(By Order) Order for consideration for Lords amendments read.
To be considered on Thursday 25 January.
(No. 2) Bill-- (By Order)
(By Order) Orders for consideration, as amended, read.
To be considered on Thursday 25 January.
[Lords] (By Order) Order for consideration, as amended, read.
To be considered on Thursday 25 January at Seven o'clock.
[Lords] (By Order) Order for Second Reading read.
To be read a Second time on Thursday 25 January.
Order for Second Reading read.
To be read a Second time on Thursday 25 January at Seven o'clock.
1. Mr. Andrew MacKay : To ask the Chancellor of the Exchequer if he will make a statement on the current level of inflation.
The Economic Secretary of State to the Treasury (Mr. Richard Ryder) : The underlying rate of inflation excluding mortgage interest payments is 6.1 per cent.
Mr. MacKay : Does my hon. Friend recall that before Christmas shop stewards at Ford sensibly told their members that excessive wage claims would lead to job losses and loss of business for the company? Therefore, is
Column 392he, like me, disappointed at the wage offer that has been made by the Ford management and so irresponsibly rejected by the trade unions in the past week?
Mr. Ryder : I am disappointed that the unions at Ford have not accepted the offer that has been made to them. Excessive pay awards ultimately cause unemployment unless they are matched by increases in productivity.
Mr. Livingstone : Does the Minister agree that the biggest impact on reducing inflation would be achieved by tackling the deficit on the long- term capital flow out of Britain, which is the basic reason why the Government need to keep short-term interest rates so high to attract short- term capital into the country to balance that deficit? Does the Minister really think that his constituents--or anybody in Britain--values the freedom to carry on paying vast mortgage rates simply to allow British finance capital to flow abroad at the rate of a £30 billion deficit this year?
Mr. Ryder : Industry has far more to fear from inflation and high pay awards than from interest rates.
Mr. Tim Smith : Will my hon. Friend ignore those who are now arguing that it is necessary to increase taxation to combat inflation? Will he confirm that, as the Red Book stated last year, the Government's long-term objective remains achieving a balanced Budget?
Mr. Ryder : My hon. Friend's question bears a close resemblance to a Budget submission. I am sure that my right hon. Friend the Chancellor will have heard it.
Mr. John Smith : Is it not astonishing that the Chancellor of the Exchequer himself does not answer a direct question on the rate of inflation? Do the Government stand by the Chancellor's prediction that inflation will have an annual rate of 5.75 per cent. by the fourth quarter of this year? Does he not understand that if the Government deliberately increase the cost of living by forcing up mortgage rates, and electricity, water and transport prices and by introducing the poll tax, they are guilty of what the Confederation of British Industry has described as causing inflationary own goals? When will the Government admit that they are responsible for the underlying rate of inflation?
Mr. Ryder : I take no lectures from the right hon. and learned Gentleman on inflation because when he was a member of the Callaghan Government, inflation averaged 15 per cent., whereas, under this Government at the moment the underlying rate of inflation is 6.1 per cent. The answer to the right hon. and learned Gentleman's first question is yes, and the answer to his second question is that industry has far more to fear from inflation and high pay awards than from high interest rates.
2. Mr. Roger King : To ask the Chancellor of the Exchequer by how much the number of shareholders in the United Kingdom has increased during the 1980s.
The Financial Secretary to the Treasury (Mr. Peter Lilley) : The latest Treasury and stock exchange survey in February 1989 showed that approximately 9 million
Column 393people--that is 20 per cent. of the adult population--owned shares directly. This represents a threefold increase in the number of shareholders since 1979.
Mr. King : Does my hon. Friend welcome the dramatic addition to that list of shareholders represented by those who invested in Abbey National and in water, the flotation of which took place so successfully a few weeks ago? Does he agree that as eastern Europe seeks to adopt methods of privatisation and to encourage individual responsibility and investment by its people, the only political party that wants to take Britain back to a mark I type Polish economy is the Labour party?
Mr. Lilley : My hon. Friend is right. The figures that I gave do not include those who bought shares in Abbey National and in the successful water flotation. He is also right that the former Socialist countries in eastern Europe are appointing Ministers responsible for privatisation. In Poland my opposite number has the splendid title of the plenipotentiary in charge of ownership changes. In Hungary a commissioner responsible for privatisation has been appointed. The Labour party will not stand a chance of being elected until it appoints a shadow Minister in charge of privatisation.
Mr. Cryer : Does the Minister accept that shareholders are still a minority of the adult population? Is it not outrageous that the Government have sold off assets which belong to all the people to a tiny minority of the population and boast about it? In any decent society would not the Cabinet be prosecuted for theft?
