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Mrs. Margaret Beckett (Derby, South) : It is just two years since, in July 1988, the rhetoric of the economic miracle--used so much by the Government--was at its height. Those were halcyon days, when inflation was running at 4.6 per cent., interest rates were at 10.5 per cent. and the balance of payments was heading for what was

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then thought to be a worrying deficit of some £12 billion at an annual rate. In those days, it was within memory that the Government had been talking of achieving nil inflation, repaying the national debt and other grandiose schemes.

Even as recently as July 1989, there was still optimism. As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) pointed out, the problems were said to represent a mere blip. Inflation was then running at 8.3 per cent. and interest rates at 14 per cent., and the balance of payments was heading for an even more worrying annual deficit--then expected to be some £18 billion, although the outturn was worse than that.

Today, when the Government have been in power for 11 long years, we have before us the record of their economic policy as it now stands : headline inflation at 9.8 per cent., interest rates at 15 per cent., mortgage rates at their highest ever and a balance of payments that is again heading for a yearly rate of some £18 billion--although, so far this year, the outturn has been worse than it was for the same period last year. Yet the Government still want us to believe that those are temporary difficulties, because we have had an economic miracle.

Certainly, the events that have passed before our bewildered eyes have been, if not miraculous, "wonderful" in the sense that they are full of wonder. We have seen the squandering of what--in today's terms--would be £91 billion of income from the North sea. We have seen the disappearance--with nothing but three election victories to show for it--of the proceeds of the sale of the family silver. Speaking from memory, I think that that is about £40 billion or £50 billion of taxpayers' money lost. We have seen about £20 billion of savings made at the expense of pensioners, with total savings nearer £30 billion if we take account of other social security cuts. The Government have cut earnings-related benefits, while not just retaining but increasing earnings -related national insurance contributions. In those and a variety of other ways, there has been a substantial movement of substantial resources. What have we to show for it? We have a worse-trained work force than any of our major competitors, one of the poorest records in research and development and in investment and one of the most rundown systems of transport--and one of the most uncaring, unthinking, unlistening and arrogant Governments we have ever had. The Government have been re-elected three times through the ruthless manipulation of resources that should have been used to secure the future of the country, but instead have been used to try to secure the future of the Conservative party. If I may paraphrase John Fitzgerald Kennedy "ask not what you can do for your country--ask what your country can do for you."

We have also seen a decline in the Government's probity. The Secretary of State for Health spends as much--for the second time--on propaganda to sell his health service reforms as he is prepared to spend on a drug abuse programme that was saved from the cancellation of the community care programme. What sort of a sense of priorities is that? The Government have repeatedly sold off public assets at knockdown prices, to the benefit of their friends--for "friends", of course, read "large contributors to Tory party funds".

The fruits of growth have been steadily diverted into the pockets of the wealthy ; but there has still been an overall increase in the tax burden. A two-child family on average

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earnings is £300 a year worse off when against their income tax cuts are set the increases in national insurance contributions and value added tax. That is the other side of the coin. That is without the costs of a mortgage, the poll tax, electricity, gas, water and fares, and all the things that have made such a family between £11 and £34 a week worse off under this Government.

What about the future? Well, we heard very little about that from the Chancellor. Over the lifetime of this Government, there has been no serious investment in the future, and none is planned now. In fact, further cuts are planned, for example in the training budget, the importance of which is universally acknowledged--universally, that is, except among the ranks of the Government.

Unfortunately for the Government, the future stops at the next general election. The factors which interest the Government about the future involve the level of mortgage interest rates, the level of inflation and, to a lesser extent, the balance of payments. There has been much talk lately--we have heard a little tonight--about the inadequacies of our measurement of inflation through the retail prices index. Of course, we have heard that before ; the right hon. Member for Blaby (Mr. Lawson) invented the new tax and prices index, only to discard it when it inconsiderately started to show higher levels than the retail prices index.

