[Lords] (By Order)
[Lords] (By Order)
Orders for Second Reading read.
To be read a Second Time on Thursday 2 February.
1. Mr. Paice : To ask the Chancellor of the Exchequer if he will make a statement on the composition of growth in the United Kingdom as between consumer expenditure, exports and investment over the period 1981 to the latest available date.
The Chancellor of the Exchequer (Mr. Nigel Lawson) : I hope that my hon. Friend will forgive me if I begin by saying how glad we all are to see the right hon. and learned Member for Monklands, East (Mr. Smith) fit and well and back in his place.
Since 1981, consumers expenditure has grown on average by 3 per cent. a year in real terms, while exports have grown by 4 per cent. a year and investment by 5 per cent. a year.
Mr. Paice : I thank my right hon. Friend for that reply. Do not those excellent figures show that much of the extra demand is spent on investment which will balance the problem with the balance of payments deficit? Are we not really paying the price for the fact that throughout the time when the Labour party was in office, investment was seven times lower than the rate of increase in consumption?
Mr. Lawson : My hon. Friend is right. We have had increasingly in recent years an excellent performance on investment. Investment growth last year was probably the highest ever and certainly private investment last year was the highest percentage of GDP since records began in 1955. As my hon. Friend indicated, over the whole of our period of office since 1979, investment grew at 27 per cent. compared with only 25 per cent. for consumption, whereas under the Labour Government, consumption was up by 10 per cent. and investment only a puny 1 per cent.
Column 1162much of Britain's manufacturing industry? As imports are being sucked into the United Kingdom, many jobs are being lost at home in all sorts of industries, but in particular in the footwear industry and in Millers, a company in my constituency. What will he do about that? Will he leave exchange rates at the present high level and accept job losses at home with the consequent effect on the Exchequer?
Mr. Lawson : I think that the hon. Gentleman is wholly unaware of what has happening in the British economy. Unemployment has been coming down month after month for over two years now in every region of the country. I would have thought that he might first become aware of that and when he has become aware of that, he might welcome it.
Mr. Devlin : Will my right hon. Friend the Chancellor confirm that in 1988 investment grew by more than 12 per cent. and that that was twice as fast as the growth in consumption? Will he also confirm that the rate of unemployment in Stockton, South has fallen faster than in any other constituency in the north of England and that that is undoubtedly due to the hard work of local entrepreneurs and the increased level of self- employment in that region?
Mr. Lawson : I agree with what my hon. Friend says and I am sure that the quality of the hon. Member representing Stockton, South must have played some part in this excellent performance. Indeed, investment growing at something like more than double the rate of consumption in 1988 was no flash in the pan. During the whole of the period that I have been Chancellor of the Exchequer, investment has grown very nearly twice as fast as consumption. Indeed, going back to 1981, investment in this country has grown faster than in any other country of the European Community and faster, indeed, than in any other major industrial nation.
Mr. Gordon Brown : On the question of growth, investment and the impact of the exchange rate, does the Chancellor recall his previous statements that we would join the European monetary system when the time was appropriate, and his new statement last night that previous difficulties had "clearly diminished over time"? Will the Chancellor give us his own assessment of the advantages of joining the European monetary system and say whether he has persuaded the Prime Minister of them?
Mr. Lawson : I would advise the hon. Gentleman to read the speech that I gave at Chatham house last night. It well repays reading, and, as I said, we will join the EMS when the time is appropriate, as the Prime Minister has said on previous occasions.
2. Mr. Cran : To ask the Chancellor of the Exchequer what was the total level of investment in the United Kingdom in 1988 and 1987 ; and what was the change in the level of consumption over the same period.
Mr. Cran : Does my right hon. Friend agree that business investment in the years 1986-88 rose by the almost unprecedented figure of 20 per cent. in real terms, and exceeded that of the United States, Germany and France? Does he agree that that massive investment programme confirms the economic well-being of the United Kingdom, even in terms that the economic illiterates of the Opposition can understand?
Mr. Major : I am not sure about my hon. Friend's last point, but I can certainly confirm his first point. Since 1981, business investment in the United Kingdom has grown faster than in any other major industrialised country and any country in the European Community.
