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House of Commons

Thursday 8 December 1988

The House met at half-past Two o'clock


[Mr. Speaker-- in the Chair ]


City of London (Spitalfields Market) Bill

Order for Third Reading read.

To be read a Third time on Thursday 15 December.

Avon Light Rail Transit Bill [Lords]

(By Order) Order for Second Reading read.

To be read a Second time on Thursday 15 December.

City of Glasgow District Council Order Confirmation Bill

Read the Third time, and passed.

Oral Answers to Questions

Mr. Churchill : On a point of order, Mr. Speaker. You will be aware that in previous Parliaments there have been inquiries into the planting of parliamentary questions. Have you noticed the coincidence that today four questions on the Order Paper are in identical terms? Might this be a coincidence that you would consider inquiring into, Mr. Speaker?

Mr. Dennis Skinner (Bolsover) : Further to that point of order, Mr. Speaker.

Mr. Speaker : Order. [Interruption.] Further points of order will take up a great deal of time. I shall deal with the matter.

Mr. Skinner : When? Mr. Speaker : I shall protect the hon. Gentleman.

I do not know about the planting of questions. Questions that are in the same terms often appear on the Order Paper, and that is in order. It is unusual for them to come so high on the Order Paper.


Budget Tax Cuts

1. Mr. Graham : To ask the Chancellor of the Exchequer what estimate he can provide of the proportion of an average earner's 1988 Budget tax cut that has been absorbed by subsequent (a) water and electricity price rises, (b) mortgage interest rates and (c) interest on personal debt.

2. Dr. Godman : To ask the Chancellor of the Exchequer what estimate he can provide of the proportion of an average earner's 1988 Budget tax cut that has been

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absorbed by subsequent (a) water and electricity price rises, (b) mortgage interest rates and (c) interest on personal debt.

6. Mr. Nigel Griffiths : To ask the Chancellor of the Exchequer what estimate he can provide of the proportion of an average earner's 1988 Budget tax cut that has been absorbed by subsequent (a) water and electricity price rises, (b) mortgage interest rates and (c) interest on personal debt.

8. Mr. Cummings : To ask the Chancellor of the Exchequer what estimate he can provide of the proportion of an average earner's 1988 Budget tax cut that has been absorbed by subsequent (a) water and electricity price rises, (b) mortgage interest rates and (c) interest on personal debt.

The Chancellor of the Exchequer (Mr. Nigel Lawson) : As the hon. Members know, mortgage interest payments and nationalised industry prices are both reflected in the RPI. Since average earnings have risen faster than the RPI, it follows that the average earner has seen a rise in his standard of living even before any account is taken of the benefit of the tax cuts in this year's Budget.

Mr. Graham : Does the Chancellor of the Exchequer realise that in some parts of the United Kingdom the greatest cause of homelessness is mortgage default? Does he understand that many who bought their houses in good faith are being badly let down by him? How high must interest rates rise before he will admit that his policies are wrong? How many more people will have to be made homeless because of the right hon. Gentleman's incompetence?

Mr. Lawson : I have three points to make to the hon. Gentleman. In the first place, the overwhelming cause of mortgage default is broken marriages. It is nothing to do with the mortgage rate. And that is a fact. The second point is that it is well known that interest rates, and therefore the mortgage rate, fluctuate. The third point which the hon. Gentleman ought to take into account--so should other Opposition Members-- is that when interest rates go up, on one side certainly borrowers have to pay more, but on the other side savers are getting more too.

Dr. Godman : What does the Chancellor of the Exchequer say to the average wage earner who received about £12 by way of tax cuts in the Budget, who since then has had to pay an extra £30 a month as a result of increased mortgage payments, leaving him and his wife and family £18 worse off? Should we blame the Chancellor of the Exchequer, or the couple? May I put it to the right hon. Gentleman that it is his fiscal policies and other policies that are driving more and more Scots into the seductive but impotent embrace of the Nationalists?

