House of Commons Hansard Debates for 29 Nov 1988

Mr. Brian Wilson (Cunninghame, North) : Why not now?

Mr. Heath : Because I am allowed only 10 minutes.

The other countries of the Community are determined on this step and they will go ahead. One can say that this needs legal sanction and a unanimous vote, but there are many ways by which they can achieve those ends without a unanimous vote and without alteration of the treaty. If they want to have their central bank, they will have it, and we shall suffer. These matters are to the detriment of Britain but not to the detriment of the other members of the Community. We must accept that basic fact.

I repeat my request to the Chancellor, who is chuckling away at the happy situation in which he finds himself. We are heading for a £15 billion trade deficit this year and we shall probably have a £14 billion or £15 billion trade deficit next year. That is the happy situation. Perhaps he or his right hon. Friend the Prime Minister would take some occasion to explain in detail their exact objections to becoming a full member of the European monetary system. At no time have they been prepared to explain to their colleagues in the Community or to the House why they refuse to join. The answer has always been, "When the time is right." The pound was up to $2.42 and down to $1.05 and showed proportionate changes against other currencies. To be "right", do the Government want the pound to be worth more than $2.42 or less than $1.05? Perhaps the Chancellor could answer that question quite simply when he is winding up. It is disgraceful and an insult to the House that on a major issue such as this for over 10 years neither the Prime Minister nor two

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Chancellors of the Exchequer have ever been prepared to give their reasons, which could be fully discussed and debated in the House.

Mr. A. J. Beith (Berwick-upon-Tweed) : Does the right hon. Gentleman not recall that the Prime Minister has given one reason, which is that full membership of the EMS would tie us in to a dangerously deflationary German strategy?

Mr. Heath : I understand that that is what the Chancellor wants. The Chancellor has said that his one golf club is devoted to deflation, to stopping inflation. At one time he wanted to get it down to nil. We have heard a little less about that recently. Full membership of the EMS is essential and I should like to add one political factor. How can we expect the other members of the Community to co-operate with us in what we want in outside affairs? We have a row with the Belgian Government over alleged terrorism. [ Hon. Members :-- "Oh."] I thought that we believed that people were innocent until they were found guilty.

Mr. Neil Hamilton : My right hon. Friend does not believe that about the Prime Minister.

Mr. Heath : We have differences with other countries, for example, with the Republic of Ireland. Other countries will not respond if we are not prepared to co-operate with them in the bigger matters of the European Community, on which their whole life depends. I know that my hon. Friend the Economic Secretary to the Treasury is politically insensitive and has no idea of how other members of the Community feel when they find that we are first trying to destroy them and then trying to destroy the Community. It is well seen by the Community and I understand that it was said last night on television by my right hon. Friend the Member for Chingford (Mr. Tebbit), that many hon. Members want a free trade area and not a community. There is an essential and vital difference between a community and a free trade area. We had a free trade area and it did not serve our purpose. That is why we went into the Community.

Mr. Tebbit : After a moment's thought, my right hon. Friend will want to change slightly what he said a few moments ago. He said, or certainly implied, that the attitude of the Irish Republic or Belgium about the extradition of suspected terrorists was conditioned in some way by Britain's attitude towards the EMS. I am sure that my right hon. Friend did not mean that and I am absolutely sure that it is not true. I should like him to make it clear that he did not mean that.

Mr. Heath : I meant exactly what I said. The attitude of countries is affected psychologically by how other countries behave towards them, and anybody with experience of international politics knows that full well.

Mr. Ian Gow (Eastbourne) : My right hon. Friend is in danger of injuring his own reputation. Is he really seeking to say that Britain's failure to join the exchange rate mechanism of the EMS is some kind of justification for the refusal of the Belgian Government to respond to our request for the extradition of Mr. Ryan?

Mr. Heath : I am not in any way saying that it is a justification, but that it is an explanation of the attitude of many other countries towards us when they find that we

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are not co-operating with them. That psychology spreads and affects their other activities. My hon. Friend ought to know that.

