House of Commons Hansard Debates for 21 Mar 1990

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Budget, but they do not add up to a Budget to deal with the problems facing the country. I do not like to say this about the Chancellor, who still has considerable capital of respect and friendship in the House which he so far has not dissipated, and I hope he will not do so, but he appears to have fallen completely under the control of an increasingly isolated and irrational Prime Minister. The major weakenesses of his Budget strategy are her refusal to enter the European monetary system and her anxiety about the effects of a stronger taxation policy on the immediate political popularity of her Government--and there is not much of that at the moment.

The Chancellor is obviously pleased that he managed to resist the Prime Minister on one change that everyone knows or assumes she wanted him to make--to raise the £30,000 threshold on mortgage interest relief. That is a very small triumph to set against continued defeat on the exchange rate mechanism and the continued primacy of politics over economics in the decisions that he has taken.

The Budget may have pleased Conservative Back Benchers, but it has not addressed the problems that the Chancellor will have to face in the next 12 months. In just under a year's time, when I believe he will still be Chancellor, he will be trying to set an

election-winning Budget. Messages will come from her next door--perhaps it will be him next door by then--saying "For heaven's sake put together a Budget that can recover the lost ground." The Chancellor will be saying to himself, "I wish that a year ago I had taken a tough line with the problems that now make an

election-winning Budget impossible."

5.13 pm

Sir Ian Gilmour (Chesham and Amersham) : I am not sure from the comments of the hon. Member for Berwick-upon-Tweed (Mr. Beith) whether it is his party's policy that we should enter the exchange rate mechanism straight away, but I agree with the Government's view that the current rate of inflation would make that unwise, if not impossible.

Like the hon. Member for Berwick-upon-Tweed, I welcome many measures in the Budget, which I hope will prove historic for savers, and I applaud the proposals of my right hon. Friend the Chancellor to make it so, particularly the ending of the composite rate of tax. Like everyone else, I welcome the concession on workplace nurseries, and like almost everyone else I welcome the concession for football. I only wish that the reduction in entertainment tax had been doubled, which would have cost little but would have made a substantial difference. Above all, like everyone else, with the exception perhaps of the Scots, among whom I number myself, I welcome the capital limits concession for pensioners on the poll tax, income support and housing benefit. I congratulate my right hon. Friend the Chancellor on those measures.

I am rather less exultant about what appears to be my right hon. Friend the Chancellor's political and economic strategy. As my right hon. Friend said today and on the wireless, this is undoubtedly the toughest Budget since 1981, but it is a long way from being a tough Budget. It is broadly neutral, and I should have thought that, politically, it would have been far better to have a tough Budget this year and got most of the pain out of the way, rather than having it running on, at a slightly lower level of intensity, to uncomfortably close to the next election.

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My chief worry about my right hon. Friend the Chancellor's economic strategy is his apparently cavalier attitude, which was rather shared by my right hon. Friend the Chief Secretary today, to the balance of payments. Last year's horrendous deficit of more than £20 billion is due to fall this year to a mere £15 billion. As there will be practically no growth this year, that is fully credible. In the first half of 1991, it is due to fall to £6 billion, but because of the pick-up in growth it will presumably increase quite sharply and will probably be about £15 billion in 1991. That is a most alarming prospect. The problem will not go away or improve merely by being ignored. Its full gravity has not been properly appreciated in public discussion.

Some people say that the deregulation of international monetary movements has abolished the balance of payments as a problem, but I do not believe that that is true. Some Third-world and European countries have demonstrated that it is not true and have experienced tremendous difficulties with their balance of payments.

In Britain, we have seen several times the unsettling effect on the pound that even one month's bad balance of payments figures can have, and with a £15 billion deficit projected, it is unlikely that we shall avoid bad figures every month in the next two years. Another story has been circulating that we shall be bailed out by invisible earnings. I have never believed that, because the increase in insurance and tourism would have to be unimaginably large ; anyway, invisibles have now gone negative.

The balance of invisibles may be worse than it appears in the official figures. Page 43 of the Red Book says :

"The difficulties in measuring certain capital flows--reflected in the large balancing item in the overseas account--and with the valuation of direct investments mean that estimates of net overseas assets are subject to a wide margin of error."