Mr. Lilley : Shareholders are certainly not a minority of the population. There are now more direct owners of shares than members of the trade union movement.
Sir William Clark : Does my hon. Friend agree that one of the advantages of privatising industries is that, in most cases they are now profitable and the Exchequer receives corporation tax from them whereas before privatisation, many of them made losses and cost the taxpayers money in subsidies?
Mr. Lilley : My hon. Friend makes a good point. British Telecom now pays more in corporation tax than it used to pay in dividends to the Government when we owned the shares.
Mr. Boateng : Will the Financial Secretary take this early opportunity to clarify the Treasury's attitude to the banking sector? We are told that the Prime Minister is fizzing with anger and demanding retribution of an unspecified nature against it. Has the Chancellor of the Exchequer received his instructions? When the Prime Minister fizzes, does the Chancellor boil or gently bubble?
Mr. Lilley : I am happy to say that the banking system in this country is 100 per cent. privately owned. We intend to keep it that way. The subject under discussion is privatisation and share ownership. Within that context, I am happy to say that it will remain a successful, privately owned industry.
3. Mr. Barry Porter : To ask the Chancellor of the Exchequer if it remains his policy to achieve lower rates of direct taxation.
The Chancellor of the Exchequer (Mr. John Major) : We have set an objective of 20 per cent. basic rate of income tax, without a time limit.
Mr. Porter : I am sure that all my hon. Friends are delighted with that response. In drawing up his Budget statement will my right hon. Friend also consider that it would be helpful to give some fiscal encouragement to savings and investment rather than to consumer spending?
Mr. Major : My hon. Friend makes an important point about savings. I shall make a careful note of it. The real difficulty with the savings ratio is not so much a fall in the stock of savings, but an increase in the amount of borrowing. Our interest rate policy is intended to deal with that.
Mr. Beith : Will the Chancellor take a more positive and enthusiastic attitude to incentives for saving, particularly in a year when the necessary and welcome move towards independent taxation and the national insurance changes will make for a looser fiscal stance?
Mr. Major : The hon. Gentleman is an old parliamentary hand. When was any Chancellor enthusiastic before a Budget?
Mr. Yeo : Bearing in mind the obvious advantages for everyone of lower taxation, can my right hon. Friend advise my constituents in Suffolk whether he knows of any politician who is currently recommending higher taxation?
Mr. Major : Whether the person concerned is a politician is a matter for judgment, but I believe that it is the official policy of Her Majesty's Opposition to raise taxation substantially both in terms of direct taxes and national insurance contributions.
Mr. Nicholas Brown : Just among ourselves, would not the Chancellor like to take this opportunity to admit that 2 per cent. off the mortgage rate is worth substantially more to most home owners than 2p off the basic rate of income tax? Would not the Chancellor also like to take this opportunity to repudiate the top rate tax-cutting, interest rate-rising policies of the previous Chancellor, or would he prefer to wait until the Budget? In the meantime, will he confirm that, as the former Minister for Housing and Planning told us not so long ago, the Conservative party's official response to those who are struggling to pay their mortgages is that they should take in lodgers?
Mr. Major : Even among ourselves, in the privacy of this exchange, I am reluctant to concede too much to the hon. Gentleman. I note his implicit acknowledgement that the Labour party would reverse the Government's policy of cutting top taxes and would increase taxation quite substantially. Mortgage interest rates will fall when interest rates fall, which will be when we begin to see some progress in reducing the rate of inflation, and not before.
4. Mr. Stevens : To ask the Chancellor of the Exchequer what was the growth in gross domestic product during the 1980s (a) in the United Kingdom and (b) in other European Community countries.
Column 3956. Mr. Fishburn : To ask the Chancellor of the Exchequer what was the growth in gross domestic product during the 1980s (a) in the United Kingdom and (b) in other European Community countries.
The Chief Secretary to the Treasury (Mr. Norman Lamont) : Since 1980, growth has averaged 2.7 per cent. a year in the United Kingdom, compared with 1.9 per cent. in other European Community countries.
Mr. Stevens : My right hon. Friend's reply not only shows the relative improvement in the Government's success compared with other EC countries, but also gives the lie to the Opposition's continual talking down of our economic progress. Does my right hon. Friend agree that there remains potential for substantial growth in the United Kingdom economy and that, in order to realise that potential, it is vital that we should continue to improve our productivity and hold down unit prices to improve further our international competitiveness?
