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Mr. Brown : All we have from the Chancellor is the astonishing effrontery--
Mr. Onslow rose --
Mr. Speaker : Order. The right hon. Gentleman can see that the hon. Member for Dunfermline, East is not giving way.
Mr. Brown : All we have from the Chancellor is a call for self- discipline--
Mr. Onslow rose --
Mr. Speaker : Order. Is the hon. Member for Dunfermline, East giving way?
Mr. Onslow rose --
Mr. Speaker : Order. I call the hon. Member for Dunfermline, East.
Mr. Brown : All we have from the Chancellor is a call for self- discipline from home owners and for wage restraint from earners. Is it not remarkable that the party that accepts no responsibility for the financial mismanagement that brought these mortgage rises was the very party which said in its 1979 manifesto--when mortgages were lower than they are now :
"Mortgage rates have risen steeply because of the Government's financial mismanagement."
Why will the Government not now accept responsibility for the financial mismanagement for which they criticised the Labour Government?
Does the Prime Minister recall her promise of a fixed-rate mortgage of 9.5 per cent.? Does she recall that that promise has been fulfilled in only two months out of the 114 months that she has held office? Does the Prime Minister recall telling us that, under the Tory manifesto policies that she supported in 1974, the great advantage of the mortgage proposals was that
"at last the young couple can really budget for the future knowing how much they have to spend"?
Will the Prime Minister now tell that young couple how they will budget for the future when they have had to spend 30 per cent. of their income during the first half of the year on their mortgages and will now have to spend more than 40 per cent. of their income as a result of the mistake?
We know that an engineer on an average wage and with a standard mortgage is facing a fall in living standards of about £1 a week, a teacher of about £4 a week and a shop assistant of about £5 a week. A nurse with a standard mortgage--even after her regrading--will be £1 a week worse off. Those are the economic consequences for the vast majority. That is not the whole story. The many who have gained least are suffering most ; but the few who have gained most are gaining even more.
Does the Chancellor agree that, because of his top rate tax cuts and then of his interest rate rises--when the standards of living for shop assistants, teachers, nurses and engineers have started to fall--the standard of living for those lucky enough to be in the top 1 per cent. and have unearned income--the very rich--is rising from anything between 15 and 50 per cent. a year?
Mr. Ian Taylor (Esher) rose--
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Mr. Brown : I can think of no comparable situation this century when the gains to a few have been so great at the expense of the burdens to be placed on the shoulders of the vast majority. Mr. Ray Whitney (Wycombe) rose--
Mr. Brown : Yet the one thing that this Government should do is the one thing that they will always refuse to do. The one possible solution that would help to restore the balance in the economy, that would restore the balance between the regions and the south-east--and that would shift resources from top rate tax cuts to investment--is the one measure that the Government will not even contemplate, the withdrawal of top rate tax cuts. When the political imperatives of appeasing the Chancellor's own tiny interest group clash with the economic requirements of the nation, his own small interest group will come first every time. This is the Chancellor who is prepared to make the home owner pay with higher mortgages, prepared to make the commuter pay with deteriorating rail networks, prepared to make the consumer pay with higher prices, especially for public utilities, prepared to make the pensioner pay with lower housing benefits, prepared to make whole communities pay with the poll tax and deteriorating public services, and prepared to make students pay with new loans for their studies, but who is not prepared to make the top rate taxpayer pay his fair share. The Chancellor is prepared to use every fiscal device to maintain and discharge the historic mission of the Conservative party to the very rich.
Our case against the Chancellor is that he is the first Chancellor in history to have the unique opportunities offered by North sea oil, yet under his and his predecessor's leadership a consumer boom has been engineered in which investment has been insufficient to ensure that we have the productive capacity to meet demand. During this year, while consumption is growing as fast as it is among many of our neighbours, our industrial production even now is growing half as fast as that of Japan and the result is that imports are growing fastest of all.
Mr. John Redwood (Wokingham) rose
Mr. Brown : There has been £120 billion from the North sea and £70 billion from North sea tax revenues. Those are resources that no Government have ever had or will ever have again for investment in the future. The real economic miracle is that, with the once-and-for-all investment opportunities that the Chancellor had, he has managed to bring us back to stop-go policies even before the oil has run out. Never before in our history have we imported so much and the balance of trade deficit been so great.