Over recent months, as the RPI has slowly but inexorably risen, we have been told that what really matters is not the headline rate of inflation but the underlying rate once mortgage costs have been stripped out. We were told that that is a better approximation to the way in which the rest of the European Community measures inflation. Indeed, the hon. Member for Beaconsfield (Mr. Smith) repeated that today.

As a matter of fact, that is not really true. Other members of the European Community include measures of housing costs in the way in which they measure inflation. A number of studies recently into how they measure inflation have revealed the differences between the way we do it and the way they do it. However, the sad fact is that it does not matter how we measure inflation : once any measure of housing costs is included, our inflation is still many points ahead of our competitors.

The Government's measure of the underlying rate of inflation, which they have been talking about for so long, simply left out the cost of mortgages. Unfortunately, that figure is rising as well. Last month, it was 8.1 per cent., and that was the highest rate for eight years. Therefore, last month the Government redefined the underlying rates of inflation. This time they left out the poll tax cost as well as mortgage costs. That gave a figure of 6.9 per cent., but unfortunately that was still three points above the ERM average for inflation.

Now we know what the Government mean when they say that they will bring inflation down no matter what it takes. They mean that they will do that no matter what they have to take out of the index to make inflation appear to come down. Inflation, like unemployment, can be as high as it likes. This is a resolute Government ; we all remember their resolute approach. The Government had to change the unemployment statistics 30 times to get them

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down to a reasonable level, and if they have to change the inflation statistics 30 times to get inflation down to a reasonable level, they will do so. They are not afraid.

I can offer the Government a new index. They desperately need a new one, because they are not doing very well with the one they have. I suggest that they have an index which I call the NBG index--the "not by Government" index. That index would enable the Government to leave out what the Governor of the Bank of England has called the administered price rises, which he correctly identified as directly due to political decisions.

The Government are already leaving out mortgage interest rates and the poll tax. If they adopt my index and deal with inflation as it is not influenced by the Government, they can leave out the cost of the electricity price increases which they forced through as a result of privatisation. They can also leave out gas price increases and the fare increases upon which they insisted. They can also leave out the rent increases which they insisted upon. They would then have a very low inflation figure.

Why are the Government so anxious to get the figures down? Whatever they leave out of the index, people cannot leave those things out of the household bills which they must pay. We all know how good the Government are at selling their case. Although all this sounds good, any changes to the figures can have only a limited impact while people must still pay their bills.

Of course, the figures matter for two reasons related to entry into the exchange rate mechanism and to the election. The first reason is that they are part of the Madrid conditions that inflation must be lower. When the Madrid conditions were set, inflation was at 8.3 per cent. and the underlying rate was 5.9 per cent. Far from getting nearer to the Madrid conditions, we are actually moving away from them. The gap between the ERM average level of inflation and our own is the widest that it has been for a decade.

Secondly, the inflation figures are also important because of the Chancellor's definition that inflation in this country must be proximate to that of our ERM fellows for us to enter the mechanism. Whenever we have asked the Chancellor to define "proximate", he has said that it means what it says. I think that it was the Red Queen in Lewis Carroll's books who said that something meant whatever she wanted it to mean. That is an excellent definition of "proximate" as the Chancellor uses it.

It is not the record, but the forecast for inflation, interest rates and the balance of payments that so worries the Government and makes them so eager to secure entry to the exchange rate mechanism sooner rather than later. We have heard much lately of the golden scenario, in which the rate of inflation, interest rates and the balance of payments deficit all come down. That was scheduled for the spring and summer of 1991. Unfortunately, the one-club golfing has been slow to take effect. Interest rates have been used as the mechanism since 1988, and the window in which the golden scenario is to occur has been receding steadily--from the summer of 1991 towards the autumn of 1991 and perhaps to the spring of 1992.

Horror of horrors, that will never do. The Government need that window of six months when things are improving to manipulate things for the election so that they can convince the general public that things are looking good for longer than just the period of the election. It must all be carefuly timed. Entry into the ERM is necessary to bring the figures within the proper scope

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before the Government can hold the election. Of course, the nature of the improvement in the figures is causing the Government so much concern.

