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The Prime Minister : I said, "we aim to"-- [Hon. Members :-- "Oh!"] Of course, if hon. Members had been listening, they would have heard that. Maintaining nuclear power at the current level itself will help to mitigate acid rain and the greenhouse effect. A real culprit in the greenhouse effect is the vast amount of carbon dioxide that is produced from burning coal in power stations.
The two Bills show our determination to secure the advantages of privatisation for each industry, their customers and the taxpayer while at the same time making a major contribution to the establishment of improved environmental standards.
Under the same heading of industry and commerce, the coming Session will also include legislation to transfer the Scottish Bus Group to the private sector. This will give a further boost to enterprise in Scotland and will create new opportunities for employee participation, wider share ownership and investment, which, of course, Opposition Members hate.
A Companies Bill will be introduced to improve and simplify procedures for companies and to improve merger control. The Bill's proposals on merger policy cover voluntary pre-notification of mergers and provision for enforceable undertakings rather than reference to the Monopolies and Mergers Commission.
Turning to the second area of legislation, which concerns social measures, the House will recall that the School Boards (Scotland) Act 1988 extended parental involvement in schools. We now propose to introduce an Education (Scotland) Bill which would extend freedom of choice for parents in the Scottish education system by granting them the right to vote for the removal of their school from the central management of an education authority. The Bill would provide that such a self-governing school would remain publicly funded by direct Government grant and would not be able to charge fees ; would be run by a board of governors representative of parents, teachers and the wider community ; and would retain its denominational character.
Mr. James Sillars (Glasgow, Govan) : Is the Prime Minister aware that that measure will be totally abhorrent to the vast majority of people in Scotland and that it will simply reinforce detestation of her and her policies? Is she further aware that in Scotland she now has as much credibility and legitimacy as her new pal, General Jaruzelski, has in Poland?
The Prime Minister : On the latter point, when the hon. Gentleman was a member of the Labour party and the Labour party governed Britain without a majority in England, he did not complain and neither did we because we believe in the United Kingdom. I recognise that he does not.
With regard to the hon. Gentleman's comments on the Education (Scotland) Bill, of course he does not want to extend choice to ordinary people--he is a Socialist.
A further important measure will be the Children's Bill which will reform the law on child care and family services. It will take into account the recommendations of the report on child abuse in Cleveland. Children are entitled to protection from harm and abuse, and innocent families from unnecessary intervention by the state. The Bill will replace the existing fragmented and overlapping provisions on child care and family law. It will improve the procedures governing the removal of children
Column 25from their homes in emergencies, while strengthening parents' rights to challenge court orders. It will redefine local authorities' responsibilities towards children in need, and address the difficult questions which arose in Cleveland of parental access and medical examinations.
The Bill will also implement reforms in private child law covering custody and guardianship. Taken together, the proposals will form a unified and consistent code in respect of the care and upbringing of children. Nothing could be more important, and I hope that the Bill will have the support of all hon. Members.
Mr. D. N. Campbell-Savours (Workington) : The Prime Minister set out what might appear at first glimpse to be progressive legislation. Will she give us an absolute guarantee that every social services department in the country that complains today that it has not the staff to monitor even current legislation will be given the money to ensure that it has the staff to carry out that function properly?
The Prime Minister : The money that they receive takes important duties into account. If some local authorities did not waste money on other things, they would have more money to give to important things. It is not only the amount of money but its good use and way in which it is managed.
A major Local Government and Housing Bill will also be brought foward to introduce in England and Wales new arrangements for local authority housing finance and home improvement grants, and local authority capital finance. Additionally, the Bill would give effect to several key proposals contained in the Widdecombe report on the conduct of local authority business.
The third group of measures concern safeguarding the security of the realm and fighting terrorism. Section 2 of the Official Secrets Act 1911 will be replaced by a narrower and more closely defined provision. Its aim will be to ensure that the criminal law penalises, and penalises effectively, only those who make unauthorised disclosures of official information which do unacceptable harm to the public interest.
