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Mr. D. N. Campbell-Savours (Workington) : Has Mr. Leigh-Pemberton made any representations to the Government about a pre-election boom?

Mr. Major : I think that the conduct of monetary policy, and economic policy generally, is a matter for the Chancellor of the Exchequer and not for the Governor of the Bank of England, however distinguished. Moreover, Mr. Leigh-Pemberton's discussions with me, whatever


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they may contain, are a matter for Mr. Leigh -Pemberton and me and not for the hon. Gentleman. [ Hon. Members :-- "Steady, steady."] I am entirely steady and, as I have been reminded of the matter, I still look forward to the Leader of the Opposition telling me the time and the place at which he voiced that extremely interesting proposition. I know that some people who are struggling with high interest rates may think that nothing could be worse, but the banana republic rates of inflation in the 1970s were definitely worse. To return to that at a time when--once inflationary problems are stripped away--the prospects in every other respect are extremely promising would be quite unforgivable. Under the right hon. and learned Gentleman's prescriptions, of course, a return to high inflation would be inevitable, for reasons to which I shall come in a moment. If the right hon. and learned Gentleman will forgive me for saying so, the leopard has certainly not changed its spots, even if it has developed a Scottish accent.

I find it truly astonishing that the right hon. and learned Gentleman argues for a let-up on inflation--that is implicit in what he says--on the grounds that that is what business wants and needs. That is the way in which the Labour Government acted and we saw what that did to the condition of British industry. The success that British business men and women have made of their enterprises in the past decade has represented the clearest possible rejection of the misguided economic policies and industrial strategies that the Labour party left to us in 1979. Individual business men and women have shown beyond a doubt the results that can be achieved if Governments spend less time interfering, less time regulating and less time feather-bedding them.

It was precisely because the Labour Government neglected their real duties that business and commerce entered the 1980s in such a fragile and pathetic state. Contrast that with the resilience of the economy today : even with interest rates in double figures for two years, business starts still exceed stops by a massive margin, week after week. That is the clearest illustration of the revitalisation of British industry. We have more people in work than ever before. We have managed to halt decades of decline in our share of world trade, actually increasing it in the past year. None of those points managed to find a place in the right hon. and learned Gentleman's familiar speech, but I offer them to him for the future.

The strong growth in exports over the past year, itself a result of strong investment in recent years, is, in my judgment, the best possible omen for the long-term future of the British economy. I note that the right hon. and learned Gentleman made no acknowledgement of that performance, although I am sure that he would welcome it. Our performance did not fit in with the picture of doom and gloom that the right hon. and learned Gentleman sought to paint. As I said a moment ago, in response to a sedentary comment, in the past few months, British exports have been growing five times as fast as imports. In fact, exports have been growing faster than imports for the past 10 consecutive months.

For the future, the prospects opening up in the single market in the next few years will massively increase the opportunities for British firms to trade abroad. There is still more to come as we free up the areas that remain for the completion of the single market. There is still a considerable amount to be done to achieve that. It is in no sense a remit that we can put on the back burner. Britain


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is determined to make sure that the laggards in the Community--and we are not among the laggards when it comes to implementing Community directives--keep up with implementing the single market measures and do so with all possible speed.

We face even more far-reaching questions as we consider proposals by our Community partners to enhance economic and monetary integration beyond what has become known as stage 1. There is not a shred of doubt in my mind that at present that is the most important issue facing the whole Community. But so far, the debate in Europe has not fully covered the many important issues at stake, and in the months to come, we are determined to ensure that it does. There are undoubtedly significant points of disagreement within the Community about how we progress beyond stage 1. But I believe that there are some important areas of general agreement. First, we agree that it is desirable to move forward together--if we can.

Secondly, I believe that it is generally accepted that to make a premature attempt to introduce monetary union while levels of inflation in the Community are as disparate as at present and before we have much more flexible markets would be to risk great strains and tensions.

