|
|Greenway, Harry (Ealing N)||Maclean, David|
|Greenway, John (Ryedale)||McLoughlin, Patrick|
|Gregory, Conal||McNair-Wilson, Sir Michael|
|Griffiths, Peter (Portsmouth N)||McNair-Wilson, P. (New Forest)|
|Grist, Ian||Madel, David|
|Ground, Patrick||Major, Rt Hon John|
|Grylls, Michael||Malins, Humfrey|
|Gummer, Rt Hon John Selwyn||Mans, Keith|
|Hamilton, Neil (Tatton)||Maples, John|
|Hampson, Dr Keith||Marland, Paul|
|Hanley, Jeremy||Marlow, Tony|
|Hannam, John||Marshall, John (Hendon S)|
|Hargreaves, A. (B'ham H'll Gr')||Marshall, Michael (Arundel)|
|Hargreaves, Ken (Hyndburn)||Martin, David (Portsmouth S)|
|Harris, David||Maude, Hon Francis|
|Haselhurst, Alan||Mawhinney, Dr Brian|
|Hawkins, Christopher||Maxwell-Hyslop, Robin|
|Hayes, Jerry||Mayhew, Rt Hon Sir Patrick|
|Hayhoe, Rt Hon Sir Barney||Mellor, David|
|Hayward, Robert||Meyer, Sir Anthony|
|Heath, Rt Hon Edward||Miller, Sir Hal|
|Heathcoat-Amory, David||Mills, Iain|
|Heddle, John||Miscampbell, Norman|
|Heseltine, Rt Hon Michael||Mitchell, Andrew (Gedling)|
|Hicks, Mrs Maureen (Wolv' NE)||Mitchell, Sir David (Hants NW)|
|Hicks, Robert (Cornwall SE)||Moate, Roger|
|Higgins, Rt Hon Terence L.||Molyneaux, Rt Hon James|
|Hill, James||Monro, Sir Hector|
|Hind, Kenneth||Montgomery, Sir Fergus|
|Hogg, Hon Douglas (Gr'th'm)||Moore, Rt Hon John|
|Holt, Richard||Morrison, Sir Charles|
|Hordern, Sir Peter||Morrison, Rt Hon P (Chester)|
|Howard, Michael||Moss, Malcolm|
|Howarth, G. (Cannock & B'wd)||Moynihan, Hon Colin|
|Howe, Rt Hon Sir Geoffrey||Mudd, David|
|Howell, Rt Hon David (G'dford)||Neale, Gerrard|
|Howell, Ralph (North Norfolk)||Needham, Richard|
|Hughes, Robert G. (Harrow W)||Nelson, Anthony|
|Hunt, David (Wirral W)||Newton, Rt Hon Tony|
|Hunt, John (Ravensbourne)||Nicholls, Patrick|
|Hunter, Andrew||Nicholson, David (Taunton)|
|Hurd, Rt Hon Douglas||Nicholson, Emma (Devon West)|
|Onslow, Rt Hon Cranley||Steen, Anthony|
|Oppenheim, Phillip||Stern, Michael|
|Page, Richard||Stevens, Lewis|
|Paice, James||Stewart, Allan (Eastwood)|
|Paisley, Rev Ian||Stewart, Andy (Sherwood)|
|Parkinson, Rt Hon Cecil||Stokes, Sir John|
|Patnick, Irvine||Stradling Thomas, Sir John|
|Patten, Chris (Bath)||Sumberg, David|
|Patten, John (Oxford W)||Summerson, Hugo|
|Pattie, Rt Hon Sir Geoffrey||Tapsell, Sir Peter|
|Pawsey, James||Taylor, Ian (Esher)|
|Peacock, Mrs Elizabeth||Taylor, John M (Solihull)|
|Porter, Barry (Wirral S)||Taylor, Teddy (S'end E)|
|Porter, David (Waveney)||Tebbit, Rt Hon Norman|
|Powell, William (Corby)||Temple-Morris, Peter|
|Price, Sir David||Thatcher, Rt Hon Margaret|
|Raffan, Keith||Thompson, D. (Calder Valley)|
|Raison, Rt Hon Timothy||Thompson, Patrick (Norwich N)|
|Rathbone, Tim||Thorne, Neil|
|Redwood, John||Thornton, Malcolm|
|Renton, Tim||Thurnham, Peter|
|Rhodes James, Robert||Townend, John (Bridlington)|
|Riddick, Graham||Townsend, Cyril D. (B'heath)|
|Ridley, Rt Hon Nicholas||Tracey, Richard|
|Ridsdale, Sir Julian||Tredinnick, David|
|Rifkind, Rt Hon Malcolm||Trotter, Neville|
|Roberts, Wyn (Conwy)||Twinn, Dr Ian|
|Roe, Mrs Marion||Vaughan, Sir Gerard|
|Ross, William (Londonderry E)||Viggers, Peter|
|Rossi, Sir Hugh||Waddington, Rt Hon David|
|Rost, Peter||Wakeham, Rt Hon John|
|Rowe, Andrew||Walden, George|
|Rumbold, Mrs Angela||Walker, A. Cecil (Belfast N)|
|Ryder, Richard||Walker, Bill (T'side North)|
|Sackville, Hon Tom||Walker, Rt Hon P. (W'cester)|
|Sainsbury, Hon Tim||Waller, Gary|
|Sayeed, Jonathan||Walters, Sir Dennis|
|Scott, Nicholas||Ward, John|
|Shaw, David (Dover)||Wardle, Charles (Bexhill)|
|Shaw, Sir Giles (Pudsey)||Warren, Kenneth|
|Shaw, Sir Michael (Scarb')||Watts, John|
|Shelton, William (Streatham)||Wells, Bowen|
|Shephard, Mrs G. (Norfolk SW)||Wheeler, John|
|Shepherd, Colin (Hereford)||Widdecombe, Ann|
|Shepherd, Richard (Aldridge)||Wiggin, Jerry|
|Shersby, Michael||Wilkinson, John|
|Sims, Roger||Wilshire, David|
|Skeet, Sir Trevor||Winterton, Mrs Ann|
|Smith, Sir Dudley (Warwick)||Winterton, Nicholas|
|Smith, Tim (Beaconsfield)||Wolfson, Mark|
|Smyth, Rev Martin (Belfast S)||Wood, Timothy|
|Soames, Hon Nicholas||Woodcock, Mike|
|Speed, Keith||Yeo, Tim|
|Speller, Tony||Young, Sir George (Acton)|
|Spicer, Sir Jim (Dorset W)||Younger, Rt Hon George|
|Spicer, Michael (S Worcs)|
|Squire, Robin||Tellers for the Noes:|
|Stanbrook, Ivor||Mr. Michael Neubert and|
|Stanley, Rt Hon Sir John||Mr. Alan Howarth.|
Most Gracious Sovereign,
We, Your Majesty's most dutiful and loyal subjects, the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled, beg leave to offer our humble thanks to Your Majesty for the Gracious Speech which Your Majesty has addressed to both Houses of Parliament.
To be presented by Privy Councillors or Members of Her Majesty's Household.