The Chancellor told us last week that the real reason for high growth this year is that investment has been rising so fast. However, the real issue is not the rate of investment in 1988, during and at the end of a boom, but the low rate of investment between 1979 and 1988. Is it not the case that not only has investment in industry as a whole already started to tail off, not only that it has been growing slower than in many of our competitor countries, such as Japan, even from a lower base--if we were investing the same share of our national income this year as other countries, such as France, we would have been investing several billion pounds more--but that the real achievement of the
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Chancellor for 1988 is that from investing as small a share of our national income in ourselves as Belgium, we are now investing only as big a share as Greece?I shall tell the Chancellor why the consumer boom that he has engineered cannot be sustained. It is not because our growth rate is too high, but because the capacity of our economy is too low. The capacity of our economy is too low, because our long-term commitment to investment has been too little. Investment in this country should have been made from 1979 onwards- -before the consumer boom and not at the end and after it. Even with all the figures for investment that the Chancellor will quote this afternoon, Britain is still investing less of its national income in itself in the oil rich 1980s than it ever did in the 1960s and 1970s. Even if the Chancellor had invested as big a share of our national income as France, we would have today invested £4,000 more for training and research for each worker. If we had invested as much as Germany, it would be £6,000 more per worker. If we had invested as much as Italy, it would be £7,000 more per worker. If we had invested as much as Japan, it would be £20,000 more per worker. It is that investment gap--
Mr. Brown : The hon. Gentleman says, "So what?". I shall tell the hon. Gentleman so what. So what are the skill shortages that arise from the failure to invest in education? So what is the failure to invest in research and innovation that has put us behind in high-technology industry? So what is the failure to invest in the regions that has caused us the problems that we face today? Mr. David Shaw (Dover) rose --
Mr. William Cash (Stafford) rose --
Mr. Speaker : Order. I can have only one hon. Member on his feet at a time. The hon. Gentleman is not giving way.
Mr. Brown : The tragedy is that, even when the Government must admit that the private sector is not doing a proper job in research and innovation and in science and technology, even when the Secretary of State for Trade and Industry must concede that the private sector spending on research and development is a smaller proportion of our national income than is the case in other countries and is growing more slowly, and even when it is recognised elsewhere that the market will not do the job itself and public investment, co-ordination and involvement is necessary, this Government are so wedded to free market dogma that they will not bridge the science gap by investing to prepare properly for our future. [Interruption.]
Sir Peter Horden (Horsham) rose --
Mr. Brown : I shall tell Conservative Members about the lack of investment in skills. Why is it that two thirds of firms in the south-east say that they are facing skills shortages? Why is it that 27 per cent. of firms even in the north-east are saying the same? Why is it that skill shortages are so bad that to build the Channel tunnel we have had to recruit engineers from Egypt and Hong Kong? Why is it that the skill shortage and the lack of training is so bad that British firms are considering sending apprentices to Germany for proper training? Most of all, why is it that the director general of the Training Agency,
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Mr. Roger Dawe, an official of this Government, only a few days ago said at a conference organised by the Institute of Personnel Management, and in advance of the training White Paper :"At every level we are towards the bottom of the training league table, whether in education, youth training, higher levels of skill training or management training"?
Does it make the Chancellor proud that we end the 1980s with a training and skills position that is well below our competitors, even after North sea oil?
Mr. Ian Taylor rose --
Mr. Kenneth Hind (Lancashire, West) rose --
Mr. Speaker : Order. I repeat that this debate is of great interest not only to the House, but to the country. I ask hon. Members to give the hon. Member for Dunfermline, East a fair hearing.
Mr. Hind rose --
Mr. Brown : What is most worrying--
Mr. Onslow : On a point of order, Mr. Speaker. I am sure that you did not intend to suggest that we do not wish to give the hon. Gentleman a fair hearing. What we want is for him to show that this is a debate and to give way so that we may question him.
Mr. Speaker : The right hon. Gentleman is aware that, if an hon. Member does not give way, the hon. Member who rises in his place should not persist.
Mr. Brown : What is most worrying as a result of the investment gap of more than nine years, as a result of the waste of North sea oil revenues, as a result of the privatisation proceeds that the Government have enjoyed--proceeds not only derived from industry sales, but the £22 billion they have had from the sale of land and assets--is that the gap in our science provision, in our research and education provision and in our education and skills provision is now such that that is the main reason why imports are growing so much and why we cannot compete properly in our balance of payments. What is most worrying is that that gap in our balance of payments is growing most not in the traditional industries that might be expected to be falling away, but in the new, high-technology industries, such as computers, electronics, data processing and information technology. As we face 1992 and Europe, our trade gap with our EEC competitors has gone from a surplus to a deficit of £13 billion, rising perhaps to £15 billion--that has happened in eight years. That deficit is now becoming pronounced in chemicals, metal goods, textiles and engineering. How can we possibly compete with the high wage, high employment, high investment, high-technology economies of Europe if we do not prepare properly for the future?
Mr. George Walden (Buckingham) rose --
Mr. Brown : The country wants to hear the debate about what is happening to families up and down the country, and what is happening to industry. This afternoon we have had a deliberate attempt to stop that debate from taking place.