Thirdly, I think that we all share the ultimate aims of greater price and currency stability and more fully integrated economies. We think that it is essential to bring out the key criteria that we should be aiming to meet as we examine options. We believe that it is desirable to achieve a greater economic convergence on the performance of the best in the Community. We must also respect the principle of subsidiarity which--to avoid doubt in anyone's mind--specifically means that nothing should be done at Community level that could better be done at national level. Above all, there is an overriding need to ensure that any future arrangements have a strong anti- inflationary character.

The proposals that we have developed, which are now being studied across the Community, will, I believe, meet those criteria, and we shall be advancing them very forcefully throughout the coming months. The United Kingdom's proposed approach centres on the creation of a new anti- inflationary currency, which we have called the hard ecu, and which would be managed by a new Community institution, a European monetary fund.

We believe that the hard ecu would provide an attractive common currency for the whole Community. It would be for people, businesses, and Governments to choose whether and how much they wished to use it. Our approach is new and different in one important respect from the parallel currency proposals that were examined and rejected by the Delors committee : it has been designed in a way that would strengthen, not weaken, the anti -inflationary forces in the Community. It could not lead to extra money creation. We believe that that is essential, since the concern that a parallel currency would lead to undue growth in the money supply is a legitimate one, which we share.

First, the new currency would be part of the exchange rate mechanism, but, by definition, it would never be devalued at exchange rate mechanism realignments against any European Community currency. It would therefore set a stiff standard of competition for national monetary policies and would reinforce monetary discipline.


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Secondly, the hard ecu could be purchased only by surrendering national currencies. Thirdly, the requirement on national central banks to buy back national currency from the European monetary fund would oblige them to run a tight ship. This is a novel requirement which was not considered when previous parallel currency ideas were floated.

Mr. John Smith : And rejected.

Mr. Major : And rejected for good reasons--that absent from the proposals were many of the features that are included in the proposals that we have now put forward. It was right to reject those ideas.

Our proposal avoids falling into the trap of blurring responsibilities for monetary policy. Responsibility for the hard ecu would clearly lie with the European monetary fund, while national monetary authorities would still retain overall responsibility for their own currencies. In particular--this is a point that I shall be making very clear to my colleagues in other European nations--our proposals respect the roles of national Parliaments and, as such, are entirely in tune with the overwhelming consensus in this Parliament, as expressed in our debate on these matters last November.

Mr. David Howell (Guildford) : Is not my right hon. Friend right to emphasise that the scheme he is outlining is for the whole Community? Would not the alternative idea of a single Eurofed currency certainly exclude some countries whose convergence with the Community's monetary policy had not been fully achieved, which would lead to the divisive two-tier Europe that most good Europeans do not want?

Mr. Major : I agree entirely with my right hon. Friend. It would either exclude some Community countries or, if they were included, create considerable economic turbulence within the Community. On that basis, therefore, they would clearly in reality be excluded, as my right hon. Friend said.

Mr. Brian Sedgemore (Hackney, South and Shoreditch) : Does the Chancellor agree that if there were to be genuine competition between the pound and the hard ecu, the hard ecu would need to have the same legal status, the same access and the same ability to be transferred, which would lead to the hard ecu having to be made legal tender? Will the Chancellor confirm that in answer to me he said that the hard ecu would not be made legal tender?

Mr. Major : The hard ecu does not have to be made legal tender in any member state of the Community. If, however, it were to be adopted, many states might choose to make it legal tender. Provided that it were accepted by the parties who consented to a transaction, the hard ecu could perfectly legally be utilised without formally being made legal tender. I suspect that the hon. Gentleman and I may be able to debate this matter at length at the meeting tomorrow of the Treasury and Civil Service Select Committee. I much look forward to that bi-annual encounter.

On the point of our debate last November, there seems to be some common ground between us and a number of Opposition Members. I find it not surprising, although perhaps a little sad, that there is little common ground between us anywhere else. There is certainly no common ground between the parties on public expenditure. Despite


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the appearance of rectitude and virtue that the right hon. and learned Member for Monklands, East seeks to establish, shadow Ministers vie with one another almost daily to pile up more and more spending pledges.

