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House of Commons

Thursday 6 April 1989

The House met at half-past Two o'clock


[Mr. Speaker-- in the Chair ]


British Railways

(No. 2) Bill--

Lords amendments agreed to :

Associated British Ports

(No. 2) Bill--

Order for Third Reading read.

To be read a Third time on Thursday 13 April.

Associated British Ports (Hull) Bill

(By Order)

Birmingham City Council (No. 2) Bill

(By Order)

Hythe, Kent, Marina Bill

(By Order)

London Underground (Victoria) Bill

(By Order)

Wentworth Estate Bill

(By Order)

British Film Institute Southbank Bill

(By Order)

City of London (Various Powers) Bill

(By Order)

Redbridge London Borough Council Bill

(By Order)

King's Cross Railways Bill

(By Order) Orders for Second Reading read.

To be read a Second time on Thursday 13 April.

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Oral Answers to Questions


Unleaded Petrol

1. Mr. Gregory : To ask the Chancellor of the Exchequer what is the anticipated excise revenue on unleaded petrol for the current year ; and if he will make a statement.

The Economic Secretary to the Treasury (Mr. Peter Lilley) : The excise duty revenue on unleaded petrol will be about £665 million in 1989-90.

Mr. Gregory : Now that the Chancellor has increased the tax differential between leaded and unleaded petrol to 14p per gallon, which I understand is the second highest in the EC after Denmark, does my hon. Friend agree that petroleum companies should extend the availability of unleaded petrol so that more motorists can do the green thing and support the Government?

Mr. Lilley : My hon. Friend is correct when he says that our differential is now greater than that of any country apart from Denmark. Because of the additional changes that we made in the Budget affecting the price of two-star petrol, an even greater number of filling stations are transferring pumps and storage capacity from two-star and three-star petrol to unleaded petrol, and the response so far is encouraging.

Mr. Frank Field : Why have the Government found it necessary to rig the free market in favour of unleaded petrol? Would it be right for voters to draw from that a conclusion that on the growing agenda of environmental issues an untrammelled free market does not serve the best long-term interests of mankind?

Mr. Lilley : We have never believed that environmental considerations are best met by an untrammelled free market. We have always been prepared to introduce incentives, as we have done here, to encourage a better environment. By and large the measures announced by my right hon. Friend the Chancellor in the Budget have been warmly welcomed by all those concerned about the environment.

Manufacturing Investment

2. Mr. Colin Shepherd : To ask the Chancellor of the Exchequer what is his latest information on the investment intentions of British manufacturing industry.

12. Mr. Irvine : To ask the Chancellor of the Exchequer what is his latest information on the investment intentions of British manufacturing industry.

The Chancellor of the Exchequer (Mr. Nigel Lawson) : The Financial Statement and Budget Report forecast is for business investment to rise by 8 per cent. in 1989.

Mr. Shepherd : I thank my right hon. Friend for that response. Does he agree that it shows that under the Government manufacturing investment is growing satisfactorily? Will he confirm that in terms of GDP, total

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manufacturing investment is now higher than it was at any time during the last Labour Administration? Can he say whether this growth is fully nationwide?

Mr. Lawson : Yes, my hon. Friend is right. The investment boom that has been continuing now in this country for several years and is scheduled to continue in this current year is nationwide. It is perfectly true that total investment is a higher proportion of GDP than in any year under the last Labour Government and indeed business investment last year--1988--was the highest proportion of GDP since records began. As for manufacturing investment, the latest Department of Trade and Industry investment intention survey suggested that manufacturing investment will rise by 11 per cent. in 1989--far and away the highest figure ever.

Mr. Irvine : Does my right hon. Friend agree that this continuing high level of investment is the best possible indication of confidence by industry and commerce in the Government's financial policy and in the fundamental strength of the British economy?

Mr. Lawson : My hon. Friend is right. It has long been the case in this country that our two main problems--they have been identified in the past by many outside commentators--were a poor rate of growth of investment and a poor rate of growth of productivity. Now we have the highest rate of growth of investment in the 1980s of any major country in Europe. Indeed, over the past seven years total investment has grown more than twice as fast as consumption and we also have, of course, throughout the 1980s an unprecedented growth in productivity and so the fundamentals of the British economy are improving in the way that we always desired, but never before achieved.

Mrs. Mahon : If the Chancellor believes that the economy is improving so much, why were 20,000 jobs lost in the textile, clothing and hosiery industry last year? Will he give us his forecast for the future of textiles over the next 12 months?

