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Mr. Gordon Brown (Dunfermline, East) : I beg to move, to leave out from "House" to the end of the Question and to add instead thereof : "declines to approve the Autumn Statement ; deplores the failings in the Government's economic policies and the higher interest rates, higher inflation, the continuing high level of unemployment and worsening balance of payments these have caused ; is concerned about the damaging impact of these policies on industry, home owners and low income families throughout the country ; believes that the Autumn Statement does nothing to ensure a balanced economy and fails to ensure necessary improvements in essential public services ; and calls upon the Government to adopt an economic strategy which will sustain growth, combat inflation, move interest rates downwards towards the levels of Britain's competitors and reduce the balance of payments deficit by improving export performance."
What we have just heard from the Chancellor of the Exchequer is the predictable response of a man who has just heard through the post that his last remaining policy--depending on high interest rates--has been rejected by his last remaining supporter--the Bank of England. He is the one-club man who has now become the one-man club.
Mr. Brown : I shall come to the questions in my own time. The Chancellor made many boasts in his speech. He tells us that private investment as a share of the economy has not been higher since the 1960s. He fails to tell us that overall investment--the figure that matters--as a share of the economy has not been lower since the 1960s. He tells us that long-term interest rates have not moved at all. He fails to tell us that short-term interest rates are now 3 per cent. higher than in America, 5 per cent. higher than in Germany and 8 per cent. higher than in Japan. Our interest rates are among the highest in Europe.
Mr. Lawson : I must tell the hon. Gentleman that he is wrong. Total investment is, on the official figures, the highest for a quarter of a century and, according to outside analysts, is likely to be the highest figure ever as a proportion of GDP.
Mr. Brown : The right hon. Gentleman should consult the real figures. He has been wrong before and he is wrong now. Investment, as a share of the national income, is lower than it was in the 1960s and 1970s, and lower than in almost every European industrialised country, except Belgium.
The Chancellor tells us that manufacturing productivity is our best ever. He fails to tell us that the productivity of the labour force as a whole is less than it was during most of the 20 years before he took office. When boasting about productivity throughout the world, he fails to tell us that our growth in productivity has been half that of Japan. Those are the real figures.
Sir Peter Hordern (Horsham) : I wonder how that can be. Manufacturing output is now 10 per cent. higher than it was in 1979 and, on the Opposition's thesis, the number of unemployed is higher now than it was then. Surely it must follow that productivity is greater now than it was in 1979.
Column 1015that I was putting to the Chancellor is that if one compares our record on productivity in all sectors of the economy with that of Japan, one can see that our productivity has been rising by half as much. The Chancellor will have to come to the House to correct his figure at a later date.
I suspect that we have heard from the Chancellor one half of the Government's case on the economy, reflecting much of the weekend thinking in his get-together at Dorneywood. Perhaps later in the debate we shall hear from the Chief Secretary, who is in a position to report on the more important meeting with the Prime Minister at Chequers on Boxing day. I understand from a report in the Sunday Telegraph that, under the auspices of the Prime Minister, the get-together included the previous Chancellor, the assistant to the Chancellor and the next Chancellor. I suppose that we must wait to hear from the Chief Secretary on that subject. Perhaps he will show more concern than the Chancellor did for the problems faced by people because of high interest rates. After all, as a Back Bencher in 1982 he told the then Chancellor that the level of interest rates was simply "not tolerable". That intolerable level of interest rates was 9.5 per cent. 3.5 per cent. lower than today.
It is clear from what the Chancellor said this afternoon that he does not begin to understand the scale and significance of the problems facing millions of people. A few weeks ago he told the press that he believed in targeting. With his enthusiasm for high interest rates, he has targeted industry--the borrowing costs of which have increased by £1.3 billion- -small businesses--company bankruptcies in 1988 were higher than in 1987, even before the latest wave of interest-rate rises--and most of all, home owners. The average home owner has had to pay an extra £40 a month since last summer's interest rate rises. The young first-time buyer has experienced rises of £50 a month, and the home buyer in the south-east has experienced rises of £70 a month. The reason why home owners are stretched to the limit is that throughout the nine and a half years that the Government have been in office mortgage rates have never been below 9.5 per cent., and they have been below 10 per cent. on only two occasions.