The hon. Member for Derby, South (Mrs. Beckett) made a valiant effort, but her claim that Labour has only two spending commitments--increased child benefit and higher retirement pensions--is, frankly, ludicrous. She says that other spending proposals would be fulfilled only when the money was there. She knows, as everybody else knows, that she has no chance whatsoever of convincing the country of that while the leader of her party, the shadow Chancellor and assorted colleagues implicitly and explicitly commit themselves to extra spending in nearly every speech that they make. The right hon. and learned Gentleman referred to the restoration of cuts, but he must surely realise that to restore something means that expenditure must be increased from its present level. Even today he referred to the restoration of expenditure.

The hon. Lady's trenchant message clearly has not got through to her spending colleagues in the shadow Cabinet. With the solitary exception of the armed forces--and how well we understand that--all Labour spokesmen shadowing a spending Department have promised massive increases in expenditure for their client groups. They have not told us, of course, where the money is to come from. In essence, however, it can come from only two places. It can be funded by increased borrowing, with inevitably higher interest rates, or by increased taxation. We know some of the bad news already. The Opposition are pledged to phase out the married couple's income tax allowance. That would make every married couple in the country worse off. Labour would abolish the upper earnings limit on national insurance, thereby making nearly 3.5 million people worse off.

Mr. John Smith : Where does the Chancellor get that from?

Mr. Major : I get it from the right hon. and learned Gentleman's own commitments.

That would add 9 per cent. to the marginal tax rates of nearly 3.5 million people. Labour would extend national insurance to what it has the temerity to refer to--rather inelegantly, I think--as unearned income : what the man in the Monklands high street might conceivably call savings. So much for the encouragement of thrift.

Mr. Smith : Apart from the fact that there is no Monklands high street--the Chancellor ought to understand that it is a district, not a town--on the question of the upper earnings limit for employees national insurance contributions, what is the justification for asking everybody earning up to £18,200 to pay national insurance on the whole of their salary while those who earn more than £18,200 pay national insurance only on part of their salary, with employers having to pay it in every respect?

Mr. Major : The progressive nature of taxation is in the income tax system, not in the national insurance system, and has been there from the moment that the scheme was first conceived. I apologise to the right hon. and learned Gentleman for having assumed that there was a


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Monklands high street. I now know that there is not, although the right hon. and learned Gentleman no doubt wishes that there were. What is perfectly clear from the right hon. and learned Gentleman's policies is that his message to the individual is to spend now and pay later--just like Labour's policies would be as a Government. We know precisely where their policies landed us last time.

The fact is that, if Labour spends as it promises to do, it cannot tax as it implies. I hope that the right hon. and learned Gentleman will absorb that point. If Labour sticks to its tax pledge, its spending pledges are meaningless, for the two are wholly irreconcilable. If they are not irreconcilable, let the Opposition show us their arithmetic. If they cannot do so, we shall assume that the Opposition would do what they have always done : have their hands in taxpayers' pockets more often than taxpayers have their hands in their own pockets. That is precisely the way in which Labour Governments have always behaved.

The Labour party called this debate out of a mixture of timidity and desperation--timidity because it was too timid and nervous to call a censure motion, desperation because its fleeting hopes of last spring are disappearing before its eyes.

Mr. Sedgemore : Go on ; let us have more of this.

Mr. Major : Yes, there is more of it. The hon. Gentleman, who clearly had an extremely good lunch, must know that in their heart of hearts the Opposition realise that they will not win and that they cannot win. The Opposition have seen their best days in this Parliament and they have now passed.