Mr. Lawson : Of course I am well aware of the difficulties of the textile and hosiery industry, not least because I represent an east midlands constituency. But of course there are some industries that shed jobs and there are others that put them on. What we have seen is overall-- taking the economy as a whole--unemployment falling further and faster than in any other country, and than in any other period. Indeed we now have a level of unemployment in this country well below the European Community average.

Mr. Grocott : Can the Chancellor of the Exchequer confirm that, according to the Government's press release of 15 March, manufacturing investment in 1988 was £10,990 million while manufacturing investment in 1979--nearly 10 long years ago--was £11,137 million? Is that not a pathetic record?

Mr. Lawson : I do not think that it is a pathetic record. As I pointed out, total business investment is at a higher proportion of GDP than it has ever been since records were first collected. What was happening in manufacturing industry under the Labour Government was that there was so much-- [Interruption.] I am answering the hon. Member's question. He asked me a question and I am now answering it. What was happening then was that as a result of restrictive practices, inefficiency and, in many cases,

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poor management the return on the capital then was very very poor. It was necessary to increase investment substantially in manufacturing, it was necessary to get more output--which is what we have got--more output and better and more efficient use of existing capital. Now the forecast is for manufacturing investment to rise, as it is set to do in the current year, to a record level and the quality of investment is far higher as is shown by the return on manufacturing investment. So the hon. Member does not know the first thing that he is talking about.

Mr. Quentin Davies : Does my right hon. Friend agree that the continuing buoyancy of investment in this country is one of the most favourable and promising factors for the prospects of

non-inflationary growth? It is vital that nothing should be done to damage that investment confidence. Does my right hon. Friend also agree that his very cautious Budget did a great deal to reassure industry and shore up that very important confidence?

Mr. Lawson : I am grateful to my hon. Friend for his remarks about the Budget and of course he is quite right to emphasise the importance of confidence. Confidence in this country is very high and this is shown, of course, most recently by the CBI survey of investment intentions. It really is deplorable, the way in which the Labour party can do nothing but try to run Britain down and to deny the facts of investment success and of investment boom that are all around us.

Balance of Payments

3. Dr. Godman : To ask the Chancellor of the Exchequer what representations he has received on his Budget forecast for the balance of payments in 1989 and 1990.

The Chief Secretary to the Treasury (Mr. John Major) : None, Sir.

Dr. Godman : After learning last week's figures, does the Chief Secretary's right hon. Friend, the Chancellor of the Exchequer, now predict that the balance of payments deficit for this year will rise or fall?

Mr. Major : I see no reason to change the estimate that my right hon. Friend gave some time ago.

Mr. Nicholas Winterton : Bearing in mind the answer given by my right hon. Friend the Chancellor to the last questions, does my right hon. Friend the Chief Secretary accept that if interest rates were lower, investment in this country would be higher and that our balance of payments would improve? Does my right hon. Friend agree that interest rates have affected, and will affect, investment, and that investment will have a direct impact on our balance of payments?

Mr. Major : What would certainly have a very direct effect on investment would be a failure to take the action necessary to bring down inflation--and that is the purpose of the current short-term interest rate policy. One of the attractive aspects of investment over the past year or two is that so much of it has been made out of retained profits, whereas in previous years and under previous Governments, profits were not there to provide for investment.

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Mr. John Smith : Has the Chief Secretary seen the international monetary fund's prediction that the balance of payments deficit for 1989 will reach a record £17 billion? As the Chancellor got it so badly wrong this year, why should we believe his prediction this year as opposed to that of the IMF?

Mr. Major : The right hon. and learned Gentleman will recall that the IMF was equally inaccurate last year, as were most other forecasters. The right hon. and learned Gentleman neglects to mention that the IMF report also described the Government's policies as being entirely appropriate, and it confirmed that our strong fiscal policies support monetary policy and strengthen confidence.

Mr. Beith : Would the Government regard it as an achievement if, instead of being £10 billion out with their balance of payments forecast, this year they were only about £6 billion out? Will the Chief Secretary explain why he believes that exports will rise more than twice as fast as imports in order to make his promise come true?

Mr. Major : There is no doubt that in recent years exports have been performing extremely well. The reasons why we believe that export performance will continue include the degree of investment and the improved supply-side performance.

Mr. Sumberg : As we listen to the views of Opposition Members and hear their policies unfolded, is it not becoming clearer day by day that the Labour party remains the party of high taxation and of higher spending than we can afford, and that it wants to return to the days of public borrowing and public debt?

Mr. Major : My hon. Friend describes the situation with precise accuracy.

Profit-related Pay

4. Dr. Reid : To ask the Chancellor of the Exchequer what percentage of the work force is currently participating in profit-related pay schemes as defined by the Inland Revenue.

