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House of Commons
Thursday 5 July 1990
The House met at half-past Two o'clock
PRAYERS
[Mr. Speaker-- in the Chair ]
PRIVATE BUSINESS
Associated British Ports (No. 2) Bill
(By Order) Order read for resuming adjourned debate on Question proposed [25 June],
That this House doth agree with the Lords in their Amendment to Clause 3, page 3, line 10, to leave out 85' and insert 85E', instead thereof :
Debate further adjourned till Thursday 12 July.
Redbridge London Borough Council Bill
(By Order) Order for consideration of Lords amendment read.
To be considered on Thursday 12 July.
Medway Tunnel Bill
[Lords] (By Order)
Order for Third Reading read.
To be read the Third time on Thursday 12 July.
British Railways (No. 2) Bill
(By Order)
Order for consideration, as amended, read.
To be considered on Thursday 12 July.
Birmingham City Council
(No. 2) Bill-- (By Order) Order read for resuming adjourned debate on Question proposed [26 February],
That the Bill be now considered.
Debate further adjourned till Thursday 12 July.
London Underground Bill
(By Order)
Order for Second Reading read.
To be read a Second time on Thursday 12 July at Seven o'clock.
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Mr. Speaker : As the remaining nine private Bills set down for Second Reading have blocking motions, with the leave of the House I shall put them as a single group.
Great Yarmouth Port Authority Bill
[Lords] (By Order)
Port of Tyne Bill
[Lords] (By Order)
Heathrow Express Railway Bill
[Lords] (By Order)
Cattewater Reclamation Bill
(By Order)
Vale of Glamorgan (Barry Harbour) Bill
[Lords] (By Order) Orders for Second Reading read.
To be read a Second time on Thursday 12 July.
London Regional Transport (Penalty Fares) Bill
(By Order) Order read for resuming adjourned debate on Question proposed [10 May],
That the Bill be now read a Second time.
Debate further adjourned till Thursday 12 July.
Southampton Rapid Transit Bill
[Lords] (By Order) Order for Second Reading read.
To be read a Second time on Thursday 12 July.
Exmouth Docks Bill
(By Order)
Order read for resuming adjourned debate on Question proposed [29 March],
That the Bill be now read a Second time.
Debate further adjourned till Thursday 12 July.
Killingholme Generating Stations (Ancillary Powers) Bill
[Lords] (By Order)
Order for Second Reading read.
To be read a Second time on Thursday 12 July.
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Oral Answers to Questions
NATIONAL FINANCE
Bank Loans
1. Sir Robert McCrindle : To ask the Chancellor of the Exchequer what reaction he has obtained to his appeal to the banks for greater care in offering loans to their customers.
The Chancellor of the Exchequer (Mr. John Major) : My remarks on the marketing of credit were addressed to all the lending institutions. There are encouraging signs that they are taking the matter very seriously.
Sir Robert McCrindle : While welcoming the recent attention paid to that important matter by my right hon. Friend, may I ask whether he is as concerned as I am by the recently issued figures showing that credit is still far from being under control? Does he accept that the financial institutions still engage in practices that pressurise people into effecting credit and that are far from the traditional practices in some corners of the City of London?
Has my right hon. Friend given any consideration, even at this late stage, to the possibility that the banks and building societies should be required, on a temporary basis, to make special deposits with the Treasury, thereby limiting their opportunities to encourage people to engage in irresponsible credit-taking?
Mr. Major : I congratulate my hon. Friend on his well-deserved honour in the recent birthday honours list which will give considerable pleasure to his many friends.
On my hon. Friend's specific points, I confirm that I share his view that the volume of credit being advanced is still higher than I would wish. That means that we will retain a level of interest rates higher than it would be otherwise. On his advocacy of special deposits, I feel that, alas, their disadvantage is that their practical effect might be to raise rather than to reduce interest rates which would be difficult territory. The prime difficulty with the activities of lenders lies not with the banks or building societies, but elsewhere. Sir Gordon Borrie, the Director General of Fair Trading, has expressed his view on that matter.