Mr. Lawson : I understand the acute problem posed to the Labour party by the Scottish National party in Scotland, I do not want to intrude into private grief and I shall not say anything more about that, but it does not really arise from the question anyway. As I pointed out, the average earner, fully taking mortgage rate increases into account, is better off today in real terms substantially, even before taking into account the tax cuts in the Budget.

Mr. Griffiths : Is the Chancellor aware of the statement from the CBI which states : "We are consistently"--

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[Interruption.] Is he aware of the statement from the CBI which states that it has consistently argued against the need for a price increase in electricity, which has inflicted so much harm on its members and export potential and also on over 20 million households in this country? How does the Chancellor justify forcing up electricity prices by more than 15 per cent. in 13 months?

Mr. Lawson : Since the hon. Gentleman is interested in how business is doing, I shall quote to him, even though he is not permitted to quote to me. I shall quote to him if I may, because it is an important document, from the most recent quarterly regional business survey of the British chambers of commerce, which says : "Business remains buoyant"--

and this takes full account of electricity rises--

"Confidence is rising, turnover and profitability remains extremely strong That confidence is being equally maintained when translated into investment activity"

and so on. That is the state of business and industry today. I would hope that the hon. Gentleman would welcome it, because that comes from the people who are in business and industry and who know what they are talking about, unlike Opposition Members.

Mr. Cummings : Having heard what the Chancellor has just said, what message can he send to home buyers in my constituency of Easington and home buyers elsewhere in the northern region who are subjected to the horrendous rise in interest rates, but who are earning less than the national average weekly wage? Those people therefore have not benefited from recent tax cuts. What message can he send to the 2,000 shipyard workers who have just lost their jobs in Sunderland and who are subjected to increased hardship because of the rise in home interest rates?

Mr. Lawson : The problem of the shipyard workers in Sunderland has got nothing to do with interest rates. I am indeed sorry about the plight of the shipyard workers in Sunderland, but it is well known that there is gross over-capacity in the shipbuilding industry throughout the world. There is no way in which North East Shipbuilders Ltd. could be made into a profitable enterprise. Instead, we want to see new industries developing in the north-east. Taking the economy as a whole, I remind the hon. Gentleman that there are more people at work in Britain today than at any time in our history.

Mr. Tim Smith : Does my right hon. Friend agree that if we had the misfortune to have a Labour Government, not only would water and electricity prices, and mortgage interest rates have risen, but income tax as well? Will he remind the House by how much the real take-home pay of the average earner has increased over the past nine years and compare that with the record of the last Labour Government?

Mr. Lawson : My hon. Friend is making a very good point. Certainly for a married man on average earnings, with two children, his real earnings have risen during the period of this Government by 29 per cent. in real terms. Under the period of the Labour Government there was virtually no rise whatever. During the period of the Labour Government we had the lowest rate of growth of any Government since the war, the lowest rate of growth of productivity in manufacturing, the lowest level of

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profitability and indeed a fall in manufacturing output. The only thing that they achieved highs for were inflation and taxation.

Sir Michael Shaw : Does my right hon. Friend accept that this matter must be considered from all aspects? Will he remind us how much the taxpayer is saving by no longer having to subsidise the many loss-making nationalised industries?

Mr. Lawson : My hon. Friend is quite right. There is a substantial saving in not having to subsidise loss-making industries now that these industries have been turned round and are in the private sector. Indeed, we are getting increasing income and increasing yield of corporation tax from those industries now that they are healthy and in the private sector.

Mr. John Townend : Is my right hon. Friend aware that in the north of England, where we have not had the ridiculous rise in property prices that people have had in the south, real increases in wages and tax cuts have made people infinitely better off? Will he resist the pressure from the Opposition Front Bench to increase taxes and continue to decrease taxes? Does he agree that the problem is a fall in the savings ratio and an increase in personal borrowing, and that increases in interest rates will encourage saving and discourage borrowing?

