That is not the answer to my question. The hon. Gentleman went along to lunch with the Chancellor and asked him to tax and tax again, so why did he not say that at the general election? The hon. Gentleman must have known then, in common with all his hon. Friends, that the country was in dire economic straits. We all knew that the public sector borrowing requirement would go up, almost regardless of what the Government did. If the hon. Gentleman is saying that he did not know that, he must be economically blind, because it was known by every economic commentator.
I accept that the Conservative party won the propaganda war of the election, but anyone who knew anything about the true state of the British economy knew that its promises were untrue. The hon. Member for Brigg and Cleethorpes may talk about the employment opportunities in his constituency, but we remember the Tory poster during the 1979 election campaign, when the hon. Gentleman entered the House, that sported the slogan "Labour isn't working". The level of unemployment under the Conservative Government, however, has been consistently higher than it ever was under the previous Labour Government. It is worth noting that the last time that inflation was as low as it is now was under a Labour Government, when the rate of growth was 2·2 per cent. and unemployment stood at a third of a million. That achievement is a measure of the Government's failure.
The failure of the 1981 Budget, which compounded previous failures, was that it destroyed the industrial base of Britain. In the early 1980s we lost close on one third of our manufacturing capacity. The policies of Lady Thatcher may have been wrong, they may have failed and done enormous damage, but at least they were espoused openly and honestly. At the previous general election the Conservative party acted dishonestly and it knew it. When Lady Thatcher destroyed the manufacturing base of British industry it was inevitable that Britain would have a weak economy. One cannot have a nation state with a weak industrial base and a strong financial structure. Britain dominated the world for so long because of our strong industrial base. Likewise, Germany and Japan have done well in the current financial world because of the strength of their industrial base. If that is taken away, one's financial strength is also lost. That is why the pound was devalued—any country would devalue in such circumstances.
Throughout the 1980s, the Government chipped away at our industrial base in such a way as to leave us terribly exposed. My hon. Friend the Member for Dunfermline, East (Mr. Brown) won an earlier exchange about Europe with his interpretation of the statistics. The findings behind another statistic, which was issued by the European Community about three weeks ago, should be made crystal clear to everyone. It reveals that, for the first time, the standard of living in Britain is below the average for EC countries. Anyone above the age of 40 will remember that this country was always in the top four in terms of EC standards of living. Now we are below the average; we are one of the poorer nations. The Government, however, try to get away with the lie that, somehow, our situation is comparable with that in other European countries because they, too, are faced with high unemployment or investment problems.
The truth of the matter is that so much damage was done during the 1980s that the Government are now trying to put together the pieces. That is the only thing that one can say in their favour. The right hon. Member for Westmorland and Lonsdale (Mr. Jopling) was right to say that things will get worse. The PSBR will continue to grow until the Government announce the true public expenditure cuts that they need to make, and which the hon. Member for Bridlington (Mr. Townend) would love them to make, to unemployment benefits. The only way in which that can be done, however, is by reducing unemployment, unless one is set on putting the unemployed on the breadline. The Opposition have always argued that one way to get the PSBR under control is not to have a high level of unemployment.
Recently, at Prime Minister's Question Time, the right hon. Gentleman reversed the policy of Lady Thatcher and told me that he sought to achieve full employment. I followed that reply with a written question and, in answer, the right hon. Gentleman defined full employment as high employment with a low level of inflation. To achieve that, however, one's aim must be full employment, but the Government do not accept that. As long as they accept a high level of unemployment, they will, by definition, accept a high level of public expenditure. That will cause them problems because they will either have to make cuts in other expenditure or conceal the dole queues in other ways.
The issue of housing finance has troubled me for a number of years. The Government have addressed it, to a limited extent, in the Budget with their changes to the mortgage income tax relief. For many years I have argued that housing finance has not only aggravated our housing problems, but caused major problems for the British economy.