The House had an opportunity to debate the Government's proposals in July, and the Bill that we shall introduce will take account of points in that debate and elsewhere. I believe that the new Bill avoids what are generally accepted to be the unsatisfactory aspects of the old Act and provides a more effective safeguard against the unauthorised disclosure of information.
A Bill will also be introduced to put the Security Service on a statutory basis, under the authority of the Secretary of State. The legislation will set out the functions of the Security Service and will reaffirm ministerial responsibility for the service. It will replace the published 1952 directive to the Director General of the Security Service from the then Home Secretary--known as the Maxwell Fyfe directive. The legislation will follow the structure approved by Parliament in the Interception of Communications Act 1985. This country owes much to the work and dedication of our security service. The Government believe it is right to provide the service with the authority and clarity of a statute.
The Prime Minister : In precisely the same way as the Home Secretary and myself have always been accountable to the House-- [Interruption.] We do not, as the right hon. Gentleman knows, ever say anything about operational matters. The right hon. Gentleman knows that Conservative Members always supported his decisions on the security service, even when his own party did not.
Several Hon. Members rose --
From what Mr. Speaker said, I understand that the Opposition have chosen to debate home affairs tomorrow. My right hon. Friend the Home Secretary will then say more about this Bill, which we hope to publish tomorrow so right hon. and hon. Members will be able to see precisely what is in it.
To strengthen our defences against those who preach and practise violence, especially in Northern Ireland, we are taking a number of steps in addition to those already announced. First, we shall introduce a Bill to require candidates in local elections in Northern Ireland to sign a declaration not to support violence. It is deeply offensive to the great majority of people in Northern Ireland that there should be those who openly support and, indeed, advocate violence in local council chambers. The Bill is intended to prevent such statements and activities.
Secondly, we shall be re-enacting the Prevention of Terrorism Act 1984, including the power to exclude known terrorists from part or all of the United Kingdom, as well as the power to arrest and detain those suspected of terrorism.
The Bill will also include new provisions, in three respects. First, it will make it an offence to be involved in handling or holding funds for terrorist purposes. The police will be given new search powers to assist them in tracing those funds and the courts will be able to order their forfeiture when a conviction is obtained. The provisions follow those used successfully against drug traffickers. Secondly, for Northern Ireland, the Bill will also reduce the remission granted to prisoners servicing sentences of five years or over for terrorist offences from one half to one third of their sentence.
Thirdly, the Bill will provide that anyone out on remission from a sentence of more than one year, who is then convicted of a terrorist offence, will have to serve the full unexpired portion of his earlier sentence as well as whatever new sentence is given.
Those provisions will mean that those found guilty of terrorism will spend longer in prison. They should act as a further deterrent to those who contemplate acts of terrorism and violence.
The Government are determined never to give in to the terrorist, but to do everything in their power to defend society against terrorism. We hope that our determination will enjoy the unanimous support of the House. But I have to note that right hon. and hon. Members opposite have consistently voted against the existing legislation. I believe that this is seen by the terrorists and their supporters as a sign of weakness. I hope that those Opposition Members will take the opportunity to correct that impression, and to demonstrate that they share the Government's determination to deal firmly with terrorism, by voting for the Bill.
Column 27The Gracious Speech reaffirms the Government's determination to maintain strong and effective defences while striving to break down the barriers between East and West. There is no contradiction between those aims : indeed, they complement each other. It is a sense of security which gives countries the confidence to negotiate and discuss their differences. If we adopted the policies advocated by the Opposition, there would be no need for others to negotiate with us, because they would be able to get all they wanted without it. Fortunately, the Government take very seriously their responsibility to maintain and update our defences, especially while the Soviet Union's military strength continues to expand with ever more sophisticated weapons.
Mr. Patrick McNair-Wilson (New Forest) : Does my right hon. Friend realise that there is some concern about keeping the level of conventional forces sufficiently strong to deter, as she suggested in her last remarks? There is some concern, too, about the replacement for the Chieftain tank. Can my right hon. Friend tell the House when we will have a decision on whether the order willl go to the British company, Vickers, or to the American company, General Dynamics?