There have been statistical discrepancies in the balance of payments figures amounting to over £50 billion since 1984. That missing money must be somewhere, and we hope that it is going in the right direction, but if a significant portion of it were to take the form of unrecorded liabilities to foreigners, there would be unrecorded flows of interest out of the country. According to some estimates, the flow of property income could be £7 billion higher than the official figures show. I should be grateful if the Financial Secretary would comment on that interpretation of the residual error, as it is a matter of enormous importance.

The conventional wisdom has always been that the effect of North sea oil on sterling contributed to the blitz on manufacturing capacity at the beginning of the 1980s, but it enabled us to build up at least £100 billion of foreign assets overseas. It would be a considerable blow if that conventional wisdom was proved wrong and a high percentage of those assets had been spent on the consumer boom. If that had happened, we would have been deprived of the cushion that North sea oil provided and the need to correct the balance of payments problems quickly would be even greater, because we would run the risk of becoming a debtor nation. I look forward to hearing my hon. Friend on the subject.

The balance of payments position is all the more serious because--if I may differ from my right hon. Friend the Chief Secretary--it is not just the result of recent fast growth. It was deteriorating appreciably before our period of fast growth, and I think that my right hon. Friend will

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concede that that is true. In other words, there is a major weakness in the British economy. The fundamental cause of our deficit is the slow growth in manufacturing production between 1974 and 1989. Between 1974 and 1979, manufacturing production declined--a point for the Labour party to bear in mind when it makes much, rightly, of the importance of manufacturing industry.

Between 1973 and 1989, manufacturing output in France increased by 19.5 per cent.; in Germany, by 21.1 per cent.; in Italy, by 37.6 per cent.; in Canada, by 46.8 per cent.; in the United States, by 55 per cent.; and in Japan by 69.9 per cent. In the United Kingdom it has increased by 8.9 per cent., which is a derisory increase compared with those of our chief competitors. Over the past 10 years, our manufacturing output has increased by 1 per cent. per year and our imports in manufactured goods have more than doubled. That is the cause of our balance of payments problem. If my right hon. Friend the Chief Secretary will forgive me, it is not likely to be cured by one year of pause. The problem is deep-seated.

This dire position surely calls for the Government to do everything possible to help manufacturing industry. Unfortunately, they have not done so. Their sole weapon in fighting inflation--high interest rates--obviously damages manufacturing industry. Despite the eloquence of my right hon. Friend the Chief Secretary, I still believe that it is a considerable mistake to rely solely on interest rates. They have slowed consumption a little, but their impact has not been large enough. We know that they hit borrowers but help savers. Many building societies have eight times as many savers as borrowers, so there is one obvious defect in using that weapon solely. The effect of high interest rates has proved uncertain in its magnitude and their incidence has been arbitrary and unjust. High interest rates have already had a destructive effect on industrial investment and therefore on our future ability to compete on the world market. The Government would have been far wiser to raise income tax levels. They should have done so long before yesterday. I believe that the Government should also have used credit controls. The Red Book states that there is a trend against their use in other countries, but nevertheless it shows that other countries still use them. According to Mr. Alex Brummer in The Guardian today, the Bundesbank has issued a paper saying that reserve requirements "help control liquidity in the money markets as well as automatically acting as a brake on the creation of money." In controlling inflation, what is good enough for the Bundesbank should be good enough for the Bank of England and the Treasury. But my right hon. Friend the Chancellor has decided to continue with high interest rates alone, and I hope that he is right. His Budget is humane and caring, but he has taken a huge gamble on the balance of payments and inflation. I hope that he wins it.

5.24 pm

Mr. Bill Michie (Sheffield, Heeley) : Like many Opposition Members, I am disappointed by the Budget and its implications, or perhaps in many cases its lack of implications. It will not help the people whom we have proudly represented for many years. The Budget says little about what will happen to the infrastructure and about whether we will build a new manufacturing base. It says nothing about the caring services--hospitals and housing--and their dilemmas.

