Government Economic and Social Policy

Part of Orders of the Day — Opposition Day – in the House of Commons at 8:21 pm on 9th June 1993.

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Photo of Mr Tim Smith Mr Tim Smith , Beaconsfield 8:21 pm, 9th June 1993

It is always a pleasure to follow the hon. Member for Great Grimsby (Mr. Mitchell). Before he spoke, I had intended to say that there was more consensus in the House on interest rate and exchange rate policy than for some time, but the hon. Gentleman rather shattered that when he said that we need to reduce interest rates and devalue further. He suggested a splendid scheme for borrowing all the money interest-free, but even if that were viable it would be highly inflationary.

We need a policy that will promote growth, create jobs and tackle unemployment. It must promote manufacturing and Britain's exports, increase productivity and reduce our unit Labour costs. It should deregulate as far as possible and reduce the burdens on industry, thus making the United Kingdom attractive to investors.

By and large such a policy currently exists. Interest rates are lower than they have been for about 25 years, and inflation is lower than for 30 years. The exchange rate is much more competitive, and during the recession productivity has made tremendous strides. Britain's exports are more competitive than for many years, and there are tremendous opportunities for more.

The prospects for recovery are good, but there are two qualifications, one of which is domestic and the other international. The domestic one is that there is still less consumer confidence than we would like, largely because of the threat of unemployment and the fact that many people still suffer from negative equity. There is some way to go to overcome those problems.

Internationally, we are competing in markets that are rapidly contracting. I am not sure that people appreciate the dire state of the German economy, where industrial production fell by 12 per cent. in the past year. Although it is a difficult market for us, British exporters are having great success there, simply because high costs are pricing many German manufacturers out of the market.

The main threat to recovery is the size of the public sector borrowing requirement, which has been mentioned many times in the debate. I am sorry that the leader of the Opposition refuses to address the issue and say how he would tackle it. He simply engages in scaremongering about reducing expenditure, although the Government have made it quite clear that above all else they will protect the most vulnerable in society.

I am also sorry that the leader of the liberal Democrats refused to say how he would set about increasing taxation. He said that, in his opinion, £30 billion of the deficit was structural and should be tackled by increasing taxes. If he tried to deal with all that by way of income tax, it would require an increase of 15 per cent. in the standard rate. The right hon. Gentleman should say precisely what he has in mind for tax increases.

Prospects for the PSBR are hard to forecast. There are advantages in having forecasts in the Red Book from a panel of independent forecasters. Although the Government have forecast for next year a PSBR of £44 billion, the independent forecasts range from a low of £32 billion to a high of £60 billion. That illustrates the difficulty of forecasting from a range of large figures. We should not get too hung up on £50 billion or £44 billion.

The deficit is clearly too high, and has risen rapidly. Only five years ago, the public sector debt repayment was £15 billion, and some optimistic Members spoke about repaying the national debt by the year 2000. The situation can be reversed with equal rapidity if we can secure the necessary economic growth, because there is no doubt that much of the deficit is cyclical and not structural.

However, we must tackle it in the meantime, because of the cost of servicing the debt. I accept the tax increases in the Budget of £6 billion next year and £10 billion the following year, but I should not like to see further tax increases. If the Government need to do more to tackle this large deficit, they will have to reduce public expenditure.

I disagree with my right hon. Friend the Member for Shropshire, North (Mr. Biffen), who said that we should increase income tax by 1p or 2p in the pound. I intervened in his speech to say that there were to be income tax increases of £8 billion. It is not quite that, but out of the £10 billion proposed for 1995–96, only £2 billion is accounted for by VAT on domestic fuel and power. The other 80 per cent. is accounted for by increases in other taxes. When the increases in income tax and national insurance contributions are added, they amount to more than half that, to almost £5 billion.

Therefore, the Red Book already proposes substantial tax increases and I disagree with those who say that they are unfair. They are spread to cover all taxpayers, because the allowances and the basic rate limit will be frozen and various other restrictions will be introduced. In two years, that will increase the income tax bill of every taxpayer. That will be sufficient, and, as I have said, further inroads on the deficit should be made by tackling public spending, because much public expenditure could be reduced without affecting the most vulnerable in society.

Prospects are now better than for some time. Business confidence is higher than for more than 10 years, and the prospects for manufacturers and exporters are good. Manufacturing performance has been impressive. Our motor components manufacturers are selling to Germany, to Mercedes. Rover now produces motor cars that can compete with BMW and Mercedes.

Industry needs a period of stability in exchange rates, interest rates and inflation. Given that, there will be gradual economic recovery, which we shall all welcome.