The universal prediction is that the improvement in inflation, in interest rates and in the balance of payments, will be temporary and that the improvement will last at the most six or perhaps nine months. As soon as the squeeze has been lifted, gradually and steadily things will deteriorate again.

In essence, we are on a roller coaster. We are on the long steep slope and we are gradually approaching the top. We will then run at roughly the same level for a little while and then, as the excessive mortgage increases and the poll tax figures are taken out of the main figure, inflation will fall dramatically. However, having done that, it will start slowly but inexorably to rise once more.

After the election, the people and the Government will face some harsh choices. I have a very interesting question for the Chief Secretary to the Treasury and it is one which people continually ask. The Government in power will face harsh choices. The Chancellor says that the Conservatives will be in power. What are the Conservatives planning? We have said that we believe in prudent control of spending. We have set out the need for investment and we have said what we think the needs are.

What are the Government's plans? Are they still in favour of income tax cuts? If so, how much will they cut public expenditure to go with it? Where will the cuts fall? Will they fall on training, transport, education or health? We want to know what the Government are promising after the next election.

That is the truth that the Government seek to hide from the electorate. The Government have mismanaged the economy. They know it, we know it and the country knows it.

6.48 pm

The Chief Secretary to the Treasury (Mr. Norman Lamont) : The surprising thing is not that we are having this debate but that we did not have it some weeks ago. With some less than brilliant economic indicators, we might have thought that we would have a full-scale economic debate, not a half day just at the end of the Session. We would have thought that such a debate would be led by the alternative Prime Minister, the Leader of the Opposition, who does not seem to want to speak on the economy these days. That is not very surprising after his disastrous appearance on "Panorama", explaining the Labour party's tax policy.

We have heard a certain amount from hon. Members and from the hon. Member for Derby, South (Mrs. Beckett) about competence. Of course, "competence" is not a word which comes naturally to mind when one thinks of the Labour party, either out of office or in office. Competence, for all his endearing features and fine qualities, is not the Leader of the Opposition's strongest suit. Was it competence when the Leader of the Opposition made his remarks about 14 out of 15 working taxpayers, and the shadow Chancellor had to rush out a statement correcting his leader? One could almost hear the right hon. and learned Member for Monklands, East (Mr. Smith) saying, as Hardy used to say to Laurel, "That's another fine mess you've gotten us into."

We have heard much in recent debates and in Treasury questions about the Government's errors in forecasting.

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Of course, forecasting always involves judgments about human behaviour. Will people borrow more? Will they save less? If they run down their savings, at what rate will that happen, and how quickly will it feed into consumer spending?

I discovered that there is an infallible guide to the future. We would have done very well if we had got rid of our statisticians and the Treasury model. We should have relied on the predictions of the Labour party. What the Labour party says will happen is always a good guide to what will not happen. In fact, going right back to the early 1980s, Labour Members have an infallible record of forecasting. There is practically not a single year in which they have not got it precisely wrong. We would have done very well just to follow the opposite of their advice right from the early 1980s.

In 1981, they sided with the 364 economists--recovery was just not going to happen ; it was impossible. In May 1983, the shadow Chancellor said that inflation would go into double figures. A year later it was 5.1 per cent. In November 1984, the shadow Chancellor forecast a slump. In 1985, we grew faster than any other major European country. In October 1986, the hon. Member for Dunfermline, East (Mr. Brown) predicted that unemployment could not fall. Since then, unemployment has halved. At the time of the stock market crash, the Leader of the Opposition told us that we should cut interest rates further than we did. If we had followed that advice, inflation today would be far worse.

I criticise the right hon. Gentleman not just for his judgment but for pretending on "Panorama" that that was not actually what he said. To call his words on "Panorama" incompetent is perhaps the politest thing that one can say about them.