As interest rates rise yet again, more of each householder's income, for reasons beyond his control, will be spent on his home. The added burden facing families can be expressed in two figures. Ten years ago the typical home owner paid 14 per cent. of take-home pay to cover housing costs, while today it is 24 per cent.--nearly twice as much. It is not a careful Chancellor whose meticulous housekeeping has been knocked off course by imprudent home owners, but careful home owners whose budgeting has been knocked off course by an imprudent Chancellor. Home owners, small businesses and industry should know that their mortgage rises and higher borrowing costs are not some accidental by-product of the Chancellor's strategy--they are the strategy.
The Chancellor has decided that the problems facing him are to be solved at the expense of home owners, small businesses and industry. The price of his economic mistakes are to be paid by those who secured least benefit from the top-rate tax cuts in the Budget. What is the Chancellor's response? He told us today that people will have to curb spending on other items. Perhaps in the Chancellor's world people can cut back on second homes, the third car or the third or fourth holiday, but in the wider world an increasing minority are finding that the sole car
Column 1016is harder to pay for, that their annual holiday is under threat and that they are struggling to pay the mortgage on the one family home. The Chancellor protests that his interest-rate strategy is right because he cannot afford to admit that his Budget strategy was wrong.
Mr. Brown : Standards of living have risen in every decade. The hon. Gentleman should ask whether standards of living can be sustained at their present level. The answer for millions of home owners is that they cannot and that they will be worse off as a result of rises in their mortgages. If the hon. Gentleman does not believe me, why does he not ask some of his constituents about the notes that they have received from building societies over the past few weeks? The Chancellor will not make a change in his fiscal strategy because when the interests of a tiny minority of taxpayers clash with the economic interests of the nation, the interests of the small minority come first.
Last week, following the mortgage rate rises, new dental charges were introduced, train fares increased by 9 per cent. and tube fares increased by 12 per cent. Electricity prices will rise by 6 per cent., following the 9 per cent. increase last year, and in April the price of gas will increase. The price of water will increase to pay for privatisation. When those rises--which on average will amount to an extra £10 a month if rates or the poll tax are included--have wiped out the tax cuts of the majority of families, what is left of the Chancellor's boast to a Conservative party conference in 1984 : "On this occasion, unlike all previous recoveries, there has been no resurgence of inflation"?
The right hon. Gentleman told the IMF :
"In previous cycles, inflation has tended to rise as soon as the recovery has become well established. As a result, many commentators have argued that an inflation upturn in the United Kingdom is imminent. We take a different view."
The Chancellor cannot blame the Organisation of Petroleum Exporting Countries or rises in world commodity prices. He has no one but himself to blame. As inflation increases to 7 per cent., when it is less than 2 per cent. in Japan, predicted to be 3 per cent. in Germany and predicted to be 4.5 per cent. in America and Canada, what does the Chancellor say about his objectives? [Interruption.] I tell the Chancellor that, in the last year of the Labour Government, inflation was at the European average. Under this Government it is 40 per cent. above the European average. This will be the fourth year when inflation has been above it, but this is the Chancellor who told us that he would create zero inflation. On 18 December, the right hon. Gentleman said, when asked about zero inflation :
"It will take a long time to get there The important thing is to be moving in the right direction."
The Chancellor's only solution is to change the rules by taking mortgage interest rates out of the retail prices index. In a year or two, he--or more likely his successor--will tell hon. Members that, like the unemployment problem before the last election, the inflation problem has been solved, no doubt after 19 changes in the retail prices index.
The Chancellor says that these rises are a temporary blip on the road to zero inflation. The temporary blip occurred. not when inflation rose above 5 or 6 per cent., but when it fell below 3 per cent. for four months in the 66
Column 1017months of his Chancellorship. The real blip under this Chancellor's term of office is the four months when inflation was below 3 per cent., the three months when Britain had a visible trade surplus and the two months when mortgage rates were below 10 per cent.