The Financial Secretary to the Treasury (Mr. Norman Lamont) : Take- up of profit-related pay has been encouraging. So far, about 121,000 employees are participating in PRP schemes. In his Budget statement, my right hon. Friend announced several improvements and simplifications to the tax relief for PRP. We expect those further to encourage take-up.

Dr. Reid : Why does the Minister not answer my question and say what percentage of workers are involved in such schemes? I have worked out that a total of 121,000 participating employees out of a work force of 28 million represents less than 0.5 per cent. Is that not an indication of the scheme's dismal failure? Why does not the Chancellor admit that the abolition of the 5 per cent. rule is an indication of yet another failure of one of his pet schemes? Why does he persist in throwing good money after bad, when there is no evidence that it has any beneficial effect on the economy? Why does he not get down to tackling the real problems facing the British economy?

Mr. Lamont : I did not give the precise figure for which the hon. Gentleman asked because he is such a brilliant

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mathematician that I thought that he could work it out. When he gave his figure, he worked it out wrongly. As one of my hon. Friends said, it is over per cent. but under 1 per cent.-- [Interruption.] This is just over a year after the scheme was introduced. The take-up is ahead of that of the all-employee share scheme when it was a year old. This scheme is being taken up more quickly than other schemes when they were introduced. I do not know why the hon. Gentleman wants to make out that the scheme is a failure. I should have thought that any Socialist Opposition might be interested in the idea of profit-related pay, which gives people a stake in their company and helps to make pay bargaining more flexible. Any sensible person should want to encourage that.

Mr. Ian Taylor : Will my right hon. Friend note that this Budget has done an immense amount to boost the participation of workers in the success of the companies for which they work? Will he urge companies and trade unions to take up such schemes more often? It is not the Government's fault that the take-up rate has been slow, it is the fault of those in industry who have not realised that, in the long term, workers participating in the success of their companies, and not dependency on the annual wage round, is the way forward.

Mr. Lamont : I know of my hon. Friend's great interest, particularly in employee share ownership plans. Again, we have introduced some tax reliefs, and we will certainly do everything we can to encourage employees and employers to take them up. I repeat the point that I made earlier. After 18 months, it is not surprising that only that proportion has taken up PRP. Contrary to what the hon. Member for Motherwell, North (Dr. Reid) said, the changes that were introduced in the Budget and the 5 per cent. rule will encourage more people. That is a good thing.

Interest Rates

5. Mr. Turner : To ask the Chancellor of the Exchequer what are interest rates in (a) Britain and (b) Japan.

Mr. Lilley : Three month market interest rates on 4 April were 13 per cent. in the United Kingdom, 9.8 per cent. in the United States of America, and 4.6 per cent. in Japan.

Mr. Turner : The Chancellor of the Exchequer has a reputation for straight talking. I do not think that we got straight talking in his answer to a question from the hon. Member for Macclesfield (Mr. Winterton). May I try again? In terms of the widely differing interest rates, how on earth does he expect British business to seek to reduce the balance of payments deficit? Will he give us a straight answer? He said that interest rates in Japan are 4.6 per cent., compared with 13 per cent. in this country.

Mr. Lilley : The level of profitability of British industry has been restored to levels which it has not seen for a long time, and it is so healthy that it is clear that British industry can compete.

Mr. Budgen : Is the Japanese economy a good example of what happens when Governments reduce interest rates too much? Is my hon. Friend aware that, when interest rates in Japan were reduced to their present low level at the beginning of 1987, the price of residential land was already

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the highest in the world by a long way and was increasing by 9 per cent. per annum? It then started to increase by 27 per cent. The price of land and that increase is a major cause of the social and political turmoil that Japan is going through at present.

Mr. Lilley : I am happy to say that my responsibilities do not extend to the Japanese economy. I am sure that my hon. Friend's remarks will be noticed there and that his concern for their current difficulties will be greatly appreciated.

Mr. Radice : Has the Minister noticed that the Government urge a strong yen to reduce the Japanese surplus, whereas in Britain they urge a strong pound to reduce our deficit? Which is the right course of action?

Mr. Lilley : It is clear that, in an economy such as ours, devaluation would largely feed increased inflation and would affect the value of the pound in the hon. Gentleman's pocket. Therefore, we believe that the exchange rate should not be allowed to depreciate. The Group of Seven Ministers reaffirmed the desire of the Finance Ministers of the leading countries to seek continued stability of exchange rates.

Mr. Hanley : Does my hon. Friend agree that if levels of personal savings were as high in Britain as they are in Japan and if levels of personal borrowings were as low in Britain as they are in Japan, interest rates might be much more in parity?