Our housing crisis need not have arisen. The cuts that the Conservative party made to the provision of council housing were supposed to be designed to allow other houses to be made available for the private rented sector. That did not happen. The private sector represented 14 per cent. of the rented market when the Conservative party inherited it from the Labour Government, but it has now fallen to 7 per cent. The private rented sector is collapsing even though the Government have claimed that they want to enhance it. It is collapsing, and will continue to do so, because of mortgage income tax relief, which has always been a subsidy designed to make buying and selling houses attractive and renting housing, either as a landlord or a tenant, unattractive.
The collapse of the private rented sector has had important consequences and, to be fair, the Government now seem to recognise that, because the Chancellor is now phasing out mortgage income tax relief. That was the clear message from his decision, last year, to get rid of it for top rate taxpayers, as it was from the Government's refusal to upgrade that relief from £30,000 and their decision, yesterday, to reduce it from 25 per cent. to 20 per cent. It is clear that they are phasing out mortgage income tax relief. That is the right thing to do, but I wish that the Government would admit it. The President of the Board of Trade admitted it when he was on the Back Benches and said some six years ago—I have a copy of his speech somewhere—that that relief should be abolished except for first-time buyers. He also said that, in any event, it should be abolished after the first 10 years. I happen to know that a number of people on the Government Front Bench share that view.
When the late Lord Ridley was Secretary of State for the Environment I said that it would be possible to revive the rented sector if all the parties agreed to phase out mortgage income tax relief. At that stage, however, the Government did not want to bite on the bullet, mainly because Lady Thatcher supported the subsidy. It is a common mistake to believe that Lady Thatcher was against subsidies; she was a strong supporter of them for private sector education, private health or house purchase. She would not allow it to be cut. If the late Lord Ridley had had his way, he would also have phased it out. We should have had all-party agreement to phase it out. But the big mistake that the Government are now making is to phase it out without putting anything in its place, which is equally stupid. A subsidy is necessary to help people to buy houses.
The reason why the earlier rescue package failed disasterously was that the Government refused to change the subsidy system. Just over a year ago—I think that it was 18 December 1991—the Government said, in response to fears that they had about the coming general election, that they would introduce a mortgage rescue scheme to rescue 50,000 families. I checked relatively recently and found that the number of families who have been rescued under that scheme is about 140, compared with the 50,000 promised. The reason for the failure is that the Government did not place money in the system to protect people with genuine difficulties over paying their mortgage.
Mortgage income tax relief is a problem and I would support the Government in saying that it should go—the Government should say that it needs to go urgently. Mortgage income tax relief has added about two percentage points to the inflation rate. Every time the Chancellor or a Government Member appears on television to talk about the inflation rate they use the phrase, "excluding mortgage income tax relief or house prices". What they mean and what Lord Lawson said some time ago is that mortgage income tax relief adds about two percentage points to the inflation rate.
The increase in the inflation rate is serious enough in a time of housing boom, but it becomes more serious when added to the other factors of housing finance. Those factors include the equity release that came in the artificial boom years of the mid-1980s, which were thought to be the Thatcher miracle years. At that time about £20 billion a year was released from housing equity as people borrowed money on the value of their houses. However, that process fuelled the import problem as they spent that money on imported goods as we had destroyed our manufacturing base. In doing so, we fuelled the boom. Lord Lawson's big mistake in his Budget was to believe that that boom was based on the real wealth of Britain, rather than artificially engendered manufacturing wealth.
Much of that equity relief came from homes that had been bought under the right-to-buy policy. It is not well known, but the total amount brought into the Exchequer under that policy was £25 billion—equivalent to all the other privatisations put together. If even a significant part of that had been channelled into housing investment, this country would have had not only better housing stock, but a more effective construction industry which was not on the rocks as it is today. Such investment would have produced the other manufacturing advantages that flow from house repairs, maintenance and new-build. It would have helped the furniture and window industries and all those sectors that constitute a large part of Britain's manufacturing base, which is linked to the construction industry and is so important to the underlying base of the economy.