Mr. Lawson : My hon. Friend's understanding of the economy is absolutely correct. As for the regional dimension, he is right there too. The effect of a rise in interest rates, particularly now that the personal sector is a net borrower for the first time ever by a substantial amount, is most pronounced in the south-east, which is where the overheating is, and that shows how well directed that instrument of policy is.

Sir Peter Emery : Will my right hon. Friend point out to the prophets of doom on the Opposition Benches that, to the average earner, the most important thing is to stabilise and lower inflation, and that his policy, to anybody who understands it, is bound to have a lead time of anything between five and eight months? Those critics should keep quiet until we see the success of his policy some time in the new year.

Mr. Lawson : My hon. Friend to some extent flatters the Opposition by suggesting that they have a policy. If they do have a policy, I am sure that the Opposition Members on the Front Bench will seek to catch your eye in a moment, Mr. Speaker, to tell the House what it is, but their track record is one of total indifference to inflation and of allowing inflation to reach record levels. I share my hon. Friend's fear that if they were ever given the chance to get into office--which they will not be--they would do the same again. We, by contrast, will maintain low inflation. That is what we have done since we took office, and that is more important than anything else to the people of Britain, whether business men or private individuals.

Mr. Beith : Will the Chancellor rule out now the tactic of using a further savage rise in interest rates early in the new year as a means of controlling overheating in the economy when there are so many other weapons that he could use--including measures to give tax relief on savings and to encourage the banks to slacken the credit explosion--which would not make him as dependent on interest rates as he has made himself?

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Mr. Lawson : Unlike the Labour party, which appears not to have any policy that it is prepared to avow, the Liberal party, or what ever it is now called--always has any number of policies or bright ideas. They are nearly all of them crackpot ideas and the electorate will see through them.

Mr. Butterfill : Will my right hon. Friend confirm that the price increases of public utilities during the last five years of the previous Labour Government were more than double those during the past five years of this Government? Electricity prices increased 170 per cent. during the last five years of the Labour Government whereas they have gone down in real terms under this Government.

Mr. Lawson : My hon. Friend is right. It is also the case that the average earner in Britain is better off in real terms than ever before, and that is what causes the Opposition such deep distress.

Mr. Nicholas Brown : Inflation is higher now than when the Chancellor first started to attack it, and it comes ill from him to demand that we explain our policies when we see his policies in tatters. But I will not be uncharitable. Given the net loss of weekly income to mortgage holders set out in the Chancellor's helpful answer of 31 October to his right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour), how far would the Government have to reduce income tax to offset those losses, and what would be the effect of such a further reduction on interest rates?

Mr. Lawson : What I will tell the hon. Gentleman is that the average earner is far better off now than he was a year ago, despite the increase in mortgage rates. The table was very precise. It did not take into account the increase in earnings. It did not take into account also the fact that there is a higher interest rate on savings--and people have savings too. So I am telling the hon. Gentleman that the average income and the average earnings of the average person in this country are higher than they were a year ago. I am not going to take lectures on inflation from the Labour party, when the average rate of inflation under Labour was 15 per cent.-- and not in one single month did it ever get it as low as it is today.


3. Mr. Blunkett : To ask the Chancellor of the Exchequer whether his Department will commission research into the relationship between increases in base rates and levels of mortgage default.

The Economic Secretary to the Treasury (Mr. Peter Lilley) : No. A study by the Building Societies Association showed no correlation between interest rates and mortgage defaults and that the single most important cause of mortgage arrears is matrimonial breakdown.

Mr. Blunkett : In view of the fact that between 1979 and 1987, of those accepted as homeless for whatever reason, mortgage defaulters rose from 4 to 19 per cent. of the total, does the Minister still believe, as the Government declared 18 months ago, that

"Some people are still deterred by the costs and complications of house purchase. That is why we must look for new ways to make house buying simpler and easier"?

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Does he believe that that statement, in the Conservative party election manifesto, has been helped, or hindered, by the Government's actions?