Mr. Foulkes : Will the Chief Secretary come down to earth? Is he aware that the National Savings bank has introduced regulations so that the minimum investment is now £5? That is causing great concern among pensioners and Age Concern Scotland as many pensioners invest £1, £2 or £3 regularly and will be unable to do so when the regulation comes into force. Will the Chief Secretary intervene and see whether some action can be taken to reverse that regrettable decision?
Mr. Major : I hear and understand what the hon. Gentleman says. I have no direct response to his point except that he needs to bear in mind that throughout the economy as a whole investment is growing and that in our judgment, and in the judgment of the independent surveys, it will continue to grow. That is thoroughly disirable.
Sir William Clark : Does my right hon. Friend agree that the Opposition's criticism of the economic handling of our country is rather hypocritical when one bears in mind that under their regime we were at the bottom of every economic league not only in Europe but in the world and now we are at the top?
Mr. Kirkwood : I thank the Minister for his helpful answer. Does he accept that for lead-free petrol to become the norm it will have to become available in all retail outlets throughout the country, including small retail outlets such as those in the Borders? The only way realistically to do that is to increase demand. The only way to increase demand for lead- free petrol is to increase its tax advantages against petrol containing lead. Will the Minister give careful consideration to the representations that he has had so that a positive change may be made in the forthcoming Budget?
Mr. Lilley : I am sure that my right hon. Friend has noted the hon. Gentleman's remarks. Although I cannot be very helpful about his request for information about tax concessions in future, I can remind him of what occurred in the last Budget when my right hon. Friend the
Column 1164Chancellor increased the differential between lead-free and leaded petrol. Since then, there has been a considerable increase--indeed, a tripling--of the number of outlets at which it is available.
Mr. Mans : Does my hon. Friend agree that following the tax concession in April, sales of unleaded petrol have increased by 1,500 per cent? Does that not demonstrate that the tax concession is quite sufficient at the moment, and that any moneys that may be available from the Treasury to promote the use of unleaded petrol would be better used in persuading manufacturers and petrol companies to increase its availability?
Mr. Lilley : My hon. Friend is quite correct to point to that statistically large increase although, admittedly, it was from a small base. By October, the market in lead-free petrol had reached about 1.6 per cent. By mid-January it had reached 3.5 per cent. so it is clearly growing rapidly. I agree with my hon. Friend about the need for campaigns to spread information by both petrol retailers and motor car manufacturers.
Mr. Haselhurst : Will my hon. Friend note that there are many obstructions in the way of the admirable policy of our right hon. Friend the Chancellor to introduce a differential in the duty on lead-free petrol, one of which is the price spread of four-star leaded petrol, which can be anything between 12p and 14p in a district? Is it not worth reminding the Chancellor that if something is worth doing it is worth doing well?
Mr. Lilley : My hon. Friend is correct to say that there is a spread of prices for four star, although the recent Which? report showed that, almost universally, garages were passing on the advantage of the tax increase at the last Budget. The differential between lead-free and four- star petrol was about 5 p at the pump.
Dr. Marek : Is the Minister aware that he has the Opposition's support to increase the use of unleaded petrol? He will also have the Opposition's strong support if he introduces a bigger differential between leaded and unleaded petrol in the next Budget. Will he try to persuade his right hon. and hon. Friends to provide more advertising on site, to ensure that advice is widely available and to tackle ignorance so that motorists are aware of the problem and take the advice that is widely available?
Mr. Lilley : I am grateful for the hon. Gentleman's remarks and I agree about the importance of advice. It is important that people recognise that virtually all new cars can take unleaded petrol ; from October 1990 all new cars will be able to do so. Most cars can be converted at small cost to run on lead-free petrol ; only a dwindling minority are incapable of such conversion.
Mr. Roger King : Notwithstanding what my hon. Friend has just said, will he bear in mind that millions of car owners depend on leaded fuel? If the differential between unleaded and leaded fuel is to be increased, will he ensure that it is not at the expense of increasing duty on leaded petrol?
