Home Page

Column 1127

House of Commons

Thursday 23 February 1989

The House met at half-past Two o'clock


[Mr. Speaker-- in the Chair ]


Mr. Speaker : I regret to have to inform the House of the death of Sir Herbert Raymond Gower, Member for Vale of Glamorgan, and I desire, on behalf of the House, to express our sense of the loss we have sustained and our sympathy with the relatives of the hon. Member.


Associated British Ports Hull Bill

(By Order)

Birmingham City Council (No. 2) Bill

(By Order)

British Railways Bill

(By Order)

Hythe, Kent, Marina Bill

(By Order)

Hythe Marina Village (Southampton) Wavescreen Bill

(By Order)

International Westminster Bank Bill

(By Order)

Isle of Wight Bill

(By Order)

London Underground (Victoria) Bill

(By Order)

Wentworth Estate Bill

(By Order)

British Film Institute Southbank Bill

(By Order)

Bromley London Borough Council

(Crystal Palace) Bill-- (By Order)

City of London (Various Powers) Bill

(By Order)

Redbridge London Borough Council Bill

(By Order) Orders for Second Reading read.

To be read a Second time on Thursday 2 March.

Column 1128

Oral Answers to Questions



1. Mr. Home Robertson : To ask the Chancellor of the Exchequer if he will make a statement on the current rate of inflation.

2. Mr. Illsley : To ask the Chancellor of the Exchequer when he expects the inflation rate to go down.

10. Mr. Leadbitter : To ask the Chancellor of the Exchequer when he expects the inflation rate to go down.

The Chancellor of the Exchequer (Mr. Nigel Lawson) : The retail price index increased by 7.5 per cent. in the year to January. I shall provide a forecast in the Budget in the usual way.

Mr. Home Robertson : Will the Chancellor confirm that housing costs are, and must remain, an integral part of any assessment of the retail price index? With that in mind, what has he to say to the many thousands of home-owners in this country who are struggling, month after month, to cope with the effects of virtually monthly doses of Treasury-led inflation? As for the figure of 7.5 per cent., was it not the Chancellor himself who said that the retail price index and inflation would be the judge and jury of his economic policies? That being so, how does he plead--guilty or very guilty?

Mr. Lawson : I am perfectly prepared to be judged by inflation. Inflation during the whole of the period in which I have been Chancellor of the Exchequer has averaged under 5 per cent. During the period of the Labour Government, which is almost as long as the period for which I have been Chancellor, inflation averaged over 15 per cent., so I am perfectly prepared to be judged by that.

Mr. Illsley : Does the Chancellor agree that the nine increases in interest rates since last June have severely increased the cost of living and particularly the cost of mortgages? Does he also agree that any perceived advantages from the tax cuts in the last Budget have been wiped away for all but the very wealthy?

Mr. Lawson : I do not accept that. Of course, mortgages have gone up because interest rates have gone up and that is essential in order to get inflation down. Labour Members, who all the time have been asking for lower interest rates, are asking for higher inflation. That is what it boils down to.

Mr. Leadbitter : The Chancellor must be aware that not only the Opposition but the Confederation of British Industry is currently urging him to reduce high interest rates and has pointed out to him the adverse effects on manufacturing industry and home demand as well as on exports. As inflation is still rising, will the Chancellor review the one instrument that he has invoked to deal with it--his high interest rate policy--and use other methods to deal with inflation?

Mr. Lawson : No, I will not, because that is the only effective way of controlling inflation and I will adduce as

Column 1129

a supporter on this, despite what the hon. Member said, Mr. John Banham the director general of the CBI, who said this on the one o'clock news on 17 February :

"We think the Chancellor should carry on with high interest rates to combat inflation."

That is the view of the CBI.

Mr. Tim Smith : As inflation in the United States is now only one point below the underlying rate in the United Kingdom, does my right hon. Friend agree that interest rates will have to remain high on both sides of the Atlantic until inflation is firmly on a downward path? Will he therefore ignore the mutterings of the Opposition, whose approach when in power was based not on the economics of the one-armed bandit but on the economics of the highway robber?