Secondly, a decision has yet to be taken on the replacement of the Chieftain tank, but I do not expect that it wil be very long before we take it.
Thirdly, the provisions announced by my right hon. Friend the Chancellor in his Autumn Statement mean that the defence budget will grow by nearly £1 billion a year over the next three years. That is the measure of the Government's determination to ensure that our forces have the most modern and up-to-date equipment, both nuclear and conventional. I hope that those who criticise Britain for not being sufficiently European will reflect that, when it comes to making a real contribution to Europe--both our financial contribution to the Community and our military contribution to the defence of Europe beyond our own borders--we are second to none.
I was able to discuss many of those issues with Vice-President Bush during my visit to Washington last week. I am glad to say that he wants to see the special relationship between Britain and the United States continue in all its strength, including, of course, the arrangements for Trident, which is so vital to our defence. It was clear, too, from my talks that our views and those of the new Administration on all the main issues of defence, arms control and East-West relations will continue to be very close indeed. At the same time, Britain is in the forefront of efforts to overcome East-West divisions. My own recent visit to Poland--welcomed by both the Polish Government and by Solidarity ; indeed, by everyone except the Labour party- -is evidence of that. What the Labour party cannot bear is that one can go to eastern Europe and the Soviet Union, believing in strong defence, ready to speak up for our democratic beliefs and for human rights, and still receive a warm welcome.
Column 28that it is right for her to have spent, I think, £5 million of the taxpayers' money during the past nine years, why is she stopping the Queen from going to Russia?
The official visit of President Gorbachev and Mrs. Gorbachev in December will be another opportunity to discuss how we can take forward our aim of more peaceful and stable relations, as well as to hear more about his plans for reform in the Soviet Union. The visit is further evidence of the weight which Britain's views on all these matters now carry in the world. It is the result of the Government's success in rebuilding our economy, strengthening our defences and restoring our reputation--success which will make the years ahead great ones for this country.
The first Session of this Parliament was the fourth longest this century-- it enacted 44 Government measures. The coming Session will be shorter, but it is a full programme which carries forward our policies and our commitments in a number of important areas. I commend it to the House.
Mr. Paddy Ashdown (Yeovil) : I have the pleasure in joining the Leader of the Opposition and the Prime Minister in congratulating the mover and the seconder of the Loyal Address. The hon. Member for Lewisham, West (Mr. Maples) made an interesting speech. I must say, however, that I found it difficult to recognise his description of the Government as one who have buttressed and protected freedom, but I can no doubt return to that in a moment.
The hon. Member for Pudsey (Sir G. Shaw) made a brilliant speech, which many of us will remember, in which he showed all that engaging humour and wit which those who know him so well value so highly. I particularly welcomed the hon. Gentleman's comments about the environment. I do not believe that I paraphrase him too inaccurately by saying that he said that there was a difference between a general desire to succeed with the environment and the specific policies that would achieve an effective outcome.
I deplore the contempt--frankly, that is the only word that I can use--with which the Government have treated both Houses of Parliament by their handling of the Gracious Speech. That contempt is evident because Her Majesty was asked to turn up in the other place today to read a Gracious Speech that had been extensively leaked, in outline and in detail, in every paper during the past two weeks. If the Government plan to maintain that deplorable practice, perhaps they could save Her Majesty the trouble next year and simply get Bernard Ingham to come here to read the speech.
It gives me no satisfaction to say that the first Gracious Speech to which I have to respond as a party leader will be known more for the opportunities that it has missed than for the importance of its programme. Of course, it gives the House a heavy legislative programme. It would be quite out of character of the Government if it did not, for they have been the most interfering and dominating of all recent Governments.
Column 29The proposed programme reveals the new phase of Thatcherism--we might call it the right hon. Lady's cultural revolution. It is a time when unthinking dogma is more important than effective legislation. As we know, the Government like nothing better than to have an enemy.