Mr. Lilley : My hon. Friend who, I am sure, does not share the view that I am responsible for the Japanese economy, makes a good point. We are anxious to see saving encouraged and borrowing discouraged, which is what higher interest rates achieve. I must point out that although personal savings have been low, there has been a good recovery in savings and investments by industrial companies.


6. Mr. Buckley : To ask the Chancellor of the Exchequer how many members of the European Economic Community have inflation rates lower than that in the United Kingdom.

Mr. Lawson : On the basis of comparable figures, seven EEC member countries currently have lower inflation than the United Kingdom and four have higher inflation.

Mr. Buckley : Does the Chancellor of the Exchequer agree that the United Kingdom inflation rate of 7.8 per cent. is largely a consequence of Government policy in pushing up electricity, gas and transport prices and of the high mortgage rate, which is punishing people in this country?

Mr. Lawson : No, I do not agree with any of that and, indeed, the higher mortgage rates, which are a consequence of higher interest rates generally, are necessary to get inflation down because I do agree that inflation is currently too high. Indeed inflation, which during the whole of our period of office has averaged 1 per cent. above the European Community average, is currently 3 per cent. above the European Community average. However, to put that in perspective, it is worth

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recalling that during the whole of the period of the Labour Government, our inflation rate was 6 per cent. above the European Community average.

Mr. Dykes : Is not the ominous truth now dawning that higher interest rates actually add to the rate of inflation, which in turn creates an additional spiral?

Mr. Lawson : No, Sir.

Mr. Gordon Brown : Will the Chancellor confirm that after the rises in gas, electricity and water charges, in rents and rates, including the poll tax in Scotland, and even in television licences, prescriptions and the new eyesight charges, the petrol price rise is the ninth rise in one week? How many more price rises must we have on his road to zero inflation?

Mr. Lawson : The hon. Gentleman is extremely perceptive and he has noticed that he has just informed the House of the interesting fact that, until inflation is zero, prices tend to rise.

Sir Dudley Smith : Is my right hon. Friend aware that despite all his great efforts in this respect, there will always be considerable difficulties for any Government in this country while we have the relentless annual wage awards in both the private and public sectors, irrespective of performance?

Mr. Lawson : My hon. Friend is certainly right that it is desirable that British industry should keep a tight control of its costs and that, of course, includes, most importantly, pay costs. Nevertheless, that is not the primary cause of inflation, although it does add to the difficulties for British industry in dealing with the current situation. But the remedy is in its own hands. But inflation is the responsibility of the Government and it is the responsibility of the Government to get inflation down by pursuing an adequately tight monetary policy and that is what we are doing. The Opposition, by their repeated calls, which we have heard again today, for lower interest rates are revealing themselves, once again, as the party of higher inflation.

Tax Relief

7. Mr. Morgan : To ask the Chancellor of the Exchequer if he will estimate the cost to the Exchequer of tax relief in relation to (a) enterprise zones, (b) business expansion schemes and (c) personal equity plans.

Mr. Norman Lamont : The estimated costs of the business expansion scheme and personal equity plans are £100 million and £15 million respectively in 1988-89. The latest year for which estimates of the cost of the relief relating to enterprise zones are available is 1985-86, when the cost was about £60 million.

Mr. Morgan : Does the Minister agree that what the Chancellor has done in making personal equity plans tax deductible to cover privatisation in the coming year is to admit that the privatisation of electricity and water cannot take place without creating a tax loophole? Will he tell us, therefore, what the cost of privatising electricity and water will be to the taxpayer, as the Government have again thought up a wonderfully socially progressive idea for getting the non-shareholding classes to subsidise the shareholding classes?

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Mr. Lamont : The hon. Gentleman seems terrified that the privatisation of water or electricity might be a success and, therefore, more difficult for the Labour party to reverse. The hon. Gentleman is exaggerating wildly. The purpose of the changes to personal equity plans that my right hon. Friend made in his Budget is to encourage wider share ownership. The point relating to new issues was one detail and the cost of that is extremely modest.

Mr. Neil Hamilton : Does my right hon. Friend agree that the best form of tax relief is straight reductions in tax rates? As Opposition Members seem to have grasped that fact and, in their increasingly desperate scramble for office, are making their party more voter-friendly by following the lead that we have been giving for the past 10 years, can my right hon. Friend tease out of the right hon. and learned Member for Monklands, East (Mr. Smith) the bands at which the lower rates of tax that the Opposition propose would be payable?

Mr. Lamont : My hon. Friend is absolutely right. The Leader of the Opposition made a tantalising speech earlier this week when he attempted to explain the tax policies of the Labour party. However, as my hon. Friend has identified, he left out the absolutely crucial point and most of us are wondering where the beef was in that speech.