Mr. John Marshall (Hendon, South) : Will my right hon. Friend consider what he has said? He said that we were not co-operating with the Belgians. Can he tell us what we did when we were asked to extradite the football hooligans who were at the Heysel stadium?

Mr. Heath : My hon. Friend should look at the campaign carried on as a result of our actions by the British press about the Belgian constitutional and legal systems.

The important thing is to concentrate on the Chancellor's position about the European Community. Again I strongly urge him at least to explain his position, even if he will not reconsider it. He should explain why he continues to stay outside the European monetary system at a time when the use of the ecu is expanding in the City. The banking system wants to go in and recognises that the City of London will not be able to hold its position unless Britain is a full member of the European monetary system. I do not want him to come along and lament that the Community has gone ahead on its own and done it without us. In the words of some members, "Well, if you want to stay outside and be a second-rate state on a second-rate tier, that is up to you. We shall go ahead." That is clearly the mood at the moment, and I want my right hon. Friend the Chancellor to recognise that. Unless he does, our interests will be gravely damaged.

5.20 pm

Mr. Robert Sheldon (Ashton-under-Lyne) : The right hon. Member for Old Bexley and Sidcup (Mr. Heath) had some sympathy for the Chancellor of the Exchequer. I do not know about sympathy, but I think that most of us will have some understanding of the dilemma in which the Chancellor finds himself. The problem now facing both him and the economy is that we have reached the end of the go part of the stop-go cycle. It has been a very long go. Stop-go cycles are usually of a much shorter duration. This is a historically long one, and it has lasted for about five or six years, depending on one's definition. It has lasted longer than any previous cycle because of North sea oil. The oil allowed us to carry on the go part of the stop-go cycle to such an extent.

What has happened is that this stop has marked the end of the hopes that some of us had that North sea oil would be used beneficially for manufacturing industry--the only use of that money that would have produced abiding rewards for our country rather than the short-lived ones of consumerism or remittances obtained for sending oil money abroad. As the right hon. Member for Old Bexley and Sidcup said, the problem now is a familiar one in our post-war economy, but it is a much bigger one. We have to address ourselves to how we control this big expansion of credit and this consumer boom.

When the Chancellor talked about a blip, he did a disservice to the important argument and discussions facing us today. It is incomprehensible to talk about a blip of £12 billion to £14 billion, or maybe even £15 billion. In 1964, we had an £800 million balance of payments deficit. If we exclude capital inflows, it was about £360 million. That is equivalent in real terms to something far below anything in which we are engaged today. It took from 1964

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to 1969, and a sterling devaluation, to correct that deficit, which is small by today's standards. Nobody could have called that a soft landing. Indeed, it was a particularly hard one. The soft landing for a balance of payments deficit of the size that we have now, of previously unimaginable proportions, is likely to take longer still unless certain measures are taken.

According to the Chancellor of the Exchequer, the deficit should not have been there at all. His policy, through monetarism and reduction in the PSBR, would bring about the solutions to all our economic problems. The Chancellor now seems to believe, or did until recently, that excessive private expenditure is less serious than high public expenditure. However, he has responsibility for the economy as a whole, whether the spending is private or public. It is not less serious because there is a bigger import content in private expenditure than in public expenditure.

Just to take responsibility for public expenditure and leave private spending to take care of itself is wholly wrong, because the Chancellor knew in March of the problems with which he was being faced. He knew certain of the difficulties of the credit expansion, for example, and if he had considered the possibility of the £4,000 million of balance of payments deficit, which he predicted then, turning into £15,000 million, would he still have made those tax cuts? It is my belief that he made those tax cuts because he thought that early in the life of this Parliament was the only opportunity he would have to effect tax cuts during his time as Chancellor of the Exchequer. It was a miscalculation. There has been a huge expansion of credit, and mortgage relief, which now costs £4.5 billion, is an important element of that credit expansion. The Chancellor says that mortgage relief ought not to be in the retail price index, but he does not take into account the enormous inflation in house prices, which does not show in the retail price index. That is one of the major aspects of inflation.

