(By Order) Order for Third Reading read.
To be read the Third time on Thursday 11 May.
(By Order) Orders for Second Reading read.
To be read a Second time on Thursday 11 May.
Order for Second Reading read.
To be read a Second time on Monday 8 May at seven o'clock.
Mr. Secretary Rifkind presented a Bill to confirm a Provisional Order, under section 7 of the Private Legislation (Scotland) Act 1930, relating to Scrabster Harbour ; And the same was read the First time, and ordered to be considered upon Wednesday next and to be printed. [Bill 134.]
Mr. Wallace : Does the Chancellor of the Exchequer accept that inflation, as measured by the RPI, is only one measure of the inflationary tendencies within the economy? Does he accept that the huge deterioration in our trade account and the fact that unit cost are rising faster than those of any of our competitors, are other indicators? Is not the underlying trend much higher than he has been prepared so far to admit?
Mr. Lawson : No, I do not accept at all that the underlying trend is higher than I have been prepared to admit, although I certainly accept that it is too high and that it is necessary to get it down. That is what the tightening of the monetary policy over the past year has been designed to achieve. I accept also that it is perfectly true, as the hon. Gentleman says, that the rise in imports is a sign of excessive pressure of domestic demand in this country. Again that is addressed by the same tighting of monetary policy and the raising of interest rates that has occurred and that is now clearly having an effect.
Mr. Bill Walker : Does my right hon. Friend agree that it is only the policies of my right hon. Friend and the Government that give us any hope of reducing the present rate of inflation--both underlying and otherwise? If one were to incorporate any of the policies offered by the Opposition, the effect would be exactly the opposite. Inflation would go up.
Mr. Lawson : My hon. Friend is right. We do not know very much about the Opposition's policies. We have heard a few leaks. We understand that a little bit more is to be published quite shortly. I dare say that it will be as evasive and as elusive as what has been offered so far. Nevertheless, we are looking forward to it with great interest and we shall examine it very carefully. In the meantime, what we have to go on is the Opposition's record. Their record is clear. When they were in office, inflation averaged over 15 per cent.
Mr. Gordon Brown : But why is inflation twice what it was last year and twice what it was when the right hon. Gentleman became Chancellor of the Exchequer, pledged to eliminate it? Why is it that, even after housing costs are excluded, inflation is 50 per cent. higher than it was last year, when in Japan it is 1.2 per cent. and in Germany 2.7 per cent? Will the Chancellor tell us why his anti-inflationary policies have been so unsuccessful?
Column 345higher than it was last year. In that case, according to the hon. Member for Dunfermline, East (Mr. Brown) we are clearly doing very much better than the Germans are. The phoney figures that he continually scatters across the Dispatch Box carry no weight at all and just make him something of a laughing stock. The reason for the rise in inflation is quite clear. It is that domestic demand has been rising excessively and that the money GDP has been rising excessively. I make no apology to the Opposition whatever, because the underlying rate of inflation today, even though it is far too high, is still lower than it was in the lowest month that the Opposition ever had during the whole of their period in office.
Sir Michael Shaw : Does not the continuing rapid rise in business investment underline a steady confidence in the actions and policies of my right hon. Friend? Does it not also point to a continuing confidence in the greater prospects for growth in business and employment in Britain in future?
Mr. Lawson : I am grateful to my hon. Friend for what he said. I am sure that he is absolutely right about the climate of long-term confidence that has been created in this country throughout business and industry, certainly given the continuance of the present Government, and that is of fundamental importance. Business investment has been one of the most encouraging aspects of the overall economic scene. Business investment now- -that is, the figures for last year, the most recent ones we have--is now at the highest proportion of GDP that it has ever been since records began. Indeed, during the whole of the 1980s, total investment in this country has grown faster than in any other major European country.
Mr. David Howell : Is not one of the reasons for the current trade deficit the enormous growth in business investment in the economy? That means that our cities and our industries are being re-equipped and modernised at a fantastic rate. Given that for the past 20 years critics of British economic management have said that the one thing we really need is a rapid growth of investment, can my right hon. Friend begin to explain what on earth all the grumbling from the Opposition is about?
Mr. Lawson : My right hon. Friend asks a very good question, but I feel that it is not a question for me to answer. Perhaps it is a question for the right hon. and learned Member for Monklands, East (Mr. Smith). My right hon. Friend, who understands these matters very well, is absolutely right. It is striking, for example, that both last year and indeed the year before, the most rapid growth in all imports was in imports of capital goods. Capital goods are part of the investment boom and will provide increased capacity, increased growth and increased exports in the future.