Mr. Ashdown : The hon. Gentleman will forgive me if I develop my speech further before I give way. If he would like to intervene later, I shall be happy to consider his request. [Interruption.] I was only being courteous to the hon. Gentleman. I hope that he accepts that.
The Government's first enemies were the trade unions, then there was the Campaign for Nuclear Disarmament, then Arthur Scargill, then Left-wing local government, then all local government, then the universities, then Peter Wright, and finally, of course, the pensioners.
Suddenly, the Prime Minister seems to lack an enemy. I thought for a brief and hopeful moment that the pillaging and despoliation of our environment would become her new enemy.
I thought for a brief and hopeful moment that the attacks on our environment would become the Prime Minister's new enemy. I thought that she might honour that famous headline in The Daily Telegraph and lead a crusade to preserve the planet. I thought that she might roll over her Secretary of State for the Environment, just as she has removed all other obstacles to her will. Yet I can find nothing in the Gracious Speech to fulful the Prime Minister's original promise. I find nothing to suggest that the right hon. Lady takes this real enemy and the threat to our future seriously.
We must conclude that the Prime Minister's brief conversion to the environment was more to do with polling data than a Pauline conversion. Perhaps we should not be too surprised, for we all know that we have benefited far too little from her conversion to St. Francis of Assisi.
Mr. Barry Field rose--
Whatever our view of the Prime Minister's commitment to the environment, it is clear that, given the recent
Column 30utterances of the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley) in the House and outside, my party- -along with, I suspect, most people in Britain--has absolutely no confidence in his new-found role as guardian of our precious environment.
I welcome the recent improvements in international relations and I wish the Government well in their dealings with President Gorbachev and President- elect Bush. Why is it, however, that the passage in the Gracious Speech on defence and East-West relations echoes the same old rhetoric of previous years, as though nothing has happened since 1950? Thanks to Presidents Reagan and Gorbachev, the world is changing. Everything is different-- except, of course, the attitude of the Government, who remain, as ever, frozen in the bleak rhetoric of the cold war era. That is why it would be a disgrace if the Prime Minister vetoed the possibility of the Queen's visiting Moscow. Given Her Majesty's experience, there would be much to gain and nothing whatever to lose from such a visit. Frankly, the public will not have been impressed by the Government's decision to make their advice known to Buckingham palace through the medium of Sunday newspapers. As a belated signal of their recognition of the new opportunities for peace, I hope that the Government will join West Germany and France in resisting the modernisation of nuclear weapons in Europe. In common with many, I believe that to modernise now would be folly just when real steps towards disarmament are in prospect. Recent progress in international relations stands in stark contrast to the latest news about our economic performance. As the Prime Minister has rightly argued, responsible management of the economy is one of the prime tests of good government, and a responsible Government would act very differently towards the economy from the way in which the present Government are acting. A responsible Government would have had the courage to admit that they had miscalculated on the economy in the previous Budget and were prepared to alter course. A responsible Government would have accepted that, after nine years of Tory rule, we are no nearer solving the problems of the United Kingdom's performance in world markets.
The figures tell the whole sad story. Our inflation rate now stands at 6.4 per cent., four times the West German figure, and half as high again as the EEC average. Our interest rates are two and a half times those of France, and more than three times those of West Germany. Our wage rates are increasing at well over the European average. Our overall investment is still well below the EEC average. Meanwhile, our balance of payments deficit is running at a record level and will be three or four times what the Chancellor of the Exchequer predicted a mere seven months ago. In the face of such a lethal combination of figures, why is it that the Chancellor is just about the only person in Britain who does not recognise the potential dangers ahead?
Mr. John Redwood (Wokingham) : Given that the hon. Gentleman is outlining the position of his party, I wonder whether he is speaking for all its Members, or whether the semi-detached Member for Liverpool, Mossley Hill (Mr. Alton) is in danger of becoming fully detached? Can he tell us what name his party is now trading under, as we are becoming extremely confused about that?