Mr. Lawson : My hon. Friend puts it extremely well and I agree with everything he has said. On the specific question of my policy towards interest rates, despite what the Opposition have been saying--and will, no doubt, continue to say today and subsequently--and despite, indeed, some of the curious things I read from some of the commentators, I can assure my hon. Friend that there will be no question of a premature let-up in interest rates.

Sir William Clark : Does my right hon. Friend agree that the lowest inflation rate achieved by the Labour Government was 7 per cent.? Is it not hypocritical for Opposition Members to criticise this Government's economic policy when Britain is at the top of the economic league whereas in the 1960s and 1970s we were right at the bottom?

Mr. Lawson : My hon. Friend is right to say that, whereas in the 1970s we had the slowest rate of growth of all the major economies in the European Community, during the 1980s we have had the highest rate of growth of all the major economies in the European Community. As for our inflation record compared with the Labour Government's inflation record, yes, again, my hon. Friend is right. If we take the underlying rate of inflation--that is to say, excluding mortgage interest payments, which only one of the other 11 members of the European Community has--if we take that into account, our current rate of 5.5 per cent.--the most recent rate of 5.5 per cent.--compares on the same basis--on precisely the same basis, excluding mortgage interest rates--with the lowest monthly rate that the Labour Government ever achieved of 7.7 per cent.

Mr. Butterfill : Does my right hon. Friend agree that high interest rates are very much a sympton of his success in managing the economy? Can he imagine the Labour party ever presiding over the economy as we have done, given that we have been able to reduce taxes and repay the enormous debt that the Labour party accumulated and that we now have one of the most rapidly growing economies in Europe?

Mr. Lawson : My hon. Friend is right. Labour's record was lamentable in every way. In so far as it is possible to discern any policies emerging from the Opposition Benches, they would produce precisely the same lamentable results if they were put into practice today. Fortunately, that will not be the case.

Mr. John Smith : As the Chancellor accepts that inflation will be the judge and jury of his economic policy, is it not vital that the evidence should not be fixed by the

Column 1130

removal from the retail price index of significant price increases? Did not representatives both of business and of the trade unions tell the official committee on the RPI that both the community charge and mortgage interest payments had to be included if the RPI was to retain credibility? In the light of that, may we have an unequivocal assurance from the Chancellor that both the community charge and mortgage interest payments will remain part of the RPI?

Mr. Lawson : I have to tell the right hon. and learned Gentleman that the Treasury gave evidence to the RPI advisory committee in 1986--very cogent evidence, as he knows--arguing that mortgage interest payments, as in most other countries--almost all other

countries--should not be in. It took a different view and we accepted its advice at the time. I have to say that the only major change that there has been in the RPI that I can recall in recent years--the only major change-- was in 1975, when the Labour Government put mortgage interest payments in because they thought at that time it would advantage them.

Mr. Watts : Is my right hon. Friend aware that, despite the claims of the hon. Member for Hartlepool (Mr. Leadbitter), the most recent survey of businesses in the Thames Valley shows that there is less complaining about high interest rates this year than at the same time last year, when interest rates were much lower? Should not businesses be taking advantage of the lower rates available in the long-term market, in which rates have benefited from my right hon. Friend's policy of repaying Government debt? In that way, it can obtain finance much more cheaply than by relying on overdrafts, which follow the base rate.

Mr. Lawson : My hon. Friend is right. Compared with previous occasions when interest rates have had to go up--and, of course, there have been many occasions in the past when interest rates have had to go up ; this is by no means the first such occasion and, no doubt, it will not be the last--the difference is that the financial position of business is so much stronger now that it is far less affected and this, therefore, bites far more on consumer spending. Given that there has to be a slowing down of the rate of growth of the economy, this is desirable. My hon. Friend is also right to say that we now have a yield curve which is downward sloping so that industry is able to borrow for a term at a considerably lower rate than the cost of a bank overdraft.