When inflation comes down, as it will ; when, in due course, interest rates can prudently be brought down, as they will be ; when 11 years' improvement to the economy brings more prosperity, as it undoubtedly will, the electorate will know where to turn. They will put their trust, once again, in a Government who believe in the market rather than in paying lip service to it ; a Government who deliver freedom rather than just talk about it, and a Government who can deliver prosperity rather than seeking merely to redistribute it. That is why, after the next election, Opposition Members will be precisely where they are now--opposite--and Conservative Members will be on the Government Benches.

5.10 pm

Mr. John Battle (Leeds, West) : Despite the television coverage of our proceedings in the House and the need to cultivate our media personalities, a curious paradox seems to be emerging in our politics which could be encapsulated in the words, "Whatever you say, say nothing." That is precisely what the Chancellor has done today and it is precisely what the former Secretary of State for Trade and Industry, the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley), discovered to his cost from the article in The Spectator. I was interested to note on the midday television news yesterday that, when asked to comment on the deteriorating trade figures, the Chancellor had nothing to say. The Chancellor does not seem to have a word to say either to those who have lost their jobs in the basic manufacturing, textile and engineering industries. I suspect that it is the silences, the gaps, the absences in


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Government statements, press releases and the words of Ministers, that show the real underside of the Government's economic policies. Has the Chancellor nothing to say about the increasing unemployment that is becoming a daily experience with closures and redundancies in many constituencies? We now have the new Cityspeak, with redundancies being described by the euphemism "down sizing". For real people it means losing their source of income.

On 14 June the Department of Employment issued a press notice which said :

"The rise in unemployment is not unexpected".

It went on to say that unemployment in Yorkshire and Humberside is falling. But according to the figures in the Library, at the same time the rate in my constituency was increasing. It had risen to 6.9 per cent. If we take into account the 30 changes in calculating unemployment figures, the real rate in my constituency is 10.4 per cent.--4,478 people without full-time work. That is double the Government's figures of 2,965, twice the rate that the Government calculate and, I assume, on which they base their policies. Has the Chancellor nothing to say? Perhaps he has said nothing about unemployment because unemployment has never been a priority, an election issue, with the Conservative party in the past. The unemployed can simply be written off because they cannot determine the outcome of an election. Their stake in an election is too low. The unemployed do not matter. They can be made, statistically, to disappear.

I am interested that the Chancellor had nothing to say today about the increase in poverty. He gave not a word of apology for the fact that the Government have repeatedly used figures in the House against our arguments which they have now revealed to be completely wrong and misleading. Only yesterday, a document entitled "Households Below Average Income 1981-87" was published which showed that the number of people living on less than half average income rose by 50 per cent. to 7.7 million in the two years 1985-87.

When they are discussing a policy for the family, I hope that the Chancellor will remind the Prime Minister that in 1981 the number of children living in households on below average income was 1.8 million. In 1987, it was 2.4 million--20 per cent. of children. If we were to look at the facts of poverty, we might start to have policies for the family which address that issue rather than the rhetoric that we have heard in recent weeks.

The facts in the document "Households Below Average Income" show that, in 1979, 9.4 per cent. of the population had incomes below half the average. In 1987, 19.4 per cent. of the population had incomes below half the average. The poorest 10 per cent. saw their real incomes reduced by almost 6 per cent., and that in the face of the overall average going up some 23 per cent.

Mr. Anthony Nelson (Chichester) : To put the figures in context, will the hon. Gentleman say what the average incomes were in the two years to which he refers, and what the real increase in average incomes was during that period?

Mr. Battle : The hon. Gentleman will be aware that the average income was £239 a week, well above the incomes of many of my constituents. They would be glad to be on the average income. The Government base their calculations on averages, but some Conservative Members


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do not seem to realise that, if incomes at the top go up, they will pull that average up at precisely the same time as the incomes at the bottom are going down. They have a Heineken theory of economics. It is as though the adverts have taken on real life.