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I often ask myself what the Government consider to be the "nation". Is the nation basically this great global thing, consisting of an economic package, the balance of payments, invisible earnings and all the rest which lead the Government proudly to say that the nation is better off? If so, why is there a deficit in the balance of payments and why have invisible earnings become invisible? The Government cannot be talking about that nation. They must be talking about the other one, in which I believe--the people.

Are the people better off? I do not see that they are better off in my constituency or in those of many of my hon. Friends. The infrastructure is falling apart. The caring services--whether voluntary or local government-- are screaming out for help and for recognition of the problems. Hospitals are closing and waiting lists are increasing. We tried in the past to reduce the housing waiting list from two years, but it is now between 10 and 15 years. What is this prosperous nation that we are supposed to have? Where is the magic figure? It is not in the balance of payments or the invisible earnings and it certainly does not exist for the ordinary population in terms of their environment, the caring services, housing and family life. The pressures are continually growing. I deal with many social services matters in my constituency and I know that it is almost impossible for social workers to help the ever-growing number of needy people. The Budget gives not a glimmer of hope that some provision will be made for them later in the financial year.

We receive many letters from parents and the groups that represent the mentally ill and the mentally handicapped and cannot get the necessary services because of public spending restrictions. Hospital services cannot provide the necessary beds and space, so the authorities try to move people into the community. Social services departments cannot deal with the expense and staffing implications. Throughout the country, and certainly in my constituency, people who would normally be cared for either in an institution or by a social services or area health authority are sleeping rough in our city centre streets and parks. Is that what we call a prosperous nation? Is that the great success story of monetarism, about which the Conservative Government have been talking for years?

My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) was right to say that the omissions in the Budget are the most worrying features of all--no uprating of child benefit, no promises to provide massive investment in the environment and no increased expenditure to help those who care for the many people who are disabled, ill or in need. Inflation will remain high, as will interest rates, rents and electricity, gas and transport prices. The poll tax has affected most of our constituencies. Like any other council in any city, Sheffield city council was misled over the poll tax. The calculations have caused havoc and will continue to do so. The city council states :

"The long-term loss of income from grant and business rates will be almost £60 million per year after the Safety net grant is withdrawn. This is equivalent to £160 per year extra on the Poll Tax bill in Sheffield.

Even in the first year of the new system the Safety Net grant leaves the City Council £13 million worse off in cash terms compared with the last year of the old system. The average household bill will need to increase by around £70 just to cover the loss of income to the City Council.

The Government has not accepted the representations that the City Council has made over the problems of using out of

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date information from the Poll Tax Register. This is likely to cost the City Council around £4 million in grant and business rate income in 1990/91."

All the representations that have been made on care, housing and hospitals have been ignored. The Budget comes at a high cost to our constituents but does not repay them with high wages or with job opportunities. There is no future because, as the Chancellor said, there is a downturn and growth will be slow. The Budget will help people buying and selling shares, but it will be of no help at all to our constituents trying to buy or sell homes. It offers no hope to industry, which has been neglected for years and looks as though it will continue to be neglected. That affects my constituents in Sheffield, which has been devastated by industrial decline over many years.

We still lack training. The Government have bragged about training, but have not invested in it as they should have done. I recall the Prime Minister saying many years ago, "You can't spend what you haven't got." What we did have 10 years ago was a massive North sea oil asset, but the Government have spent it and have produced nothing for the nation in return. They have spent everything and invested nothing in the future prosperity of the nation.

Many of our firms, private and public, have tried to help in training, and agencies were set up. But many schemes have failed and many more will fail in the future. The other day I received a letter from South Yorkshire Constellation Ltd.--part of our probation service--which has done a magnificent job in getting a dynamic manager to set up youth training schemes for people in trouble, or in particular need or under threat. Most of the schemes seem to be falling apart, not because of the incompetence of the organisation but because of the Government's lack of enthusiasm and their failure to provide adequate finance.

Let me read one small part of that letter :

"There are three other Youth Training Schemes in the city ... offering training for youngsters with special training needs and we asked them to co -ordinate discussions regarding some rationalisation, as we knew at least one other was in financial difficulty. The Training Agency took a hands off' view and decided to allow market forces to operate to see who collapsed first. The consequence was that we were the first to collapse."

