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8.53 pm

Mr. John Redwood (Wokingham) : The hon. Member for Dunfermline, East (Mr. Brown) owns a most useful distorting mirror. He portrays a world in decline and despondency, whereas all about us there is manifold evidence of growth in prosperity, capital investment, and the like. His mirror extends to distorting the statements of Conservative Members. He claimed that at the time of the major slump in world stock markets in 1987 my advice was to increase the public sector borrowing requirement.

I remember clearly the television encounter to which he referred. My advice was that growth should continue and that the Government should continue with their policy of a balanced budget, but that they should make the banking system more liquid to see us through the temporary crisis. I do not regret giving that advice. I think that it was correct. However, it has been distorted by the hazy memory of the hon. Member for Dunfermline, East.

More serious is the hon. Gentleman's view of the world when he looks at figures. He told us that public investment is falling and is in a bad way. He did so by ignoring investment in public corporations, which usefully leaves out, for example, the major investment increases in the railway network that were announced recently. His figures relating to total investment are incomprehensible. Perhaps they do not exist.

I, together with several of my hon. Friends, have asked him to make available the figures which he says show that total investment in our economy is lower now than it was during the 1970s. That is almost impossible to believe, but I look forward to the hon. Gentleman providing us with his sources so that they can be compared with the official statistics, which on this occasion I think are more reliable than they are in some other areas.

The Government are right to have taken action over interest rates. I hope that they will continue their downward pressure on the natural growth of public spending. I am delighted to see that my right hon. Friend the Chief Secretary is here. When he prepares the next autumn round of public spending, I hope that he will recognise the need for further increases in health and transport expenditure, which I am sure will be necessary. However, I hope that at the same time he will identify the many areas in which further reductions, or some reductions, can be effected.

With the development of regional growth and the return of prosperity to many towns, the huge regional transfers--called rate support grant--should be re-examined, and some of them reduced. My right hon. Friend should look again at the Scottish programme. Scotland is over-endowed with public spending, relative to its population and its new-found prosperity. He should look again at the interest burden as public sector debt begins to be repaid. That programme could be squeezed quite nicely, making space for other more desirable ends.

I hope that my right hon. Friend will also look at Europe where there has been a singularly large increase for the current year--a 100 per cent. rise forecast for 1989-90 compared with 1988-89. We cannot afford increases of that scale for that type of spending. We need to ensure that it does not happen again.

In order to enjoy the benefits of the large public sector surplus that the Government have engineered, it is also important to guarantee that currency intervention does not get out of hand. It is a sad fact that last year an

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excellent £3.6 billion surplus still required the borrowing of some £7 billion from the gilt-edged market to offset the impact of intervention through the foreign exchanges. That was the right decision from the monetary point of view, but I hope that the policy will be simpler to understand this year and that a large public sector surplus will be reflected in a major repayment of gilt-edged securities and public sector debt. That would be something of which the Government could rightly be proud. It is impossible to combine that policy with joining the EMS as a full member, but I should prefer financial prudence and debt repayment to membership of the EMS.

Personal savings have rightly worried many hon. Members who have taken part in the debate. There is a story to be told about the figures, in exactly the same way as my hon. Friend the Member for Slough (Mr. Watts) dealt admirably with the figures relating to the balance of trade and GNP. The figures, as compiled by the Central Statistical Office, are the result of subtracting consumers' expenditure from personal disposable income. The CSO pointed out in its advice note to editors that these are two very large figures and that a small error in either of them can cause a very large error in the savings ratio, as computed.

The figures in the other personal income category in the second and third quarters show quite a sizeable decline. I do not know whether they represent a realistic assessment of what was happening or whether those figures are subject to revision. Because my right hon. Friend took the right action on interest rates, we shall see, beginning in the fourth quarter of 1988, and much more strongly in the first quarter of 1989, a sharp improvement in the savings ratio, because borrowing is clearly reducing in volume and that will come through in the balance between personal disposable income and consumer expenditure if the figures are to be relied on at all. Looking forward to the Budget as I do, because the Government are in such a strong position with their surplus, I do not consider that there is any need to make dramatic gestures to reduce income tax. Let us not forget just how strong the position is. If the Government decided to produce what until two years ago would have seemed almost inconceivably prudent--a Budget with no borrowing and no surplus--the standard rate of income tax could be set at around 17p or 18p in the pound. That would be below the current rate and below the target set by the Government to reach a rate of 20p in the pound during this Parliament.