Mr. Lamont : My hon. Friend is right to stress that the growth in productivity has paved the way for the dramatic change in Britain's growth trend. During the 1980s, our economy has grown faster than any other major EC economy and that has been based precisely on the facts that my hon. Friend mentions.
Mr. Fishburn : Does my right hon. Friend agree that, despite the trade figures that have been announced today, it will still be at least 20 years before the average Briton enjoys the same wealth per head as the average Frenchman or German, so that we are only at the start of a wealth creation process with the hardest part yet to come?
Mr. Lamont : The gap in living standards between ourselves and the French has narrowed, but my hon. Friend is right to say that there is a gap. However, that will continue to narrow if we can maintain the sort of rate of growth differential that we have had in the past decade.
Mr. Shore : Would not the result be significantly different if the Minister were to take the base year 1979 rather than 1980? Taking account of the relatively poor performance of the European countries during the past decade, how far would he attribute full membership of the ERM/EMS as a factor in producing that rather poor outward result?
Mr. Lamont : If one took 1979 as the base year, the British economy would still have grown faster than the EC average and faster than the French and the Germans', something that has not happened in Britain for many years. In the 1970s we were bottom of the league ; in the 1980s we have been top of it. The relevance of the ERM is much more to do with inflation, although inflation might ultimately also have consequences for growth.
Mr. Alan W. Williams : Is it not the case that, since 1979, our growth rate has been scarcely better than that of any other EC country, despite the enormous advantage of North Sea oil? If we look ahead over the next year, is not the Treasury's forecast is for less than 1 per cent. growth and that what the Government's economic policies have introduced is a self-inflicted hard landing?
Mr. Lamont : I answered the first part of the hon. Gentleman's question when I replied to his right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore). Even if we take the base date as 1979, with the
Column 396recessionary environment which existed then because of the high inflation that we inherited from the Labour party, our growth rate has been above that of France, Germany and the EEC average. Of course, we are having a pause this year. That is not surprising after the excellent record that we have had. However, the trend of our exports and productivity means that the long-term outlook for this country is far better than it was then when the Labour party was in power.
5. Mr. John Greenway : To ask the Chancellor of the Exchequer what assessment he has made of the prospects for industrial investment over the next 12 months.
Mr. Major : The Industry Act 1971 forecast published with the Autumn Statement projected total business investment to grow by 9 per cent. in 1989 and 4 per cent. in 1990. This follows growth of 30 per cent. in real terms between 1986 and 1988.
Mr. Greenway : Has my right hon. Friend noted the results of a survey of leading industrialists published this week which described the fear of a recession as a myth based on a misconception? It rejected the gloomier predictions of the effect of high interest rates on industry. In his forthcoming Budget, will my right hon. Friend the Chancellor give priority to measures that will keep up the momentum of increased investment seen under the Government? Will he target the small independent business sector as one deserving of particular help through investment-related taxation reform?
Mr. Major : I have noted the survey to which my hon. Friend refers and he characterises it accurately. He will know that I cannot anticipate the Budget. However, I can draw to his attention the fact that the small business sector is still growing substantially, with a rate of VAT registrations of more than 1,300 a week during the past year.
Mr. Robert Sheldon : But manufacturing industry will clearly be damaged by the high level of interest rates, even if they remain as they are and do not increase. Is the Chancellor of the Exchequer aware that something must be done for manufacturing industry? One problem that it faces is that the capital allowances militate against investment--a rate of 25 per cent. capital allowances in the first year is not realistic. Manufacturing industries cannot retrieve 75 per cent. of the cost of that investment at the end of the first year and, therefore, the allowances are an investment disincentive. Will the Chancellor replace them with a proper investment incentive, as existed pre-1979?
Mr. Major : The right hon. Gentleman will be aware of the reforms in corporate taxation introduced by my right hon. Friend the Member for Blaby (Mr. Lawson) in 1984. They made significant changes, not least a dramatic reduction in the prime rate of corporation tax. The vast majority of capital investment in manufacturing in recent years has come out of retained profits, at present taxed at a much lower rate. There will be a slowdown in capital investment in manufacturing, but there will be continued growth. There has been a considerable record growth in recent years.
Column 397Mr. Ian Taylor : Does my right hon. Friend agree that one factor in the continued good news about business investment is that Britain has managed to increase labour productivity and keep down unit costs of labour? If the position were to change--given the irresponsibility of certain unions backed by the Labour party--the climate for business investment might decline. In the internal market of the European Community businesses could switch their investment criteria elsewhere which would largely be the result of the unions' failure to appreciate the position.