We shall oppose the privatisation of water. The two inevitable results of that foolish legislation will be that the consumer will lose and charges will rise, probably by a massive amount. Presumably that will be the first fruit of the Government's curious new phrase, found in the Gracious Speech, about bearing down on inflation. We shall also oppose the Government's plans for electricity. They will not lead to real improved competition, and the regulatory structure, as with British Telecom, will doubtless prove inadequate. My party has never believed that the ownership of an enterprise is the key criterion. After all, with regard to service to the consumer, there is nothing to choose between British Telecom's performance as a private monopoly and what it used to give us as a public corporation. The real questions are not who owns, but how is the consumer served? How is competition improved? How is the public interest best protected? On all three questions, the Government's proposals for water and electricity privatisation comprehensively fail the test. The proposals will also ensure that this year will see further inroads into our freedoms. Frankly, it ill becomes the Prime Minister to lecture the world about freedom when she now heads a Government who are so careless with our liberties.
If the proposed legislation on the Official Secrets Act follows the recent White Paper--nothing that the Prime Minister said could lead us to any other conclusion--it will result, not in more freedom of information, but in further restrictions, tighter controls and more sanctions in the hands of the Government. Similarly, while my party supports the need for a Prevention of Terrorism Act as a temporary measure for Northern Ireland, we shall oppose the Government's attempts to make it a permanent feature of the British legal system. [ Hon. Members :-- "Why?"] Let me tell Conservative Members why. We do not accept the Government's defeatist attitude that terrorism must be viewed as a permanent state of affairs in Britain. That is why. However, I am happy to welcome in principle the Government's proposals to require a declaration from candidates in Northern Ireland that they will not support terrorism. I have to support such a piece of legislation, as it is something that I recommended to the Prime Minister in a letter that I wrote to her earlier this year. My party also welcomes a statutory basis for the security services. The Prime Minister almost removed that welcome with a single sentence when, in answering a question during her speech, she said that the parliamentary accountability that would be attached would be the same as the House has enjoyed--or should I say which it has been denied--by herself and the Secretary of State responsible. We welcome the prosposal as a step forward. As the House will expect, we shall press for proper parliamentary accountability of the security services, which we want to see vested in a carefully chosen cross- party Select Committee drawn from membership of the Privy Council.
The most important message from the Gracious Speech, however, is not one of unwise legislation. It is chiefly one of lost opportunities. Here are a Government who claim a mandate, in so far as our twisted electoral system can ever supply one. Here are a Government who
Column 32claim that they are radical, yet they have failed to produce a single coherent idea of what we need to do now if we are to meet the challenges of the next decades. On the eve of 1992, and with a new President about to enter the White House, only a fool would be complacent about our trading performance and our rising inflation.
A responsible Government would have announced their intention to put the health of our economy before further cuts in taxation in the next Budget. Why was that not specifically mentioned? A responsible Government would have committed themselves to membership of the European monetary system and taken action to rein in the expansion of mortgage and credit lending. They would have taken the necessary measures to encourage savings. All those things could have been in the Gracious Speech, but none is.
A radical Government would not have sat back in the face of the destitution and homelessness in Britain--9 million people are now living at or below the poverty line, and 112,000 were homeless last year. A radical Government would by now have started work on integrating our tax and benefit systems. They would have released some of the money locked up in council budgets to build more homes. They would have responded to the challenge of the Griffiths report on community care, rather than letting it fester on the shelf. All those things could have been in the Government's programme, but none is. A Government who were serious about the environment would have taken this opportunity to get to grips with the environmental crisis facing our country and the world, but all that we have is rhetoric--fine words, but grubby actions. The Natural Environment Research Council is still being starved of funds, and now we hear of top-level resignations at the Department of the Environment in protest at inadequate resourcing and bureaucratic frustration. The Secretary of State's view is that we should do nothing until he is personally 100 per cent. convinced. He argues that it is better to wait than to do anything hasty.