Mr. Nellist : Given that the Chancellor and other Treasury Ministers have expressed derogatory views about such pay deals in the press, and notwithstanding the reasons of other right hon. and hon. Members for so doing, will the Minister explain why he and every Treasury Minister, including the Chancellor, voted in favour of a pay rise of over 25 per cent. for hon. Members for 1988-89? What peculiar brand of logic leads Treasury Ministers to tell Jaguar workers, workers at Peugeot Talbot in Coventry or home owners groaning under a 13 per cent. mortgage that they cannot demand what Ministers vote for themselves?
Mr. Brooke : In 1983, the Government opposed what became known as the du Cann amendment on hon. Members' pay linkage. The hon. Member for Coventry, South-East (Mr. Nellist) voted with the Government, but despite his help we were defeated by eight votes. In 1987, the Government respected the will of the House as expressed in 1983 and tabled a resolution to implement the amendment, because otherwise it would not have counted for pension purposes. Unlike a recent Labour Government on boundary commission proposals, this Government vote for their own resolutions.
Mr. Yeo : Does my right hon. Friend agree that whatever the consequences of two-year pay deals of over 20 per cent. may be, they are much better than the consequences of one-year pay deals of over 20 per cent., which were such a feature of the last Labour Government's period of office?
Mr. Mullin : What has the Minister to say about the 286 per cent. increase that Lord Hanson awarded himself last year, the 237 per cent. increase that Lord King awarded himself last year and the 168 per cent. increase that John Clement of the Littlewoods Organisation awarded himself last week? Is the Minister's plea for restraint addressed to them?
Column 1166my right hon. Friend agree that such a surplus reflects a tight fiscal stance? Does he agree also that the surplus belongs to the taxpayer? Even if financial prudence prevents him returning it in the next Budget, it will eventually be used to reduce the burden on the taxpayer.
Mr. Lawson : I am grateful to my hon. Friend. I cannot tell him when a British Government last enjoyed a budget surplus--a public sector debt repayment of this scale, but one would have to go back a very long time indeed. As for the claims on that surplus, I am sure my hon. Friend will agree with me that progress in tax reduction needs to be accompanied by progress in debt repayment, and the balance between these two in each particular year is a matter to which I shall give very careful consideration.
Ms. Quin : Is one reason for the surplus the fact that the Treasury has saved £4 billion a year from the decision to break the link between pensions and earnings and prices? Would it be an excellent use of the budget surplus to give that £4 billion a year back to those who badly need it?
Mr. Lawson : We have, as the hon. Lady knows, increased public expenditure very substantially. The increase, for example, which I announced in the Autumn Statement in November for the National Health Service was far and away the biggest increase that the Health Service has ever received. We have, like any other Government, to decide what our priorities are within public expenditure. We have decided that it is absolutely right that pensioners should enjoy price protection. Beyond that, we have decided to give extra help to the poorest pensioners so that we can then give a great deal more to the Health Service and other public expenditure priorities.
Mr. Gow : Is it the case that, if my right hon. Friend were borrowing at the same rate as borrowing took place when the Labour party was in power, this year's public sector borrowing requirement would be £40 billion? Will my right hon. Friend persevere in doing good and continue with his excellent policy of repaying debt?
Mr. Lawson : My hon. Friend is quite right. That is the scale, and indeed if we were to go back to that particular Labour Government tombstone of a £40 billion public sector borrowing requirement, I could abolish the whole of income tax and I would not get as big a borrowing requirement as that, but I have to tell the House that I shall not be doing that. [Interruption.] It is a very important source of strength that we have this surplus, and our sound fiscal position, and indeed the transformation, is something that has earned us the respect of the whole world.
Mr. John Smith : I thank the Chancellor of the Exchequer for his generous personal remarks. He was good enough to write to me the day I took ill, and I thank him for that. However, I observe that not much changed while I was away.
Why is the Chancellor still boasting about a public sector surplus, £10 billion of which is made up of asset sales--an exercise in transferring money from the balance sheet to the profit and loss account, which rendered some people in the private sector liable to early arrest-- and the other £4 billion of which is from robbing old age pensioners? Why is that something about which he should boast? If he finds that difficult, in a spirit of goodwill
Column 1167towards him, I wish him luck over the next six or seven weeks. I hope that the Prime Minister does not continually seek to express her disagreement with his monetary, fiscal or mortgage policies. Let him hope that he has at least a happy time until Sir Alan Walters returns.
