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In 1974 the Loyal Address was seconded by the present Leader of the Opposition. He said that he and the proposer of the motion were fellow members of the Tribune Group, which he described as "The light cavalry of the Parliamentary Labour Party".--[ Official Report, 12 March 1974 ; Vol. 870, c. 51.]

I wonder whether that was an entirely happy choice of phrase. My military history is not too strong, but I seem to remember that the light cavalry's most famous outing was in the charge of the Light Brigade at Balaclava. However, if the right hon. Gentleman feels that it is still an appropriate phrase, I am sure that some of my right hon. and hon. Friends will be happy to play the part of the Russian guns for his Light Brigade, although I am relieved to see that he cannot quite muster 600.

My constituency is an inner London seat, but it is mainly suburban in character. We have little or no local industry and most people commute to work in central London. We have some beautiful public parks and leafy, tree -lined streets, but we also have some rundown council estates, with their associated inner-city problems. Most people are very prosperous. Many more now own their own homes. They have enthusiastically taken advantage of the opportunities open to them. They will welcome the commitment in the Queen's Speech to continue the economic policies that have brought that prosperity. However, others have not been so fortunate ; some through no fault of their own. Old age, sickness and disability can leave people with few opportunities. I welcome the Government's efforts in housing and urban regeneration to help improve their job prospects and living conditions, but there is still much to be done.

Lewisham, West is a bell-wether, in that in every general election except one for the past 50 years it has gone with the Government. The exception was when Chris Price held the seat in 1979. One of my most distinguished

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predecessors was the father of my right hon. Friend the Paymaster General, the Member for City of London and Westminster, South (Mr. Brooke), who held the seat from 1938 to 1945. Lewisham, West has also been represented by my hon. Friend the Member for New Forest (Mr. McNair-Wilson) and by my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer). I cannot help noticing that the electorate has a nasty habit of moving its Member of Parliament on every election or two. I hope that that is a fate that I shall manage to avoid. For almost all of the last Parliament, one of my neighbours was John Silkin. No new Member could have asked for a kinder local colleague. Together with my hon. Friend the Member for Lewisham, East (Mr. Moynihan) we mounted several all- party campaigns for the benefit of Lewisham and, as a result, I learned a great deal from Mr. Silkin and those occasions. His sudden death was a tragic loss. I am glad to have this opportunity to pay tribute to him, because I know that he is remembered with great affection on both sides of the House. Like all hon. Members with less than 50 per cent. of the vote, I keep a close watch on the party in third place in my constituency, which over the past few elections has run Liberal and alliance candidates and, in future, I suppose there will be Democrat and SDP candidates. I find it all confusing. I want to do all that I can to help it maintain its vital 15 per cent. of the vote, but I no longer know where to send my subscription. I thought that I had it straight. I thought that members of the SDP were watered-down Tories and that Liberals were watered-down Socialists. However, I do not know where a Democrat fits into all that. Perhaps it bears out the famous letter of A. P. Herbert to The Times, in which he said :

"Dear Sir, The Liberal Party is like a herring, its backbone is to the left or the right, depending upon which way you open it." I welcome the commitment in the Queen's Speech to take action to improve standards in education. Londoners have been concerned for some time about the apparent lack of importance attached to the achievement of high standards, and they will support such measures. My constituents will also welcome the commitment to strengthen and improve the National Health Service, which they see as a guarantee of health care, regardless of ability to pay. I also welcome the proposal to denationalise electricity, which for the first time will give those who work in it and its customers a direct participation in their industry.

In Sir Humphrey Appleby's "Yes, Minister" diary, there is an observation on the need for mandarins to control Ministers which says that avoiding precedents does not mean that one should never do anything, merely that one should never do anything for the first time. The Queen's Speech must be upsetting Sir Humphrey.