Mr. Ian Taylor (Esher) : Will the hon. Gentleman explain the blip that occurred under the Labour Government, when the average rate of inflation was 15.5 per cent.? It will return to that level if some of his policies are put into practice.
Mr. Brown : I do not think that the hon. Gentleman has looked at his history. When the Labour Government left office, after a 300 per cent. rise in oil prices, inflation was falling. Under this Government, after a 20 per cent. drop in oil prices, it is rising. What is the Chancellor's answer to every problem? His answer to rising consumption is high interest rates ; to problems with the pound it is high interest rates ; to inflation it is high interest rates ; and, amazingly, to the regional problems it is high interest rates. A few days ago the Chancellor told the Financial Times that interest rates are
"helping to secure a better regional balance within the economy." I know that something had to be done to replace the lost regional grants, the lost regional status and the cut in the development agencies, but industrialists in my constituency are amazed at being told that their economy is in need of being cooled down, when it has not begun to warm up. They strongly believe that high interest rates will force them to move from a period of recession to depression without enjoying an intervening period of recovery.
The Chancellor would do well to listen to the Secretary of State for Wales, who, regarding the policy of high interest rates, was quoted in The Scotsman on Monday 5 December as saying : "There is a whole range of things that can be used. I do not think you can ever run an economy dependent on any single factor alone."
That was said by a man who is not only a Conservative Member, but a member of the Cabinet. He, apparently, can say that with impunity in front of the Prime Minister.
What has happened to the Chancellor's strategy? What has happened now that he is so enthusiastic about high interest rates? What has happened since the days when everything was going to be solved by M3, which is rising this year by 20 per cent. and in previous years by anything between 10 and 25 per cent., and which is rising faster than in Europe? What has happened to M3, because we hear nothing about that? What has happened to the statement that the Chancellor made in 1980 in the economic progress report :
"Judgments about appropriate levels of interest rates are replaced by control of the monetary base."?
What has happened to the view that interest rates should be left to the markets and not to the Government? The aim was for a
"greater role for the market in determining the rates." What has happened to the presumption that if the public sector borrowing requirement came down interest rates would inevitably follow them?
Gone are the days when Treasury Ministers reported to us in the financial statement and Budget Report in 1981 :
Column 1018"The Government is committed to a progressive reduction in the growth of the money stock and to pursuing the fiscal policies necessary to achieve this without excessive reliance on interest rates."
The Minister who was most enthusiastic about the medium-term financial strategy, and the Minister who repudiated excessive reliance on interest rates in 1981, is today the Chancellor of the Exchequer who can think of little else.
After nine years, when we have been through fads of monetarism, the totems of M0, M3, the basket of monetary aggregates and all the dogma about PSBR, we are back to the crudest, most basic, old-fashioned, short-term weapon of them all--high interest rates. The Government do not have a resolute approach, but falter from one desperate expedient to another. They pursue the short-termism that is, I suppose, the inevitable result of an unequal dialogue between a Chancellor who has not yet made up his mind when to retire and a Prime Minister who has not yet made up her mind when to sack him.
Our case against the Chancellor is not merely that without a prior and sustained long-term investment boom the consumer boom that he engineered was bound to be unsustainable. Our case is not only that the solution that he has chosen--high interest rates--is not only directly damaging to industrial investment, as everybody knows, is directly damaging to home owners and fails to address the real problems facing us--for what can high interest rates do about skill shortages, bottlenecks in technology or regional imbalances?--but that his excessive reliance on interest rates is worsening the economy and that the imbalances in the economy will only be exacerbated by the high interest rate policy that he pursues.
Mr. John Redwood (Wokingham) : Where has the hon. Gentleman obtained his figures from when he says that investment has been at a low level in recent years? The burden of the hon. Gentleman's case against my right hon. Friend the Chancellor is based on phoney figures. Total investment in 1988 was at high levels relative to the 1970s. Would the hon. Gentleman like to show us his alternative figures so that we can judge their veracity against the official record?