Mr. Chris Smith : Does the Financial Secretary accept that the business expansion scheme, especially now, when it is so overwhelmingly employed for the purposes of private rented property, has long ceased to be a genuine source of new equity for enterprise, and has become simply a principal means of tax avoidance for higher rate taxpayers? Is that not another example of what we have seen so often under this Government? For the great majority of taxpayers it is pay-as-you-earn, but for the privileged few it is pay-if-you-like.

Mr. Lamont : I do not agree with the hon. Gentleman. The changes that we made to the business expansion scheme last year targeted it much more on small companies and, with the changes that have taken place in the equity and venture capital markets, I believe that that was the right change to make. The second change that we made was to target the business expansion scheme on the revival of the private rented sector. I am not at all embarrassed by the fact that £300 million to £400 million seems to have been invested in private rented accommodation because that is absolutely excellent.

Pensioners (Income)

8. Sir Trevor Skeet : To ask the Chancellor of the Exchequer what has been the change in the post-tax income of pensioners since 1979.

Mr. Major : The average post-tax incomes of pensioners increased by 23 per cent. in real terms between 1979 and 1986.

Sir Trevor Skeet : I welcome those figures and the fact that the Chancellor raised income support substantially in the Budget for the over- 75s, but will my right hon. Friend bear in mind the plight of pensioners who are on only the single state pension and have no savings?

Mr. Major : I understand my hon. Friend's concern. These days it is misleading to assume that most pensioners rely solely on the state retirement pension. At present

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about 50 per cent. of all pensioners also have an occupational pension and that proportion rises to about 70 per cent. of those who retired in the past five years. Those who do not have an occupational pension could either receive an earnings-related supplement to their state pension or be entitled to income support and housing benefit additions.

Mr. Shore : How much of the increase about which the Chief Secretary told us was due to reductions in income tax and how much was due to the secular increase in occupational pensions that has been taking place year after year?

Mr. Major : To give the right hon. Gentleman the precise figure I shall need to write to him.

Mr. Charles Wardle : Have not people who retired before the introduction of the state earnings-related pension scheme in 1978, without an occupational pension of their own, fared less well than the average? Therefore, will my right hon. Friend consider including in his welcome changes to the higher level of age allowance people of 70 and over to cater for all women who retired at 60 prior to 1978?

Mr. Major : The principal problem that my hon. Friend outlines has been dealt with in the package for poorer pensioners that my right hon. Friend the Chancellor announced some months ago. It comes into effect from October this year and will provide an extra £2.50 for single pensioners who qualify and £3.50 for couples.

Balance of Payments

9. Mr. John Garrett : To ask the Chancellor of the Exchequer when he expects the balance of payments deficit will begin to fall as a percentage of gross domestic product.

14. Mr. Galbraith : To ask the Chancellor of the Exchequer when he expects the balance of payments deficit will begin to fall as a percentage of gross domestic product.

Mr. Lawson : Probably this year.

Mr. Garrett : Does the Chancellor agree that the balance of payments deficit was 1.7 per cent. of GDP in 1979 and 4.4 per cent. of GDP in 1988? Does he further agree that we have become a country that imports capital goods and exports oil, and is that not characteristic of an underdeveloped economy?

Mr. Lawson : The hon. Gentleman is wrong on pretty well all counts. His figures for the balance of payments current account deficit in 1988--it was 3.2 per cent. of GDP, not the 4.4 per cent. It is 3.2 per cent. That, of course, is a high figure but it is worth bearing in mind that the United States has had a current account deficit averaging over 3 per cent. for the past five years.

As for the imports of capital goods, there the hon. Member is right. There has been a substantial increase in the imports of capital goods and that has been the counterpart of the massive investment boom which has been going on throughout British industry and which will stand us in very good stead in the future.

Mr. Galbraith : Has the Chancellor read the report of the Institute of National Economics which states that

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Britain's deficit is in a class by itself and is likely to reach £44 billion by 1992? What will the Chancellor do to prevent than horrendous outcome?

Mr. Lawson : The statement by the organisation to which the hon. Member referred is wrong as, if the hon. Member would listen to what I said, the Americans have had a current account deficit of this order as a percentage of gross domestic product for the past five years--

Mr. John Smith : The right hon. Gentleman criticised them.

Mr. Lawson : --which I have not criticised. I am happy to answer questions from the Opposition Front Bench from a sedentary position since they have been put. I have criticised them for their budget deficit, not for their current account deficit. So it is certainly not in a class of its own, but it is obviously necessary that we get it down in due course and that is what we shall do.

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