Like many of my colleagues, I became actively involved in politics in the mid-1970s because I was concerned at the direction our country was taking. Above all, I wanted to see the re-establishment of a free enterprise economy, and I am happy and proud to have played a small part in that during the five years that I have been here. Whatever our different views and experiences, we are united in having the privilege of serving in the House, of living in a country with an elected parliamentary democracy, of being free to say what we like, and being governed by the rule of law which only Parliament can change. Those are rights and

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freedoms that have taken a long time to develop, and our greatest trust is to guard them carefully for the generations to come. 3.3 pm

Mr. Neil Kinnock (Islwyn) : I am sure that I speak for the majority of hon. Members on both sides of the House when I warmly compliment the hon. Members for Pudsey (Sir G. Shaw) and for Lewisham, West (Mr. Maples) on their excellent speeches in proposing and seconding the Loyal Address. The hon. Member for Pudsey enjoys great respect and not a little affection in this place, both of which will have been enhanced further by his brilliant and beautiful speech. Since it would offend him, I will not put it in the Hutton class, but I shall refer to another Pudsey lad, Herbert Sutcliffe ; as parliamentary speeches go, it was in the Sutcliffe league. I warmly compliment him on it.

Such are his personal qualities and capabilities, manifested in ministerial roles as well as on the Back Benches, that I thought that the felicitous feelings about the hon. Gentleman went well beyond the Chamber. Therefore, I was somewhat suprised to see that Mr. Colin Welch of the Daily Mail, not characteristically an uncharitable man, described the hon. Member for Pudsey as a

"roly-poly version of Dr. Bodkin Adams."

I am willing to subscribe a pair of opera glasses to Mr. Colin Welch because from where I stand I see a fairish, not to say gingerish, thinning- on-toppish, not over-tall, pleasant sort of cove--the kind of personal characteristics which, for some reason or other, I find completely acceptable. The hon. Gentleman is not at all like Dr. Bodkin Adams.

The courtesy and capability of the hon. Member for Pudsey are obvious to everyone. They are so obvious that, as you may know, Mr. Speaker, there was some astonishment in the House earlier this year when there was a noxious and unsubstantiated rumour circulating in the House that someone, somewhere was trying to procure your removal from the Chair to make way for a replacement. This may not have come to your notice, Mr. Speaker, because I realise that such things often do not. However, I read in the Sunday Times and The Daily Telegraph that the name most frequently circulated at the time as a potential replacement was that of the hon. Member for Pudsey. I could not believe the story and I do not think that any other hon. Member believed it, because from our knowledge of the hon. Gentleman's character, there was no possibility of any such vaunting ambition being entertained in that talented yet modest breast. All became clear when I read the "Peterborough" column in The Daily Telegraph last summer. It said :

"Any premature controversy about the Speakership would wreck the Prime Minister's plans to appoint another Conservative to succeed the present Speaker."

Clearly, someone was taking completely justified pre-emptive action--what in Welsh rugby we call getting your retaliation in first. It absolutely ensured that there was no possibility of embarrassing you, Mr. Speaker, or the hon. Member for Pudsey. All that concerned me as that episode closed was that someone, somewhere had taken the name of the hon. Member for Pudsey in vain.

The hon. Member for Lewisham, West made an equally distinguished contribution and paid a thoughtful and sincere tribute to the late and much -loved John Silkin. The

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hon. Member for Lewisham, West is a newer Member, but he has already earned a reputation for considerable perspicacity. That was evident early in his parliamentary career to those of us who watch these things. In his maiden speech, made just three weeks after he came to the House, he offered an answer to the tiresome problem of local rates. He offered the idea of a poll tax. He talked of "the introduction of a poll tax of about £25 per year on everybody over 18 who was neither unemployed nor living on supplementary benefit".--[ Official Report, 1 July 1983 ; Vol. 44, c. 849.] Since that time, and in terms that will be familiar to you, Mr. Speaker, an amendment has been made.

The perceptiveness of the hon. Member for Lewisham, West is not limited to local government finance. It extends to public transport. Not long ago, he told a survey, an examination, of the way in which hon. Members get to the House :

"maybe if everyone else stayed off the road, public transport would be quick enough--but it isn't yet so I use my car."

Such candour is admirable, and goes with the hon. Gentleman's many other qualities.