There are a number of questions that the Chancellor should answer this afternoon, questions about matters
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that command a growing consensus within the country and even within parts of the Conservative party. First, does he agree that he cannot repeat the error of last year's Budget and that he must signal now, when it would have the maximum beneficial effect on interest rates, that the underlying problems of the economy that he has created cannot sustain a tax-cutting Budget in the spring? Secondly, does he agree that, in the policies that are needed to achieve a balanced economic development in this country, the burden should fall not on low or middle-income Britain, which is already paying a high price for the Chancellor's policies, but on those top-rate taxpayers who never needed the tax cuts in the first place?Thirdly, will the Chancellor act directly on the inflation that he has created by abandoning his further plans in the Autumn Statement for large price rises in the water and electricity industries and in other public services for which he has a direct responsibility? Fourthly, does the Chancellor agree that his next Budget should, above all, be a Budget for long-term investment and not one for short-term consumption? It should be a Budget for investment with policies to enhance savings and to ease credit. It should be a Budget to target investment, which is now likely to halve next year and then probably, as a result of the Chancellor's policies, to come to a stop. It should be a Budget to address the real capacity constraints in the economy, especially the skill shortages that the Government's mistakes have created. It should be a Budget to address the regional imbalances which distort our country.
Does the Chancellor agree that only with a Budget for investment will he be able to secure long-term, sustainable growth and balanced economic development without running into the very problems of over-heating and inflationary pressures that his policies have now created?
The Chancellor knows about stop-go policies. He made a reasonable living in the 1960s and 1970s castigating its ex-practitioners. He knows about boom and bust. He knows about spending sprees and about inflationary hangovers. He knows all about the cycle of over-indulgence and about having to pay the bills later. Yet this Chancellor has become no less a stop-go Chancellor than Selwyn Lloyd, whom he much criticised. He has become no less a boom and bust Chancellor than Lord Barber, whom he and his friends castigated. The most serious charge of all is that he is the only stop-go Chancellor in history who has had the full investment opportunities of North sea oil, opportunities for a real supply side miracle which have been dissipated and squandered. No Chancellor has had better luck and worse judgment.
The Chancellor has claimed only one stated objective and he has chosen to use only one instrument of policy. He has had five years in which to pursue his single goal using his single instrument of policy. Even with the unique advantages available to him, he has failed. All he has done is to create tax opportunities, tailor-made for people with vast fortunes in the City. To the City, sooner or later, the Chancellor will doubtless go. He has failed the country.
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4.17 pmThe Chancellor of the Exchequer (Mr. Nigel Lawson) : We have just heard perhaps the most trivial opening speech-- [Interruption.] --in any economic debate on the Queen's Speech that I have ever heard during all my time in the House.
The hon. Member for Dunfermline, East (Mr. Brown), towards the end, asked me four questions. I can answer his four questions with a single answer-- there will be no change of policy. [Interruption.] All we had--
Mr. Stuart Bell (Middlesbrough) rose --
Mr. Lawson : The hon. Member for Dunfermline, East did not give way once during his speech so I will not give way.
We had a speech-- [Interruption.]
Mr. Speaker : Order. The Opposition were previously complaining about the noise from the Government Benches. They must give the Chancellor the same hearing that they expected for the hon. Member for Dunfermline, East (Mr. Brown).
Mr. Lawson : We had a speech composed of tittle-tattle and economic illiteracy in equal parts. There was not a hint of any positive policy proposal from the other side, not one--not even after their recent deliberations in a SOGAT convalescent home in Rottingdean. Is the hon. Member for Dunfermline, East not aware that living standards in this country are higher than they have ever been before? Is he not aware of that?
As for investment--the hon. Gentleman took a lot of time over investment, so perhaps he and hon. Members opposite will listen to this. I know that they do not like hearing the truth and I know that it is very painful for them, but I hope that they will listen to this. [Interruption.]
Mr. Onslow : On a point of order, Mr. Speaker. [Interruption.]
Mr. Speaker : Order. I am listening to a point of order.
Mr. Onslow : I hope that you, Mr. Speaker, can persuade Opposition Members on the Back Benches, as well as those on the Front Bench, to give my right hon. Friend the Chancellor a fair hearing.
Mr. Speaker : The Opposition expected a fair hearing, so they must give the same fair hearing to the Chancellor of the Exchequer.
Mr. Lawson : The hon. Member for Dunfermline, East went on at some length about investment. Is he not aware that while Labour were in government public sector investment--to which they attach particular importance--was slashed by 12 per cent. in real terms and total investment, during the whole of their period of office, rose by a princely 1.4 per cent.? That was their record. He asked me about our record during the whole of the period since 1979, so I shall give him that. During the whole of that period since 1979, total investment in this country has risen by 36 per cent. in real terms. That is the truth of the matter and indeed--
Ms. Clare Short (Birmingham, Ladywood) : Will the right hon. Gentleman give way?