Mr. Robert Sheldon : Is not it clear that the policy of relying on a single instrument for the control of credit is not working? Should not the right hon. Gentleman pay more attention to the hon. Member for Brentwood and Ongar (Sir R. McCrindle) and think more seriously about proper credit controls, rather than rely on a weak form of exhortation?
Mr. Major : My recent speeches were related not to credit controls, but to the marketing of credit. Credit controls are a separate matter. Although I understand the right hon. Gentleman's advocacy of them, I do not believe that a deregulated economy without exchange controls would be even remotely effective.
Mr. Beaumont-Dark : Does my right hon. Friend accept that when he appeared before the Treasury Select Committee, some hon. Members pointed out that organisations like the Halifax building society were
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making offers such as, "Take a second mortgage and have the trip of a lifetime round the world"? Many of us are pleased that, at long last, the Treasury is taking the view that long-term investment is good for the country, but that people mortgaging their homes for holidays is the way to financial and economic disaster.Mr. Major : I entirely share my hon. Friend's view. He will be aware that following the Jack report, a code of practice to cover the banks' and building societies' relationships with customers, including credit marketing and the use of confidential information, is being drawn up under the chairmanship of Sir George Blunden. I welcome that and look forward to the code in due course.
Mr. Nicholas Brown : When perfectly sensible suggestions such as those made by hon. Member for Brentwood and Ongar (Sir R. McCrindle) were being put forward by the Opposition, they were derided by Treasury Ministers. Why does the Chancellor believe that the same ideas are now gaining currency among Conservative Members?
Mr. Major : I have yet to hear any sensible ideas emanating from Opposition Front-Bench spokesmen.
Sir William Clark : Will my right hon. Friend resist any suggestion that we should return to the stupidity of special deposits? Does he agree that they will work only if we reintroduce exchange controls which is quite against our economic philosophy and that of the European Community?
Mr. Major : My right hon. Friend touches on an important point, but I reiterate what I said a few moments ago. There is a very real danger that special deposits would have the practical market effect of driving short- term interest rates up, not down.
Balance of Payments
2. Mr. Patchett : To ask the Chancellor of the Exchequer when the monthly balance of payments deficit was last under £1 billion.
3. Mr. Cox : To ask the Chancellor of the Exchequer when the monthly balance of payments deficit was last under £1 billion.
The Chief Secretary to the Treasury (Mr. Norman Lamont) : Last December.
Mr. Patchett : Does not such a high balance of payments deficit need to be financed across the exchange rates? Does not it cause high interest rates? If the Government could control the deficit, would not that contribute to reducing interest rates?
Mr. Lamont : The hon. Gentleman's question referred to the current account, not to the balance of payments which, by definition, cannot be in deficit. I do not believe that the current account deficit is a force for high interest rates. Interest rates are determined largely by domestic factors. The main reason why we need the present level of interest rates is to get on top of inflation.
Mr. Cox : Is the Minister aware that since the last election the balance of payments deficit figures have been utterly appalling? After 10 years of having a Conservative Government in control of our economic affairs, why do we
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have such huge balance of payments deficits, and the highest interest rates and inflation of any comparable western European country?Mr. Lamont : We also get the same questions week after week from the hon. Gentleman. It is a pity that he cannot comment on the highest rate of growth of any EC country other than Spain and that he cannot concentrate on the fact that Britain has had such dramatic investment growth and that our rate of inflation is very much lower than it was when the Labour party was in Government.
Mr. Marlow : Is not one of the reasons that we have a balance of trade deficit the fact that whereas most people would obviously far prefer to buy British goods, which are of far higher quality and much more reliable, many people do not know what is British? For example, did my right hon. Friend know that Sierra and Granada cars are not assembled in Britain? Will he point out to people that if they want to buy a British car, they should take great care to buy British and not foreign-assembled goods?