Mr. Major : My hon. Friend is entirely right. Productivity is vital, not only to maintain competitiveness and present profitability, but to open up the opportunity of future investment to create future jobs and prosperity.
Mr. John Garrett : What are the figures for manufacturing disinvestment? Bankruptcies rose by 40 per cent. last year. In the city that I represent, 400 jobs were lost in a liquidation which the management attributed directly to the Government's level of interest rates. How many more victims will there be of the Government's use of interest rates as the sole means of controlling the economy?
Mr. Major : The hon. Gentleman picks a strange day to make that charge. He does so on the very day unemployment and employment figures show that more people in this country are in work than ever before.
Mr. Sumberg : Is my right hon. Friend aware that the north-west of England is present enjoying an economic boom, with increased investment and reduced unemployment? Does he agree that the Government have laid to rest for ever the idea of a north-south divide?
Mr. Major : I agree with my hon. Friend. Between 1980 and 1988, investment growth in the whole economy grew at the rate of 4 per cent. per year. Between 1970 and 1980, the rate of growth was not 4 per cent. annually but 0.4 per cent.
7. Mr. Leighton : To ask the Chancellor of the Exchequer what percentage of business investment was represented by manufacturing investment in (a) 1978 and (b) 1988.
10. Ms. Harman : To ask the Chancellor of the Exchequer what percentage of business investment was represented by manufacturing investment in (a) 1978 and (b) 1988.
Mr. Ryder : Twenty nine per cent. and 22 per cent.
Mr. Leighton : Does not that show that the Government have presided over a collapse in manufacturing investment? How does the Minister intend to close the yawning trade gap caused by our deficit in exports of manufactures, which is now about £17 billion per annum--equivalent to £32,000 per minute--unless investment is increased? Does the Minister have any policies for dealing with that situation?
Mr. Ryder : At the tail end of the last Labour Government, manufacturing output was at a low. Since then it has increased by 12 per cent. Also, the United
Column 398Kingdom enjoyed a higher average growth rate in the 1980s than West Germany, France and Italy. In the 1970s, our growth rate was lower than all three of those countries.
Mr. Forman : Has my hon. Friend studied the recent Peat Marwick survey showing that manufacturing industry is even now intending to increase by about 68 per cent. its investment in new products and services, and by about 46 per cent. its investment in further training? Is not that completely convincing evidence that this country has not lost the investing habit?
Mr. Ryder : My hon. Friend is correct. Business investment in 1989 is likely to have reached a record level as a percentage of gross domestic product. In 1987 and 1988, we saw the fastest growth in investment over a two-year period since the war.
Mrs. Beckett : Despite the Minister's optimism, he is surely aware of the Confederation of British Industry's recent survey of investment intention, which implies that the country may be about to hit serious problems in that regard. At least the figures he gave earlier answered the original question of my hon. Friend the Member for Newham, North-East (Mr. Leighton), which is more than can be said for his answer to my hon. Friend's supplementary question. Do not the figures signify a substantial shift away from investment in real wealth creation during the period of the present Government? Does not that create anxiety in respect of Britain's long-term economic future?
Mr. Ryder : The CBI forecast still predicts that investment will continue. As my right hon. Friend the Chief Secretary to the Treasury has already made clear, the 1980s saw record levels of growth and investment. After two or three particularly strong years at the end of the 1980s, growth is likely to slow a little over the next 12 months.
Mr. Hind : Does my hon. Friend agree that in order to sustain the growth in manufacturing industry that has been achieved over the past few years, it must be encouraged to invest? When he and his colleagues prepare for the next Budget, will they consider the view of the north-west CBI that tax allowances on machinery for purely manufacturing purposes would be of great assistance and help to sustain the investment that is necessary?
Mr. Ryder : I shall ensure that that suggestion is borne in mind when we come to prepare the next Budget. I remind my hon. Friend that profitability levels are now the highest for 20 years.
8. Mr. Kirkwood : To ask the Chancellor of the Exchequer what is his latest target for MO.
Mr. Ryder : One to 5 per cent.
Mr. Kirkwood : Instead of the Treasury ministerial team hiding in their pre-Budget bunker, which must be the most archaic and arcane way imaginable of developing any democratic country's economy, will the hon. Gentleman explain why the Government are paying no attention to the credibility of their anti-inflationary policies--given that MO, which is the cornerstone of that policy, is so
Column 399sadly and stubbornly off target? Why do not the Government make an effort to restore credibility in their anti- inflationary policies with an early announcement of Britain's entry into the exchange rate mechanism?