I hope that the Government will take a small step on the way to 20p in the pound in the coming Budget and will continue to run a very tight fiscal policy for the ensuing year. I hope that people will become aware that there is enormous scope and that perhaps in the medium term we should think of a standard rate of income tax not of 20p in the pound but perhaps 15p in the pound which would be ideal to produce incentives and an impact on lower earnings. That will be eminently achievable if the downward pressure on public expenditure is maintained and if the growth rate of the economy remains reasonable despite the higher interest rate.

The important policy is to time the decline in interest rates properly. It is too soon to forecast when it may be possible to lower interest rates again, but there is no need

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whatsoever to raise them. They can remain at the present level for a while where they will have a great impact on borrowing levels and savings, and in due course it will become apparent when is the right moment to reduce them and people will benefit from the relief on their mortgages.

Finally, I am glad that the Labour Whips have been able to keep a few Opposition Members in the Chamber and find the occasional hon. Member to sit on the Front Bench, but until the hon. Member for Berwick-upon-Tweed (Mr. Beith) returned to the Social and Liberal Democrat Bench no one from that party was present throughout most of the debate. When one gets to the point where one is not interested in public spending or taxation, one is tired of politics. The SLD Bench has been empty for most of the time that I have been present in the Chamber.

9.1 pm

Mr. John Battle (Leeds, West) : The right hon. Member for Tonbridge and Malling (Sir J. Stanley) made a powerful call for Government aid in support of the poor of the Third world. I whole-heartedly endorse and support that and I was glad to hear his speech. However, the Government's economic strategy had done little for the poor in Britain who represent a significant minority--28 per cent. of the population have not participated in the much-vaunted prosperity of our country.

The Chancellor opened the debate in the same spirit of complacent optimism with which he presented the Autumn Statement. His tone was that of the "winner takes all" gamester--the Chancellor as conqueror. Last autumn he presented to the House his White Paper on public expenditure. In the same speech he managed to represent public expenditure as going up, going down and remaining unchanged. Of course each of those positions serves different functions and is geared for different markets. Today it served his interest --as he goes through a rough patch--to emphasise that public expenditure is unchanged. He said that the totals are on target and that the Government are sticking to planning targets. He now suggests that he is an accurate forecaster and that he has got the forecast right. In order to appease the National Health Service supporters that remain on the Government Benches, the right hon. Gentleman had to assure us last time that health expenditure was going up. Today, no doubt to appease the transport lobby in the Conservative party, he slipped in a reference to the fact that public expenditure on roads is going up. However, he did not point to the downside in public expenditure. He did not highlight the housing cuts, which, taking into account the Government's clawback from receipts on council house sales, mean a cash cut for housing in Britain of £550 million in real terms, when more than 128,000 households in Britain were officially recognised and registered as homeless in 1987. That is in the face of the admission of the Housing Minister on the radio this morning that there are 350 mortgage repossessions a week.

The Chancellor's statement is all things to all people, but it leaves out the homeless. They are not the only exception. There is no hope for the unemployed, either. The Chancellor claims that unemployment fell by 1 million in the past two and a half years, yet the Government's own figures show that only 50,000 full-time jobs were created in that period. That points to the development of a part-time, temporary, low-wage economy. Earlier this week, we saw

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two further measures presented to reinforce the establishment of a low-wage economy--the Social Security Bill and the Employment Bill. Another aspect of public expenditure is the £1 billion reduction in the social security budget. The Chancellor may claim that expenditure is down because of a fall in unemployment and that it has nothing to do with creative accounting and the 28 changes since 1979 in the method of calculating the number of unemployed people. He may claim that it has nothing to do with proposals in recent Bills which will force eligible people out of benefit altogether, to save the Government a further £100 million. He will say that it has nothing to do with the savings that the Government achieved through freezing child benefit for the past two years and from real reductions in savings in respect of other benefits.

There is a myth of steadily rising living standards for everybody, but prosperity in Britain is not shared by all. It is not shared by the homeless or the unemployed. It is not shared by the 9.4 million people--40 per cent. of the work force--in low-paid jobs, earning less than the Council of Europe's decency threshold. It is striking that even those on average wages have not benefited from the Chancellor's economic strategy.