Opposition Members have put their case--we have had high interest rates, high inflation and a large current account deficit. As my hon. Friend the Member for York (Mr. Gregory) said, we should note the selectivity of the statistics and the indicators. Opposition Members do not tell us that we have had the fastest growth rate of any major EC country in the past decade. They do not tell us that we have had the fastest growth of total investment of any major country other than Japan. They do not tell us that we have had the highest level of profitability in British commerce since the 1960s. They do not tell us that our level of unemployment today is well below the EEC average. They do not tell us that this year we have had the lowest number of stoppages in industrial relations for 35 years. The right hon. Gentleman made a number of comparisons with Germany--one was misleading and one was incorrect. On the misleading one, the right hon. Gentleman told us that, this year, output growth would be less in this country than in Germany. That is true on a one-year basis, but it is not true if we look-- [Interruption.] Opposition Members scoff. In six out of the past 10 years, German output growth was below ours. They did not tell us then, "You are doing very well compared with Germany." The right hon. Gentleman got it totally wrong. In the 1980s, output in the United Kingdom grew by 2.7 per cent. per annum compared with 2 per cent. per annum in Germany. The right hon. Gentleman did not get it right, and in another respect was misleading.

Of course inflation is too high--far too high. After all, our present rate of inflation, which we hope is about to

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peak, is about two thirds the average rate that was achieved under the previous Labour Government. Two thirds of the average rate under the previous Labour Government is far too high for us.

We might take the Opposition's criticisms of the rate of inflation more seriously if they had acknowledged some of our success in getting down inflation over the past decade. Since 1983 the differential of inflation between this country and the EEC has actually narrowed. We do not hear a word from the Opposition about that. We might take them a bit more seriously on inflation if they had not actually elected as deputy leader of their party a man who had the grand title of Secretary of State for Prices and Consumer Protection when inflation rose to more than 26 per cent. They pretend to care about inflation, but their spending plans show that they are merely arsonists dressed up in firemen's uniforms.

We might take Opposition Members more seriously if the Leader of the Opposition did not keep telling us that the way in which to deal with inflation is to increase spending and to cut interest rates. To do the right hon. Gentleman justice, when he says "cut interest rates", he does not mean some time in the future, he means now. Of course, to cut interest rates now would have a cosmetic effect on the retail prices index. But that would be at the cost of setting off another surge of borrowing. Just when inflation is coming under control, it would inflate house prices and set off consumer spending yet again. The position of the right hon. Gentleman and the Labour party on inflation is incredible. I find it incredible, but, as P. G. Wodehouse used to say, there are limits to every man's imagination. Despite the Leader of the Opposition's gaffes, the right hon. and learned Member for Monklands, East has been trying his best in the City to tell us that Labour has changed. He promises us prudent control over public spending, but for years he has been telling us and the nation that we should spend billions more on hospitals, schools, roads, training and education. For years he has been accusing us of being miserly with education and social spending. For years the Opposition have been encouraging public sector workers to seek the moon in pay settlements. For years they have been encouraging Labour councils to spend more, more and more. The truth was told us by the hon. Member for Bolsover (Mr. Skinner). We know that he does not represent only the beastly tendency in the Labour party. During Treasury questions, he shouted, "Just because we haven't got any money doesn't mean we won't spend it." He speaks more truthfully than Opposition Front-Bench Members.

The Labour party has yet again relaunched its policy document. We have all been waiting to hear what the big idea is in that policy document. We now know what the big idea is. The big idea is our idea. Opposition Members are all in favour of the market. The Leader of the Opposition tells us that he favours market forces and competition and that he wants to take steps to make the market work. In the profile to the policy document, he said :

"Helping to make the market work means creating the conditions for enterprises to be more successful, enabling them to take a greater market share at home."

Ten years ago--was it the same man?--he said :

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"The answer to the weakness, injustice and rottenness of capitalism is not more of the same. That is like trying to clean a wound with handfuls of filth."