The Chancellor said in Southport on Saturday 26 November : "We have never never run away from difficult decisions." A U-turn is a difficult decision, but it is a political decision. It only causes embarrassment. What we need is an economic decision to deal with our economic problems, and those problems stare us in the face. What we need most of all is an autumn Budget. The Chancellor, and the rest of the Government, have scorned all past autumn Budgets, but when there is something unforeseen, one needs an autumn Budget. The Chancellor said that this was unforeseen. If it is unforeseen, that is the case for an autumn Budget. He is prevented from introducing an autumn Budget because of the statement that he has made so frequently and because of the obstinacy and obduracy that the Government have shown in this matter.

I thought that we might have been able to stretch on until the spring, but it seems to me that we cannot wait that long. We need to take action immediately. In the past, one might have been able to deal with the matter by imposing quotas on imports and other such measures, but those options are not available to us today, so we must look at the various possibilities of which we are able to make use. They are fairly restricted--taxation or a monetary squeeze. As the right hon. Member for Old Bexley and Sidcup said, credit controls have limitations. One cannot do

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everything through credit controls, but one can make some use of them. The Chancellor said that credit controls were unfair to those who did not have the economic expertise to deal with such matters. It was a touching regard for the unsophisticated, which came oddly from his lips. One can take some action. National savings have for decades been making money from the unworldly people who put money into them. We need some sort of action--limited but valuable, and a useful addition to the kind of controls that might help to reduce the amount of credit in circulation. Hire purchase restrictions and other measures are all options that have been used in the past and they can have some effect.

Then there is taxation. There is nothing to stop the Chancellor using the regulator in an autumn Budget ; a budget surplus, which he has enjoyed does not eliminate the need to slow down the economy by other means than interest rates. The give-away to the wealthy did not just mean the £2 billion to £3 billion to them. It generated the view and created the climate among those who benefited and among many others that happy days were here and would stay here, and they went out and spent and spent, and spent much more than they were given in any tax relief.

We need to ensure that we have a clear decision, made by Parliament, that there will be a reduction in the amount of money available to people. Interest rates do not provide that. Interest rates hurt industry, whose investment has to compete with the return from lending money which has jumped from 7.5 per cent. to 13 per cent., and industry has to compete with the banks, who charge businesses 15 to 16 per cent. on the money that they want to invest. Which business can get such a return from investment? The major competitors of many industries are the banks, because one can get a better return from banks than from investing in industry. That is one of the serious consequences.

When the APR on consumer credit is 27 or 28 per cent., a 1 per cent. increase means very little, even if people know about it, as the right hon. Member for Old Bexley and Sidcup said. If people know about it, what does an extra 1 per cent. mean? To investors, it means something. We also have the problem of a failure to invest at a time when there is an economic downsurge. That is the major problem facing us.

High interest rates intended to deter consumption push up the value of the pound. There is no targeting of any of this, but the two go together, and each of them is a deterrent to British manufacturing industry. High interest rates bear upon people's expenditure, the pound goes up and we then have difficulty in obtaining exports, and great difficulty in investment at home.

We have here the classic situation that we had in 1979-81. There is the danger of repetition of something that burnt into my soul, because it transformed the reasonably prosperous town of Ashton-under-Lyne into a town which is far less prosperous today. We are one of the towns that depend very much on small manufacturing industry. We lost 30 per cent. of that manufacturing industry. Small firms, medium-sized firms and medium-tech firms were destroyed by those policies. The demand is now there, but we do not have the capacity or even the industries to meet it. We cannot recreate those industries when the demand returns. The consequence is that we now have to import their goods. With the damage caused by the high pound, import penetration is made easier and home sales are reduced. That is the situation that we face.

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At six o'clock on Saturday 26 November, on Radio 4, the Chancellor of the Exchequer said that the

"British economy is very strong indeed."