The proposer and seconder of the Loyal Address do not have in common only their abilities. They are joined by the fact that they are both economic evangelicals. The hon. Member for Pudsey has, for more than 10 years, been an enthusiastic advocate of British membership of the exchange rate mechanism of the European monetary system. The hon. Member for Lewisham, West has forcefully argued for some years, in the Financial Times and The Times, for the use of credit rationing, as he put it, to

"actively restrain bank lending to individuals and property companies while encouraging lending for productive investment." I do not want to cause trouble for either hon. Member, but I wonder what the Chancellor thinks of these various proposals. Perhaps he will tell us when, next Tuesday, he gives us his response to those charming speeches, and to the ideas that both hon. Members have rehearsed with some conviction.

I hope that the Chancellor will also give us answers to other questions. Perhaps he will tell us, as I am prepared to accept, that what he really had in mind was a new benefit with new money to help some of the poorest and most elderly of our people. I am sure that that is what was in his mind, but why did he feel that it was necessary, when he was about to offer such a bonus and such mercy, to "educate" his Back Benchers to give him their support?

There are basic policy questions as well. We want to know whether the Government's intentions towards pensioners' benefits are guided by the reality that there are 3 million retired people officially in poverty and another 3 million who are very near the poverty line. Will that be the reality that guides the Government's intentions, or will those intentions be guided by the completely unfounded and unsustainable assumption that only a tiny minority of pensioners have difficulty in making ends meet? We want an answer on that both from the Chancellor and from the First Lord of the Treasury.

I have asked the Prime Minister three times whether she agrees with the Chancellor's view, as expressed at the Lobby briefing, and thrice she has denied him. Perhaps it was not entirely to do with the Lobby briefing. Perhaps it was to do with wider reasons, for, after all, this is the Chancellor who, as recently as last March, told us in his Budget speech that we could expect a balance of payments

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deficit of £4 billion, and the balance of payments deficit is now £12 billion. This is the Chancellor who told us in his Budget speech in March that he expected an inflation rate of 4 per cent.--still too high, he said--and we now have an inflation rate of 6.4 per cent. and rising--the highest of any major industrial economy.

There is no oil price hike for the Chancellor to blame, no surge in commodity prices. This inflation did not come from external sources, but was made in Downing street by a Government who deliberately foster a consumption surge financed by credit and by a Chancellor who has now resorted to the primitive single instrument of interest rate rises to try to cap that rise in credit and consumption. Inflation comes from mortgage rate increases and rent increases, from price rises imposed to fatten the electricity industry to prepare it for privatisation, from postal charges and from transport charges. Those price rises across that wide spectrum are all supposed to be the firm financial policies designed to bear down upon inflation. The Government's rises in prices do not bear down on inflation-- they bear up underneath inflation, and force it higher all the time. Because the Chancellor insists on using that single weapon of interest rate rises, there is another result. As the hon. Member for Lewisham, West has pointed out, as the right hon. Member for Chesham and Amersham (Sir I. Gilmour) has pointed out, as the Opposition have pointed out and as the Chancellor himself admitted in his Autumn Statement, using interest rate rises as the sole instrument of economic policy bears down much more heavily on investment than on consumption.

The result is that, even if the Chancellor were to get the soft landing that he hopes for, in its wake would be left an economy that is under- trained, under-financed, under-invested and losing its market share and competitiveness. It would then have to face the extra pressures and challenges of the single market of 1992. Those are the weaknesses that the Chancellor should now address. If he does not address those basic, long- term weaknesses, the forecast that he made in the Autumn Statement, that next year the growth of imports would be cut by more than half and the growth of exports would increase by two and a half times, will turn out to be false, and as fraudulent as the estimates that he gave us in the Budget of a different level of inflation, a different balance of payments and different money supply figures.

The Prime Minister rightly said two months ago :

"the health of the economy and the health of the environment are totally dependent upon each other."

When such sentiments were expressed and we were told in the same speech that protecting the balance of nature is

"one of the great challenges of the late twentieth century", we could reasonably have expected that the Queen's Speech would propose new legislation, new regulations and new investment to face up to that great challenge that the Prime Minister correctly identified.