Column 346that on the latest available figures, investment in manufacturing industry is lower than it was in 1979? Is it not the case that the failure to invest in that crucial, tradeable sector of our economy is the main reason why we now face a horrendous balance of payments deficit, the biggest since records began?
Mr. Lawson : No, that is not so. Indeed, manufacturing industry is in a far stronger position than it has been for a very long time. It is striking that manufacturing output today is well up on what it was when we first took office, whereas when the Labour Government were in office, manufacturing output fell ; it did not rise at all. As for investments, the quality of investment is also important-- [Interruption.] Yes, and the quality of investment has improved immeasurably, as is seen by the rate of return on capital and the fact that manufacturing profits are higher than they have been for a very long time and total business investment--and all forms of investment matter, not just manufacturing investment which is part of the story but not the whole story--total business investment is a higher proportion of total output than ever before since records began.
Mr. Mans : I thank my right hon. Friend for that answer. Does he agree that increased share ownership is giving individuals a personal stake in the success of British industry? Will he encourage his right hon. Friends the Secretaries of State for Energy and for the Environment to include employee share ownership plans in the offers for sale of the electricity and water industries?
Mr. Brooke : I unhesitatingly answer yes to my hon. Friend's first question. As to his second question, the Government welcome the opportunity which privatisation of the water and electricity industries will provide for employees to take a stake in the future of their company. My hon. and learned Friend the Minister responsible for water announced on 15 March that there will be special share offer arrangements for employees of the new water plcs, which will include free matching priority and possibly discount share offers. Further details will be announced in due course. Arrangements for employees of the electricity supply industry will be announced at a suitable date closer to the flotations of the electricity companies.
Mr. Butterfill : Has my right hon. Friend noticed the recent opinion poll which shows that 20 per cent. of all adults in this country would be interested in buying electricity shares when the industry is privatised? That would amount to 6 million people, making it the most popular flotation ever achieved and one that is likely to be massively over-subscribed.
The Chief Secretary to the Treasury (Mr. John Major) : In the seven years to 1988, total consumption grew, in real terms, by 25 per cent., while total investment grew over twice as fast--by 54 per cent.
Mr. Brazier : Does my right hon. Friend agree that total investment has grown so much faster than consumption not only as a result of the level of confidence that business feels in the Government's economic policy, but as a reflection of the fact that there is some remaining overmanning from the grotesque levels that we inherited when we took office? Does my right hon. Friend further agree that it is a healthy feature of economies at this stage of development, such as those just ahead of us like America and Japan, that employment moves as a result of investment from manufacturing to the service sector?
Mr. Major : My hon. Friend is right about the confidence of industry. As my right hon. Friend said a moment ago, total investment is now higher as a proportion of gross domestic product than it has been for many years. On the future of manufacturing industry in particular, the Department of Trade and Industry investment intentions survey forecasts further investment growth in 1989 of 11 per cent. My hon. Friend is right on overmanning, but he should observe that not only has it fallen in many industries, but has done so at the same time as employment has grown in the service industries and in other industries.
Mr. Beith : Does the Chief Secretary realise that few people outside his own supporters--and not all of those--believe that the enormous switch in capacity from consumption to export will take place on a scale sufficient to wipe out our balance of trade deficit? Does he find it possible to believe that that will happen when world trade is expected to slow down? He is presuming that exports will rise 4 per cent. a year faster than imports.
Mr. Major : Invariably, there are Doubting Thomases about. We shall have to wait and see. Exports have been doing extremely well in recent years and there is every sign that that will continue. The hon. Gentleman will welcome that when it comes about for it will be a considerable achievement by British exporting industry.
Mr. Major : There is a substantial amount of capital inward investment, which reflects, to a large degree, the confidence of external investors in the management of the British economy. On the balance of trade, a substantial part of the growth in the trade gap relates to the growth of investment in goods for production and investment.
Mr. Lawson : I attended the interim committee meeting of the IMF in Washington last month. Much of the discussion focused on international debt, where several countries, including the United States, had made new proposals. The committee agreed that the IMF should set aside a portion of its lending to help finance debt reduction in countries which are pursuing appropriate economic reforms, including in particular removing barriers to inward investment. But the committee also stressed that official creditors should not substitute for private lenders.