Mr. Lawson : I do not altogether agree with the right hon. and learned Gentleman that nothing has changed. I observe with some envy that he has lost a great deal of weight. But apart from that, nothing at all has changed. He is as entertaining as ever, and as totally devoid of policies.
Mr. Soames : The House will note with pleasure and satisfaction the healthy public expenditure surplus, but will my right hon. Friend acknowledge that millions of British taxpayers wish substantially more money to be spent on infrastructure and will he assure the House that he will view with favour such requests from the Department of Transport?
Mr. Lawson : As my hon. Friend knows, we have a desirable convention that public expenditure decisions are taken and announced in the autumn and that the spring Budget is for judging the level of taxation and the level of borrowing, or, as it is called in the new era in which we live, the level of debt repayment. But I am sure that in that context my hon. Friend will have noted with great satisfaction the substantial increase in expenditure on transport infrastructure, particularly on roads, which I announced in the Autumn Statement in November.
Mr. Buckley : Does the Chancellor consider that that is exceedingly optimistic in the view of the Government's high interest rate policy, which seems to be undermining British industry, and the lack of investment in future research and development, which will certainly undermine future balances of payments? Would that the balance of payments was in surplus, as the Chancellor constantly boasts about the public sector borrowing requirement.
Mr. Bill Walker : Does my right hon. Friend agree that the difference between today's visible exports and those under the previous Labour Government is that today's visible exports generate profits while in 1979 they were generated out of losses, particularly in major industries such as steel, coal and so on?
Column 1168he died, said, "I feel better now." It is clear that the Government are expecting a miracle on the visible trade side. When will they realise that the miracle has not been changing water into wine but transforming the wine of North sea oil into massive interest rate rises, and a chronic structural deficit?
"Die, my dear Doctor, that's the last thing I shall do!" The Government are alive and well and continue to have confidence in their forecasts.
Mr. Brazier : Does my right hon. Friend agree that the growth in visible exports over the last two years, and, indeed, expected growth over the next year, has played an important part in the fall in unemployment in my constituency from 11 per cent. to below 6 per cent? Will he join me in congratulating two small companies in Whitstable, one selling printing materials to Japan and the other electrical parts to Taiwan?
7. Mr. Nigel Griffiths : To ask the Chancellor of the Exchequer if he will provide the latest available data on net flows of (a) direct investment, (b) portfolio investment and (c) banking flows into the United Kingdom in 1988.
Mr. Lilley : In the first three quarters of 1988, the latest official estimates identify net outflows of £6.3 billion on direct investment and £5.6 billion on portfolio investment, and net banking inflows of £10.5 billion. However, the balancing item indicates that there are net inflows of foreign exchange amounting to a further £12.3 billion which cannot be identified.
Mr. Griffiths : How does the Chancellor explain his high interest rates if not in terms of his record balance of payments deficit and the need to lure in to the economy highly speculative funds from abroad?
Mr. Lilley : The hon. Gentleman clearly does not realise that, in all countries, it would now be true to say that all money is hot money because we live in a world of free exchange rates where people are free to move money about. Therefore, all Governments, whether they have a surplus or a deficit, are required to maintain the confidence of their people and of international financial markets. This Government have the confidence of international markets because their policies are sound and because the prospects of election of the Labour party are negligible.
Mr. Tim Smith : Will my hon. Friend confirm that the balancing item is now so large that it exceeds the balance of payments deficit? Does not that mean either that the deficit is overstated or that the figures for capital inflows are understated? Which does the Treasury think it is, and, whichever it is, does it not show that all the figures should be treated with some caution?
Mr. Lilley : My hon. Friend is absolutely right. The answer to his question is, "A bit of each" and he is right to say that we should treat with scepticism those figures, whose importance is grossly exaggerated.