Mr. Ryder : MO has been declining for the past year. At this time last year it was 7.4 per cent. I remind the hon. Gentleman that the last party but two of which he was a member, was prepared to support a Labour Government in the late 1970s, when MO was 13.1 per cent., a far higher figure than today. MO is one indicator that the Government take into account when formulating base rate policy.
To answer the hon. Gentleman's latter question on the European monetary system, we have made it clear that we shall enter that system when the conditions set out at the Madrid summit have been met.
Mr. Gow : Does my hon. Friend agree that the present level of inflation has been caused by excessive monetary growth between 18 months and two years ago? Will my hon. Friend take the opportunity to reaffirm his belief that inflation is a disease of money, and that he will persevere with his policy of high interest rates?
Mr. Ryder : Yes, Sir. Inflation is caused by demand exceeding supply, and my hon. Friend reminds the House of the problems that arose as a result of a monetary policy that was looser than it should have been after the Wall street crash.
Mr. Cohen : Are the Government planning a tight monetary policy with perhaps higher interest rates to force up unemployment, as an unofficial incomes policy?
Mr. Ryder : There is no question of there being an incomes policy. We never hear whether the Opposition want lower or higher interest rates. Opposition Front Bench spokesmen have no monetary policy.
Mr. John Townend : Will my hon. Friend confirm that, to achieve the conditions under which interest rates can be brought down, it is necessary to reduce the increase in MO and the increase in broad money?
Mr. Ryder : My hon. Friend is correct that broad money--M4--is another indicator that must be taken into account when formulating monetary policy.
9. Mr. Fatchett : To ask the Chancellor of the Exchequer, what work he envisages being undertaken by the joint committee and associated secretariat of central banks of the member nations of the European Community now being established.
Mr. Peter Lilley : As I explained in the explanatory memoranda that I submitted to the Scrutiny Committee, the committee of European central bankers will consider the co-ordination of monetary policy, but will have no powers to impose its views.
Mr. Fatchett : As it is becoming clear that the German Bundesbank is keen to establish itself as a central bank for western Europe, what is the policy of the Government and the Bank of England? Is it not fair to say that the Governor of the Bank of England wants more
Column 400independence from the Treasury, and would like the Bank of England to operate in a similar way to the German Bundesbank?
Mr. Lilley : It is not fair to say that the Bundesbank has the ambition that the hon. Gentleman has ascribed to it. The governor of the Bundesbank has expressed considerable sympathy with the ideas that we have put forward for the evolution of monetary union, as have the governors of the central bank of Switzerland, the board of academic advisers to the German Finance Ministry, and the leading French economist and Nobel laureate, Professor Allais. There is a great deal of support for our views on European monetary union.
Mr. Butcher : While considering the role of the central banks, will my hon. Friend reconsider the position of the Bank of England? Does he agree that if the Bank of England had had the same powers and role as the Bundesbank, inflation would not be as high as it is today?
Mr. Lilley : My hon. Friend knows that we considered that idea some 18 months ago, and we concluded that it is difficult to have a constitutionally independent central bank, such as exists in the United States and West Germany, within our Westminster constitution because the House, on behalf of the British people, expects the Government to be accountable and responsible for monetary and economic policy.
Mr. Chris Smith : Treasury Ministers have reiterated several times today their intention to take sterling into the exchange rate mechanism when the conditions are right. Every time the Prime Minister opens her mouth, however, she adds to the list of those conditions, and it is clear that the Government have no intention of taking sterling into the ERM at an early stage. Does that not leave us very much on the sidelines in the developing discussions about our European monetary future, and should we not be playing a much more constructive part?
Mr. Lilley : We have made our position very clear : we shall join the exchange rate mechanism of the European monetary system during stage 1. What is unclear, and what the shadow Chancellor was unable to tell us during a debate on the subject, is what the Labour party's conditions are. Are they the four that he enunciated, the three enunciated by the Leader of the Opposition or all seven?
11. Mr. Butterfill : To ask the Chancellor of the Exchequer what is the corporation tax rate in the United Kingdom and other Organisation for Economic Co-operation and Development countries.
Mr. Lilley : The United Kingdom corporation tax rate is one of the lowest rates in the major industrial countries. With permission, I shall circulate the figures in the Official Report.
Mr. Butterfill : Does my hon. Friend agree that the present happy level of inward investment owes much to our low level of corporation tax? Does he also agree that the growth of the small business sector is largely due to that? Does he accept that small businesses need special support, and that we should continue that support--in contrast to the policies of the Opposition, who seem to