That is one of the most crass remarks that I have heard in my economic experience. We are weak industrially, weak in manufacturing industry and weak in responding to levels of demand that we should have been well capable of meeting. We are squeezed at home and abroad.

The medicine that the Chancellor of the Exchequer is prescribing is the same kind of medicine, under much harsher conditions, that was tried between 1979 and 1981. It was a poison then and it is a poison now. There is only one realistic solution for the Chancellor. He should remove his pride from his now threadbare cloak and bring in an autumn Budget.

5.31 pm

Mr. Norman Tebbit (Chingford) : I am sure that I was not the only hon. Member today who felt a great deal of sadness that the right hon. and learned Member for Monklands, East (Mr. Smith) was still too unwell to join us in our debates. We miss him. A Labour Member has just said that my right hon. Friend the Chancellor of the Exchequer was rather glad that he was not here. I suppose that that could be true in view of the mess that the latest yuppie on the Opposition Front Bench made of his chance to play understudy to his right hon. and learned Friend. I thought that it was perhaps just my perception, but I am glad to know that it was perceived by some Opposition Members.

Mr. Harry Ewing (Falkirk, East) : Will the right hon. Gentleman give way?

Mr. Tebbit : I shall not give way.

Mr. Ewing : Just for a moment?

Mr. Tebbit : I am terribly sorry, but no.

With inflation on the rise and the deficit on our trading account, the hon. Member for Dunfermline, East (Mr. Brown) must have thought that he had the luck to be the first Labour economic spokesman for years to have the opportunity in a debate to have a little straw with which to make his bricks. Unfortunately, he dropped them all even before he had finished making them.

The one thing that I found particularly odd about the hon. Gentleman's speech was his reluctance to give way when he could have been corrected and prevented from making some of his mistakes. In his litany of forthcoming price increases next spring, he referred to increases in Telecom prices. I wonder whether he was aware that the basket of main charges for Telecom has been frozen for the past two years and will remain frozen until August of next year at the very least. When he returns to the Chamber, perhaps he will tell us whether he knew that and when it last happened under a Labour Government or whether it ever happened while the industry was nationalised.

The hon. Gentleman was agitated about inflation. Some of us with longer political memories than his remember that double-digit inflation was a Socialist innovation. Indeed, during the term of the last Labour Government, the RPI rose by 112.3 per cent. in just over six years. This Government have been in office for nine and a half years and the increase in prices is 10 per cent. less

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than that. When we discuss inflation with Front-Bench Opposition Members, those discussions might at least contain a little humility. The hon. Gentleman forgot to tell us when the last Labour Government achieved an inflation rate that was lower than the rate about which he was complaining today. I suspect that he forgot to tell us because he could not find the figures in the book.

Mr. John Battle (Leeds, West) : Will the right hon. Gentleman give way?

Mr. Tebbit : If the hon. Gentleman will excuse me, I shall treat him with the courtesy with which his hon. Friend the Member for Dunfermline, East treated me.

On the balance of payments, Labour was in deficit every year except one. By the 10th anniversary of this Government, they will have been in surplus for seven years out of 10. What is more, Labour also achieved huge budget deficits whereas my right hon. Friend is achieving substantial surpluses.

However, the hon. Gentleman's speech was devalued because it was so heavy and over the top on forecasts of disaster and so light on firm policy proposals. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made three clear points as policy recommendations. We did not hear one from Labour Front-Bench Members. We could perhaps with advantage bring back some of the old men and get rid of some of the young ones.

I have looked back at past debates on the Loyal Address. There is a strong similarity in Opposition speeches over the years with one exception : today there is even less effort than ever before to pose an alternative strategy. In May 1979 the right hon. Member for Leeds, East (Mr. Healey) opened the debate in the light of the first of the three Labour election defeats. He ended his speech with a good question. He said :

"the policies to which the right hon. Lady committed herself at the time of the election were tried by her predecessor and failed. Why does she expect to succeed where the right hon. Member for Sidcup (Mr. Heath) was forced to admit failure within 18 months?"--[ Official Report, 22 May 1979 ; Vol. 967, c. 891.]