The Government are addicted to computation by averages. They are still trying to peddle the potent myth of the average wage. I sometimes get the impression that Conservative Members believe that the average wage is the national minimum--that everyone is on £254 a week. Many people understand that the majority of people in Britain earn far less than that average. They must live in the real world, on much less. Even those on that average wage pay more in tax now than they did under the last Labour Government.

Recently, a question was put to the Financial Secretary by the hon. Member for Hornchurch (Mr. Squire). The tables given in reply showed the total tax paid by a single man on average earnings of £254 a week. That total includes income tax, national insurance, and estimates of VAT and domestic rates. I would add that national insurance contributions and domestic rates are not optional ; one cannot choose whether to pay them. The single man's total taxes amounted to 45.5 per cent. in 1978-79, and they will be 45.7 per cent. for the current year. For a married couple who are both working, taxes are up from 36.4 to 39.3 per cent. For a married couple with two children, they are up from 35.7 to 37.3 per cent. So much for the myth that the Government peddle of cutting taxes for all. In reality, the tax burden of the people has increased.

For all the Government's reliance on unregulated market forces, the end result of their economic policies is higher taxation for the majority, great tax handouts for the richest, higher mortgages for home buyers, and little or nothing for the poor. The Government's theory of the trickle-down economy is totally discredited. The Chancellor has yet to discover that he cannot go on pretending that the economy is like a Heineken advertisement-- that the wealth at the top will filter down to the poorer parts of society. In practice, it is not happening. I am beginning to wonder whether the Chancellor really cares about that.

The right hon. Gentleman's attitude on political economy is beginning to filter through to social attitudes. People seem to believe that our society is based on what we can get away with and what we can get out of it. The

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dealing room has become the lodestone of morality in our society. Dealing room morality dominates Government policy. In practice, that means a "winner takes all" morality which is typical of the conqueror mentality. A strategy of continuing conquest which will eliminate all opposition, reduce the unemployed to statistical fiction and rub out the poor by redefining them away means that the minority--the losers in our society--will get nothing.

I remind the conquering Chancellor of a remark in a little-known and little -read play by Shakespeare which says :

"This England never did, nor never shall, lie at the proud foot of a conqueror, but when it first did help to wound itself."

9.10 pm

Mr. Stuart Holland (Vauxhall) : First, I should like to address the question of statistics. I shall return to it a little later in relation to the excellent observations of the Select Committee. The hon. Member for Wokingham (Mr. Redwood) raised the question and, had he been here, I would have told him that the figures given by my hon. Friend the Member for Dunfermline, East (Mr. Brown) are corroborated. For example, on the basis of European Community data given by the Government, averaged out for the period from 1974 to 1979, gross fixed investment as a percentage of GDP was 19.3 per cent. From 1980 to 1984 it was 16.8 per cent. and from 1985 to 1989 it has risen a little to 17.9 per cent. but is lower than it was under the previous Labour Government.

My hon. Friend the Member for Dunfermline, East, who is always careful about such matters, obtained an independent valuation of the figures from the House of Commons statistical section which effectively confirms the same. I shall not detain the House with the figures in detail, but in 1979 gross domestic fixed capital formation amounted to 18.7 per cent. of GDP. It never achieved that level in the subsequent years under the Conservative Government. In 1987, the last year for which we have definitive figures, it was only 17.1 per cent. Therefore, my hon. Friend's figures were justified. The Autumn Statement has been a missed opportunity for public expenditure and investment. The public spending figures show that there will be cuts in housing, environment, trade and industry, employment and energy. In real terms, there will be cuts of £400 million in the budgets of the Departments of Trade and Industry and Energy, £300 million in the Department of Employment, £400 million in housing and £100 million in environmental services. One wonders how genuine the Prime Minister's conversion to environmental issues will prove to be. There will be a cut of £200 million in the Scottish budget and a standstill for Wales and Northern Ireland.