The document "Households Below Average Income" shows beyond a shadow of doubt that there has been no trickle-down effect in our society, by which with wealth generated in our economy is supposed to reach the poorest. The Government used to claim--the hon. Gentleman might care to reflect on this- -that the incomes of the poorest 10 per cent. grew faster than those of the rest of the population. Then, in a footnote to a written parliamentary question, it was revealed that the statistical basis of that calculation was wrong and that the incomes of the poorest 10 per cent. did not grow as fast as those of the rest of the population.

It may be of interest to hon. Members to know that annexe 1, table d, of "Households Below Average Income" shows that the real income of the poorest 10 per cent. between 1979 and 1987 was--wait for it--minus 5.7 per cent. ; in other words, a reduction in income, not an increase, as my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) made plain. How can we hide that behind the euphemism that their incomes are increasing less rapidly? They are decreasing, yet the Government's press release which accompanied the publication of that document yesterday claimed :

"More people had below half the average 1987 income, reflecting a wider income distribution."

What a euphemism for the fact that the rich are getting richer and the poor poorer. At last the Government acknowledge the fact, but the next Labour Government will be looking for policies which address that fact.

We effectively have two Budgets. We have the real Budget and we have a statement on benefits some time in advance of that each winter which has always reduced the incomes of the poorest. Yet the Chancellor has the nerve to tell us today that £4 billion of public money was given back in tax cuts and that is now seen to have been a mistake by the former Chancellor of the Exchequer.

Yesterday, the first edition of the new Treasury bulletin was published, for which we are grateful. In the foreword to that document the Chancellor says :

"It is important for public debate that we have accurate statistics and accurate information."

I urge the Chancellor to insist that such accuracy should apply to press releases, answers to written questions and answers at the Dispatch Box. It is all right for Mr. Jim Hibberd, who works for the Treasury, to point out in that bulletin that there were misleading indicators which

"clearly underestimated the buoyancy of the economy."

That underestimate may have misled the former Chancellor of the Exchequer. It also resulted in millions in Britain paying the price for this Government's economic policies and in the rash, tax-cutting, classic Tory, old-fashioned methods which unleashed the consumer boom for which this Chancellor is now having to pick up the pieces. I noticed that the Treasury bulletin also said that there would now need to be "judgmental revision". I hope that that does not mean that we shall be told that the Government will make judgments about unemployed people. I also hope that that does not mean that the decision will be, as was suggested by one of the institutes,


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that the unemployed should no longer receive unemployment benefit and that people should take out private insurance against times when they might lose their jobs. There would, in other words, be no unemployment benefit as a basic national social security cover. The Treasury is forcing people to pay the price for the decisions of the previous Chancellor.

Over the past 10 years, we have experienced the sustained and systematic statistical abolition of poverty, unemployment, low pay and housing need. Blindness has been deliberately fostered in Government policy to the very existence of the unemployed and of the poor as real people. There has been an insistent silence when appeals have been made to tackle the increasing structural poverty in our society. There have been denials that the divisions have been increasing.

The Treasury bulletin says :

"There are clearly very different stories".

I hope that Conservative Members will listen carefully to some of the stories that they may hear in the recess from their constituents who struggle to pay their mortgages, struggle to pay the poll tax and struggle to find homes that are appropriate to their needs. The poor should not be derided as freeloaders, as one Minister referred to them recently in a televison interview on the poll tax. It may not occur to Ministers when they say that people on rebates are freeloaders that they receive a rebate precisely because their income is too low to enable them to pay their own way. The Government should raise their incomes and we might then tackle the problem of rebates. I remind Conservative Members before they go on television and castigate the poor as freeloaders that the poor are all means-tested before they have access to those rebates.

It is fair to point out that the Chancellor did not refer to the unemployed or to the poor. However, he also says nothing about the report in the Financial Times yesterday that, according to the latest surveys, Britain's managers are all on course for a 13 per cent. rise in total pay. The Chancellor says nothing about the fact that former state-owned organisations reacted to their newly found private status by awarding large increases in earnings to their best-paid directors. In four of them-- Enterprise Oil, British Airways, the British Airports Authority and Jaguar- -the directors all received an initial year's increase in salary of 100 per cent. The Chancellor says nothing about the recent report on City fringe benefits, which include that special perk of a cheap 5 per cent. mortgage. This year alone, for 200,000 people it is estimated to be worth£380 million. The Chancellor says little about how the£91 billion benefits of North sea oil revenues of the past decade, which the Government had at their disposal, have been squandered.