Mr. Brown : I find the comments of the hon. Member for Wokingham (Mr. Redwood) interesting. After all, he was the hon. Member who suggested about a year ago that the Chancellor should consider pumping an extra £5 billion into the economy. If he checks the figures, he will find that, far from being an economic miracle akin to that of Japan, as the Chancellor says, the growth rate of investment in Britain has been about half the level of that in Japan since the Government came to office.
Mr. Marlow rose --
Mr. Brown : What is even worse about the Chancellor's strategy is that, after 10 years during which he has protested that we are living through an economic miracle akin to that of Japan, after 10 years during which he has boasted that our economic position is akin to that of Germany, not only have other countries manufactured more, produced more, grown faster and exported more but they have seen the wisdom--which the Chancellor clearly
Column 1019has not, to judge from his Autumn Statement --of taking a pragmatic approach to public investment and to the public sector, for the future of the country.
Mr. Marlow rose --
In which other countries would supply side investment in education, training, research and development in the regions take second place to a doctrinaire obsession to reduce public spending below a notional and arbitrary mark of 40 per cent. of national income? In the Autumn Statement, the Government should be examining what investment is being put in place, what skills are being developed, what technology is being encouraged and what resources generally are being mobilised to ensure that we are competitive for the 1990s. We know that over the past nine years we have been spending, in real terms, less on the regions, industry, transport, housing and the environment. In the Autumn Statement, despite the Chancellor's boasts, industry and housing find their expenditure cut, in real terms, by £400 million, employment and energy by £300 million, Scotland by £200 million, the environment by £100 million and spending on education, Wales and Northern Ireland is so important to this Government that it is to take up a far smaller share of national income.
The Chancellor claims that he has managed to reduce public spending as a share of national income and to increase public spending at the same time. I shall tell him how he can claim that. The main reason why he claims he is spending more next year is that he has spent less this year than was originally planned. Once all the receipts are in, it is likely that public spending will have fallen, not by £1 billion, as is said in the Autumn Statement, but by about £2.5 billion over the year. The truth is that, for all the talk of increased spending, the real value of allocated departmental spending for all those functions is worth less next year than it has been in many of the years since 1983. There is no extra money for industry, for housing or for the environment.
There are, of course, a few exceptions--which are mainly unintentional. The £200 million for income support for pensioners is a result of the Chancellor giving a weekend briefing that went wrong. The £20 million, or more, is the result of a junior Health Minister giving a weekend interview that upset farmers. If any lesson is to be learnt, it is that our best, and perhaps only, hope of more public cash for interest groups and industry is that the relevant Minister is tempted into an indiscreet weekend interview.
Mr. Lawson : The hon. Gentleman may have forgotten that I asked him two simple straight questions. I should like now to hear his answers. First, he has seen our figures in the Autumn Statement. By how much would Labour increase the total of public expenditure--by how much? Secondly, what basic rate of income tax would it need to finance that?
Mr. Brown : I do not know what the problem is for the Chancellor. The Labour party is, of course, committed to increased public investment. The Chancellor himself was committed to that last year, but the only problem was that he did not spend the money that he promised to spend. I
Column 1020see from the Budget submission that even the Institute of Directors is demanding more public spending because of the chronic under-funding of education and health.
I can assure the Chancellor that we believe in more public investment, and to make that possible we would have a different fiscal strategy from the strategy that the Chancellor is pursuing. Before the Chancellor tells us that last year's Budget was a success and that there is no need to change the fiscal stance, he should talk to home owners, who have seen their tax cuts wiped out many time over as a result of his policy.
The main reason why investment represents a smaller share of our national income is that, year after year, the Chancellor has insisted on giving a low priority to public investment. The real value of Government investment fell in 1987, and the published figures show that it also fell in the first three quarters of 1988. Is it not a damning comment on the Government that in the motion they should congratulate themselves on bringing public expenditure below 40 per cent. of GDP, even though that means that public investment in our future has fallen?
