Home Page

Column 111

House of Commons

Thursday 8 November 1990

The House met at half-past Two o'clock

PRAYERS

[ Mr. Speaker-- in the Chair ]

NEW WRITS

For the borough constituency of Paisley, North, in the room of Allender Steele Adams, Esq., deceased--

For the borough constituency of Paisley, South, in the room of Norman Findlay Buchan, Esq., deceased-- [Mr. Foster.]

Column 112

Clydesdale Steelworks

2.36 pm

Mr. Donald Dewar (Glasgow, Garscadden) (by private notice) : To ask the Secretary of State for Scotland what steps he is taking in the light of the announced closure of the Clydesdale steel plant and if he will make a statement.

The Secretary of State for Scotland (Mr. Malcolm Rifkind) : The proposed closure of the Clydesdale steel- works is a matter of great regret and a very serious blow for the town of Bellshill. There has been a general awareness that Clydesdale had been operating in a very difficult market and making losses for some time. The decision to close, while clearly unwelcome, is not therefore entirely unexpected.

Fortunately, Lanarkshire unemployment has fallen significantly in recent years--by more than 12,000 since 1987. But it remains too high and these job losses will be an unwelcome addition.

I shall be asking my officials, the Scottish Development Agency and the local enterprise company to consider urgently the consequences for the area and its needs. In the meantime the SDA study will consider the prospects for the steel sector in Scotland, including Clydesdale. I expect to learn of its emerging findings in the course of next month and British Steel has assured me that it would consider carefully any commercial opportunity that it may identify.

Mr. Dewar : Does the Secretary of State accept that today's announcement is a devastating blow to Lanarkshire and the Scottish economy, that it will be felt far beyond the borders of the town of Bellshill and that it is a tragedy for the loyal work force, who have fought so hard over many months to save the plant? Does he further accept that it is not enough simply to talk about how the blow might be cushioned and what ameliorative action might be taken? Does he accept that that is cold comfort and that we wanted some signs of activity from the Government that they were trying to preserve the plant and capacity in the steel industry, which the country may need in years to come?

The Secretary of State knows that the stewards, with strong, informed support, are pressing for an investment package, modest in scope when measured even against British Steel's profits this year, but designed to give the plant a competitive edge. Did he endorse and argue for that package in his contact with British Steel's top management or did he merely act as a courier passing on other people's opinions? Is he prepared to do his bit even now to attempt to reverse the decision?

Does the Secretary of State share my anger that British Steel should claim as justification for the closure that the mill at Clydesdale was out of date and obsolete, so using its own failings and lack of vision in its care to justify the closure? Is he prepared to use the Government's contacts even at this stage to search and search again for a possible buyer or partnership deal to save the plant? He proclaimed--I remember it vividly-- that the best way to secure the future of the industry was privatisation. Does not he owe at least that to the work force? Is not he ashamed to admit that if the closures go ahead, tubes for the North sea will come from France, Germany or even Japan, indeed anywhere but Britain?

Column 113

Mr. Rifkind : I agree with the hon. Gentleman that today's announcement is a sad blow for what has been a loyal work force. I met representatives on Monday when we discussed the plant's prospects. They discussed with me their proposals for investment, which I drew to the attention of Sir Robert Scholey when I saw him. Naturally, we have asked British Steel to consider any sensible commercial proposals for any of its plants in Scotland, as one would expect.

The hon. Gentleman asked whether one should search for a possible alternative buyer for the plant. I refer him to the study that is being carried out by the Scottish Development Agency, the point of which is to identify commercial opportunities for the steel sector in Scotland. It is important that British Steel is co-operating in that study. Contact has already been made between Sir Robert Scholey and Sir David Nickson, chairman of the SDA. We expect the preliminary views of the study next month. I hope that it will identify whether there are commercial opportunities and, if so, what they are. Clearly, if any progress is to be made, it is most likely to take place on that basis.

Dr. John Reid (Motherwell, North) : Does the Secretary of State even yet not recognise the devastation that will be wrought in the Bellshill and Motherwell area by this announcement? What sort of Christmas present is it for thousands of families and children from Bob Scholey? Does the Secretary of State begin to recognise the anger and betrayal felt by the workers, many of whom I spoke to this morning? Over the past few years the work force have increased productivity, reduced delivery dates and enhanced quality at a time when British Steel has been starving them of investment. Does he recognise that when British Steel says today that it is cheaper to buy products from abroad, it is simply because British Steel has refused to match the commitment of the work force with investment and retailing at the Clydesdale plant? No matter what the efforts of the work force, it is still cheaper to get those goods from abroad. The Secretary of State talks about an SDA study, but he need not wait months. Let me give him the figures from the House of Commons Library. If the process continues at Clydesdale, Ravenscraig and Dalzell, there will be 40 per cent. male unemployment in the Lanarkshire travel-to-work area. The Secretary of State is presiding over the social and economic devastation of my constituency. If he does not pull his finger out and do something other than wring his hands, he will never be forgiven by the people of Scotland.