We and the country had reason to believe that the Queen's Speech could be a green speech, but all we have is the vacuous statement that the Government

"will continue to attach very great importance to protecting our environment, both nationally and internationally."

They say that they will continue that policy, yet British research into the ozone layer, climatic changes, carbon dioxide discharges and energy efficiency are all cut and

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insufficiently financed. They say that they will continue to protect the environment, yet Britain has the dirtiest beaches in Europe, 11 million people in our country are obliged to drink sub-standard water and there is no strategy for managing the increasing quantities of toxic and hazardous chemical waste. The Lancet can report an "uncontrolled" outbreak of salmonella disease, the incidence of which has increased by nine times in the last few years, yet the numbers of environmental health officers are cut because of local government cuts.

The Government say that they will continue to protect the environment, yet senior members of the pollution inspectorate resign because of lack of Government commitment and there are no serious proposals from the Government for conserving energy and reducing its use, which is widely understood to be the single most important policy for reducing the greenhouse effect. How, then, can we accept that the Government will continue to protect the environment? If attaching "very great importance" to the environment means anything, the Government should now embrace the "green gauntlet" challenge thrown down by Greenpeace, Friends of the Earth and the World Wildlife Fund in the form of 30 practicable proposals, and should immediately introduce the kind of policies set out in that consensus document. If they were to do that, they would prove their earnest and they would also obtain support throughout the House ; as the majority of the major proposals of that document have been Labour party policy for years, we would support the Government with enthusiasm. Until the Government take that course, the undertaking to

"attach very great importance to protecting our environment", will come to a very great nothing. That is why we have to secure the change.

It would not be true to say that no Bills of environmental importance are promulgated in the Queen's Speech. There are two, both with significant impact on the environment, but neither brings anything of benefit. The Government propose to sell control of the water and electricity industries to private monopolies. Both proposals will be long debated and strongly resisted by Opposition Members. Some Conservative Members share our view that the privatisation of a natural resource such as water and a vital service such as electricity has no justification in common sense or in the common interest.

There is no reason of public service or consumer interest that can justify the sell-offs. There is no industrial, strategic or economic logic to them. Those who buy the water and electricity industries will do so for gain. It will not be malevolence that makes them look for profit before anything else ; it will be a sheer business requirement. To make that money, the owners of the water and electricity companies will either fail to make the necessary investment in standards and safety or they will introduce huge increases in charges regardless of the ability of consumers to pay. A nuclear tax and a water tax will be levied by private monopolies in those industries.

In a broadcast over the weekend, the Minister for Water and Planning said that the only way for improvement in the water industry was to sell it off. That was absurd in a country in which large-scale, long-term investment by private industry is the rare exception, not the regular rule. Indeed, it was the very condition of the industries and their private ownership that produced the

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practical reason for taking them into public ownership. Those acts of community ownership of essential assets did not come as an application of ideology. It is certain, however, that the sell- off of these industries is the product of nothing but the application of ideology. The British people bought and paid for the industries over the decades, and they will pay dearly for this application of Government ideology.

The Queen's Speech contains a reference, rightly and obviously, to Northern Ireland. There has been a further year of terrorism and tragedy and today, once again, a family in Northern Ireland mourns a murder. Before the Government introduce the measures that are suggested in the Queen's Speech, I shall refer to the decision, news of which came this week, to cut neighbourhood policing, transport policing and crime prevention, to close some police stations and to reduce the hours that other police stations remain open in Northern Ireland.