Mr. John Smith : Will the Minister confirm that the balance of payments deficit with which we have been saddled as a result of the Government's policy is one of the principal reasons for high interest rates? We have the highest interest rates among the industrialised countries because we have to pay the price of attracting into the system the hot money to which he has just referred.
Mr. Lilley : No. The right hon. and learned Gentleman has got it wrong. High interest rates are necessary to bring down inflation and keep pressure bearing down on inflation, as we shall do. I hope that he will soon take the opportunity to explain how his recipe of cutting interest rates and reimposing credit controls could possibly work in the modern world.
8. Mr. Harry Greenway : To ask the Chancellor of the Exchequer what was the average (a) inflation and (b) interbank rate (i) since May 1979 and (ii) between March 1974 and May 1979 ; and if he will make a statement.
Mr. Lawson : The average rate of inflation since May 1979 has been 7 per cent. compared with 15 per cent. between March 1974 and May 1979. The average three-month interbank rate since May 1979 has been 12 per cent. compared with 10 per cent. between March 1974 and May 1979. In other words, with interest rates 1 per cent. higher than under Labour, we have enjoyed inflation 8 per cent. lower.
Mr. Greenway : Is it not clear from my right hon. Friend's reply that the Government's record on inflation is at least twice as good, perhaps nearly three times as good, as that of the last Labour Government? Is it not also clear that his policy of high interest rates is beginning to work, although the full effects will not be known for some time yet?
Mr. Lawson : My hon. Friend is right. Inflation under this Government has been less than half the rate of inflation under Labour and, of course, at the present time, it is lower still than that and it will continue over a period of time to fall.
As for the second half of my hon. Friend's question, I forget precisely what it was and I apologise to him.
Mr. Robert Sheldon : When will the Chancellor of the Exchequer stop complaining about mortgage interest payments increasing the retail prices index when, at the same time, he is obtaining great advantages from the fact that house prices are not part of the retail prices index? As they have shown an explosive inflation, is he not rather lucky?
Mr. Lawson : Asset prices are not part of the retail prices index in any country in the world and, indeed, we are one of the only two countries in the European Community, out of 12 nations, that have mortgage interest payments in their consumer price index, the only other one being Ireland. It is an eccentric, unwise and economically unsound thing to have and we get the underlying trend very much more clearly. This is widely accepted by economists of all parties and none, if we look at the retail prices index, after extracting mortgage interest payments.
Column 1170I am glad to tell my hon. Friend the Member for Ealing, North (Mr. Greenway) that I have now remembered what he said. Yes, indeed, the policy is very clearly working.
Mr. Hind : Does my right hon. Friend agree that the contrast between the performances of the Labour Government and this Government is demonstrated by the survey published in the press today which showed a very bullish attitude among 500 senior managers in industry? Most of them expect orders and investment to rise this year and at least one third expect to create new jobs.
Mr. Lawson : My hon. Friend is right. Of course, the fundamental confidence of British industry is also shown by its investment intentions which continue to run very high, as was evidenced by the most recent CBI survey. The only thing that might cause a tremor among industrialists is were there to be at any future date a slight glimmer of a fear that the Labour party might be elected to office.
Mr. Beith : Are Treasury Ministers sufficiently confident of the success of their policies to tell us that they will not need to raise interest rates further? Have they looked at the indices that they now use to argue that they have got control of the situation? Last year, those indices were showing even more clearly that there would not be a credit boom. If Ministers believed them then, that may be the explanation for what went wrong with the Budget strategy. Will Treasury Ministers consider alternative measures that are available to broaden the attack on inflation without going to the credit control measures favoured by the right hon. and learned Member for Monklands, East (Mr. Smith), whose return we so much welcome?
Mr. Major : No Minister can give the hon. Gentleman the firm assertion which he asked for at the beginning of his question. The problem at the moment is excess demand. The way to control the growth of credit is to increase its cost. That is what we have done. We are confident that it can and will work.
Mr. Neil Hamilton : Will my right hon. Friend remind the House that last spring Opposition Members were calling for even faster reductions in interest rates which would have fuelled the consumer boom even more? Now they are claiming the benefit of hindsight and they say that we were moving too fast. Their economic policy does not add up.