We have heard the phrases "market forces" and "hands-off policy" before because that is precisely the policy that the Government have adopted since they came to power, and certainly over the past six years.

The nation has been badly let down by the Government. They claim to be responsible, but the opposite is the case. But at least there is one consolation : the people of the nation now know.

5.32 pm

Mr. Alan Haselhurst (Saffron Walden) : I add my congratulations to those of other right hon. and hon. Members to my right hon. Friend the Chancellor for the way in which he presented his Budget to the House. The Budget was likeable in tone and it will be appreciated quite widely for a good part of its content.

In this age of particular sensitivity about Members' interests, perhaps I should tell the House that I have a number of connections with industry-- notably in the chemical and electronics industries. It is possible that some of my observations will stem from the experience that I have gained with those industries, although it could be

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said, perhaps more simply, that they will be based on what has been said by industrialists in general and by the CBI in its advice to hon. Members and to the Government.

The background to the Budget is one of high interest rates, high inflation, a large balance of payments deficit, the widespread unpopularity of the Government and much confusion about exactly what the economic and financial statistics tell us about what is going on in the economy. My right hon. Friend the Chancellor was therefore faced with a particularly daunting task in preparing his Budget this year.

It is hard to tell how industry is performing. Clearly, some companies and sectors are doing extremely well and are exporting an increasingly large proportion of their output, while others are now in difficulties. In the retail sector, too, there are some signs of depression in the high street, but oher sectors seem to be bearing up remarkably well.

There was a danger that, if the Chancellor's judgment was not exactly right, Britain could lurch into recession--something which my right hon. Friend wisely sought to prevent. He had two tasks--in the short term, to bolster confidence at home and abroad in his ability to get a grip on inflation and bear down upon the balance of payments deficit and, in the longer term, to strengthen the economy and make it more proof against sudden loss of favour in the markets. On the home front, there is absolutely no doubt in the mind of any hon. Member that the Government's anti-inflation policy is hurting many people. People feel pessimistic about the prospects. Their incomes are under severe pressure ; there can be no doubt about that. Obviously people would like the load to be eased, but I agree with my right hon. Friend that a quick fix is not the way to achieve that, especially if it would mean the speedy restoration of limits within a matter of months.

People want to feel that, as we seek to bear down on inflation, our collective burden is being fairly shared. There is unease that some sections of the community are losing badly at present. I therefore welcome my right hon. Friend's announcement that he is to change the capital rules for social security benefits and community charge rebates. That is extremely good news. I also welcome the fact that my right hon. Friend felt able to achieve the full indexation of personal tax allowances this year.

There is also a suspicion that too much reliance is being placed on interest rates. I concede that it is quite clear that a large proportion of domestic credit is tied up with land and property purchase and, that being the case, I see little alternative to a fairly heavy reliance on interest rates. I am glad, though, that the Chancellor has been prepared to look again at credit controls and has undertaken to monitor the situation.

I found it interesting that, on Budget day, I should receive through the post from a well-known credit card company the invitation to spend 16.5 per cent. more should I wish to do so. I must emphasise that that is not an invitation to which I shall be responding speedily, but I am sure that it went out to many other people, too. It is a question of psychology. Such increases may not add up to a great percentage in terms of the overall national scene but people get a blurred message when they receive invitations to spend more, and that may impede

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what the Chancellor is trying to do. My right hon. Friend's measures on saving and giving are timely and show greater breadth in his approach to defeating inflation.

The public are impatient about the pace of improvement in public services. These days, a typical letter of discontent is likely to mention the failure to pay public servants sufficient money, the failure to get on with introducing more measures to protect the environment and the failure to invest in the infrastructure. People also bemoan the fact that insufficient sums are spent on health and education. Those are just some of the matters that typically come up in letters from our constituents.

Those sentiments would certainly find an echo in the remarks of the Leader of the Opposition, yesterday and probably at other times. The right hon. Gentleman spoke of an under-invested and debt-ridden economy. He should certainly be listened to seriously, because he can draw on years of Socialist experience of running such an economy. What is the right hon. Gentleman's answer now? It was summed up in the word "partnership". There is no substance to that. It is a user-friendly word, but I cannot help thinking that we could substitute the phrases, "social contract", "national plan" or "technological revolution". We have heard it all before.