That is only the current picture, a snapshot of what is happening now. The cuts are compounded by the neglect in public investment that has occurred under the Government. General Government expenditure has fallen by 40 per cent. in net terms since 1979 and will fall a further 6 per cent. during the next three years. Failure to invest in a public housing programme means that in 1987 almost 130,000 households in Britain--370,000 people--were officially recognised as homeless. That is twice the number declared homeless in 1979, and the figure is getting worse. That is an example which relates to my constituency of Vauxhall, which lies over the river from the House, where the problem of homelessness is shocking.

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None of this is new because we have known for a long time that, as opposed to the care to achieve consensus--the hallmark of previous Conservative Administrations ever since Disraeli--this Government have been uncaring in their economic policy ever since they came into office and the most callous and uncaring of any Government since the war. That is not new, but the way in which the Government have been trying to run their economic policy since 1986 is. We know that they have failed to sustain their original targets and instruments for managing the economy. I well remember that when the Chancellor's predecessor took office in 1979 he said :

"It is crucially important to re-establish sound money. We intend to achieve this through firm monetary discipline and fiscal policies consistent with that, including strict control over public expenditure."

In a statement to the Treasury and Civil Service Select Committee he said :

"Any suggestion of a reversal would take us into horrendous areas of outer space so to speak."

I welcome the Chief Secretary to the Treasury and the Chancellor to outer space, because in effect that is where they are in terms of their overall management of the economy.

The Government tried for a while to adjust the figures to the facts. During an earlier phase, the Chancellor--Lawson mark 1--shuffled his monetary targets and adjusted the figures so often that had he been playing cards he would have been thrown out of any self-respecting casino. He shrank his targets from the broader M3 to the much narrow M0 in a way that did not convince anybody outside the House, certainly not in the square mile of the City of London. By the autumn of 1986, the Chancellor had reverted to demand expansion with a pre-election mini-boom, and from his spring Budget of 1987 onwards he has confirmed that by reducing the basic tax rate. The irony is that the Chancellor is supposed to be economically literate. I am sorry that he is not present because for some reason during the debate he chose to claim that Labour Members were economically illiterate. I taught economics for at least 10 years and had many a better economics undergraduate student than him. He wrote about economics as a journalist, but it does not seem to have done him much good.

Even the Chancellor should know that what he has been engaged on since 1986 is not monetary policy, despite all the talk of sound financial discipline. In practice, although he dare not say its name, the post-1986 boom has been a demand-led classic boom. Such a boom was derided by Conservative Members for many years as a Keynesian boom. In an article next week, Professor Meghnad Desai of the London School of Economics reflects on the irony that since the autumn of 1986 the Government have run an economic policy that closely followed what the shadow Cabinet was proposing, but with a difference, because in practice, for all the rhetoric of the supply side of the economy, they have not intervened in supply and ensured the most basic equivalence of a supply response to match demand response. The result is a horrendous balance of payments deficit.

It is not surprising that the Chancellor should not be advertising these facts. Hilaire Belloc could have warned him

"And always keep a hold of Nurse

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For fear of finding something worse."

In this case, nurse does not like John Maynard Keynes, just as she does not like the international variants pursued by the Chancellor either in the form of managed floating of currencies or in his penchant to get everything over with by joining the European monetary system. Again, the irony is not merely that the Chancellor is a closet Keynesian ; he is an incompetent Keynesian. It is one thing not to read John Maynard Keynes and to dismiss him, as I assume is the case for the Prime Minister, but if the Chancellor claims to be economically literate, he should have been able to do better than he has.

He should also have been concerned about the congratulations he received from the Tory press until May last year, because there is one certain statistical correlation. Every time the Tory press congratulates a Chancellor of the Exchequer--since Reginald Maudling in the 1950s--it has seen only the upswing in the cycle and has been taken for a ride. In every case, the result has been a massive balance of payments deficit. The trade deficit for 1988 is the worst in recorded history.

The situation is highlighted by considering the non-oil visible imbalance, which in 1987 was nearly £15 billion. For 1988, it may be up to £20 billion. That reflects, of course, structural factors in the economy that the Government simply have not addressed, although other nations have addressed them by pursuing an industrial strategy. The Chancellor should, once he abandoned the medium-term financial strategy, have realised the real implications of the supply side and should have concerned himself with encouraging Ministers and the Department of Trade and Industry and even, if there is still something called collective responsibility in the Cabinet, with seeking to persuade the Prime Minister that when every other country plans its investment and its medium-term trade strategy--whether European economies or Japan, with the only exception being the United States, which is hardly an example to us all with its trade deficit--this country too should be intervening on the supply side and should be planning.

