The right hon. Gentleman will remember that, on 1 May last year, inflation was on target at 2.5 per cent. and interest rates were 6 per cent. Since then, he has missed his inflation target 12 times out of 13. When will he start hitting it?
The previous Government missed their inflation target 43 times out of 55, so we will take no lectures from the Opposition. When we came to power, we found that inflation was going to rise substantially above target and that the action that the previous Government should have taken had not been taken, for all the wrong, party political, reasons. We immediately took action to move the economy from the violence of stop-go economic cycles—which had bedevilled us in the past and which, at the beginning of the 1990s, had given us the worst recession since the war—to a platform of sustainable and steady growth.
Did my right hon. Friend read the remarkably prescient article in the Fabian Review two years ago—it was written by someone I know—which pointed out that the rate of inflation left by the Tories would present us with real problems? It is quite ridiculous for the party of inflation—at least, those Tory Members who turn up to Treasury questions—to raise this issue. Will he, in the fight against inflation, consider a new golden rule—that people, especially those in the upper reaches of pay, should not give themselves pay awards ahead of productivity? We could start with the outside earnings of Conservative Members.
I am grateful to my hon. Friend. Wage responsibility all round, from the boardroom outwards, is necessary if we are to tackle inflation. He mentions the record that we inherited from the previous Government. I notice that, in a speech made only last night, the shadow Chancellor said that long-term interest rates in Britain were very low—below 6 per cent. That is because, over the past year, people have seen that we shall meet our inflation target, and long-term interest rates are now the lowest for 30 years.
Does the Chancellor accept that two men are responsible for the inflationary difficulties we face—the previous Chancellor, who failed to put up interest rates before the general election, and the right hon. Gentleman himself, who used two Budgets to impose taxes on hard-pressed businesses rather than on free-spending consumers?
I do not accept what the hon. Gentleman says. If we had followed his advice, we would be taxing everything under the sun. The Liberal Democrats' policy is to raise taxes on everything and to increase public spending, whereas we have imposed strong discipline both on public spending and on taxation. We cut VAT on fuel, without a great deal of support from him; we have reduced corporation tax from 33p to 31p and now to 30p; we have reduced small business taxation; we have abolished the gas levy; and from next April, national insurance for every employee will be cut. We are determined to provide the resources to encourage both work incentives and the investment that is necessary in industry. We are taking measures for long-term stability and growth in the British economy, and it is about time that the Liberal Democrat party started to support us.
Is my right hon. Friend reasonably pleased that unit wage costs rose by 3.2 per cent. in the first quarter of this year—they rose by 3.6 per cent., which is much more, in the last quarter of 1997—and that the number of jobs advertised in the national press is up by a third on the peak during the 1980s boom?
There are many vacancies in the economy—more than 200,000 vacancies are registered with the Employment Service, and there are 75,000 vacancies in the hotel and hospitality industry alone. My hon. Friend is absolutely right. The public sector has contributed to wage responsibility with wage rises of around 2.5 per cent, but there must be responsibility all round in the economy. That is why I said in the pre-Budget statement in November that responsibility would be necessary in the boardroom and right across the private sector. We are determined to tackle the inflationary problem that we inherited from the previous Government, to put the economy on a long-term stable path for non-inflationary growth.
Why was the Bank of England's Monetary Policy Committee not informed of the Chancellor's plans to abandon his public spending limits? Does the Chancellor agree with Professor Goodhart, who told the Select Committee on the Treasury that the Chancellor's spending plans would increase inflationary pressure even further, making it likely that interest rates would have to go up yet again?
I welcome the shadow Chancellor to his new job and his first Question Time. I also welcome him on his return to the Treasury brief following his period as Financial Secretary to the Treasury from 1990–92.
The Governor of the Bank of England has reported to the Treasury Committee—I hope that the right hon. Gentleman will confirm that he agrees—as follows:
Of course we knew as everybody else knew that the Chancellor was undertaking his expenditure review.
He went on:
I knew that the report was unlikely to change the fiscal outlook over the next couple of years.
It is a statement from the Governor of the Bank of England. If the right hon. Gentleman intends to contest a statement that is in the Treasury Committee's record, he had better think again. The fact is that there is a fiscal tightening in the economy of 3.5 per cent. over three years. That continues into next year, as I reported in my public expenditure statement.
Let us be clear on public spending prudence. The previous Government had a current deficit of 1.5 per cent. of gross domestic product over the cycle, the equivalent of a deficit of £12 billion a year. That is why we inherited a national debt that had doubled, and interest payments running at £25 billion a year. We have acted prudently so that there will be balance over the cycle in the current account. Instead of attacking us, the right hon. Gentleman should praise our prudence.
If the right hon. Gentleman says—and he does—that we are going on a spending spree, he had better tell us what he would cut. Would it be the health service, or education? Which public services would the Conservative party cut? Would it be transport, or social security? If the Conservatives think that our public spending figures are wrong, what will they cut?
The Chancellor has forgotten that this is Question Time for the Government. I am not attacking the Governor of the Bank of England, who has been put in an impossible position. He told the Treasury Committee that he understood that the Chancellor's plans would make no difference for the next two years. That was not true. The Governor was misled because the Chancellor's expansionary spending plans kick in—he may not know this, but we have spotted it—from April next year.
Is not the truth that inflation is up, strikes are up, savings are down, unemployment claimants are up and manufacturing is in recession? The Chancellor has created boom and bust at the same time. After 17 tax rises in only 15 months, is not the truth that hard-working people are paying an ever higher price to the Treasury's tartan tax army? After the Treasury team's own goal, should not they go home early as well?
I said at the beginning that the right hon. Gentleman had been Financial Secretary to the Treasury from 1990 to 1992. I will not take any lectures from a former Minister who was at the Treasury while interest rates rose to 15 per cent., inflation rose to nearly 10 per cent., public borrowing started its inexorable rise to £50 billion, the national debt started to rise—eventually doubling—and unemployment rose by 1 million people. The right hon. Gentleman should be ashamed of his record at the Treasury. It is no wonder that he was thrown out at the 1992 election.