Mr. Lilley : The hon. Gentleman will welcome the fact that in the first six months of this year the number of people in arrears with their mortgage, or forced into having their property repossessed, though extremely small, was 19 per cent. down on the previous year. Another factor found by the Building Societies Association to be important in affecting the level of repossessions was unemployment. With the decline in unemployment, the number of repossessions has also fallen. We believe in making it easier for people to buy their own houses and we welcome those trends.

Mr. Holt : Will my hon. Friend note that, despite the strictures of Opposition Members, the hon. Member for Stockton, North (Mr. Cook) has just taken full advantage of the Government's legislation to purchase his own council house at a maximum 54 per cent. discount?

Mr. Lilley : If that is the case, I congratulate the hon. Member for Stockton, North (Mr. Cook) on his good sense in taking advantage of the opportunities that we have created for all working people. I am proud that 1 million others have joined the hon. Gentleman in taking advantage of their right to buy.

Mr. Frank Cook : Will the Minister note that the purchase of council houses by sitting tenants is not against Labour party policy and never has been? It has been possible to do so in Stockton on Tees since the early 1920s. If the Minister's right hon. and hon. Friends undertook any research, they would realise that their information is grossly distorted-- like their mentality.

Mr. Lilley : It would be interesting to know whether the hon. Gentleman joined so many of his right hon. and hon. Friends in voting against the right-to-buy legislation, which ensured that the majority of Labour authorities that did not grant the right to buy to their tenants were required to do so. His right hon. and hon. Friends would be embarrassed by this issue being raised.

Mr. Dykes : Does my hon. Friend agree that home ownership on the current scale is one of the Government's outstanding successes and leaves the Labour party in a state of acute embarrassment on a constant basis? Does he also agree that the financial system is now strong enough to withstand any significant defaults next year, and that it is essential that those who are in difficulties with mortgage repayments should contact the relevant agencies before the problem develops into an unsolvable one?

Mr. Lilley : Yes, my hon. Friend is right. He has returned to the original question, which concerns the burden of debt. Another great Labour party hypocrisy is to pretend to be concerned about debt, when a Labour Government burdened every household in this country with a level of debt far greater than that recently highlighted by the Citizens Advice Bureaux report.

Mr. Chris Smith : Does the Economic Secretary recall that the Chancellor told the nation on London Weekend Television on 9 October, specifically in relation to the issue of mortgage default and repossessions, that he did not think that, with increasing interest rates, there would be more repossessions because families would have to spend

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less on other things. Does the hon. Gentleman recall that the Chancellor said that, and does he not think that the remarks were deeply offensive to millions of homebuyers? What has he to say to those home buyers who budgeted sensibly in taking out their mortgages, who mortgaged themselves up to the hilt, cutting back on other expenditure, and who now have no fat in the family budget to cut out? What are they to cut out to meet the higher interest payments?

Mr. Lilley : I agree with my right hon. Friend and disagree with the hon. Gentleman profoundly when he says that it is budgeting sensibly to mortgage oneself up to the hilt. To the extent that people have borrowed too much, and lenders have been unwise enough to lend too much, it is normal to accept--as most building societies do that when there are difficulties in repayment because of changes in the interest rate, the mortgage can be prolonged, and that is why the level of repossessions is not related to the mortgage rate. I refer the hon. Gentleman to the report of the Building Societies Association, which says :

"A careful examination of the statistics shows that there is no relationship between the level of mortgage rates and the level of possessions and arrears."

Mr. Gow : Would it not add to the spirit of comradeship on the Opposition Benches if my hon. Friend were to publish in the Official Report a list of those Opposition Members and Labour councillors who have taken advantage of our right-to-buy legislation?

Mr. Lilley : My hon. Friend is always doing his best to stir up unity in the Labour party. If it proves possible to carry out his request, I shall do so.


4. Mr. Harry Barnes : To ask the Chancellor of the Exchequer what is the total sum raised from the privatisation programme from 1979 to date ; and to what these revenues have been applied.

The Financial Secretary to the Treasury (Mr. Norman Lamont) : The net proceeds from privatisation since May 1979 amount to some £23 billion.