No one seems to understand--least of all the Opposition--that there are limits to growth. Yet all our experience--certainly that of the Opposition- -should make us wary about having over-ambitious expectations about growth. My right hon. Friend the Chancellor has been appropriately modest. He estimates that growth will be 1 per cent. this year and 2.75 per cent. next year. That still means an average growth over five years of about 3 per cent., or perhaps slightly more. That is a remarkable record for the British economy in the post-war years. From a growth rate that has any reasonable chance--

Mr. Martlew : Does the hon. Gentleman agree that a growth rate of 1 per cent. next year will increase unemployment in this country?

Mr. Haselhurst : Its effect on unemployment remains to be seen. A number of complex factors are at work, but if the figures that my right hon. Friend the Chancellor gave yesterday are fulfilled, the overall average increase will still mean growth of 3 per cent. per annum. The hon. Gentleman should envy that, rather than disparage it.

If we have a growth rate that is attainable in the first place, and then sustainable, from what can realistically be achieved we shall not be able to generate resources to meet all the demands placed on us at present. We cannot get rid of all the shortcomings in provisions for health, education and the environment within the likely level of growth that could be achieved by any happy combination of policies. However, the Leader of the Opposition seems to imply that that would be possible if a Labour Government were substituted for the Conservative Government. If we are to have sensible discussions of these matters, one of our tasks must be to bring the debate about what needs to be done within reasonable and practicable bounds.

Those are matters for domestic politics. Further afield, my right hon. Friend the Chancellor has to satisfy world opinion that he has a firm grip on inflation. Perhaps he also has to persuade world opinion that the Conservatives can win the next election, because the alternative seems to worry the markets.

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The question is, therefore, has my right hon. Friend done enough in his Budget this year? A tax take of £430 million and a projected growth rate of 1 per cent. is surely indicative of a degree of rigour. I debate with my right hon. Friend the Member for Chesham and Amersham (Sir. I. Gilmour) whether a symbolic 1p or more on the standard rate of income tax would have made a great contribution towards easing the burden of interest rates. More than anything else, that might have risked tipping the economy into recession. The right hon. Member for Plymouth, Devonport (Dr. Owen) was probably more nearly right when he said yesterday that the Budget will take a few weeks to settle in before a fair judgment can be made about whether the Chancellor has struck a reasonable balance.

I agree with my right hon. Friend the Member for Chesham and Amersham that in the longer term we need to strengthen our industrial base. Unit labour costs in manufacturing industry are deteriorating in comparison with those in Germany and France. The annual rate of change in Great Britain is 4.8 per cent., it is 2.2 per cent. in Germany and 0.6 per cent. in France. That spells bad news for the British economy and for our ability to increase our share of world markets. Therefore, we must improve investment still further. Although I do not deride what has been achieved in recent years, and while our private sector investment as a percentage of GDP is comparable with that in France and Germany, we still have a lot of catching up to do.

I welcome the Chancellor's measures to help small and medium-sized companies. However, he might have done a little more for larger companies. As a percentage of GDP, corporate tax revenue in the United Kingdom has increased from 2 to 3.5 per cent. over the five years 1983 to 1988, which is 50 per cent. higher than in France or Germany.

If we are to improve our industrial base, we must also do more for training. Therefore, I welcome my right hon. Friend's measures on that. It is a bizarre thought that, with the prospect of a turn in the trend of unemployment, we have too few skills in parts of our economy. Although there will be no shortage of jobs in my constituency or in many other parts of the country in the foreseeable future, there is a question whether those jobs can be filled by people who have the skills to take advantage of them.

In the longer term, we need the symbolic--but more than symbolic-gesture of joining the exchange rate mechanism of the European monetary system. It is not just whether taking that step would be good for the British economy, because as a country we are now in danger of being left behind in the moves that our European partners will undoubtedly make towards fuller economic monetary union. British business men understand that and the British public probably sense it.