Another of the Chancellor's problems is that he has stripped the policy armoury of the main Keynesian instruments. He may want to join the European monetary system and obtain gains in stability, but he is not ready to appear to adopt a policy of devaluation. That is ironic because in the 1960s, which I remember because I was in the Cabinet Office, the pressure on the pound was such that civil servants and Peter Jay, who virtually got himself sacked from the Treasury for it, scarcely dared to mention, not a four-letter word, but the word "devaluation". We understand that a similar policy is being pursued now inside the Treasury.

The message going round is that devaluation will not be referred to. I wonder why. It cannot be for trade reasons. We cannot assume that the Government have been so persuaded by some of the arguments on the multinational structure of trade that they too now have reservations about devaluation. It does not seem to be that. The reason is that the situation is so precarious at the moment, as the Chancellor and the Government know, that they simply will not allow the word to be used.

I know of the devices adopted by people in the 1960s. I remember people talking about the real need for a double dose, although it was not specified what that was. In the 1960s, some Government economic advisers had an advantage over Terry Burns. Lords Kaldor and Balogh, as

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they later became, simply picked up the telephone and talked about the matter in Hungarian. Terry Burns no doubt worked out his own devices for trying to discuss devaluation without doing a cloak-and-dagger act in St. James's park.

Why are the Government so concerned to avoid a discussion about the exchange rate? The reason why the pound is relatively strong today is that it is buoyed up by interest rates that are higher than any of those of our leading competitors, and also because the dollar is relatively strong. As the dollar weakens, the pressure on the pound will become considerable. The Chancellor is standing by because he knows that he may well be forced by world pressures into the realignment of the pound.

Sir Peter Hordern : The hon. Gentleman said that the balance of payments deficit is at a record level. In nominal terms--in terms of figures--he is right, but the proportion of GDP accounted for by the balance of payments deficit is still not approaching what it was under the two previous Labour Governments, and the hon. Gentleman does not take into account the enormous public sector deficit that occurred under previous Labour Governments, which forced them to appeal to the International Monetary Fund for rescue. That is the difference between the present situation and the one for which the hon. Gentleman and his party were responsible.

Mr. Holland : The hon. Member for Horsham (Sir P. Hordern) has missed the fact that there is another difference. In the 1970s, sterling was a key reserve currency. We had a relatively fixed exchange rate system but the devaluation of the dollar in 1971 put tremendous pressure on the pound. I am not saying that I would have acted in precisely the same way as some of my former colleagues, but the pressure was exceptional. Furthermore, this Government have never had to face anything equivalent to the increases in oil prices that occurred in September 1973. Every OECD Government slowed down the international economy at that time, and with horrendous consequences. Instead of adjusting the steering or changing down, most of them slammed on the brakes.

The hon. Member for Horsham, knows--perhaps even the Chancellor knows--that one country's imports are another country's exports, and that the result was the contraction of mutual OECD trade. This Government have not had to face such problems. [Interruption.] Conservative Members should know by now that I am quite happy to take them on, but if they wish to intervene, why do they not get to their feet?

The Economic Secretary to the Treasury (Mr. Peter Lilley) : Will the hon. Gentleman explain why, if the Labour Government alone among Governments of industrial countries got their economic policy right between 1973 and 1976, they were the only Government who had to call in the IMF?

Mr. Holland : I did not claim that ; I wish the hon. Gentleman would listen to what I am saying. Sterling was, and still is, a key reserve currency and the pressure placed on the pound by the devaluation of the dollar in 1971 was exceptional.

The Chancellor will not touch any controls other than that represented by interest rate policy. The Opposition cannot see how that will be effective in sustaining recovery

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in the economy as a whole. One thing is quite clear, and that is that the self-financing of big business means that it will not be as deeply affected by higher interest rate charges as small firms will be. The interest rate increases will not be the euthenasia of the rentier but they will wipe out many small and medium-sized firms, as Conservative Members well know.