Mr. Barnes : Have not the revenues been used to stoke up a consumer- led import drive, which is helping to ruin the British economy, and have not consumers' assets been wasted in these nonsensical sales?

Mr. Lamont : The answer to the first point is no and the answer to the second point is, equally, no. The result of privatisation has been that businesses amounting to about 45 per cent. of the public sector in 1979 are operating more efficiently and profitably than ever before.

Mr. Burt : Is it not the case that the privatisation programme is proceeding apace throughout the world, that Socialist Sweden has returned 15 companies with a total turnover of £100 million to the private sector, and that only the Albanian-style Labour party is kicking against this trend?

Mr. Lamont : My hon. Friend is absolutely right. Privatisation programmes are being implemented in many countries in Europe, Asia and also North America. Yet only yesterday the Labour party recommitted itself to the

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renationalisation of the water industry, which shows that it has not understood that privatisation is a programme that is immensely popular in this country.

Contingency Fund

5. Mr. Ronnie Campbell : To ask the Chancellor of the Exchequer if he expects to allocate resources from the Contingency Fund in 1989-90 to (a) pensions and (b) education.

7. Mr. McFall : To ask the Chancellor of the Exchequer if he expects to allocate resources from the Contingency Fund in 1989-90 to (a) pensions and (b) education.

The Chief Secretary to the Treasury (Mr. John Major) : I assume that the hon. Gentlemen are referring to the reserve. In the case of pensions, the answer is yes. Other allocations from the reserve will be made as the need arises.

Mr. Campbell : Given the break in the earnings-linked update for pensions, is the Chancellor aware that pensions now are £11 lower for single people and £18 lower for married couples, which has given the Treasury a net saving of £5 billion a year? That has robbed British pensioners of £2,000 a year since 1979. How does the Chancellor feel about being voted the No. 1 Scrooge this Christmas by the pensioners?

Mr. Major : The hon. Gentleman's remarks are wholly misleading, for a variety of reasons. The first point that I want to make is that pensioners' average real incomes have risen by 23 per cent. from 1979 to 1986, compared with only 3 per cent. in real terms between 1974 and 1979. Frankly, we need no lectures from the hon. Gentleman, whose party, when in government, savaged pensioners' living standards.

Mr. McFall : As skills shortages are believed to be the main impediment to the growth of industrial companies, and as a CBI survey shows that over 20 per cent. of industrial firms believe that skills shortages are the primary impediment to growth, why is it that in the White Paper published by the Secretary of State for Employment the Chancellor of the Exchequer did not see fit to allocate an extra penny from the contingency fund to further education and training?

Mr. Major : Substantial increases were allocated to education and training in the recent public expenditure round. The hon. Gentleman may be aware that, in particular, there were substantial increases recently over the whole range of university and other

education-related areas of expenditure.

Mr. Brazier : Does my right hon. Friend agree that it is only because of the increase in growth that has occurred as a result of the successful economic policies of this Government that there are extra resources and that we can have discussions about how they ought to be allocated?

Mr. Major : That is right. There were substantial increases in a series of priority programmes during this year's public expenditure round.

Mr. Adley : Will my right hon. Friend consider the significance of the figures that he has just given to the House? There has been a 23 per cent. increase in the real value of pensions, compared with the miserly sum that the

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last Labour Government managed to give to pensioners. In particular, there are now more than 1 million additional state pensioners since this Government were elected in 1979. Will my right hon. Friend point out to the people of this country that it is possible to contemplate that a Government such as might emerge if the Labour party were elected would reduce the real value of pensions for state pensioners?

Mr. Major : It is perfectly clear that in the event of there being a further hypothetical Labour Government, and of that Government being as successful as their predecessors, they would undoubtedly, given the increase in the number of pensioners in the last few years, reduce the living standards of pensioners. That is not taking into account the effect of inflation under the last Labour Government. The Opposition would do well to recall that they twice denied the Christmas bonus to pensioners and that a considerable number of pensioners suffered a negative loss on their hard- earned savings as a result of their policies.