Where is the basis for congratulation in the fact that there has been less spending on research and development, when we know that other countries are running ahead of us? We know that other countries have more research scientists than we do. Where is the basis for congratulation in the fact that many major companies in this country are having to recruit graduates from abroad because of the skill shortages caused by lack of investment in training? Where is the basis for self-congratulation in the neglect and decay of the infrastructure that has occurred as a result of the public expenditure policies that the Chancellor has pursued?
Sir Peter Hordern : The hon. Gentleman said that the level of public sector investment had fallen last year compared with previous years. Has he taken into account the denationalisation of British Gas and other public sector investments? If he were to make a proper comparison, he would find that total investment had risen.
Mr. Brown : I am grateful to the hon. Gentleman for allowing me to point this out. [Interruption.] The Chief Secretary says that I am wrong. I have to tell him that my figures from 1979 exclude public corporations. We are talking about general Government investment. Local authority and Government investment fell last year and the year before, yet the Government and the Chancellor congratulate themselves in the motion on presiding over this fall in public investment. The Chief Secretary knows all about these things. He knows that the biggest increase in spending has been not on the National Health Service, roads or education but on Government advertising. What we need is action to deal with the problems of the inner cities, science space and the environment, but all that we get is Government advertising. What happened to the initiative that the Prime Minister launched in St. James's park--amid great advertising--the aim of which was to clean up the environment? What happened to the committee to push scientific research, which the Prime Minister was to chair? What happened to the initiative to help women?
What new measure has followed the trumpetings of Prime Ministerial enthusiasm for the global environment? What has happened to the inner-city campaign, which appears to have started and ended with the publication of
Column 1021that glossy brochure last March? What has changed since September 1987, when the Prime Minister did a walkabout on the wasteland in Midlesbrough to launch the inner-city campaign? What was wasteland in 1987 remains a wasteland in 1989, and the only opportunities created in Middlesbrough were photo opportunities. I am sure that the people of Middlebrough treasure the snapshots still.
We need a policy to cope with the problems that we face--not publicity or public relations. This is the Government who promised the initiative for women, but ended up freezing child benefit. They said that they would deal with the environment, but ended up cutting the money spent on research into pollution. They set out promising to regenerate inner cities, and ended up lavishing top-rate tax cuts on the landed estates. They are a Government whose priority is not the consumer, the inner city, pensioners or the family, but the top-rate taxpayer.
Let me tell the Chancellor what his priorities should be. First, he should admit that his last Budget was misconceived--that it was not only unfair and divisive but ill judged and imprudent. He should end excessive reliance on interest rates, no least by acting directly to encourage saving and on the inflation that he has created--in particular, by abandoning the electricity and water price increases. Above all, the Chancellor should set in motion a fiscal strategy that is not only fair but designed to reduce inflation, allow interest rates to fall and assist our balance of payments.
We have been told that the next Budget will be a Budget for savings. We were told that the last Budget was a Budget for savings.The huge tax cuts at the top were justified to the House on the pretext that top taxpayers would save, with the result that there would be more investment by them in the economy. We know that quite the opposite happened and that the savings ratio has now fallen to its lowest level.
If the Chancellor wants a real Budget for savings, why does he not end the discrimination against pensioners on income support and housing benefit, who are penalised for saving by the loss of that benefit? Why does he not end the discrimination against people too poor to tax who save with building societies and who are automatically taxed on their income? Why does he not create a savings scheme that will do something to promote real savings and real investments in the areas where they are most needed--in the regions? That is the first thing that the Chancellor should examine. Secondly, the right hon. Gentleman should say now, at a time when it would have the most effect on interest rates, that in the current difficulties that he has created the British people cannot afford another Budget like the last one--a professedly tax-cutting Budget whose effects were quickly cancelled out by mortgage and price rises. Let me tell him directly that, if press reports are correct--if he intends to introduce measures to help the low-paid, to cure the poverty trap and to reduce the tax burden on low- income Britain, which is now heavier than it was in 1979--he will have the support of the Opposition for those measures. But even if tax allowances for low-income Britain are raised in line with wages, people will still be paying exactly the same share of their income in tax next year as they are this, and that represents a larger burden than existed in 1979. Would not the Chancellor be doing
Column 1022better if he took back at least part of the top-rate tax cuts that he gave to people who did not need them and who spent large parts of them on imports? In that way, he could take many thousands more out of tax.