The Chancellor appears to need no persuading that there is an economic miracle. The shine may have slipped off his smile somewhat, but it beggars the imagination to claim that there is an economic miracle when we have a most horrendous balance of payments problem and when there is a structural crisis in the long-term manufacturing trade performance of this country.

Mr. Brazier : If there is such a structural crisis in our manufacturing performance, why has it improved so quickly in the past 12 months?

Mr. Holland : The balance of payments crisis is a very long-term problem. It certainly goes back to the 1970s, but it is very little affected by macroeconomic policies and demand management. We simply have not invested enough. Certainly in the decade during which the Government have been in power there has not been sufficient long-term, technology- embodying investment to improve our competitiveness vis-a-vis other countries in Europe and vis-a-vis Japan. The hon. Gentleman should know that. The so-called recovery of manufacturing investment lauded by Conservative Members is simply a recovery from the depths to which the Government had allowed the economy to sink by 1981. We are still hardly back to the manufacturing output level that we had reached in 1979.

Of course, the Chancellor is not confident of sustaining his miracle. He might be praying for his miracle. I am not sure of his fiscal stance on this. It appears that his fiscal stance--with interest rates where they are --is horizontal rather than vertical, but there is certainly a problem for the Chancellor. Let us be sympathetic. The statistics which we have are a problem for the Chancellor. That was put brilliantly by Bill Martin, the adviser to the Select Committee, in the following words :

"the junk-data which these days pass for official statistics make it impossible to get anything but the most tenuous appreciation of recent economic behaviour, let alone predict its future course. Consequently, forecasters who have been collectively burnt to a crisp by economic developments this year are still in no position to write a happy ending to Britain's overheating saga."

Further on in his memorandum to the report, he says :

"Worse still, the holes in the official statistics have left forecasters with only the foggiest appreciation of why the economy accelerated."

Mr. Ian Taylor : The hon. Gentleman appears to be getting into trouble despite his long years of experience as a lecturer. The reality is that the balance of probability is that any variables in the system will be in favour of a reduction in the outturn of the balance of payments deficit this year. Even last weekend it was pointed out that there is probably an under-recording of £4 billion on invisible exports. That puts his argument completely in threads.

Mr. Holland : I am pleased that the hon. Gentleman has brought me precisely to that point. He has helped me a great deal. One thing which is wrong with our foreign trade statistics is that we measure imports accurately, because there are duties liable on them, but the recording

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of exports is voluntary. There is no mandatory obligation to report figures or any penalty for not reporting them accurately. Further, the Government have no idea what is happening with the transfer pricing by the big businesses which dominate our trade.

When we were in government, we published the figures, for example, on the share of trade commanded by big business from 1971 onwards. When I came into the House in 1979, I asked the Government to continue to give that information. It shows, for example, that some 30 firms command 40 per cent. of our visible export trade, 75 firms half and 220 firms two thirds. What those companies do crucially affects our trade performance, but all those companies are multinationals and all are integrated in world markets. We saw an example in the Evening Standard today. There was a report that Ford will or will not decide to produce just one vehicle at Dagenham. Whatever is done to the exchange rate will not affect Ford's decision on that Dagenham location.

Mr. Brazier rose

Mr. Holland : No. I have given way enough.

If the Government do not introduce some transparency not only on figures concerning expenditure and output, but on the structure of supply, in future, as now, they will simply be groping in the dark with their economic policy.

Mr. Redwood : Will the hon. Gentleman give way?

Mr. Holland : No. I shall not give way any more. If I give way, it will be at the expense of the Chief Secretary.

It is double standards for the Chancellor to claim, on the one hand, that his high interest rate measures are well targeted on the south-east, because that is the area where house prices are out of line, yet, on the other, that there will be nothing wrong with the RPI if it does not include mortgage costs. To do that lays him open to the charge that the country's core rate of inflation should exclude the country's property-owning democracy.

The report from the RPI advisory committee on issues affecting the retail price code said :

"These represent tangible expenditures which most owner-occupier households need to make at some time. The households concerned think of mortgage payments as an integral part of their regular expenditure."

In a survey which that committee carried out, 80 per cent. of those consulted said that they felt that mortgage interest rates should be included as part of the RPI.