We are even in the happy position that the Labour Opposition--the lame European ducks of the 1980s--are now in favour of ever-closer European union in the 1990s. However, I suspect that, when the Government take Britain into the exchange rate mechanism, the Opposition will find weasel words to say that the terms are not exactly right. We should replace doubt with determination. We should cease the constant refining of words and conditions. No clearer signal could be given to overseas opinion or to our own industry that we have our priorities right than if we were to set out a firm timetable for entry.

Overall, my right hon. Friend the Chancellor is maintaining the broad course for recovery, but with some

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welcome adjustments. My right hon. Friend's Budget could be dubbed a "save and prosper" Budget. I hope that that is how it turns out. I believe that the Budget offers hope that we can pull out of our present difficulties. I trust that my right hon. Friend's judgment and instincts will be borne out by events.

5.47 pm

Mr. Tony Worthington (Clydebank and Milngavie) : Anyone who wanted to know why the Tory party has done badly in Scotland would have found the answer encapsulated in a single moment yesterday when the Chancellor came to the high point of his Budget. He was giving away goodies, but was confronted not with silence or applause--not that applause is allowed in here--but with uproar from the Opposition because of Scotland. I was sitting opposite the Chancellor, who was totally bemused about the reason for that uproar.

Like all my hon. Friends, I am absolutely convinced that the right hon. Gentleman had not even thought about the Scottish dimension. He had not realised that it is appalling that when one group of people, who have not yet paid a penny in poll tax, protest about what it will mean to them, they are listened to, whereas another group of people, who have been paying the poll tax for a year, are not listened to. The right hon. Gentleman had not thought about the political consequences of that.

The Government must find a way of bringing equity into the system. There is a way to do so, because wherever there is the will, there is always a way. I applaud the relief that was given yesterday, but the Government always seem to be listening to only some people. They are listening to people who have savings. They do not listen to those with no savings. They have not listened to the people of Scotland who have paid the poll tax for the past year.

We must ask about the role of the Secretary of State for Scotland in all this. On Monday, in the Scottish Grand Committee, the Secretary of State told us that the poll tax had been accepted in Scotland and was working well. If hon. Members on either side of the House believe that, and believe that the poll tax problems will disappear, they should forget those thoughts at once. The problems surrounding that tax will rumble on and on. The Government must listen. They must realise that they have backed a loser and that there can be no justice while the tax exists.

Yesterday's announcement show why the Government's standing in Scotland will worsen beyond its present low ebb. The Prime Minister came to Scotland and in a memorable interview referred to, "We in Scotland," but yesterday's announcement shows how false those words were. It is clear that the Government have not even thought about the consequences of the poll tax in Scotland.

The Government's action has been unprincipled not only in their neglect of Scotland in terms of the relief given yesterday, but in the implementation of the poll tax. The most striking thing that I read in the past few weeks was a statement by the Tory chairman of Berkshire county council which gives the lie to what the Government are saying about Labour councils. He said that, if he had been given as much money by the Government as Westminster council has, he would have been able to charge a nil poll

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tax and to give £200 to every citizen in Berkshire. That is the truth behind the way in which the poll tax has been set and the money distributed.

Mr. Paul Boateng (Brent, South) : A damning indictment.

Mr. Worthington : My hon. Friend is right.

We should ask the National Audit Office and the Public Accounts Committee whether they can detect any principle behind the way in which the poll tax money is being distributed. There is no justice in the system and, once again, the figures are being fiddled to help the Government's friends.

I was interested by what the hon. Member for Saffron Walden (Mr. Haselhurst) said about training and its importance, but I am at a loss to see how yesterday's announcement will be of any significant assistance. Someone will receive tax relief on giving a donation to his local technical and enterprise council or, in the case of Scotland, the local enterprise council. Why he should seek to do that rather than invest in training in his own company I do not know. The Government have cut expenditure on training. This year in Scotland, comparing like with like, nearly £30 million has been cut from the training budget of the training agencies. Despite that, one can read glossy Government documents saying that the worse time to cut training is in times of hardship. In those documents the Government urge private manufacturing industry not to take a short-term attitude to training. What do the Government do, however, when faced with difficulties? They cut training.