Mr. Lamont : I am sure that hon. Members will pay attention to what my hon. Friend has said, but the main reason why we have a current account deficit is simply excess demand because of changes in monetary policy in 1987 and not a lack of competitiveness. If it was a lack of competitiveness, we would not be experiencing such a spectacular growth in exports. Exports in the three months to May are up some 11 per cent. compared with the same period a year ago, whereas imports have gone up by only about 4 per cent. So the fundamental and underlying trend is strong and good and our rate of growth in exports now compares very well with any period in our history.
Mr. Nicholas Winterton : Will my right hon. Friend explain to me and the House why the Government do not give manufacturing industry far more encouragement, bearing in mind the fact that manufacturing industry is the only non-inflationary source of economic growth and that in most European Community countries where there is a balance of trade surplus, they have low interest rates and a healthier economy?
Mr. Lamont : I do not know why my hon. Friend--I hope that he is my hon. Friend--does not think that the lowest rate of corporation tax in the western world is of considerable help to manufacturing industry and that the restoration of profits to the highest level for 20 years is not the biggest possible help that can be given to every sector of the economy.
Mrs. Beckett : Is not the hon. Member for Macclesfield (Mr. Winterton) perfectly right : the most worrying aspect of the trade deficit is the continuing high level of imports, particularly of manufactured goods? Since the trade deficit in manufactured goods first appeared under this Government--last year it amounted to £16 billion--is not it time that the Government reconsidered their refusal to take any serious steps to support manufacturing?
Mr. Lamont : I totally reject what the hon. Lady says. As she says, manufacturing is extremely important from the point of view of the external trade balance, but the greatest help that we can give to manufacturing is to have low inflation and good growth. During the past decade we have had a far better combination of those two factors than the Labour party did when it was in government.
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Mr. Butler : If we joined the exchange rate mechanism at broadly the current rates of exchange, would not West Germany be particularly pleased, as that would lock us permanently into a £9 billion deficit?
Mr. Lamont : I certainly do not intend to comment on any particular exchange rate parity and policy on the exchange rate mechanism. My right hon. Friend the Chancellor of the Exchequer has made our position clear.
Inflation (Europe)
4. Mr. Loyden : To ask the Chancellor of the Exchequer how many European countries currently have a higher inflation rate than the United Kingdom.
Mr. Loyden : The Chancellor of the Exchequer and the Prime Minister constantly make claims about the health of Britain's economy, but Britain has the worst inflation rate of the seven most industrially advanced countries. Is not that a disgrace?
Mr. Major : The hon. Gentleman is correct. The rate of inflation is a good deal higher than I would wish it to be, or than it will be in due course. As the hon. Gentleman clearly shares my view, I am surprised that he supports Opposition policies that would raise inflation and keep it high for a very long time.
Mr. Higgins : Is my right hon. Friend aware that we may be giving the impression that our currency is declining in value faster than that of other countries because of the appallingly poor quality of the paper used for the new £5 note? Will he ensure that paper of the proper quality is used and that he does not harmonise in that respect with the other European countries, whose currency notes have always been of far poorer quality than ours?
Mr. Major : My right hon. Friend makes an important point that will be echoed in many quarters.
Mr. John Smith : Does the Chancellor reflect that it is a poor comment on 11 years of Conservative Government that we have the worst rate of inflation of all the G7 countries, and that nine of the European Community countries have a better inflation record than ours? After 11 years in government, is not that a pitiful record?
Mr. Major : The right hon. and learned Gentleman is being typically selective. He has overlooked the greatest growth in investment and productivity and the greatest underlying improvement in the economy over that 10-year period compared with any other nation in Europe.
Mr. Beith : Now that the Chancellor has had an opportunity to discuss with the president of the Bundesbank the working of the anti- inflationary policy, why does he still believe that an autonomous central bank, with responsibility to maintain price stability, has no place in Britain and can be no part of European monetary union?
Mr. Major : For precisely the same reasons as I have explained to the hon. Gentleman.