Those decisions would in any event be a cause of objection and reconsideration for all parts of the law-abiding community in Northern Ireland and elsewhere, but the concern that the changes in policing have generated was raised to a different level by the broadcast by the Minister of State, Northern Ireland Office on Sunday. When questioned about the changes in policing by the Royal Ulster Constabulary, he said :

"We didn't choose the priorities. It was the Chief Constable." That was one of the most disingenuous and disgraceful statements to be made by any Minister. Everyone must know that the responsibility for the cuts and transfers in the RUC lies with the Government, not with the Chief Constable, not with the RUC and not with the police authority. Any shortages that brought the changes must be made good. The Minister's attempt to avoid blame was only the latest addition to a long list of such evasions. It happened only a couple of weeks ago, with the publication of the Fennell report on the King's Cross tragedy. It appears that there are no backstops in Whitehall. It seems that the Secretaries of State for Transport and the Environment were so busy washing their hands of responsibility that they could not pick up their pens to write out the resignations that they should have tendered.

Another example of evasion has arisen with the regrading of nurses. Ministers at the Department of Health have encouraged health managers to take their nurses to court. Do not the Government understand that loyal nurses are angry and dismayed at the way in which they have been treated? If they do not, they should meet nurses such as the sister who came to my surgery a week ago. She has worked for 19 years as a sister and she finds herself on a low grading. There has been no negotiation, no consultation and no explanation.

Mr. David Harris (St. Ives) : Appeal.

Mr. Kinnock : The hon. Gentleman says, "Appeal." Of course she is appealing. Do not the Government understand how insulted and let down nurses of that experience feel? That explains the feeling in the profession now. She is the kind of nurse who has never extended her tea break. Like so many other nurses, because of her dedication she works hours of overtime without pay, as a matter of course. That is the kind of person whom the Government must be concerned about when feelings of bitterness and resentment are obvious.

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If the Minister needs convincing, he should meet the registered general nurses who hold registered mental nurse or registered certified midwife qualifications and see how they feel. After all that additional training, they find themselves on low grades. In this, the era of the specialist nurse, imagine how staff nurses who want to undertake extra courses to meet shortages in intensive care, paediatric intensive care, midwifery and mental illness, feel when they are downgraded to D during the time that they attend courses. What inducement is that to the modern nurse of either sex to train for the additional qualifications necessary to end the shortages? A nursing auxiliary at the North Middlesex hospital was referred to last week in Nursing Times and Nursing Mirror. She was awarded a British Empire Medal this year for her services to nursing and then put on grade A, the lowest grade. I suppose that that says it all about the insensitivities, inadequacies and lack of negotiation and consultation built into the grading system.

I appeal to the Secretary of State for Health to meet the working nurses from the Royal College of Nursing, from the Royal College of Midwives, from the health visitors, from the Confederation of Health Service Employees and the National Union of Public Employees. It does not matter about the unions : he should meet the nurses and see how they respond. He should tell them that he will guarantee to ensure that the review will be fair and speedy and will take proper account of qualifications, experience and responsibility.

A short time ago, the Prime Minister rightly told us that responsibility goes hand in hand with freedom. She said that those who seek one must be prepared to offer the other. Of course, the Prime Minister's words were absolutely true. The connection between freedom and responsibility is the contract of democracy. When we consider the Gracious Speech today and consider so many of the Government's actions, we and many others say that the Government are not keeping that contract of democracy.

I know that the Prime Minister said last week that sometimes we have to sacrifice a little of the freedom that we cherish to defend the greater freedoms. That is axiomatic. If it was not, we could drive on any side of the road that we liked ; all suspects would be free to roam the streets until the trial ; and any newspaper could publish any article about any secret without regard to vital interests of national security. If we did not concede some freedoms, we would have less freedom. So much is obvious.

Freedom is not a matter of absolutes ; it is a matter of balance. In this country, people of all parties and of no party now consider that that balance is shifting and that the Government are controlling and regulating. They see the ending of the right of silence in a police station and the imposition of a duty of silence in the television station. They see that coming forward in an official secrets Bill which will make it illegal to publish stories which we can read freely now in any serious newspaper. They see that power is being moved relentlessly in favour of the state. They feel that the balance of freedom has swung against the civil servant, the newspaper, the broadcaster and the individual citizen who wants the right to object and the right to know.