Mr. Burt : I thank my right hon. Friend for that reply. May I urge on him the need to continue the step-by-step, case by case analysis of the debtor countries, as he will recognise that there is strong support from Conservative Members for careful consideration and good giving to those countries which are doing their best to improve their economic position, but that there is no support for giving to countries that refuse to learn the economic facts of life?
Mr. Lawson : My hon. Friend is absolutely right. The conditionality which has always been a part of IMF lending and of other international financial institution lending under the debt strategy is absolutely vital. If these countries are not going to take steps to put their own economic houses in order, really they will get nowhere at all and any lending will be completely fruitless. In many cases it is the conditions attached to the loans, as a result of IMF programmes which these countries have to implement, which are more important than the amount of money that is being lent itself. I realise that in many countries they feel that, politically, it is very difficult to take the measures that are necessary, but the plain fact is that unless those measures are taken, they are never going to get their economies to recover.
Mr. Andrew Mitchell : While we all applaud the valuable efforts that have been made by the IMF in terms of Third world countries' debt reconstruction and relief and the considerable efforts made by my right hon. Friend in generating new ideas in that respect, will he treat with some scepticism the recent calls at the IMF sub-committee that quotas should be increased by up to 100 per cent., bearing in mind that at the moment IMF resources are at an all-time high?
Mr. Lawson : Yes, my hon. Friend is right. There is really no case-- no objective case, no logical case--for a substantial increase in IMF quotas. The International Monetary Fund is fully able with its existing resources to continue to do what it is necessary for it to do and I pay tribute to the work that it does do in order to pursue the debt strategy. But it is wrong to talk soley, or even mainly, in terms nowadays of the IMF because the overwhelming problem that is being addressed at the present time is the problem of the big debts run up by Latin-American countries, which are overwhelmingly debts owed to commercial banks in the private sector. This is a matter which the commercial banks have got to sort out with the countries to whom they have lent the money and they are going to have to accept that the amount of debt has got to be reduced and they have got to make themselves responsible for that debt reduction.
Mr. Worthington : The Chancellor should face up to the fact that our contribution to the Third world has fallen from 0.59 per cent. to 0.28 per cent. during the period of this Government and that many Governments who are in desperate circumstances have had responsible policies. Although the greater environmental consciousness of the Government nowadays is to be welcomed, the fact is that there will be no future for people in this country or anywhere in the world unless we assist Third world countries to deal with environmental and population issues. The Government will be harshly judged in the future for their callous attitude towards assisting countries with much worse problems than our own. Does the Chancellor agree?
Mr. Lawson : No, I do not agree, not merely because we took the lead in the initiative to help the very poorest countries of sub-Saharan Africa- -the very poorest countries in the world--with their debt problems. But further than that, in the first place what matters even more than economic aid, although we give a substantial amount of aid, is investment in those countries. The United Kingdom invests more in private investment in developing countries than the whole of the rest of the European Community put together. That is our record and it is a very good one. I shall say one other thing to the hon. Gentleman who has asked that question, and to Opposition Members : the two things above all that they need are private overseas investment--the Labour party has always been hostile to overseas investment of any kind--and the other thing is to open our markets to the goods from those countries and, again, it is the Labour party that has always been hostile to that.
Mr. John Smith : What possible reason can the Chancellor give for halving overseas aid during the period of this Conservative Government? We are constantly told that the Government have an economic success, which many of us doubt, but if they do have an economic success, why can they not at least maintain the aid to the poorest countries instead of halving it, which the Chancellor must admit is what they have done?
Mr. Harry Greenway : To ask the Chancellor of the Exchequer what has been the impact on the real personal disposable income of (a) pensioners and (b) others, of the latest rates increases ; and if he will make a statement.
Mr. Major : The information available on the domestic rate poundage as set by local authorities in England for 1989-90 indicates that average domestic rate bills have risen by 9.3 per cent. There is no information available on likely movements in real disposable income for particular groups between 1988-89 and 1989-90.
Mr. Greenway : Does my right hon. Friend agree with me that high rates, which occur so often in Labour areas such as Ealing--where rates this year have gone up by no less than 32 per cent., added to the 65 per cent. increase of two years ago--damage pensioners and everybody else, including industry and employment? Although I welcome the fact that pensioners get pension increases well in line with inflation, they are severely damaged by the way in
Column 350which the Labour party squitters their money away in great expenditure. Does my hon. Friend join me in that view?