In other countries where there is a healthy rented sector people do not save by buying houses and waiting for house prices to rise so that they get rich. That has not happened here in the past few years, but has normally happened in Britain. In those other countries people save money in banks and investment societies that invest in industry. People in this country have historically relied on house price inflation to make them wealthy. People in our income group—I am referring to those who rely solely on a Member of Parliament's salary, which may not apply to many Conservative Members—rely on getting rich and securing an investment for the future by buying a house that will increase in value over the years. That does not constitute investment in industry or manufacturing—it is the sort of investment that can be released and developed in other ways.
Mortgage income tax relief is also important in relation to the mobility of labour. One problem of the mobility of labour in Britain is the lack of an effective rented sector. Mortgage income tax relief restricts the rented sector so that it is not easy for people to move around. A Welsh miner in the Welsh valleys who loses his job because the Government close a mine can sell his two-bedroomed house for about £10,000, move down the road about 100 miles to Reading—not a big move—where there is some available work and buy a similar house for £100,000. The Government will not achieve mobility of labour in this country until they do something about housing finance.
I regret that the Labour party did not make as much of the housing issue as we should have done in the period leading up to the general election. If we had concentrated on the subject of housing finance we could have won the arguments, not merely on housing, but on finance and the British economy. At that time, I had developed policies designed to reform housing finance and create a level playing field for the rented sector and the ownership sector. Banks and building societies were queuing up to talk to me about how to do that.
I believed that a key issue was the need for a housing investment bank. Initially, I suggested that the Government should set up a housing investment bank into which money released from capital receipts could be invested. The sum involved would then have been about £6 billion or £7 billion, which would have provided a good package on which local authorities could draw over a period. It would also have attracted private sector money to create expansion in the rented sector.
Initially, I thought that the Government would have to set up that bank, but one major building society and two or three banks came to me and said, "Don't bother—we'll do it for you." They said that if the capital receipts were invested in the bank and they were given a guarantee on the risk factor of about 1 per cent., they would also invest in it. The construction industry was also interested in investing money in the bank as it could see the advantages to be gained for itself. It would have been a long-term investment bank that would have attracted funds from people wanting ot make a long-term investment as they do with pension funds.
There was a possibility of constructing the sort of bank that exists in other countries in Europe, some states of the United States and elsewhere. It would have attracted extra private money to invest in housing. Such investment would be good, not only for the housing stock, but for the construction industry. Such a bank provided an opportunity that we have lost. The Labour party should have made a strong case for it. If the Government want to steal a march on us, they should say to the building societies and banks that, although the Labour party did not give them the chance to take advantage of such a policy, they could do so under the Conservatives. At least that would take some of the homeless kids off the streets—a phenomenon that we have not seen in this country since the 1914 period—and would take families out of bed-and-breakfast accommodation.
Such a policy would also allow the Government to do something that they want to do: move towards market rents. There have been arguments about market rents, against which I have no argument as long as they are affordable. It is their affordability that matters. Market rents are made affordable by having a level playing field for owner occupation and the rented sector within the housing finance structure. If that does not exist, it inevitably follows from the economics of the policy that the market rents will be unaffordable. That is precisely what is happening. That is why housing associations are experiencing so much difficulty and the private sector will not invest.
Before the election I said what we should have done. I now repeat that and say that, in the Budget, the Government should have given private landlords tax breaks. They should have done so only on the basis of an exchange for registration so that landlords would have to be registered in order to receive that subsidy. The registration would ensure that they delivered a proper standard of housing and did not harass tenants or provide bad service. The private rented sector has always produced the worst abuses in the rented sector generally. I was quite happy to say to landlords wishing to enter the system that, in exchange for the subsidy, they should give guarantees about management standards. In that way, we could revive the private rented sector, which would benefit the economy as a whole.