Those people who are concerned about the changing balance in our country agree with Edmund Burke : they understand that liberty must be limited in order to be possessed. They do not seek licence, and they do not

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support lawlessness, but they want the balance of freedom to be retained and they want the rights of information, privacy and expression to be expanded in this mature democracy, as they are in other democracies. Instead of that, they are convinced, with us, that the shifts in the balance that are taking place do not safeguard, but curtail, essential liberties.

We shall resist those shifts against the rights of the subject in the many Acts that come from the Government. We shall resist with reason and with argument. I put it to Conservative Members, again in the words of Edmund Burke, that all it requires for the triumph of evil is that good people do nothing. I appeal to the good people in all parts of the House to join us in stopping the shift to centralisation, control and censorship that is jeopardising liberty in this state, under this Government, with this Prime Minister. 3.30 pm

The Prime Minister (Mrs. Margaret Thatcher) : First, I join the Leader of the Opposition in warmly congratulating my hon. Friends the Members for Pudsey (Sir G. Shaw) and for Lewisham, West (Mr. Maples) on the most excellent speeches that they made in moving and seconding the Loyal Address. My hon. Friend the Member for Pudsey is famous for his wit and affability, and his performance today was even better than his reputation. It was an absolutely marvellous speech. I noticed that he was typically modest about his own contribution to government. We miss him very much-- [Interruption.] --but one of the advantages of being on the Back Benches is that we are able to hear him move a most excellent Loyal Address today.

I also congratulate my hon. Friend the Member for Lewisham, West on a typically persuasive and thorough speech. I enjoyed it very much. I have a fellow feeling with him, being a London Member, particularly as we suffer from RAWP in the Health Service, as he knows well. It was a most excellent speech and I, too, hope that he will keep his seat for as long as I have kept mine-- [Interruption.]

Mr. Speaker : Order. I did not wish to interrupt the Leader of the Opposition, but will hon. Members below the Gangway kindly refrain from chatting?

The Prime Minister : Let me deal quickly with some of the comments made by the Leader of the Opposition before making my remarks on the Gracious Speech.

There are now far fewer pensioners on low incomes today than there were-- [Interruption.]

Mr. Speaker : Order.

The Prime Minister : There are far fewer pensioners on low incomes today than there were 10 years ago. Ten years ago, 38 per cent. of pensioners were in the bottom one fifth of national income. Today, only 24 per cent. of pensioners are in the bottom fifth--an enormous improvement.

Domestic electricity costs 8.1 per cent. less in real terms today than it did five years ago. But it is quite misleading for the right hon. Gentleman to suggest that we can have all the environmental improvements and all the improvements in electricity and water quality without

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having to pay the price. Of course there is a price for environmental improvement, and we should believe that it is a price worth paying.

A report by scientific experts which was put before the North sea conference, which was held in Britain, confirmed that the state of the North sea was generally good and that environmental damage was largely confined to localised areas such as the German and Dutch Wadden seas. If people are interested in the cleanliness of rivers, they might turn their attention to cleaning up the Rhine. With regard to the RUC, I may point out that expenditure in 1986-87 was £319 million-- [Interruption.]

Mr. Speaker : Order. I have drawn to the attention of right hon. and hon. Members seated below the Gangway my views on talking during the speech by the Leader of the Opposition. I now say to those seated above the Gangway, and especially to those who are members of the Opposition Front Bench, that they should not seek to interrupt the Prime Minister.

Mr. Allan Rogers (Rhondda) : On a point of order, Mr. Speaker. When my right hon. Friend was speaking, there was noise not only from below the Gangway but from the Government Front Bench, about which you, Mr. Speaker, said nothing. Frankly, I resent the threat that you, Mr. Speaker, make to my right hon. and hon. Friends on the Opposition Front Bench.

Mr. Speaker : There is no question of a threat. I say to the hon. Member for Rhondda (Mr. Rogers), who is a member of the Opposition Front Bench, that he should set a good example.

The Prime Minister : The Leader of the Opposition referred to the resources available to the RUC. In 1986-87, they totalled £319 million. For the current year, 1988-89, £385 million will be available, and next year a figure in the region of £414 million will be available to the RUC. That is a substantial increase in resources for that brave police service.