Contingency Funds

3. Mr. Robertson : To ask the Chancellor of the Exchequer to what he expects to allocate resources from the contingency funds in 1989-90.

The Chief Secretary to the Treasury (Mr. John Major) : Allocations from the reserve will be made as the need arises.

Mr. Robertson : Has the Chief Secretary had a chance to read the Home Secretary's speech last month when he promised that more resources would be devoted to better street lighting? As the Chancellor of the Exchequer's home town has had brighter and more energy-efficient lighting installed, may we expect that the contingency reserve will

Column 1131

be used to provide better lighting throughout the streets of Britain so that our citizens will have some relief from the constant fear of crime in our streets?

Mr. Major : I always read my right hon. Friend's speeches with great interest. There were substantial increases in the Home Office budget in the last public expenditure round, taking effect from 1 April. I have no further announcements to make about expenditure on street lighting today.

Mr. Kennedy : Is the Minister aware that the Scottish Office has asked for reports from local authorities in the Highlands because of the severe hurricane and flood damage there in recent weeks, which could mean additional resources being required for relief work in the 1989-90 financial year? If such an application is made, will the Minister look upon it constructively and favourably?

Mr. Major : My right hon. and learned Friend the Secretary of State for Scotland is an avid guardian of the interests of the Scots. If and when my right hon. and learned Friend approaches me on that or any other matter, I shall of course consider it carefully.

Mr. Bill Walker : When my right hon. Friend is contemplating any raiding of the contingency reserve, will he bear in mind that the Europeans have £2,000 million of our money that we could well spend on some of the problems in Scotland, that are the direct result of the storms, as well as on some of our roads, which certainly need upgrading and improving? We would rather see European money used than our contingency reserve.

Mr. Major : I am sure that my right hon. and learned Friend the Secretary of State for Scotland will read what my hon. Friend has said. I certainly endorse it.

Mr. Nicholas Brown : As the Government have committed themselves to allocating resources next year towards providing tax relief for pensioners' private medical insurance, can the Minister tell us what is the estimated cost of this concession? What provision have the Government made from the contingency funds or from elsewhere to provide a similar financial contribution towards the health care costs of the two thirds of British pensioners who do not pay income tax and are thus unlikely to benefit from the scheme? Will the Minister explain why the Government give priority to the wealthier pensioners rather than to all pensioners?

Mr. Major : The hon. Gentleman is less than wholly accurate. He confuses tax relief with expenditure. Even putting that aside, however, the hon. Gentleman has overlooked, first, the extra resources from the reserve next year to meet a great proportion of the pay review body awards for nurses and others, much of which will result in better nursing care for the elderly, and secondly, the significant package of extra help for poorer pensioners, which takes effect on 1 October and comes specifically out of the reserve.

Labour Statistics

4. Mr. Gerald Bowden : To ask the Chancellor of the Exchequer what was the total fall in long-term unemployment in the year to October 1988.

Column 1132

Mr. Lawson : In the year to October 1988, long-term unemployment fell by 280,000.

Mr. Bowden : I am encouraged by my right hon. Friend's reply. Is not that welcome news largely due to the strong growth in output and employment under this Government, with 2 million new jobs since 1983?

Mr. Lawson : My hon. Friend is right to say that this successful performance on jobs is as a result of the British economy performing better than it has ever done before. Here a great tribute is owed to all those in business and in industry who have done so much better than they have in the past. As a result we have seen unemployment fall in the past 30 months in a row--the largest and longest fall ever recorded.

Mr. Andrew F. Bennett : Does the Chancellor accept that the Government's infliction of long-term unemployment on many of my constituents has actually destroyed their lives? They were left, in their late fifties, with no prospect of jobs and in poverty both in unemployment and in old age. The Government's excuse was that they were determined to tackle inflation and to restore the competitive edge to industry in this country. What can the Chancellor say to those people who are now pensioners, who have been caught by increasing inflation and who see absolutely no sign of the competitive edge being restored to British industry?