The Chancellor has nothing to say about the recent regional inequality. The regional trends survey published this month showed a widening of the north- south division in terms of regional differences in income, share ownership and the growth in second jobs. The number of people with second jobs increased massively in the

south-east--between 1981 and 1988 it increased from 162,000 to more than 300,000. The increase in second jobs is far smaller in Yorkshire and Humberside. The increase in income disparity between 1985 and 1988 was 30 per cent. per head in the south-east, 32 per cent. per head in the south- west and 24 per cent. in Yorkshire and Humberside. If we use


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an index under which national average income is taken as 100 in 1988, the south comes out at 117, and Yorkshire and Humberside at 89.9, lowest of all and only just above the figures for Northern Ireland. The region that I represent is a low-wage, part-time job area and the Government's policies are intent on keeping it that way.

The Chancellor may be quietly trying to lay the ghost of Professor Sir Alan Walters. The new Treasury bulletin says that the Central Statistical Office will be shifted from the Cabinet Office to the Treasury. The Prime Minister may be quietly undermining that strategy by ensuring that one of the Chancellor's new junior Ministers is a member of the "No Turning Back" group. What characterises that group is that it has a classic formula for turning its back on whole sections of the British population.

When a Government adopt a policy of "whatever you say, say nothing", I am reminded of a comment that was shouted out by Conservative Members about the phrase in the United States election, "Watch my lips". That is the say nothing politics and the ultimate in economic and political body language of 1988. What happened? Last month, President Bush carried out that long- awaited U-turn. He acknowledged that he needed to increase some taxes to bring his runaway budget deficit under control. There will now be new taxes and it is interesting to note that they will be indirect taxes, which are precisely the taxes about which this Government forget to tell the people. They have increased indirect taxes to almost double the level that they were when they came into office.

The people of Britain should be reminded that the overall tax burden of personal tax under this Government has risen from 34 per cent., which it was under Labour, to 37 per cent. of personal income. Yet the Chancellor has nothing to say about the fact that people are paying more tax now. The Government still deny that the Tories tax people ; that is not even to be whispered.

The time of the monetarists and of the Chicago school has come and gone. I hope that, when we have a new Chancellor in a Labour Government, the policies of this Government will be rejected and that those who have been marginalised and left out of the Budget will be included.

5.26 pm

Mr. Tim Smith (Beaconsfield) : I congratulate my hon. Friend the Economic Secretary on his appointment to the Treasury Bench. I met one of his constituents last night who was bathing in the reflected glory. His constituents have every right to be proud, as he will make a most valuable addition to the Treasury team.

I also congratulate my right hon. Friend the Chancellor of the Exchequer on his speech. I congratulate him especially for one reason. He succeeded in ensuring that the Leader of the Opposition finally conceded that, in late 1987 and early 1988, the Opposition called for substantial cuts in interest rates. I recall that a motion on the Order Paper at that time set out that demand. Everything that the right hon. and learned Member for Monklands, East (Mr. Smith) says now should be seen in that light. There is no credibility in his position now because of his position then. If we had followed his policies then, we should have been back to the 27 per cent. or 28 per cent. inflation that we had in 1975-76. We should have had a complete re-run of the record of the previous Labour Government. We should address ourselves to that record and to the right hon. and learned Gentleman's words at that time, and not


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to the hot air earlier in this debate, with little specific information about what he would do to address the country's current problems.