The right hon. Gentleman referred also to the clinical grading of nurses. Almost half a million nurses, midwives and health visitors will have to be regarded, and nearly £1,000 million has been provided for that purpose by the taxpayer. The overwhelming majority of nurses are very satisfied with their grades. There is a very limited amount of trouble, and my right hon. and learned Friend the Secretary of State for Health will be seeing the Royal College of Nursing. Most taxpayers do not understand why, when they have provided the amount for that award in full, there is still trouble. We hope that we will get an improvement in the Health Service.

The Leader of the Opposition finished by making the astonishing claim that things are being more centralised. I counter his claim very strongly. In taxation, for example, the Government are taking a smaller proportion of the national income ; the right hon. Gentleman wants the Government to take a bigger proportion. In nationalisation, we are privatising and taking powers away from the Government and giving them to the people. In education, we are giving far more powers to parents and taking them away from central Government. In council housing, we are giving far more opportunity to the people to have capital than the Leader of the Opposition would ever have given. In share ownership, more opportunity has come from the Government to the people. All those are movements of

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power from central Government to the people, giving them far more independence--which is something that Opposition Members cannot stand because they want people to be totally and utterly dependent upon the state for pretty nearly all their needs and wants.

I turn to the Gracious Speech-- [Interruption.]

Mr. Speaker : Order. I say to both sides of the House, if we cannot have freedom of speech in this place, where can we have it? We ought to set an example by listening to one another in silence and with mutual respect.

The Prime Minister : The Gracious Speech makes clear the Government's determination to hold to firm and successful economic policies. We shall continue to bear down on inflation, to keep firm control of public spending, and to promote enterprise. Those are the policies that have brought a period of unparalleled prosperity to the British people-- prosperity that has been shared by all income groups. We are now in the eighth successive year of economic growth, averaging over 3 per cent. In terms of output per head in manufacturing we have not yet caught up with our main competitors, but after two whole decades--the 1960s and 1970s-- when the United Kingdom was at the bottom of the growth league, in the 1980s we have climbed to the top of the table.

Unemployment has now fallen for 27 months in succession. Over the last year, it has been falling in all regions, and the unemployment rate has fallen faster than in any other major industrial country. Growth has been spread widely across the economy. In particular, manufacturing output is at its highest ever level. These policies have produced extra resources for public spending priorities, such as the Health Service, pensions, the disabled, scientific research, defence and the police services. But total public spending, although it is at record levels, now accounts for less than 40 per cent. of national income--for the first time in over 20 years.

The extra spending has been financed soundly, but combined with lower tax rates. At the same time public borrowing has been eliminated, and we are now on target for a budget surplus of some £10,000 million in the current financial year. As a result, the burden of debt interest will fall, thus releasing more resources within the same total of public expenditure for priority programmes. That is truly a virtuous circle.

The achievements under this Government reflect the new vitality of our economy. This year the number of small businesses is increasing at a rate of nearly 1,000 a week, and since 1980 manufacturing productivity has been growing at over 5 per cent. a year. Under the last Labour Government it averaged only just over 1 per cent. a year. Buoyant investment across all sectors is further strengthening our economic potential.

For the public sector, the plans set out in the Autumn Statement provide an additional £2.25 billion of capital spending next year, taking the total to over £25 billion. For example, there will be £440 million more for public sector housing and £250 million more for water and sewerage investment, taking this year's total capital investment in water to £1,500 million. There will be £220 million more for motorways and trunk roads, taking this year's total capital investment to £1,310 million. There will also be £170 million more for the Health Service.

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Investment by the private sector has been growing rapidly. Total private investment in 1987--some £60 billion-- was over 15 per cent. higher in real terms than in any year under the last Labour Government. Now, in the first three quarters of 1988, investment by the manufacturing, construction, distribution and financial industries is 13.5 per cent. higher than it was in 1987.

With all the talk about investments by overseas businesses in the United Kingdom, let us not forget that British businesses are expanding their overseas holdings and investments at a far higher rate. In the 12 months to June this year, the value of takeovers by overseas companies in this country was £2,900 million. In the same period, British businesses made over 550 overseas acquisitions, with a value of £13,700 million-- over four times as much.