Mr. Ian Stewart : With the approach of 1992 and the greater harmonisation of many activities in Britain and the other member states of the European Community, will my right hon. Friend give serious and urgent consideration to
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introducing a more reasonable and equivalent measure of inflation than the retail prices index, which is quite unlike the measure used in other European countries? The inclusion of mortgage interest rates greatly exaggerates the supposed rate of inflation, although interest rates are raised to reduce inflation. Does my right hon. Friend accept that the sooner that change is made the better, particularly so that comparisons with other Community countries can be more realistically understood outside the House?Mr. Major : My right hon. Friend is entirely correct that, on a more comparable basis that takes account of the differing factors in the relative inflation measures, the more correct rate of inflation in the United Kingdom is about 7 per cent., compared with a European Community average of about 5 per cent. He made an important point.
Value Added Tax
5. Mr. Skinner : To ask the Chancellor of the Exchequer what a family with two children on average earnings paid in a year in value added tax in 1978-79 and in 1989-90.
The Economic Secretary to the Treasury (Mr. Richard Ryder) : Approximately 2.7 per cent. of gross earnings and 5 per cent. respectively.
Mr. Skinner : Is the Minister aware that, for an average family with two children, that represents an increase of £364 a year over the figure that applied in 1979, when this wicked Government came in? Why does not he tell the truth, the whole truth and nothing but the truth about total taxation? Why does not he tell the British people that total taxes have increased from 34 to 37 per cent. under this Government? Instead of ripping off pensioners with value added tax, why does not he claw back the £26.2 billion that the wealthiest 1 per cent. in Britain have had from the Government in the past 10 years?
Mr. Ryder : The hon. Gentleman's remarks were based on a working man with two children.
Mr. Ryder : The truth is that the take-home pay of a working man with two children has risen by 34 per cent. in real terms since the Government took office. Under the Labour Government, it rose by a measly 1 per cent.
Mr. William Powell : When my hon. Friend is telling the nation about the effects of VAT and the tax burden will he remind our people that the Labour party has a habit of inventing new indirect taxes, such as selective employment tax, which add considerably to the burdens of our taxpayers?
Mr. Ryder : My hon. Friend is right, and we look forward to receiving the full details of the new taxes that the Labour party would impose if it ever took office.
Dr. Marek : Will the Economic Secretary confirm that the Government are good at inventing new taxes and increasing indirect taxes--for example, almost doubling VAT, increasing national insurance contributions and inventing the poll tax? Will he confirm that the burden of taxation has increased under his Administration, and will he admit that the Conservatives are the high-tax party and that Labour is the low-tax party? Will he further admit,
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without squirming, that the rich have benefited from cuts in income tax in the past 10 years which have not compensated for the increases in indirect taxation, whereas those who have no jobs or low-paid jobs have borne the brunt of the Government's disastrous tax policies?Mr. Ryder : The hon. Gentleman asked several questions. The Labour party has four new taxes planned for Scotland alone. The contribution to the Revenue of the top 5 per cent. of income tax payers has risen by more than a quarter since 1979. The hon. Gentleman made several other claims about taxation. The truth is that if the Labour party ever took office it would need to raise taxes enormously to pay for the pledges made by the hon. Gentleman and his hon. Friends.
Sir Anthony Grant : Does my hon. Friend agree that the figures merely show that there has been a shift from direct taxation, which is a tax on work, to indirect taxation, which is a tax on spending? Was not that policy precisely the one on which the Government were overwhelmingly elected to office in 1979?
Mr. Ryder : I agree entirely with my hon. Friend. The policy is based on the extension of the freedom to choose. That was the reason why we made that change in 1979.
Inflation
6. Mr. Alfred Morris : To ask the Chancellor of the Exchequer what is the underlying rate of inflation.
Mr. Ryder : There are a number of ways of estimating the underlying rate of inflation. As measured by the RPI, excluding mortgage interest payments and the community charge, it was 7 per cent. in May.
Mr. Morris : Will the Minister confirm that the measure of the RPI which excludes mortgage interest payments is now at its highest level since July 1982? Why do some Conservatives now try also to exclude the poll tax from the calculation? Is not this very unfair on people with special needs, not least the many severely disabled people who are now paying over £700 more in poll tax than they paid in rates, due to the repeal of Labour's Rating (Disabled Persons) Act 1978?