Mr. Lawson : So far as the pensioners are concerned, we have fully price-protected the pensioners throughout our period in office, despite a rapid increase--a very large increase indeed--in the pensioner population. The hon. Gentleman is right to talk about the problems of inflation. As I pointed out, inflation over the past five years or so has been less than a third of what it was during the period of the Labour Government. Indeed, long-term unemployment over the past year has fallen even more in percentage terms than unemployment as a whole. I really am astonished that Opposition Members sit there looking so glum whenever they learn about unemployment coming down.

Mr. Redwood : Does my right hon. Friend agree that one of the most welcome aspects of the fall in long-term unemployment is that it is happening right across the country? Does he further agree that that is a welcome sign that some of the overheating in the south-east can be eased by growth and development in regional economies?

Mr. Lawson : It is true that unemployment, and in particular long- term unemployment, has been falling rapidly in every single region of the country--rather less so, I know, in Northern Ireland, but throughout the whole of the rest of the United Kingdom it has fallen very rapidly indeed. On average over the past year, there has been a fall of over 26 per cent. in long-term unemployment. This is something which I hope in time Opposition Members will come to welcome.

Mr. Holland : Do the Government admit that the fall in unemployment of less than 2 million is a phoney figure, that they have changed the estimates for unemployment 25 times, and that only once has the figure gone up rather than down? The real unemployment figure is 2.7 million. The Government may fool some of the people some the time, but the long-term unemployed are not fooled at all by the Government's fantasies.

Column 1133

Mr. Lawson : There really is no point in the hon. Gentleman weaving fantasies with figures. Everyone knows perfectly well that unemployment is coming down. It is not merely the official unemployment statistics. If he does not want to look at those, he can read the annual labour force survey which produces exactly the same picture. If he does not want to look at that, look at the number of people in work. There are now more people in work in this country--not counting people on training schemes--than ever before in our history.

Mr. Holt : Is my right hon. Friend aware that unemployment in my constituency in the north-east of England has fallen by 40 per cent. from its peak in 1984? That figure could be improved even more if we had an adequate motorway to the north-east of England. Last weekend, it took me six hours and 40 minutes to drive from here, leaving at 3 o'clock in the afternoon. If industry is to be encouraged to take advantage of the European market and the Channel tunnel, it is no good the Treasury sitting on the money that the Department of Transport needs to build motorways.

Mr. Lawson : I must tell my hon. Friend that the Treasury agreed-- the Treasury has given them the money and agreed--I announced this in the Autumn Statement--an extra £220 million for spending on roads in the coming financial year. I am sure, too, that despite the difficulties, my hon. Friend will continue to provide an invaluable service to his constituents.

Foreign Investment

6. Mr. Allan Roberts : To ask the Chancellor of the Exchequer if he will make a statement on current foreign investment into the United Kingdom.

The Paymaster General (Mr. Peter Brooke) : I refer the hon. Gentleman to the reply which my right hon. Friend the Chief Secretary gave to the hon. Member for Bridgend (Mr. Griffiths) on 23 January at column 374 of Hansard.

Mr. Roberts : That is very illuminating. Does the Minister agree that the Chancellor has been sitting on a mountain of hot money which has been attracted into this country by high interest rates and is financing the £14 billion balance of payments deficit? What will the Chancellor do when the Government have no more assets to sell to overseas customers? That is also masking the extent of the balance of payments deficit. What will he do when the new green mantle which has descended on the Prime Minister stops the import of toxic waste, which is also masking the balance of payments deficit? Is that not why he cannot bring interest rates down?