That is a good question that we might all consider. Perhaps the best replies could be put in over Christmas to one of those contests in the Sunday papers.

It was only a week earlier than that that Mr. Callaghan, as he then was, had observed :

"This period of Tory rule will be a brief interruption, and then we shall resume the march forward"--[ Official Report, 15 May 1979 ; Vol. 967, c. 73.]

--in his case, a march forward to the House of Lords. By November 1981, Mr. Silkin, winding up for the Opposition, said :

"Import controls and massive public investment are one way. ... Here again the Labour party has a unanimous belief that exchange controls ought to be dealt with, and used in our favour."--[ Official Report, 11 November 1981 ; Vol. 12, c. 617.]

We have not heard those remedies today, so there has at least been some progress in that Opposition Members have no policies rather than those policies. I do not know whether they still share Mr. Silkin's wish, which he expressed that night, that he wanted to restore the top rate of tax to 83 per cent., or whether they wish to restore it to only 60 per cent. However, either way, it is unlikely to happen.

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In November 1982, the right hon. Member for Bethnal Green and Stepney (Mr. Shore) opened the debate, full of gloom for the economy and optimism for Labour, which were both falsified. Abusing my right hon. Friend the Member for Blaby (Mr. Lawson), just as he has been abused today, the right hon. Gentleman said :

"Who can fail to forget the scream of bubbling optimism that issued from the Chief Secretary in speech after speech throughout the winter and spring of this year, culminating in his famous assertion that he could see signs of recovery everywhere? The truth is that on present policies, reinforced by the attacks on the publicly-owned industries, there will not be a sustainable growth in output' and there will be no reduction in the numbers out of work."--[ Official Report, 10 November 1982 ; Vol. 31, c. 560- 63.]

The right hon. Gentleman has been proved substantially wrong. Mr. Peter Shore (Bethnal Green and Stepney) rose

Mr. Tebbit : Of course I am willing to give way to him.

Mr. Shore : I think that the right hon. Gentleman will agree with me on two points. First, there was no reduction in unemployment between 1982 and 1986. That was a four-year period in which unemployment was around the 3 million mark. Secondly, not even in 1986 had we recovered to the same level of manufacturing output in our industry that we had in 1979.

Mr. Lawson : That is not true.

Mr. Tebbit : As my right hon. Friend the Chancellor of the Exchequer says, part of the right hon. Gentleman's intervention was not true. Secondly, he has not met my point, which is that he said that on the policies to which he referred there would be no reduction of unemployment. In fact, there has been a long, continuous and substantial reduction in unemployment.

It is time that a touch of realism was introduced into our debates and I should like to help to introduce it. I shall quote Lord Prior, who was interviewed recently on the BBC. He finished by saying : "As things are at the moment, I think that the economy is overheated. I think the Chancellor's measures will help to bring it back under control. I'm a supporter of the Chancellor in what he is seeking to do. It will now take time to come round and I don't think we can look for instant results and I would expect high interest rates to be with us until the middle of next year."

Lord Prior was speaking, I think, as the chairman of one of the largest manufacturing companies in Britain, not as a politician. Contrary to what has been suggested by the Opposition, there is considerable confidence both in the economy and in the conduct of the economy by my right hon. Friend the Chancellor of the Exchequer by those who are at the sharp end of business, as opposed to those who would not recognise the blunt end of most businesses. As the House will know, I am a director of four major public companies and one private company.

It is possible to criticise any Chancellor of the Exchequer ; none of them gets everything right. Indeed, before 1979, some of them managed to get everything wrong. My right hon. Friend the Member for Old Bexley and Sidcup suggested that my right hon. Friend the Chancellor of the Exchequer is a one-club golfer and that he should get some more clubs. I suggest to my right hon. Friend the Member for Old Bexley and Sidcup that the

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most important thing is to be able to play the game and to have a proven handicap that is better than that of any of the other players in this place for a start.