The Prime Minister quoted from the North sea summit of November 1987. I should like the right hon. Lady to contrast the attitude of her Secretary of State with the words of the Prince of Wales at that conference :
"If science has taught us anything, it is that the environment is full of uncertainty. It makes no sense to test it to destruction. While we wait for the doctor's diagnosis, the patient may easily die!"
A Government who were serious about combating the environmental threat would now join the 30 per cent. club. They would do more to promote energy conservation. They would use the power of the taxation system to provide real encouragement for the use of unleaded petrol. They would introduce legislation to improve control over vehicle emissions. They would tighten up the cross-border shipment of hazardous wastes. They would commit themselves to a decent policy for public transport. All those things could have been in the Government's programme, but none is.
The trouble with the Government is that they clearly have no trust in the people. They have no argument against a Freedom of Information Bill except the political
Column 33convenience of the Executive. They have no case against a plural and democratic system of local government except the authorisation of central Government. They have no reason for refusing political and institutional reform except the fear that any change would lift the suffocating blanket of control that the Government have thrown over everything and everybody in Britain. It has always struck me as peculiarly ironic that it was a Conservative peer, Lord Hailsham, who warned against the threat of an elective dictatorship, and a Conservative Government who made it a reality.
A Government who looked to the 1990s would recognise that the modern citizen will expect a greater role in decision-making and a more open system of government. They would see that our United Kingdom would be stronger and our democracy healthier if we had elected Parliaments for the nations of Scotland and Wales. They would recognise that a full commitment to Europe is the best way to secure Britain's long-term interests. They would understand that the development of democratic Europewide institutions is not just necessary, but inevitable. They would know that we cannot preserve our appalling electoral system without damaging our democracy itself.
This is a programme of missed opportunities. We are missing opportunities to safeguard the environment. We are missing opportunities to strengthen our industrial base and improve our research and development potential. We are missing opportunities to co-ordinate foreign policy initiatives. We are missing opportunities to raise standards for the consumer. We are missing opportunities to tackle poverty, which blights the lives of so many of our fellow citizens.
This is a programme from a Government dominated by the poverty of their public spirit and their narrowness of the view of Britain's role in the world. It is a programme that is all about dogma-- [Hon. Members :-- "No."] Yes, it is. It is a programme that is all dogma and no vision. It is a programme that will damage further the quality of our life, divide further our already sadly divided nation, deplete further the strength of our already weakened democracy and do nothing to prepare Britain for the future.
Mr. David Knox (Staffordshire, Moorlands) : I thank you, Mr. Speaker, for calling me at this very early point in the new Session. Last Tuesday marked the end of a Session of Parliament during which, as my right hon. Friend the Prime Minister said, a great deal of legislation reached the statute book. The Gracious Speech suggests that there is another heavy programme of legislation before us. Before the 1979 general election, I remember being told by my right hon. and hon. Friends in the then shadow Cabinet that there had been too much legislation in this country and that a Conservative Government would mean less legislation in the future. Alas, that is one election promise that has not been fulfilled. However, being of an optimistic disposition, I have not given up hope that eventually the promise may be fulfilled--who knows, perhaps next year. It is not that I have any great dispute with the details of most of the proposed legislation in the Gracious Speech,
Column 34but I believe that there is too much and that it might have been advantageous if it could have been spread over two or three Sessions.
I particularly welcome the Bill on the care and protection of children. In recent years, there have been a number of worrying cases, including the scandal of Cleveland. The protection of children, compatible with fairness and justice to parents, is essential in any society and should have a high priority in a society that calls itself civilised.
I welcome the Bill on the security services. There has been some public concern about the activities of the security services in recent years and I hope that the Bill will bring them under proper control and reassure people.
Mr. David Winnick (Walsall, North) : The hon. Gentleman says that he hopes that the proposals on the security services will deal with the doubts and difficulties that many of us have about whether they are impartial. Does he agree that the most effective way to overcome our difficulties is to have parliamentary scrutiny--hence a Select Committee?