The Chancellor also knows that if he does not achieve an industrial strategy, we shall see further de-industrialisation of the economy in coming years. He may not agree, for example, with unilateral nuclear disarmament, but he should not accept for GEC and other takeovers unilateral industrial disarmament. The Government must take steps which ensure that we have a sounder economic structure on the supply side of the economy, and that can be done only by intervention, negotiation and the type of consensus on both sides of industry which the Government do not wish to achieve.

If the Chancellor cannot address the issues of an alternative industrial strategy, he may shortly be looking at his employment. Perhaps the City can afford him, but the country cannot.

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9.35 pm

The Chief Secretary to the Treasury(Mr. John Major) : We have had a wide-ranging and occasionally baffling debate in which several hon. Members, particularly those on the Treasury and Civil Service Select Committee whose report has so well informed this debate, have made excellent and interesting contributions.

My right hon. Friend the Member for Worthing (Mr. Higgins), who ably chairs that lively assembly that I occasionally have the pleasure of appearing before, raised, as did my hon. Friend the Member for Slough, (Mr. Watts), the question of official statistics. My right hon. Friend reiterated strongly the Committee's worries about the current state of economic statistics. The Government share that anxiety, which is why last year my right hon. Friend the Chancellor of the Exchequer set up a review to examine the present arrangements for producing them and to make recommendations for improving them. That scrutiny has been completed and the Government are now considering it. As my right hon. Friend the Chancellor intimated earlier, we shall in due course publish a comprehensive report as a result of that inquiry.

In the closing remarks of his teach-in, the hon. Member for Vauxhall (Mr. Holland) was pessimistic about our prospects and painted a picture which I suspect few would recognise. In his analysis of the economy it seemed that he missed some of the ingredients that many other less learned people might conceivably think important. He omitted the fact that capital investment is growing at more than twice the rate of consumption, that private investment is at its highest level since records began--he expressly stated the contrary--that manufacturing output is at its highest ever level and growing fast, and that non-oil company profitability rose by about 10 per cent. in 1987-- [Interruption.] The hon. Member for Workington (Mr. Campbell-Savours) should wait a minute as he will hear something that will interest him. Non-oil company profitability is expected to be higher in 1988 than at any time since 1960. It may be that the hon. Member for Vauxhall thought that unimportant and he is not alone in that, for the hon. Member for Dunfermline, East (Mr. Brown) also failed to mention many of those facts.

Mr. Holland : Will the Minister give way?

Mr. Major : In one moment. Neither did either hon. Member mention that unemployment has now fallen for 28 successive months. Perhaps that is because in 1986 the hon. Member for Dunfermline, East said : "there would be no fall in unemployment",

and the hon. Member for Vauxhall only last March said : "The reality is that unemployment will get worse."

It is now two years since the hon. Member for Dunfermline, East made his prediction and 10 months since the hon. Member for Vauxhall made his. In that time, unemployment has fallen in every month and in every region.

Mr. Holland : First, one point is missing from the catalogue given to us by the Chief Secretary and that is that the balance of trade is an imbalance. Secondly, what matters is not the profits that companies have in their pockets, but how they invest them and how competitive we are. Our productivity recovery is nothing compared with the higher levels of other countries. Thirdly, if the Government had not changed the unemployment figures

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23 times, we would be more persuaded. The Chief Secretary should learn that real jobs cannot be stimulated by massaging the figures.

Mr. Major : If the hon. Gentleman intends to talk about catalogues, I shall deal with the catalogues of the hon. Member for Dunfermline, East in a few moments.

Both hon. Gentlemen, and the Labour party generally, still predict gloom with avid glee. That is the central part of everything that Labour Members say. The Labour party has been predicting a slump for a considerable number of years, although it stubbornly refuses to appear. With characteristic inhibition, the Leader of the Opposition, who is temporarily absent, predicted in 1983 a super-slump and forecast that the Government's promise of a recovery was "a mirage." The only mirage was the right hon. Gentleman's forecast of a super-slump. Since then, we have had steady growth and we are entering our seventh successive year of it.

Both the hon. Gentlemen and others raised matters to which I shall turn in a few moments, but my right hon. Friend the Chancellor promised earlier that I would deal with the public expenditure aspects of the Autumn Statement to which the hon. Member for Berwick-upon-Tweed (Mr. Beith) devoted a considerable amount of time. The House will of course have a further opportunity to discuss the spending plans in detail next month.