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Mr. Lawson : Under Labour, it was only in one of their six years that investment was higher than consumption and that was only because consumption did not rise at all.
The most revealing aspect of the long-winded Opposition amendment, against which we shall be voting tonight, is that nowhere does it once mention inflation--not once. And this despite the fact that the risk of a resurgence of inflation is the only real problem facing the British economy today, a risk far greater than any threat arising from the deficit on the current account of the balance of payments. And despite the fact too that it is precisely to avert this inflationary risk and to ensure that, within a matter of months, inflation resumes its downward path that I have sharply tightened monetary policy, culminating in the increase in base rates to 13 per cent. last Friday.
This telling omission from the Opposition amendment reveals once again one of the major differences between the two sides of this House, because the Labour party is at best indifferent to inflation and in practice, as we saw when it was last in office, it is the party of inflation--that is the truth --whereas for us on this side of the House the control of inflation lies at the very heart of our economic policy. So that, Mr. Speaker, is what I turn to first, because that is what the House wants to hear about most.
Over the past five years or so that I have been Chancellor, during a period of almost unparalleled growth in prosperity, recorded inflation has averaged 4 per cent. a year. That is a massive improvement over the average inflation rate of 15 per cent. a year under Labour, a period of equivalent length. But what clearly gives cause for concern is that inflation should now be rising, however gradually, rather than falling.
Mr. Neil Kinnock (Islwyn) : There is no excuse for that.
Mr. Lawson : The key to economic success is confidence. For some years now, confidence in the British economy, among business men and consumers alike, has been rising. But it was not until our third general election victory, in June of last year, that--not surprisingly--confidence moved into overdrive, so much so that there was a real danger that spending would rise too fast, generating inflationary pressures. [Interruption.]
Mr. Lawson : I know that the Opposition do not like the truth, but they are going to get it and I am going to go on.
And so it was for this reason that in August of last year I decided to tighten monetary policy by raising interest rates by a full point--a move which caused no little controversy at the time. Then came the stock market crash of 19 October, black Monday, and for the first and only time as Chancellor I then judged the risks of recession to be greater than the risks of inflation, and loosened monetary policy in concert with the other major nations.
Today, with the benefit of hindsight, it is easy to say that the stock market crash was merely a financial market phenomenon of no relevance to the real economy. But those who are honest with themselves, and think back to that fragile and difficult time, just over a year ago, will acknowledge that that was not how it looked and felt then.
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Indeed, I vividly recall that the Opposition were calling on me to do far more than I did in order to avert what they saw as the coming slump.If I may quote from the right hon. and learned Member for Monklands, East (Mr. Smith) at the time, he said :
"Following the crash in the financial markets, and with the threat of an economic crisis looming, the House should concentrate its mind on the lessons to be learnt from the turbulent events of recent weeks with one overriding objective--the urgent steps that need to be taken to ward off the threat of economic downturn, with the painful consequences for jobs, the standard of living and the national economic strength that would come in train of that."--[ Official Report, 5 November 1987 ; Vol. 121, c. 1084.]
That is what the Opposition were urging at the time.
Given the balance of risks at the time, I believe I was fully justified in doing what I did.
Mr. Andrew Faulds (Warley, East) : What about next time?
Mr. Lawson : But the outcome, as we now know, was a period of inadequate monetary rigour, and as the economy sailed through the crash with confidence unimpaired, it was that that enabled inflation to edge up again in 1988.
But it is important to see the scale of the new inflationary danger in perspective. Unlike almost all other major countries, we include mortgage interest payments in our retail price index, a perverse anomaly which seriously obscures the underlying trend. Excluding mortgage interest payments, we see that inflation rose steadily during the first half of this year to reach 5 per cent. by July. Mr. Tony Banks (Newham, North-West) rose --
Mr. Lawson : On the same basis, it has barely changed since, with the latest recorded figure, for October, standing at 5.1 per cent. Some time during the first half of next year, I would expect the RPI, excluding mortgage interest payments, to peak at around 5 per cent. before inflation resumes its downward trend.
To be fair, I shall compare that with the lowest underlying inflation figure--that is to say, excluding mortgage interest payments--which the last Labour Government ever secured ; and the lowest figure they ever secured in a single month--excluding mortgage interest payments--was 7.7 per cent.
We have, of course, been through this before.
Mr. Dennis Skinner (Bolsover) : Will the right hon. Gentleman give way?
There was an inflation blip in 1985. Then, too, the underlying rate peaked at 5 per cent. before coming down again, and then, too, it was a sharp rise in interest rates which did the trick. For let there be no mistake about it : inflation is a monetary phenomenon. It has to be cured by monetary policy, and that means the vigorous use of interest rates--and interest rates work. They worked in 1985. Mr. D. N. Campbell-Savours (Workington) rose --
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