I was pleased to hear that the Bill to privatise the electricity industry is to be introduced in this Session. It will enable the industry to escape the clutches of Treasury control. The Bill will introduce a little more competition. Clearly, the industry cannot be totally competitive, but there will be more competition than at present. Both those things should help to contribute to a more efficient electricity industry. Hopefully, the privatisation will give a further boost to share ownership in Britain.
I was also pleased about the legislation on improvement grants. I hope that the Bill will cover those in defective houses formerly owned by the Coal Board--the people who do not receive help to remedy housing defects. I am thinking particularly of people in my constituency who did not buy their houses direct from the Coal Board and knew nothing about the defects when they bought them. I have some reservations about the proposed football national membership scheme. Those of us who are interested in and care about football have been concerned about the violence that has manifested itself in recent years at football matches. Measures have been taken to deal with that and considerable success has been achieved so far. What worries me about the membership scheme is that, although it will provide greater control inside football grounds, it will leave troublemakers outside the grounds. Since it is much easier to police potential hooligans in confined areas rather than on the streets and in town centres, I am afraid that the overall effect of the scheme may be more hooliganism, and hooliganism which is less easy to control. I hope that my right hon. and hon. Friends will have another look at the proposal, because I know that it is causing concern among football clubs and the police.
However important Ministers may regard legislative proposals, the Government will be judged in the coming Session on the performance of the British economy. When I spoke in the debate on the Gracious Speech in June last year, I expressed some criticisms about manufacturing output and unemployment and commended the Government on their record on inflation and the balance
Column 35of payments. I suppose it tells one something about the nature of economic problems that this year I wish to commend the Government's record on manufacturing output and unemployment and to express concern about inflation and the balance of payments, particularly the latter.
Over the past year, the index of manufacturing output has risen from 108 to 115.5--an increase of about 7 per cent. Over the past two years, the index has risen by over 13 per cent. ; by any standard, that is a fast growth rate. Of course, we ought not to become too carried away, because we have been catching up on lost ground. It is as well to remember that the index in September this year was only five points higher than in September 1974-- 14 years ago.
There has been a significant improvement in unemployment during the past two years. The number out of work has fallen from just over 3 million in October 1986 to just over 2 million this October. That reduction is welcome but--I am sure that this will receive general agreement throughout the House--there are still too many people out of work. We have a long way to go before unemployment is down to the level of the 1940s, 1950s, 1960s and early 1970s.
Both manufacturing output and unemployment have been moving strongly in the right direction during the past two years. Unfortunately, the progress made in those spheres has not been repeated for inflation. During the past year, the annual rate of inflation has increased from 4.5 per cent. to 6.4 per cent. I do not believe that that deterioration is a matter for grave concern but it obviously calls for action, which my right hon. Friend the Chancellor has taken. However, I am sorry that he has confined himself to the use of interest rates to squeeze out inflation. In some circumstances, interest rates have a part to play, but, because of the damage caused by the side effects of high interest rates, I wish that he had used some other weapons on this occasion.
One aspect of our current inflation is a cause for concern. In the past, inflationary pressure tended to appear only in conditions of over-full employment--when unemployment fell below about 350,000. The current inflation, caused to some extent by an increase in earnings of 9 per cent. in the past year, has taken place when unemployment is in excess of 2 million. Despite that large pool of unemployed people and the freeing of the labour market, which has resulted from the Government's trade union legislation and other measures, we have an over-heated labour market and, as a consequence, wage and salary cost inflation.
Despite all that has happened, we seem to be even further from resolving the great unresolved economic problem of the post-war era, which is how to maintain a high level of employment and, at the same time, control inflation. Could it be that there is a case for an incomes policy after all?
The really serious economic problem facing Britain today is the balance of payments. Since the Budget in March, my right hon. Friend the Chancellor has had to increase his estimate of the current account deficit from £4 billion to £13 billion. I am not over-critical of his forecasting, because I have always been suspicious and wary of economic forecasts. A deficit of £4 billion was bad