Although the right hon. and learned Gentleman rather pooh-poohed this, there is an important point about the construction of the retail prices index. When the index looks at housing costs, it concentrates on mortgage interest and not on house prices. If house prices were included in the index, we should have had an earlier sign of the inflationary problems to come. Rising house prices are in themselves a useful early sign of coming inflationary problems. If we gave more weight to house prices in the RPI, that would give a better impression of inflationary trends in the economy.

Another important reason why we should address that problem is that the figures that the right hon. and learned Gentleman quoted, as the Chancellor said, are not comparable. Rates throughout the rest of the EC show that the inflation indices of other countries are compiled on a different basis, a subject which the Public Accounts Committee examined recently and to which, in due course, the Retail Prices Index Advisory Committee will have to return.

We must consider the construction of the index in relation to the community charge. The reference on the community charge was made to the advisory committee before transitional relief was announced in the autumn of last year. As a result, the decision to take no account of transitional relief was made not by that committee but by the Central Statistical Office.

It is wrong not to take account of transitional relief, because it is not an income-related relief. It is available automatically to people, regardless of their income, depending on the rateable value of their homes under the previous arrangements. I hope that Treasury Ministers will examine that point, because the committee will soon be publishing a report recommending that the matter be referred to the RPI advisory committee.

I am glad that the hon. Member for Leeds, West (Mr. Battle) has taken part in the debate, because he was unwell recently and was unable to attend some of the Standing Committee meetings on the Finance Bill. I am pleased to see that he is better. He said that Conservatives did not care about unemployment. To suggest that a Government who have presided over a larger increase in the number of jobs in the economy do not care about people without jobs is absurd. We also share the concern that the hon. Gentleman expressed about people on low incomes. What better solution is there to unemployment or low incomes than to create more jobs? More people now have jobs, providing them with a standard of living that they have not previously enjoyed.

Mr. Battle : I thank the hon. Gentleman for his kind remarks. Although the Government claim that the total number of jobs has increased, that may be because part-time jobs are included in the statistics. Is it not a fact that the total number of unemployed people has been consistently high under Conservative rule, higher than was ever the case under Labour? In other words, there are more people unemployed now, even though more people may be working in part-time jobs.


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Mr. Smith : I would not dismiss part-time jobs as of no value. They are not normally the sole source of a household's income. Indeed, a second earner normally has the part-time job, and such jobs provide a considerable improvement in the standard of living of the avarage family. In the last 10 years, average earnings of the average man with two children have risen by about 30 per cent. That has been an outstanding achievement, especially compared with the situation under the last Labour Government, when the increase was only 1 or 2 per cent. over six years.

I am sorry that the hon. Member for Leeds, West derided the performance of some privatised companies. Privatisation has made a tremendous contribution to the supply side of the economy in recent years. A major improvement during those years has occurred in productivity. The Library recently published a background paper which examined British manufacturing productivity. A table on page 1 showed that, from 1980 to the third quarter of 1989, manufacturing productivity in the United Kingdom rose by 28.5 per cent. whereas the figure for West Germany, about which the hon. Gentleman made such a song and dance, was 13 per cent.

I appreciate that we are still some way behind, but we have narrowed the gap considerably. One example--admittedly an outstanding one, but it is worth considering the best--is the record of the British Steel Corporation, and that document looked into its performance. There are three reasons for the huge increase in manufacturing productivity. The first is the restructuring of British industry, so that it is more efficient. The second is the much higher rate of capital investment--and the main source of funds for that investment has been retained profits, with profits now back at levels not seen since the early 1960s. The third is the degree of improved capacity usage.

That record has been aided and abetted by the many supply side changes that the Government have made in the last 11 years. For example, we have not interfered with business. We have got off the backs of business and have allowed management to manage. I believe that to be the main reason for privatising companies--getting rid of unnecessary bureaucratic regulations.

Also important has been our low corporation tax regime since 1984. That has been attractive for investors at home and abroad. Another factor was drawn to my attention at lunchtime by a business man who said, when I told him that I would speak in the debate, "Don't forget to mention the massive improvement in industrial relations in Britain in the last 11 years, and the fact that we have had a record low number of days lost through strikes."