It is interesting to note the excuse given for that by the Minister responsible for training in Scotland. He told us that the Government have cut expenditure on training in Scotland because of the diminishing client group and the fall in the number of long-term unemployed and young people. We were told that during our deliberations on the Enterprise and New Towns (Scotland) Bill. The same Minister, however, has boasted that there are more people in employment than ever before. Surely that means that the client group is enhanced and that more people need to be trained, some of whom may not yet be in the work force.

The report on training by the Confederation of British Industry says that we need to take a completely different attitude towards it and to make a quantum leap in terms of training and its quality. It states that the quality of training is manifestly inadequate and that the youth training scheme is still in an embryonic state and needs to be developed. How have the Government responded to the demand for training? They have introduced the employment training scheme. How can one argue that that scheme matches up to and meets the challenges thrown at us by the German, Scandinavian and Japanese training schemes? The motivation behind our scheme is, essentially, to lower unemployment, to reduce wages and to reduce the contribution of local authorities and trade unions to training.

My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) has made it absolutely clear that, if we are ever to compete effectively in the world, we must tackle skill shortages. In Scotland we have significant

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unemployment. The city of Glasgow still has male unemployment of 20 per cent., but the city also suffers from skill shortages. The House will appreciate that it is rather difficult to achieve a situation in which firms cannot fill jobs in that city, while male unemployment is still running at 20 per cent.

The CBI in Scotland has said that skill shortages there are chronic, particularly in engineering. Engineering employers have also revealed how serious the shortage of engineers is at all levels. They are reported as saying :

"The recruitment shortages of 1989 are evidence that spare capacity is not available".

Those difficulties are also experienced in information technology. Indeed, there are innumerable areas in which we are experiencing skill shortages, but industry has not picked up the need to rectify that problem.

In Scotland, as elsewhere, the private sector has been told that the Government want it to take over the training system, but that sector, above all others, has been guilty of not training. We are now told to place our trust in those who have failed us, and that is not good enough. There must be a partnership between private industry and the public sector, and it cannot be left to the private sector alone.

I was pleased to hear what previous hon. Members said about our manufacturing industry. Am I the only one who felt a sense of shame when I heard the Chancellor bragging about a surplus of manufactured television sets? We have that surplus because the Japanese have come in and rescued us. I am ashamed, because we used to have a television manufacturing industry, but now the Japanese, for their own reasons, have come in and are providing us with that surplus.

In common with all hon. Members I visit factories, and it is interesting to consider from where the raw materials come. The answer is striking. Recently I visited a British kitchen manufacturer based in the south-east. As I went round the factory I asked where some run-of-the-mill components-- certainly not exotic products--came from. I asked from where the blockboard came and was told, from Belgium or Sweden. When I asked why, I was told that Britain does not produce it to the required standard. I asked where the finishes for certain kitchen products came from, and was told Italy. No machine tools used in the manufacture of these products came from Britain. I wondered where the taps came from and found that four out of every five taps in this country are imported. I said to myself that I should be pleased because here is a kitchen manufacturer who is trying to recover the ground that was lost to the Germans and the Italians. However, I wonder if such manufacturers are worsening the balance of payments deficit because what they import is greater than anything that they export. They are not exporting, but simply trying to work in this country.

I wonder whether the Government have yet realised the problem. Why is it that throughout this century--I accept that this is true of Labour as well as Tory Governments--whenever there is growth, it has to stop? It stops because when the British people get more money in their pockets they do not buy British goods but exhibit a preference for foreign goods. We cannot compensate for those sales by what we sell overseas. I do not understand how, simply by slowing things down for a while, we shall deal with that problem, unless we deal with the problem of the manufacturing base.

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The Financial Secretary has been promoted this year ; I wonder whether he has learnt his lesson from last year. He used to scoff at manufacturing industry and say that we should not exaggerate it.

Mr. Lilley : Can the hon. Gentleman give any reference in Hansard showing when I did so?

Mr. Worthington : I cannot do so instantly, but I can turn to the equivalent debate last year.