That is the language of the Leader of the Opposition. Can anybody really believe that anyone who said that about the market is really a convert to competition, open trade, free enterprise and the market system? We know that the right hon. Gentleman has changed his mind on the European Community and unilateral disarmament, but those words show what his convictions are and what he really thinks about the market system and free enterprise.

Opposition Members are not convincing when they use phrases such as "the market". They do it because the intellectual case for, and the experience of, their political philosophy has collapsed throughout the world. They do not believe in it and we know it. They know themselves that they do not believe in it. The Labour party is an organised hypocrisy and we intend to expose it.

Question put, That the original words stand part of the Question :--

The House divided : Ayes 211, Noes 309.

Division No. 311] [6.59 pm

AYES

Abbott, Ms Diane

Adams, Allen (Paisley N)

Allen, Graham

Alton, David

Anderson, Donald

Archer, Rt Hon Peter

Armstrong, Hilary

Ashdown, Rt Hon Paddy

Ashley, Rt Hon Jack

Ashton, Joe

Barnes, Harry (Derbyshire NE)

Barnes, Mrs Rosie (Greenwich)

Barron, Kevin

Beckett, Margaret

Beith, A. J.

Bell, Stuart

Benn, Rt Hon Tony

Bennett, A. F. (D'nt'n & R'dish)

Bermingham, Gerald

Bidwell, Sydney

Blair, Tony

Blunkett, David

Boateng, Paul

Boyes, Roland

Bradley, Keith

Bray, Dr Jeremy

Brown, Gordon (D'mline E)

Brown, Ron (Edinburgh Leith)

Bruce, Malcolm (Gordon)

Buckley, George J.

Caborn, Richard

Callaghan, Jim

Campbell, Menzies (Fife NE)

Campbell, Ron (Blyth Valley)

Campbell-Savours, D. N.

Cartwright, John

Clark, Dr David (S Shields)

Clarke, Tom (Monklands W)

Clelland, David

Clwyd, Mrs Ann

Cohen, Harry

Coleman, Donald

Cook, Frank (Stockton N)

Cook, Robin (Livingston)

Corbett, Robin

Cousins, Jim

Crowther, Stan

Cryer, Bob

Cummings, John

Cunliffe, Lawrence

Cunningham, Dr John

Darling, Alistair

Davies, Rt Hon Denzil (Llanelli)

Davies, Ron (Caerphilly)

Davis, Terry (B'ham Hodge H'l)

Dewar, Donald

Dixon, Don

Dobson, Frank

Doran, Frank

Duffy, A. E. P.

Dunnachie, Jimmy

Dunwoody, Hon Mrs Gwyneth

Eadie, Alexander

Evans, John (St Helens N)

Ewing, Harry (Falkirk E)

Ewing, Mrs Margaret (Moray)

Fatchett, Derek

Fearn, Ronald

Field, Frank (Birkenhead)

Fields, Terry (L'pool B G'n)

Fisher, Mark

Flannery, Martin

Flynn, Paul

Foot, Rt Hon Michael

Foster, Derek

Foulkes, George

Fraser, John

Fyfe, Maria

Galbraith, Sam

Garrett, John (Norwich South)

Garrett, Ted (Wallsend)

George, Bruce

Gilbert, Rt Hon Dr John

Godman, Dr Norman A.

Golding, Mrs Llin

Gordon, Mildred

Gould, Bryan

Graham, Thomas

Grocott, Bruce

Hardy, Peter

Harman, Ms Harriet

Hattersley, Rt Hon Roy

Haynes, Frank

Heal, Mrs Sylvia

Henderson, Doug

Hinchliffe, David

Hoey, Ms Kate (Vauxhall)

Hogg, N. (C'nauld & Kilsyth)

Home Robertson, John

Hood, Jimmy

Howarth, George (Knowsley N)

Howells, Dr. Kim (Pontypridd)

Hoyle, Doug

Hughes, John (Coventry NE)

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