Mr. Major : The message that my hon. Friend gives me is that he regards Ealing council as a loopy council. I am happy to join him in that condemnation. My figures for the rate increases were slightly different from those given by my hon. Friend. My understanding is that Ealing has budgeted to raise its spending by 16 per cent. in 1989-90, and the domestic rate bills have risen by 31 per cent. following a 72 per cent. rates increase only two years ago. That shows a substantial disregard for pensioners, who are in fact protected by the substantial rate rebates that we have provided for them.
Dr. Marek : Could the explanation be that this 9.3 per cent. increase that will have adverse effects on pensioners, as mentioned by the Chief Secretary, is brought about by the fact that, at current prices, rate support grant in 1987-88 was £10,059 million, and in 1988-89 it was only £9,687 million? Local authorities had no alternative but to make up for this increase in Government taxation in order to preserve services. Is this not yet another reason why taxation as a percentage of GDP is higher now under a Tory Government than it ever was under the previous Labour Administration, and why the Tory Government are the Government of high taxation.
Mr. Major : If the hon. Gentleman believes that, I despair for him. He will never persuade anyone else to believe that. He speaks for the party of high taxation, as I speak for the party of low taxation. I will explain to him why rates go up so much, and disproportionately, in Labour- controlled authorities. It is because they waste a good deal of their money, and they do not control it properly. It is as straightforward as that.
Sir Anthony Grant : If the daft proposals for rate reform, of a local income tax and capital value proposed by the Opposition were implemented in my constituency--and I think in that of my right hon. Friend --the burden would be more than twice as much as the community charge. Does my right hon. Friend agree?
Mr. Major : I understand that. That is not a unique proposition for, if many of the policies of the Opposition were carried out, the tax burden generally would go up dramatically for taxpayers as well.
Mr. McKay : If the word "targeted" is not to appear as an emotional word giving the appearance of efficiency coupled with compassion, will the Minister explain to the House--and possibly to Back Bench Conservative Members, to whom it has not been explained sufficiently--how, under the guise of cutting child benefit and targeting those in greater need, he can logically at the same time advocate a policy of giving tax relief to those on medical insurance, as that seems to be targeted to the better off?
Mr. Major : The hon. Gentleman is entirely wrong about the proposal being targeted to the better off. The proposal before the House that I have no doubt we will debate shortly in Committee on the Finance Bill, to provide tax relief for medical insurance premiums, tackles a real problem. In a ring fence way it will help many elderly people who wish to continue medical insurance cover on retirement but who are unable to do because they have lost the benefit of the employer scheme. At the moment of retirement their income tends to fall and their premium tends to rise. We are seeking to retain the capacity for these people to sustain and retain the medical insurance they have previously had. That is entirely fair and reasonable, and I support it thoroughly.
Mr. Neil Hamilton : Will my right hon. Friend confirm that the likely savings in public expenditure will exceed the cost to the Treasury of the tax relief itself when it is fully running? Has my right hon. Friend noticed that the Labour Members are celebrating a decade of Thatcherism by trying to ditch their own vote-losing policies and adopt a pale pink version of ours? How long will it be before they adopt this policy also?
Mr. Major : It is certainly true that, as my hon. Friend said, the Opposition have learnt that there is a sea change in attitude in this country, and they tend to tack behind it. It will certainly be another decade or more before they are remotely likely to form a Government of any sort. I reiterate what I said a moment ago. I agree that this measure is likely to prove a very good bargain for the taxpayer.
Mr. Madden : How can the Chief Secretary justify poor pensioners having to apply for means-tested benefits when rich pensioners who apply for medical tax relief will not even have to fill in an application form?
Mr. Robert G. Hughes : Will my right hon. Friend confirm that this move affects a relatively small number of people who have been receiving tax relief on private medical insurance? Does he agree that they with to continue with private medical insurance, but are mystified about why Opposition Members wish to deny it to them, and regard the Opposition's announcements as mean-minded and rather tawdry?
Mr. Major : It is certainly true that, at the moment, a small number of pensioners are elegible to benefit--about 600,000 to 700, 000. There is no mystery about the Opposition's hostility to private provision and self- provision. It is traditional.
Mr. Chris Smith : Has the Chief Secretary seen the response of the Royal College of Nursing, which describes the proposal as having no economic, social or medical justification? Instead of providing tax subsidies to those few who are rich enough and well enough to benefit from private medical insurance, should not the Government spend the money on basic, desperately needed improvements to the Health Service as a whole, for the benefit of all pensioners?