Mr. Lilley : In that case, will the hon. Gentleman withdraw the remark?

Mr. Worthington : No, I shall not withdraw the remark, because I remember that in equivalent debates the Opposition, year after year, have said that manufacturing industry was neglected. The Financial Secretary asked why the Opposition were obsessed with manufacturing industry, and put all the emphasis on service industries and the financial sector. The Government must realise that we shall achieve exports and get rid of the financial deficit only by dealing with the problems of manufacturing industry.

In the past, the Financial Secretary seemed to align himself with the right hon. Member for Blaby (Mr. Lawson)--

Mr. Lilley : On a point of order, Mr. Speaker. Is it possible for an hon. Member to continue a complete fabrication when he has admitted that he has no reference to back up anything he says? The hon. Gentleman has not even volunteered to go off and find anything to back up his argument.

Mr. Speaker: Every hon. Member must take responsibility for what he or she says in this place, provided that it is in order. I have no knowledge of whether what the hon. Gentleman said is inaccurate. I imagine it must be accurate or he would not say it.

Mr. Lilley : Further to that point of order, Mr. Speaker. That is a slur on me. I have assured the hon. Gentleman and you, Mr. Speaker, that I have never said any such thing. If you would like to join the hon. Gentleman--

Mr. Speaker : I apologise to the Financial Secretary. He knows that I came into the Chamber two minutes ago and have not heard the arguments.

Mr. Worthington : I had not noticed you entering the Chamber, Mr. Speaker. I assure you that, as always, I am behaving responsibly. In the past, the Financial Secretary seemed to align himself with the previous Chancellor of the Exchequer, who certainly said that the deficit--the excess of imports over exports--about which we are so desperately worried, should not worry us as it would be self-rectifying. It would be interesting to know the present attitude of the Financial Secretary and his senior colleagues to the trade deficit. Has it now become a major problem, or does it remain a hiccup? How can we rectify this deficit unless we start seriously paying attention to the needs of manufacturing industry, particularly research and development and training?

6.5 pm

Mr. Nicholas Budgen (Wolverhampton, South-West) : The hon. Member for Clydebank and Milngavie (Mr. Worthington) and my right hon. Friend the Member for Chesham and Amersham (Sir I. Gilmour) are agreed on

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one point--the balance of trade deficit is important. I have the misfortune to disagree with both of them. On that point at least, I agree with my right hon. Friend the Member for Blaby (Mr. Lawson) that the balance of trade deficit will, in the end, be

self-correcting.

In the short time available I wish to make two points. First, I offer strong support to the Chancellor of the Exchequer for having avoided what would have been a substantial mistake. Without doubt, great pressure was exerted on him to make greater concessions, by way of tax relief, to those who borrow on mortgage against housing. It was urged that the £30,000 limit should have been raised to £41,000, or even £60,000.

It was good that the Chancellor of the Exchequer resisted that pressure. [ Hon. Members-- : "Hear, hear!"] I am heartened by the way in which my hon. Friends show their approval of that remark. There are others in the Conservative party who, misguidely, wish the relief to be extended. If it were, it would simply mean that house prices generally would be driven up and more potential first-time buyers would be priced out of the market. The people who benefited would be those owning development land and, to a lesser extent, builders and those associated with the building industry. I said "to a lesser extent" because it is by no means certain that high land prices alway act to the advantage of builders. That is the case only when they have a large land bank. The Chancellor behaved most responsibly in resisting that pressure.

Secondly, I shall refer to the Chancellor's overwhelming duty to restrain inflation. He is not entirely to blame for the position in which the country now finds itself. Between 1986 and 1988 the previous Chancellor of the Exchequer grossly over-expanded the economy and allowed the money supply to get out of control. Now, inflation may rise to 9 per cent. and in every aspect of the nation's affairs we can see the disadvantage of an unexpectedly high inflation rate.

There has been some discussion in the debate about the effect of the community charge. One reason for the extra-large community charges--only one of the reasons--is that the inflation rate is much higher than the Government anticipated when they set out the guidelines for the community charge. Such problems occur in every sphere of the nation's economic activities. This is the one opportunity that the Chancellor has to halt inflation

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