In the real world, industry and commerce are not in seething discontent. Of course, not everything is perfect. Most of us, except importers, would like sterling to be a bit lower, except when we are buying in foreign components, semi-finished goods or raw materials, when we would like it to be a bit higher. Most of us would like interest rates to be a bit lower. However, the difference in United Kingdom costs from those of our competitors arising from interest rate differentials has proven to be rather less on the whole than the difference arising from differentials in the unit cost of labour. We have made great progress in increasing productivity and holding down unit labour costs, but so have our competitors. I had hoped that there would be some common ground between us all on that, but, sadly, that is not so.

It would have been pleasing recently to hear trade union leaders, whose members have done well in recent years, taking the lead in seeking further ways to cut the costs of industry, not to inflate them. Perhaps whoever replies for the Opposition will say whether the Opposition believe that pay settlements that are well above the retail prices index are benign or damaging to the interests of the economy, or even to those who gain them, unless they are fully justified by productivity advances.

Mr. Ernie Ross (Dundee, West) : How much productivity has the right hon. Gentleman given?

Mr. Tebbit : Sufficient to convince my colleagues who hold responsibility for businesses that it is worth while to employ me. The hon. Gentleman is free to apply for a job and to ascertain whether anyone wants to employ him.

What are the effects of the increase in interest rates that my right hon. Friend the Chancellor of the Exchequer has introduced? In my experience, retail sales have slowed sharply but not uniformly, and that is exactly what we should expect. Monthly outgoings for a first-time buyer have increased by about 35 per cent., so the froth is certainly off the house market. Many mortgagors are only just beginning to pay the higher rates, and many will not do so until the new year or even later. The slowdown in retail sales is therefore skewed towards more up-market goods as those other than mortgagors are still enjoying the tax cuts of my right hon. Friend the Chancellor of the Exchequer and are little affected by the increase in interest rates.

Most people do not borrow money on their credit cards, or certainly not into the interest rate range. The majority of card holders clear their account at the end of the month. As my right hon. Friend has said, credit cards are not the major problem of credit control. The major problem of credit expansion has been in lending through building societies and banks. We all know that from the letters that we receive from our building societies in which the society offers to lend us another £5,000 or so for anything we want, such as a holiday abroad or consumer goods. That is where the leakage of cash is to be found.

The boom in the construction industry is still going ahead. It is taking place on the impetus of events before the summer. Undoubtedly there will be a considerable cooling off in that industry next year. From now on my right hon. Friend the Chancellor of the Exchequer must be extremely careful in his use of further interest rate changes, because

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what he has done already has probably wound a quite powerful deflationary spring. The full effect of past increases in rates has not yet been felt and it may be that it has not been enough. We do not yet know. On the other hand, it would be easy to pile on too much further pressure and then find that the force of the deflationary spring is too great.

All that underlines the fact that the Opposition are hopelessly wrong in their prescriptions, such as they are. If the tax cuts were withdrawn, presumably the Opposition would want not an ever larger Budget surplus but an increase in public spending, much of it putting more spending power into the hands of those who are least likely to be savers, or into non-wealth creating or even wealth-destroying schemes.

My right hon. Friend the Chancellor of the Exchequer has made a trenchant defence of his record and his policy. On form as a Chancellor, and on his handicap in this economic game, he has no equal, certainly not in the House. The Opposition have advanced no alternative policies that we can consider. Presumably that is because those that they cooked up at the SOGAT rest home--how singularly appropriate that it was SOGAT of all unions--were the result of discussing how to improve the supply side of the economy. SOGAT! Oh dear, what ironies we find in the Opposition's actions. Despite that meeting, they have no policies that they yet dare to disclose. On the record of my right hon. Friend the Chancellor of the Exchequer and on his policies, he has already won the debate. He has won the support of his party and that of a far wider constituency in addition. He has won especially the support of those who are running industry instead of running it down.