Thirdly, will the Chancellor agree that with a prudent economic strategy that does not rely exclusively on high interest rates he could afford some targeted investment, especially on the regions? Such investment would not cause the inflation, the imports and the pressure on interest rates that his top-rate tax cuts have caused. Action on capacity constraints, skill shortages, technology and research, on regional imbalances and on infrastructure would not only assist greater balance in the economy, but would make for better long-term efficiency and competitiveness. Those are the measures that the Chancellor should consider introducing in a Budget.
No Chancellor has had better opportunities than this Chancellor. He has never had to deal with huge oil price rises. He has not had to deal with a world commodity price explosion. Instead, he has had huge oil revenues-- more than £70 billion. He has had money from the privatisation of industry. He has had £20 billion from house and land sales. He has broken the link between pensions and earnings and thus saved himself £18 billion.
In spite of that, there is no supply side transformation. There is no zero inflation. The trade deficits are no freaks, the price rises are no blips, and the hardship that the Chancellor has imposed and is imposing is no accident. There is no economic miracle. This Government have had the best opportunities that have been available for decades but have left the nation ill prepared for the future. What we need is not just a new Chancellor, but a new Government, and the sooner the better.
Mr. Terence L. Higgins (Worthing) : This year's Autumn Statement is in many ways more important than ever before, because it includes a considerable number of the figures and data normally included in the public expenditure White Paper. I believe that the House should be glad that the Chief Secretary, together with the Chancellor, has accepted the recommendations made by the Select Committee on the Treasury and Civil Service that the Autumn Statement should be expanded and given greater prominence.
I am sorry that I missed the opening sentences of the Chancellor's remarks, not least because I gather that he was kind enough to pay a compliment to the Treasury Committee. I hope that our report will help the House in analysing the complex economic problems we face. I should like to take up one point arising from the speech of the hon. Member for Dunfermline, East, (Mr. Brown). There was considerable disquiet on this side of the House about some of the statistics on which he based his argument. I suggest that he should, perhaps, adopt the policy used on similar previous occasions : he should put down some written parliamentary questions setting out precisely the points that he wishes to justify ; then we could see what the official statistics actually are.
Column 1023I believe that the report of the Select Committee helps to put the present situation in perspective, especially paragraph 49, which draws attention to the fact that the worldwide fear of recession after the stock market collapse in October 1987 led the authorities throughout the world to take action to avert that risk by stimulating their economies. I believe that this time last year, everyone-- with the exception of my hon. Friend the Member for Wolverhampton, South- West (Mr. Budgen)--was unanimous in believing that that was the right thing to do. That sets the background against which the present policies are to be appraised. The Committee goes on to say : "With hindsight it can be seen that thereafter policy was too relaxed too long."
An important point made by the Select Committee was that there is grave concern about the margins of error that arise in official statistics, not in the context I have just mentioned, but regarding the overall national income statistics. I know that my right hon. Friend the Chancellor feels that the financial statistics are better. That is so, but, if he is trying to manage the economy against a background where there are tremendous variations--large variations of the kind which were revealed in the evidence given to the Committee--in estimates of economic growth, depending on which measure one takes, it is important that we should devote more resources to it.
I note that my right hon. Friend said that he will be publishing the report of the inquiry. I welcome that, but the fact is that the position has deteriorated significantly since the Committee originally suggested that an inquiry was needed. Therefore, if one is to manage the economy properly, that is important.
A separate issue, but related to the one which I have just mentioned, is forecasts. The Chancellor said in evidence to us that he wished he did not have to publish the official forecasts of the economy. I believe that that is wrong : it is important that the House should know the forecasts on which the Government are taking their decisions, since otherwise we cannot have a sensible debate on these matters. In the light of that, I am sure it is important that we should do all we can to improve the forecasts. The pass record of the Treasury has been good on this, but the model is now clearly defective. As the Committee has pointed out, the model at the moment, for example, would produce a conclusion, if it were not adjusted, that if there is a fiscal surplus of the kind we now have, we would also have a surplus on the current account. When the difference is that big, clearly the forecasting model needs to be looked at closely.