Mr. Ron Brown : Does the Minister not understand that today's sick society--also known as the "tick society"--suffers greatly because of Dr. Lawson's quack medicine? Pensioners in their droves in Scotland are backing the mass movement against the poll tax. That is something that the Government will have to face next year in Scotland--as well as in England, in due course.

Mr. Major : My right hon. Friend's policies have led to eight successive years of quite substantial growth, which is both a creditable and a remarkable record. As for pensioners, the hon. Gentleman and all his hon. Friends have neglected to mention the further substantial assistance that has just been announced in respect of older pensioners. I should have thought that they would welcome that announcement.

Charities (VAT)

9. Sir Peter Emery : To ask the Chancellor of the Exchequer whether he will list the total level of value added tax estimated to be provided by charities during the forthcoming financial year and the amount provided by charities over the last five years.

Mr. Lilley : I regret that this information is not available.

Sir Peter Emery : This Government have probably done more than any other to encourage giving to charities, but does my hon. Friend not realise that they are suffering considerably after donations have been made because some leading charities are paying £1 million or £2 million more in VAT? Those who make donations to charities do not believe that their money should be used for that purpose. Will my hon. Friend ask the Chancellor to consider that matter when he is thinking about next April's Budget?

Mr. Lilley : I thank my hon. Friend for his remarks about the Government's policies to encourage charitable giving, and I pay tribute to him for his consistent interest in this issue. My right hon. Friend considered the possibility of a general VAT relief, but decided against it. First, it is inconsistent with and would not be permitted under European Community law, although specific reliefs might be. Secondly, my right hon. Friend decided that it

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would be better to concentrate on encouraging the act of charitable giving, since it is clearly right that the amount of tax relief that a charity receives should be related to the amount of giving that it is able to attract. It is also good that, whereas £1 of VAT relief is worth just £1, an extra £1 of tax relief on the act of giving has a multiplier effect and encourages extra charitable giving.

Mr. Rooker : What are the Government doing to distinguish between charities whose purposes we all understand and charities set up exclusively to avoid tax? What action are the Government taking to ensure that those charities are shut down?

Mr. Lilley : From time to time measures are introduced in the Finance Bill to prevent the use of tax legislation as tax loopholes. Another safeguard is provided through the charity commissioners, who are required to examine the matter.

Mr. Higgins : Does my hon. Friend agree that there are real difficulties in giving VAT relief to charities? Were not those dificulties recognised when the tax was introduced? Do not the compensation advantages in tax that were given to charities at that time, and continued by successive Conservative Governments for the same purpose, vastly exceed the actual cost to charities of VAT?

Mr. Lilley : My right hon. Friend is absolutely right. Because of the benefits that we have given to charities and the inducement that we have given to encourage charitable giving, the amount of charitable giving has doubled in real terms since 1979.

Group of Seven

10. Ms. Mowlam : To ask the Chancellor of the Exchequer what information he has as to the current inflation rates of the member states of the Group of Seven leading industrialised countries.

Mr. Norman Lamont : With permission, Mr. Speaker, I shall publish a table in the Official Report.

Ms. Mowlam : In view of the Minister's response, will he tell the House when he expects Britain's inflation rates to fall into line with those of our competitors--this year, next year, or after the Chancellor leaves his job?

Mr. Lamont : When my right hon. Friend the Chancellor made a speech during the debate on the Loyal Address, he told the House when he expected the rate of inflation to peak and when he expected it to come down.

Ms. Mowlam : When?

Mr. Lamont : The hon. Lady knows that I would never make such a precise prediction. The inflation differential between this country and the G7 countries to which the hon. Lady referred in her question has been narrowing since the Government took office. Between 1974 and 1979, when the Labour Government were in office, the gap was 6 points on average. Under the Conservative Government, it has been a mere 1.7 points. We intend to narrow the gap even further.

Mr. Budgen : Does my right hon. Friend agree that the history of those countries, especially Germany, shows that any relatively open economy can adjust to high and rising rates of inflation? Does he further agree that while

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