Mr. Ryder : I had a hunch that the right hon. Gentleman would raise the question of the disabled, so before I came here, I looked up the figures. In 1989-90 the Government will spend £8.3 billion on the disabled, an increase of £4 billion in real terms since 1979 when the right hon. Gentleman was responsible for disabled people.
Mr. Michael Brown : Will my hon. Friend give the House some idea what the level of inflation would be if it were calculated on the same basis as for our European Community partners?
Mr. Ryder : The only other country in the European Community that counts mortgage interest payments in its RPI is Ireland. Our figures would be far lower if mortgage interest rates did not count towards the RPI.
Monetary Integration
7. Mr. Spearing : To ask the Chancellor of the Exchequer when, and in what year, he placed his proposals for further monetary integration within the European Community before its Council of Ministers.
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Mr. Major : I have not yet done so, but I expect to discuss it later this month.Mr. Spearing : I thank the Chancellor of the Exchequer for that reply, especially as the question should have been "in what form", not "in what year". Does the Chancellor agree that in an authority that was charged with the responsibility of supervising a common currency, there would be some responsibility for the economy of the area over which that currency was dominant? If that supervising authority is to be accountable, should it be answering questions only to a person or body who must lump it or like it, or should it be accountable to a body that can do something about it? Will the right hon. Gentleman's paper address the distinction between the two types of accountability and which form do the Government prefer?
Mr. Major : I certainly concur with the hon. Gentleman's view that the question of precisely what accountability means and to whom will be critical in future debates in the intergovernmental conference and elsewhere on economic and monetary union--whatever sort may emerge in the European Community. As the hon. Gentleman knows, the Government do not believe that the Delors prescription for stage 3, with its single central bank, its single monetary policy and its present lack of accountability, is a concept acceptable to the House of Commons. I will carry that view to all my fellow Finance Ministers.
Mr. John Townend : Does my right hon. Friend agree that his proposal that the hard ecu should be accompanied by a European monetary fund which could require central banks to repurchase their own currencies with the ecu or equivalent hard currencies would be a powerful sanction against lax monetary policy and, as such, could be the beginning of an embryonic European federal bank?
Mr. Major : I agree that the hard ecu would be the most effective counter-inflation currency yet devised and, for that reason, may commend itself to people in future years. The essence of my scheme for a hard ecu is that it is optional, evolutionary and gradualist. That is an immense improvement on what is presently on offer in the Delors report.
Mr. Bell : In relation to monetary integration, does the Chancellor of the Exchequer recall the remark of Sir Alan Walters that by joining the exchange rate mechanism, currency speculators could force a realignment of the pound--and thus a devaluation--and take us back to the stop-go policies of the 1960s? In anticipation of our joining the exchange rate mechanism, has not the pound increased in value? How does the Chancellor reconcile the views of Sir Alan Walters with the pound's stability now?
Mr. Major : I see no particular reason why I should. My view about the exchange rate mechanism is entirely clear--I believe it to be in the interests of the country to join, and in due course, when the conditions that we have set out are met, we will most certainly join.
Mr. Dykes : As the independent central bank has been so spectacularly successful in Germany, and as a similar mechaism is now proposed for the European Community, why are the Government, who are anxious to counter inflation, so timid about the suggestion?
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Mr. Major : I certainly do not accept that we are timid about countering inflation or that there is a necessary parallel between the activities of the Bundesbank and the German national legislature, and the position of the Bank of England and our legislature. It is my clear view--I regret that my hon. Friend does not share it--that the man or woman responsible for monetary policy should be available to the House of Commons to answer for his or her policies.
Scientific Research
8. Mr. Dalyell : To ask the Chancellor of the Exchequer if he will introduce fiscal measures to benefit scientific research.
The Financial Secretary to the Treasury (Mr. Peter Lilley) : There is already a generous tax relief for capital expenditure on scientific research related to a company's trade, which is fully relieved by a special 100 per cent. capital allowance.
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