Column 352that, in the last public expenditure round, the National Health Service had its largest ever increase in resources, of £2.5 billion. A further £2.5 billion was agreed last year for next year's increase in the National Health Service provision, and that is before we re-examine the matter in the public expenditure round next autumn. The Labour party never provided remotely the same amount of facilities for the National Health Service.
Mr. Wardle : Is it the case that, for most of the 1980s, growth in manufacturing productivity has been faster in this country than in the other G7 countries, whereas, in the mid to late 1970s, we were at the bottom of the league? If growth in productivity is to continue, will it not require sane pay settlements, competitive manning levels, and sustained investment in new technology?
Mr. Brooke : I can confirm the figures which my hon. Friend quoted. If he were to take the comparison back to 1960-70, he would also be accurate. I endorse also what he suggested as a recipe for continuing success.
Mr. Henderson : Does the Minister accept that manufacturing productivity is an inadequate test of economic success? Car companies such as Rover and Ford, which have improved manufacturing productivity, have been unable to meet current demands using component manufacturers in this country because of their lack of investment over the past 10 years. The improvement in manufacturing productivity in Ford and Rover has led to the sucking in of imports, principally from Europe.
Mr. Brooke : I would be the first to agree with the hon. Gentleman that manufacturing productivity is not the end of the story. The story which I told was an outstanding one--one in which I should have thought that the hon. Gentleman would have taken pleasure in terms of the achievements of this economy.
Mr. Cran : Does not my right hon. Friend agree that British management must continue to resist excessive wage claims such as we are beginning to see, if for no other reason than the need to continue to improve our international competitiveness? Does he agree, further, that management must show leadership and ensure also that their own snouts are not too deeply in the pay trough?
Mr. Major : I am not sure that I would put the second part of my hon. Friend's question in precisely that way, but I certainly agree with the underlying sentiment. I do not defend unustifiably high salary increases, whether for directors or for the work force. That should be clear. On his substantive point, there must be a clear danger to industry and competitiveness if wage costs outstrip productivity growth. It is an important function of management to make sure that they do not.
Mr. Robert Sheldon : When the right hon. Gentleman meets the director general, will he explain to him something that he himself seems to be reluctant to accept--that is, how he hopes to reduce the balance of payments to a reasonable level with a high pound and high interest rates?
Mr. Major : I am bound to say to the right hon. Gentleman, in terms of the strength of sterling, that it is a matter of record that some of the countries with the strongest exchange rates over a lengthy period--Japan springs immediately to mind--have an extremely good exporting performance.
Mr. Jack : When my right hon. Friend next meets the CBI, will he discuss the encouraging trends towards higher levels of exports from the United Kingdom? Will he give industry every assistance to increase the amount and value of our exports?
Mr. Major : We are certainly delighted to see the increasing trend in exports. We wish that to continue. The most important thing that we can do for industry, whether in regard to exports or internal sales, is to get firm control of inflation. That is central to our policy.
Mrs. Fyfe : When the Minister next meets the director general of the CBI, will he place on the agenda the concern of the Equal Opportunities Commission about the taxation of workplace nurseries? Will he further tell the tigress that her cubs were better looked after than the vast majority of working women's children are after 10 years of the tigress being at No. 10?
Mr. Lilley : My hon. Friend is absolutely right to emphasise that point, which was mentioned earlier today by my right hon. Friend. The United Kingdom has an exceptionally good record on this. Over the last five years, direct private investment, which is of immense value to
Column 354underdeveloped countries, from this country totalled £6.6 billion, averaging £1.3 billion a year. That is the best help that this country can give many developing countries.
Miss Lestor : Noting the fact that official Government aid as a proportion of GNP has fallen from 0.52 per cent. under Labour to 0.28 per cent. under this Government, which represents a loss in real terms of 20 per cent.--I wish the Chancellor would listen, because he got his figures wrong--will he bear in mind the week after next, when discussing the replenishment of the World Bank international development assistance, the fact that it is important that donor nations give generously? Will he support the growing demand that IDA loans should be converted into grants? Will he pursue that policy for all future assistance to the poorest countries?
Mr. Lilley : I know that the hon. Lady takes a great interest in these matters : indeed, I have discussed them with her. I do not think that she is correct in assuming that the total benefit or even the major benefit that this country can give underdeveloped countries is limited to official aid. I know that she will join me in welcoming the fact that Britain was the first country to pay in full its contribution to the recent increase in the general capital increase of the World Bank, which is on the lines of the sort of thing that she was welcoming. I would place even greater emphasis on the importance of encouraging trade and private investment in developing countries.