These are investments that are earning--and will continue to earn--a big return for Britain as the revenue from North sea oil diminishes.

Mr. Tam Dalyell (Linlithgow) : Does the Prime Minister approve of the Australian bid for Scottish and Newcastle Breweries plc and the moving of its major financial headquarters out of Edinburgh?

The Prime Minister : The hon. Gentleman knows that the bid has been referred to the Monopolies and Mergers Commission. He is well aware that while that reference is being considered, it is utterly improper for any Minister to make a statement about the matter.

Industrial profitability has risen every year since 1981, so business today is able to finance a large part of its investment from retained profits. However, the personal sector also needs to save. Considerable attention has rightly been given to the fall in the savings ratio and to the increase in personal borrowing. Much of that extra borrowing is by people who are buying their own homes or by people who are purchasing shares, insurance policies, and so on. However, some of the borrowing has been for the purchase of consumer goods, too many of which are imported--a major factor in the deficit on current account.

If savings and investment are to be kept in reasonable balance, borrowing must be checked, so that non-inflationary growth can be sustained. That is why we have raised interest rates. The highest rates will take time to have their full effect, both to exert downward pressure on inflation and to help reduce the deficit on trade-- [Interruption.]

Mr. Speaker : Order.

The Prime Minister : Of course, higher interest rates are unpopular with some people, although they are good for those who save, including many millions of old people. They are the right response because the defeat of inflation is, and will remain, the top priority.

I shall now speak about the legislative programme. The Gracious Speech outlines a full programme of legislation. Its main provisions can be summarised under three headings. First, there are provisions that deal with industry and commerce ; secondly, there are those particularly concerned with the care, protection and education of children ; and, thirdly, there are measures for safeguarding the security of the realm, fighting terrorism and combating crime and hooliganism, such as the Football Spectators Bill.

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I shall deal first with industry and commerce. Under that heading, we have two major privatisation measures for water and electricity. The Water Bill will be a major environmental measure as well-- [Laughter.]

Mr. Speaker : Order.

The Prime Minister : The Bill will establish a new public body, the National Rivers Authority, to take over the responsibilities of water authorities in England and Wales in relation to controlling and reducing water pollution, resource management, flood defence, fisheries, recreation and navigation. The Water Bill will also establish a new statutory framework for the control of drinking water quality and river quality.

Mr. Simon Hughes (Southwark and Bermondsey) : Will the Prime Minister give way?

The Prime Minister : I shall give way at the end of this section. The Bill will enable the existing water authorities in England and Wales to be replaced by new limited companies, which will then be privatised. It will also provide for the appointment of a director general of water services to keep the services under review and to protect the interests of consumers.

Mr. Simon Hughes : If the Government are so committed to the environment, why do they propose to privatise the water industry, which will make the private consumer pay a considerable amount more, instead of shouldering the burden of expenditure for environmental improvements, which is what the public want? They want the water industry to be retained in public ownership, as they have overwhelmingly argued.

The Prime Minister : The Government have only the taxpayers' money. Some hon. Members speak as if there were some other source of money. If we want environmental improvement, it will cost money. There will soon be environmental improvement concerning nitrates in water. It will be the people who want those improvements in water who will have to pay. It is utterly irresponsible to suggest that we can have those improvements without being prepared to pay the price for them. An Electricity Bill will be introduced to privatise the electricity supply industry in England, Wales and Scotland.

In England and Wales, in order to promote competition, the Central Electricity Generating Board's generating capacity will be split into two companies. The area electricity boards will also be privatised as 12 independent supply companies, and the national grid will be transferred to a new company jointly owned by the suppliers. In Scotland there will be two independent companies broadly based upon the existing Scottish electricity boards.

In England and Wales we aim to maintain the proportion of electricity produced from nuclear power at the current level, which would mean four more nuclear power stations, including Sizewell, by the year 2000. That in itself-- [Interruption.] That in itself-- [Interruption.]

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