The most important part of the public expenditure survey to note is the fact that we have been able to hold spending for next year unchanged at the total of £167 billion. That means that we have been able to meet two separate but important objectives. The first has been to reduce overall spending as a proportion of national income, so that we can maintain a strong fiscal position and, when it is prudent to do so, reduce taxes as well, because Conservative Members believe in lower taxes.

Over the past four years, public spending has fallen, from over 46 per cent. of national income--

Mr. Leighton : Will the Minister give way?

Mr. Major : The hon. Member for Vauxhall took a considerable amount of the limited time available and, if the hon. Member for Newham, North- East (Mr. Leighton) will excuse me, I shall not give way. Over the past four years public spending has fallen from over 46 per cent. of national income to less than 40 per cent. It is set to fall further to the lowest level since 1966 by 1991.

For the future, our plans provide for spending on programmes to grow by an average 3 per cent. in real terms over the survey period. But the reduction in the burden of debt interest means that total spending is set to grow by less than 2 per cent. a year on average in real terms. That means that we shall continue to have firm control of total public spending as well as real growth in priority services. In the total for next year, we have achieved substantial savings through the rapid fall in unemployment, which cut spending on social security benefits by £1.5 billion a year, the success of the right-to-buy scheme, which has been tremendous, and far better performance by nationalised industries. Those are the direct results of the success of specific policies and together they provide substantial savings that we can redeploy to priority services.

Those savings, together with a rigorous reassessment of priorities that we made in the public expenditure round, have meant that we are now spending money where we

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choose to spend it and not where circumstances dictate. That is the second objective that we have met, and it is very welcome. Let me illustrate why it is so welcome. It has made possible an unprecedented increase in resources for the National Health Service of over £2 billion next year and over £2.5 billion the year after. That will offer real service growth, as the hon. Member for Dunfermline, East, even with his perverted statistics, must know. It has enabled substantial increases for roads, the police services and the development of a modern prison system.

The science budget, mentioned by a number of hon. Members, will be over 16 per cent. higher next year. There is substantial extra investment for the water authorities to reduce both sea and river pollution, as was mentioned in the debate. In direct response to the hon. Member for Berwick-upon- Tweed, I should point out that extra investment by British Rail and London Transport will improve safety and services for passengers.

All in all, the increase in total capital spending for next year is about £2.25 billion. I cannot recall, and neither can any other hon. Members, when there was last such an increase in capital public spending in a single year. We should compare that with Labour's record on public sector capital investment. Total public sector capital investment under Labour fell by 12 per cent. in real terms. What did that mean for the services about which they claim to care? National Health Service capital spending went down by 30 per cent. in real terms. We have increased it by 40 per cent. Spending on roads fell by 40 per cent. in real terms and we have increased it by 30 per cent. We need and will accept no lectures from Opposition Members about proper capital spending and public services.

As a result of sound management, public finances are in better shape now than for a generation. For the past two years we have managed to reduce taxes, increase spending in key areas and repay the national debt on an unprecedented scale.

My hon. Friend the Member for Horsham (Sir P. Hordern) regarded the fiscal surplus as a great achievement by my right hon. Friend the Chancellor, and I agree with him. Over the past two years my right hon. Friend will have secured a net repayment equivalent to 8 per cent. of the total outstanding stock of Government debt. That means that we are the first tax-paying generation for more than 50 years to stop the growth of debt and to start repaying it, so relieving the burden that future generations would otherwise have to face. The hon. Member for Dunfermline, East was his usual self this afternoon--lucid, forceful, agressive and a purveyor of more doubtful material than Arthur Daley. The hon. Gentleman has a way with facts that I have rarely seen equalled and he should spend tomorrow having a painful interview with his research assistant who presumably provided them.

The hon. Gentleman wriggled like a fish on a hook when challenged by my right hon. Friend the Chancellor to set out his policies on taxation and public expenditure. He repeatedly failed to give them. He left the impression with me, and I suspect with most hon. Members, that he did not respond because he had no ideas what those policies were. It would be tiresome and time-consuming to correct all the hon. Gentleman's fanciful howlers, but I will deal with some of them. The hon. Gentleman said that inflation was at the European average when the Labour party left office. He is wrong. In May 1979 the European Community average

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