The first point I wish to make from an analytical point of view is that the Committee points out that, against the background of the stimulus of last year and the consequential hangover, that the Chancellor is, in effect, on a tightrope, and that there are two dangers. On the one hand, the effect of the higher interest rates could be a sudden abrupt stop in the economy, so that the unemployment figures would cease to go down and the economy as a whole would come to a halt. On the other hand, if the economy delayed its response to the hike in interest rates, before effective response is felt, we might have a deterioration in foreign confidence, a fall in sterling, still higher interest rates and an uncontrollable situation.
The Chancellor is balanced on this tightrope, but he is still clearly in a position of balance. We do not yet know how long it will be before the interest rate increases become apparent in the economy. Although the last set of
Column 1024balance of payment figures were the third worst ever, they showed a significant fall in imports. The increase in the mortgage rate will take some time to have the effect which my right hon. Friend has rightly described. Essentially, one should not make a premature judgment for further action ahead of the Budget, but one should wait to see what the subsequent figures are.
There are particular points of concern regarding the balance of payments, because the Chancellor of the Exchequer rightly told us : "with the exchange rate given the task of combating inflation, it follows that the exchange rate cannot be assigned the task of" restoring equilibrium in the balance of payments. The Committee expressed concern about restoring that balance in the current account, because the Chancellor has effectively used the exchange rate as a means of putting that right. We expressed some doubt about whether the supply side improvements--which I believe are coming through--and the reduction in the strain on domestic demand will be sufficient to ensure that there is sufficient capacity for the resources to be diverted into exports.
I have two related puzzles. The first one relates to the recent comments on these issues by the hon. Member for Dunfermline, East. Of course, there is a puzzle about what rate of income tax he would select, to which I still believe we do not have an answer. The hon. Gentleman complains about the cut in the top rate of income tax in the last Budget, but I believe that he must take fully into account what happened to revenue following that cut.
While that is a normal party political point to make, I find it strange that the hon. Gentleman argued that the totality of tax cuts in the last Budget was too great, given the fact that we are now clearly heading for, by an enormous margin, the largest fiscal surplus that we have ever had. I believe that the only previous one was the one achieved by Roy Jenkins, which resulted in the immediate defeat of the Labour Government, but that was in different circumstances. I believe that the Chancellor is heading for a large surplus. It is the relationship between taxation and expenditure and the balance between the two which are important, and not simply what the Chancellor did last time on taxation. When one looks at that balance, one sees that there was a massive surplus. I do not believe that it is convincing to say that the tax cuts in the last Budget were too great.
Another related problem is that I am puzzled because my right hon. Friend is fond of repeating that he has only one weapon with which to deal with the problems of the economy--that of short-term interest rates. He does himself less than justice. Indeed, I detected some slight change of emphasis even this afternoon. Clearly, the use of short-term interest rates occurs against the background of the fiscal policy and stance which he has established. It is true that, under a Conservative Government, that changes only once a year, in contrast with the previous Labour Government. None the less, it is a weapon of great importance in managing the economy. I hesitate to use a corny analogy, but I do not agree that the Chancellor is using only one golf club ; he is using a fiscal driver and putting with interest rates. That is a sensible way of dealing with these matters. The Chancellor's fiscal stance, which he repeated this afternoon and gave the Committee in evidence, is tight, and that is extremely important. It also has relevance to what he can do eventually when we have the latest figures
Column 1025for the next Budget. If he were simply to offset the effect of fiscal drag in the Budget, there would be a tight fiscal stance. If he were not to give any reductions, it would be a significant tightening. My present feeling is that a choice between those two rather than a further relaxation would be right, because it is important that the fiscal policy should reinforce the operation of what the Chancellor is inclined to call his monetary policy but what is more accurately called his interest policy.