Mr. Brooke : It is impossible adequately to distinguish between short-term and long-term capital flows on account of the greater mobility of international capital and also because large balancing items confuse official figures. Inflows take many forms. Nevertheless, the underlying strength of total inflows and of sterling indicates overseas confidence in the United Kingdom economy and overseas confidence that the Government will pursue sound fiscal and monetary policies.

Column 1134

Mr. John Townend : Are not many of these inward investments a major cause of our balance of payments deficit, and when they become productive will they not be a major reason for the future reduction of that deficit?

Mr. Brooke : I am delighted to agree with my hon. Friend that foreign investment into this country continues to be strong, for both portfolio and direct investment.

Mr. John Smith : Is the Paymaster General not concerned about narrowing interest rate differentials between the United Kingdom and, for example, West Germany, which have caused some downward movement in sterling in the past few days? Will that not make it more difficult for the right hon. Gentleman to attract and retain the short-term hot money which finances Britain's very large balance of payments deficit?

Mr. Brooke : I infer from the right hon. and learned Gentleman's question that he wishes us to increase interest rates further.

Sir Peter Emery : Will my right hon. Friend assure the House that the Government intend to take no measures to limit the free flow of foreign exchange and capital in and out of the country, which is the basis for keeping the City of London the leading financial market of the world?

Mr. Brooke : My hon. Friend is right to draw attention to the immense gains that the economy has derived from the free movement of capital.

Work Place Nurseries

7. Mr. Clelland : To ask the Chancellor of the Exchequer what information he has from Inland Revenue as to how many children are cared for in work place nurseries in respect of which tax is payable.

The Financial Secretary to the Treasury (Mr. Norman Lamont) : I regret that this informaton is not available centrally.

Mr. Clelland : The Minister will be aware, of course, that the tax exists. Is it not a further penalty on people with children? Will he confirm that the Government will abolish the tax on work place care, take a lesson from the Treasury and positively promote work place care among employers throughout the country?

Mr. Lamont : The Treasury scheme is self-financing, which should not surprise the hon. Gentleman. No tax charge arises. I am sure that the hon. Gentleman recognises that if employers wish to recruit married women there is no reason why they should not pay them the necessary rate, including the costs of child care. The availability of child care facilities is a substantial benefit. It is a long-standing principle of the tax system that we do not give tax relief for what is necessary to enable people to get to work.

Mr. Marlow : If we are to give tax benefits for creches, where will it all end? Are we to give tax allowances against nannies?

Mr. Lamont : I take it that that was a Budget representation from my hon. Friend, and it is noted.

Mr. Chris Smith : Is it not the case that the income derived by the Exchequer from the taxation of work place nursery provision is small, whereas the deterrent to women

Column 1135

with child care responsibilities is enormous? Should we not encourage women with children to seek employment rather than deter them? Can the Financial Secretary assure us that the Chancellor will consider two specific measures in his Budget--first, the removal of taxation from the receipt of work place nursery provision and, secondly, fiscal incentives to employers to provide nurseries?

Mr. Lamont : As the hon. Gentleman knows, all aspects of the tax system are reviewed, especially at this time of year. I cannot agree with the hon. Gentleman that there is any evidence that tax treatment deters married women from going to work, given the tremendous growth in the number of married women at work and, indeed, the considerable and continuing growth in such facilities.

Government Expenditure

8. Mr. Arbuthnot : To ask the Chancellor of the Exchequer if he will make a statement on the path of general Government expenditure over the period 1982-83 to the latest available date.

9. Mr. Wells : To ask the Chancellor of the Exchequer if he will make a statement on the path of general Government expenditure over the period 1982-83 to the latest available date.

Mr. Major : Excluding privatisation proceeds, the ratio of general Government expenditure to GDP has declined from nearly 47 per cent. in 1982 -83 to just under 40 per cent. in 1988-89, the lowest it has been for over 20 years.

Mr. Arbuthnot : As the Government have increased public spending and at the same time reduced it as a proportion of gross domestic product, and reduced our rates of taxation as well the national debt, does my right hon. Friend share my hope that this Government will stay in power for a very long time?