All those factors have enabled British industry to operate so much more efficiently that we have such a good record on productivity. We have much increased profitability and, as the Chancellor said, we have a good export story to tell. Figures for the last year show that, although we still have a large trade deficit, the trend is now in the right direction. While the volume of exports is rising at about 12 per cent. per annum, the volume of imports is rising at about only 3 to 4 per cent.

What should we do to maintain the momentum in the 1990s? We must maintain our attractive tax regime and not fiddle with it, because it has encouraged much inward investment. We must continue to examine Government regulation, deregulate where possible and make further supply side changes to make the economy more efficient.


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I agree with the right hon. and learned Member for Monklands, East that we need to invest more in education and training, although he should not pretend to the House that it is somehow a short-term solution. I fully support the introduction of the national curriculum, but that is only just getting under way and the first school kids to have gone right through the curriculum will not emerge from our schools for another 10 years. So it is wrong to pretend that the investment will pay off in the next year or two. It is important that the curriculum is adequately resourced, and I hope that that will receive attention in the context of the current public expenditure round.

Most important--this is why the Chancellor paid such attention to it--is the need to get inflation down. That is why I support the tough monetary policy that he has adopted in the last year. In my view, it must be supported by an equally firm fiscal policy.

There are signs, to which my right hon. Friend referred, of a slowdown in the economy. This is a difficult time for public spending, but it is vital that it is kept under firm control. The only Departments that should be allowed a real increase are the Department of Health and the Department of Education and Science, for the reasons I have given. There is room for cuts to be made in the expenditure of other Departments' budgets, such as the Ministry of Defence, the Department of Trade and Industry and the Department of Energy.

The Labour party is always trying to pretend that, in some way, the period 1964 to 1970 was a fine time for public spending, and that since then we have done nothing but cut public expenditure. A significant table in the Autumn Statement sets out trends in public spending over the last quarter of a century. In 1973-74, in real terms, spending was £150 billion, at 1988 prices. In the following year--the first year of a Labour Government-- it shot up to £169 billion, an increase of over 10 per cent. in one year.

In every successive year from then on, public spending was cut, and by the end of Labour's period in office it was back down to £165 billion, £4 billion less than it had been five years previously. That was the starting point for this Administration--£165 billion--and this year public spending is £192 billion. That gives the lie to anybody who suggests that in overall terms this Government have cut public spending. They have not. However, what they have succeeded in doing--this is the trick--is to decrease public spending as a proportion of our national income. At the low point under Labour, it was about 48 per cent. of GDP ; today, it is 38 per cent.


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We should be quite clear about Labour's policy. The right hon. and learned Member for Monklands, East has said that his only spending commitments are to increase child benefit and to increase pensions. However, when asked on "Panorama" where he would find the money for the extra spending commitments, the Leader of the Opposition said that any other spending commitments must depend on the economic situation and on securing economic growth. He was then asked, "That is all very well, but how are you going to secure economic growth?" The answer was, "Ah, well, we must invest more money in education, training and the infrastructure." If that is not public spending, I do not know what is.

The Labour party must make up its mind about what comes first : are we to have more spending followed by economic growth, which is fuelled by that spending, or are we to have the growth first--and if so, where will it come from? The right hon. and learned Gentleman has not answered that question. As long as he fails to do so, his policies have no credibility.

Mr. Jacques Arnold (Gravesham) : Has my hon. Friend noticed that the hon. Member for Kingston upon Hull, East (Mr. Prescott) has said that £3 billion will be spent in the early days of the next Labour Government, which he foresees, on the high-speed rail link, which would be financed totally by borrowing, which he seems to believe will have no effect on the capital position, let alone on the revenue costs?

Mr. Smith : My hon. Friend is right to draw my attention to today's spending commitment from the Labour party--another £3 billion on the high-speed link

Mr. Battle : From where?


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