5.48 pm

Mr. A. J. Beith (Berwick-upon-Tweed) : The right hon. Member for Chingford (Mr. Tebbit) seemed to have full recourse to his notes as he gave a commentary on what the Chancellor of the Exchequer said earlier this afternoon. It was clearly based on what he had decided to say before the debate began. There was a sting in the tail when the right hon. Gentleman said that the piling on of further interest rate increases, should that be indicated to the Chancellor by further trade deficit problems, which we may well have, could cause serious problems to industry. In a rather more generous way than some other Conservative Members the right hon. Gentleman is giving a not proven verdict. It was the right hon. Member for Worthing (Mr. Higgins), who chairs the Select Committee on the Treasury and Civil Service, who said that the jury was out, considering its verdict on the Chancellor of the Exchequer.

It is an unusual Gracious Speech debate that turns into a confidence debate on the Chancellor of the Exchequer. Ten days ago, it seemed that it would focus on the Chancellor's animadversions on the pensioners. Within a few days a new subject for a confidence debate had been spawned, following the latest trade figures. The message that the Chancellor of the Exchequer has given to Conservative Members is that there will be no change in policy, that "What we shall do will be unpopular" and that "It is all very simple and it will be all right in the end." Those are the key points of the message. The Chancellor of the Exchequer's forecasting record is sufficiently bad for me not to want to concede too much to him. He is right in predicting that what the Government will do will be

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unpopular. It may be that there will be no change, but it is certainly not simple. To talk about it all being simple was a surprising observation for him to make. I do not believe that everything will turn out all right in the end.

The measure of how far the Chancellor has got it wrong is provided in his Budget speech in March 1988. He said :

"inflation is forecast to end the year at 4 per cent. While this is still too high, it is a testimony to the soundness of our policies that the present strong and sustained upswing has not led to any resurgence of inflation."

Last month inflation rose to 6.4 per cent. and it is unlikely to keep within the Autumn Statement forecast for an average of 6.25 per cent. in the last quarter of 1988. [Interruption.] I see that not only is the jury out, but the defendant is out as well. The Chancellor is leaving the proceedings as he is unable to bear it any longer.

The last Gracious Speech referred to :

"Policies designed further to reduce inflation."--[ Official Report, 25 June 1987 ; Vol. 118, c. 39.]

In this Gracious Speech we are only promised policies designed to "bear down on inflation". I do not know what the phrase "bear down" means. If my hon. Friend the Member for Rochdale (Mr. Smith) was "bearing down" perhaps there would be some prospect of inflation actually going down. However, the idea of "bearing down" on inflation as a substitute for further reducing it seems to be an index of how far the Government's targets have slipped.

Later in his Budget speech the Chancellor said :

"the current account of the balance of payments is forecast to remain in deficit this year, by some £4 billion, I foresee no difficulty in financing a temporary current account deficit of this scale."--[ Official Report, 15 March 1988 ; Vol. 129, c. 996.] Of course, the reality is that after the worst ever figures we are heading for a deficit of £12 billion or perhaps £14 billion in the current year and hence the high interest rates.

When speaking to the Treasury Select Committee in March, the Chancellor said

"I am not concerned about overheating in the economy, though one has to be vigilant all the time."

In March, we had a strategy of massive tax cuts against a background of the explosion of credit opportunities which the deregulation had brought about. That created a spending climate. The right hon. Member for Chingford referred to the kind of letters that banks are sending out. It is really quite extraordinary to read what has been sent out in recent months. The post boxes and doormats around the country are littered with computerised letters from banks. I have an example with me from the National Girobank which is still a publicly owned body, although the Government are trying hard to sell it. The letter states :

"Do you need money right away?

Like most people, you can probably afford to increase your monthly outgoings because of tax cuts made in the Budget last March. So why not use the extra to improve your lifestyle? After all, you've worked hard for it."

How do they know?

"Maybe you would like to replace your car splash out on a new bedroom or kitchen enjoy a luxury holiday or treat yourself to something really special."

An accompanying circular states :

"Yes you can replace your car you can afford that fitted kitchen you can take a well deserved holiday

With a Girobank Personal Loan, you can say goodbye to window shopping and buy the things you want right now."

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