Mr. Major : I share not only my hon. Friend's hope but his expectation that that will be the case.

Mr. Wells : Why is it that ever since my right hon. Friend took office in the Government there has been an annual decline in Government spending as a proportion of GDP? Why did that not happen earlier and when will my right hon. Friend be able to reduce that ratio to the 33 per cent. which obtains in Japan?

Mr. Major : I am grateful to my hon. Friend for his kind remarks. I hope that what he suggests will become a convention. We hope and expect to achieve further reductions.

Mr. Beith : Will the Chief Secretary confirm that capital spending is declining consistently as a proportion of Government expenditure, and does he agree that that is bad news for any organisation? Will he recognise that one of the less inflationary things that the Chancellor could do in the Budget would be to invest more on the supply side of the economy on those things that will make our nation more capable of competing, rather than giving money away in tax cuts?

Mr. Major : The hon. Gentleman should be aware that capital expenditure in the public sector as a whole, and not the more selective measures sometimes quoted, increased

Column 1136

by £2 billion in the Autumn Statement, and that is the largest cash or real terms increase that we have seen for many years.

Mr. Neil Hamilton : Does my right hon. Friend accept that sensible people look forward to further reductions in the proportion of the GDP taken by public spending, and that one of the best ways to achieve that is to carry on repaying Government debt? Can he confirm that £10 billion or £11 billion of the £17 billion a year that we pay in debt interest is on the borrowings carried out by the previous Labour Government?

Mr. Major : I can certainly confirm that. I can also confirm that if the Government were borrowing at the same ratio to GDP that we inherited from the previous Labour Government we could abolish income tax.


11. Mr. Douglas : To ask the Chancellor of the Exchequer what is the latest forecast for inflation for 1989-90.

14. Ms. Walley : To ask the Chancellor of the Exchequer what is the latest forecast for inflation for 1989-90.

Mr. Major : My right hon. Friend the Chancellor will be giving a forecast in his Budget statement next month.

Mr. Douglas : Does the Chief Secretary admit that one of the difficulties in anticipating the rise in inflation arises because the Chancellor has left himself only one weapon of economic management-- interest rates--which is rather like asking Mr. Bruno to fight Mr. Tyson with one hand tied behind his back? As the Prime Minister was so appalled when the rate of inflation was 3 per cent., halving the value of money in a period of about 25 years, will the right hon. Gentleman give us some idea of what No. 10 is saying about that? When will the value of money be halved at the present rate?

Mr. Major : The hon. Gentleman may be under some misapprehensions, the first of which is about monetary policy, which has worked in the past and will work in the future. Neither is that the only aspect of my right hon. Friend's policy ; it is buttressed at the moment by a firm fiscal policy and a huge debt repayment, which was not the position when the hon. Gentleman's party was in Government.

Mr. Batiste : Does my right hon. Friend agree that an increase in personal savings at the expense of personal expenditure would produce a downward pressure on inflation and the balance of payments deficit? If so, how best can such a welcome increase in personal savings be accomplished?

Mr. Major : I agree with my hon. Friend's opening remarks. My right hon. Friend's high interest policy offers people a great incentive to save.

Mr. James Lamond : Is the Minister aware that the monetary policy is not working as satisfactorily as he thinks, according to the Manchester chamber of commerce and industry, which, in its latest bulletin, complains that high interest rates and a high pound are preventing firms from expanding at the rate that they would wish? Is he

Column 1137

further aware that it feels that that policy may be all right for the overheated economy in the south-east of England, but is not acceptable in the north-west?

Mr. Major : The hon. Gentleman may have heard what my right hon. Friend said a few moments ago about the remarks of Mr. John Banham. In case he does not recollect them, I remind him that Mr. Banham said :

"We think the Chancellor should carry on with high interest rates to combat inflation."

The hon. Gentleman neglected to say that the Manchester report was highly optimistic.

Next Section

  Home Page