From the Autumn Statement and the caveats which are summarised in the Select Committee report, it seems that the Chancellor remains balanced on the tightrope. There is some equilibrium. Now it is important that we wait to see what effect interest rate increases have when they have worked their way fully through to the level of consumption and consuming expenditure-- against a background where, clearly, the increase in mortgage rates will have considerable importance.
We debate these matters in different circumstances from those which existed a few years ago. For many years we had negative real interest rates, but now we have positive ones. Despite that, we have seen a remarkable fall in the personal savings ratio, which gives cause for anxiety. I hope that the Chancellor will do something to rectify that in his next Budget. Above all, we now have a completely different policy stance, as, instead of having a public sector borrowing requirement, we now have public sector debt repayment. That leads to the extraordinary jargon, which the report mentions--that we now have a policy not only of full funding of the deficit but of "full unfunding" of the repayment.
Given the overall position, we can reasonably say that the picture in the Autumn Statement, with massive additional resources for public expenditure, leads us to believe that, in the Budget, we shall again see that the Chancellor can continue with his present policy. In particular, the slowing down of the rate of growth from a clearly unsustainable and unintended level will result in a significant improvement in the country's overall welfare.
Mr. Robert Sheldon (Ashton-under-Lyne) : We must always pay tribute to the right hon. Gentleman for Worthing (Mr. Higgins) for the work that his Committee does on the Autumn Statement. I agree with what he said about the problems of inadequate statistics and the fear of inadequate capacity for exports in our industries, but I disagree with him on the effects of tax cuts.
In his comments to the Financial Times , the Chancellor of the Exchequer said :
"No Government has done more to set out its policy and stick to it."
I find myself something like the ghost at the feast. Like the right hon. Gentleman, I recall the famous Financial Statement and Budget Report 1980- 81. It is dated 26 March 1980 and chronicled "Treasury Chambers, Nigel Lawson" on the first page. Clearly, he has responsibility for it. Page 16 states :
"Control of the money supply will over a period of years reduce the rate of inflation."
Although I am proud to own this, I do not like trotting out the FSBR and I would not have dared to regurgitate it once again to the House, had the Chancellor not claimed :
Column 1026"No Government has done more to set out its policy and stick to it."
I automatically had to look to see what he said.
The Chancellor went on to say :
"It is to provide a firm basis for those expectations that the Government has announced its firm commitment to a progressive reduction in money supply growth."
I understand that people can change their minds, but he cannot say that and at the same time say that the Government have done more than any other Government to set out their policy and stick to it. It is obvious that the Government have not done that. They set out their policy and immediately set about not sticking to it. Those are problems that the Chancellor must find some way of living with. In the famous Financial Times interview of 3 January, the Chancellor said :
"As for the Budget, I have no regrets whatever."
The balance of payments forecast in the FSBR this year was £4 billion. Past forecasts allow for an error of 3 per cent. It is right to allow for some error. One cannot be too precise when talking about £4 billion. The Treasury is generous enough to allow itself to be out. Three per cent. of £4 billion amounts to £120 million, so the Chancellor assumed that there might be a balance of payments deficit not of £4 billion, but of £4,120 million. We now know that it was £14 billion. That is unbelievable. We must first ask ourselves what has happened to the Treasury. Can we believe that the Chancellor has no regrets about forecasting a £4 billion deficit? Can we believe that if, at the time of the Budget, he had anticipated not £4 billion but £14 billion, we would have had exactly the same Budget? Of course not.
Why, then, has the Chancellor been so humiliated by his forecast? We know that he has been hoist by his own petard and blown up by the device that he primed. He allowed our economic statistics to decline, he took a conscious decision to downgrade their importance, and he and the country have paid an exorbitant price for that folly. The Budget was completely misconceived because of that.
Although Chancellors invariably scoff at statistics--I have heard them all on this--they all make use of them. How else can they arrive at their Budget judgement? Is it by intuition, or by feel? I should be terrified if I thought that they relied exclusively on that. Of course they cannot.