Mr. Rifkind : Until the latter parts of the hon. Gentleman's remarks when he became slightly emotive, perhaps understandably as he represents the interests of his constituents, I could agree with much of what he said, because I recognise the bitter blow that this must be for his constituents in Bellshill. He is correct to describe the work force as a loyal one, who have worked hard. It is indeed paradoxical when the plant is working fully and producing the products for which it is known and when British Steel has been so successful in becoming competitive and profitable in many other areas and in winning orders, that it seems unable to do so for this plant. I assure the hon. Gentleman that we have no intention of waiting months to find out what may be possible to alleviate the situation. We are already awaiting the conclusions of the SDA report

Column 114

and are determined to do what we can in co- operation with the local enterprise company, the SDA and others to alleviate the consequences of any unemployment that may be caused.

Mr. Alick Buchanan-Smith (Kincardine and Deeside) : Is not this just another example of death by a thousand cuts of the Scottish steel industry at the hands of British Steel? Before we go further and see even more of the industry whittled away, should not we put together the steel assets in Scotland and give someone else the opportunity through ownership and management to make a go of the Scottish steel industry in the interests of Scotland and of those who have devoted their lives to it?

Mr. Rifkind : That indeed may be an option which some may wish to pursue. It may be an attractive option, but, of course, it presupposes that there would be an interested buyer for the assets. The first stage is to consider whether there are commercial opportunities--I stress commercial opportunities--for this steel sector and that is what the SDA report will identify. If such opportunities are identified, we hope that British Steel, which has shown its willingness to co-operate with the study, will in the first instance seek to work them.

Dr. Jeremy Bray (Motherwell, South) : Is the Secretary of State aware that the surrender of the North sea market to imported tubes is a confession of abject failure by the Government and British Steel? Can he explain why the appropriate investment was not undertaken in the many years for which the Government were responsible for the steel industry and by British Steel since privatisation? Is he aware that no action has been taken in Lanarkshire for the creation of new jobs since, six months ago, the Secretary of State announced an initiative for such job creation? Is he further aware of the misery caused by this first of many blows expected to fall on Lanarkshire?

Mr. Rifkind : The hon. Gentleman will know as well as I do that when British Steel was in public ownership, under either Labour or Conservative Governments, decisions on investment were taken by the company and not by the Government. Therefore, any question about a lack of investment is a matter for which British Steel, whether publicly or privately owned, must take responsibility.

Mr. Tom Clarke (Monklands, West) : Does the Secretary of State accept that this announcement is a devastating blow to the people of Clydesdale and Lanarkshire? Does not he regret supporting the privatisation of the steel industry, and does not he accept the consequences of that decision? Will he bear it in mind that in constituencies such as mine, which is next door to Clydesdale, the spin-off effect will be considerable and many firms that are already worrying about high interest rates will be deeply concerned? Finally, in the light of this tragic news for the people of Lanarkshire, does he agree that the time has come for him to cease playing the part of Pontius Pilate, which is as unacceptable as it is repugnant to the people of Lanarkshire in the modern world?

Mr. Rifkind : The hon. Gentleman and his colleagues would sound more convincing in their complaints about the privatisation of British Steel if the Labour party had not made it quite clear that a future Labour Government do not intend to return British Steel to public ownership. Therefore, it is less than convincing for the hon.

Column 115

Gentleman or his hon. Friends to make mealy- mouthed and unconvincing comments about the consequences of privatisation.

Mr. Malcolm Bruce (Gordon) : Does not the Secretary of State accept that this is a despicable decision by the management of British Steel, which is clearly hellbent on the destruction of the Scottish steel industry? Does not he acknowledge that this is not just a disaster for Scotland, but it is of no value at all to the United Kingdom to yield up its market share to foreign competitors against the background of our present balance of payments deficit? Is not it time for him to take the lead with the SDA, the work force and the Scottish financial community, to do as the right hon. Member for Kincardine and Deeside (Mr. Buchanan-Smith) suggested and set up a company that can buy out the assets of Scottish steel, get the investment and give British Steel the competition that it needs and deserves?

Mr. Rifkind : We have already made it clear that we expect the Scottish Development Agency study to identify whether there are commercial opportunities. I have no doubt that the type of suggestion made by my right hon. Friend the Member for Kincardine and Deeside (Mr. Buchanan-Smith) will be one of the possibilities that the study may wish to consider.

Mr. Alex Salmond (Banff and Buchan) : What other country in the world, in the face of a huge and expanding market in the North sea, would shut down its indigenous steel industry? Is the Secretary of State aware that British Steel's share of the new Beryl export pipeline in the North sea is a mere 1 per cent? Does not it worry him that British Steel can make lots of money by importing other people's steel and retailing it in the United Kingdom? Why will not he press for a Monopolies and Mergers Commission inquiry into the abuse of monopoly power by British Steel? Does not this latest episode in the whole process of the rundown of Scottish steel show that steel is too important to be left to the private sector and belongs in the public sector where the strategic assets of Scotland could be properly protected and developed?

Mr. Rifkind : The hon. Gentleman appears to represent the only party in the House--indeed probably the only party in western Europe--that wants the steel industry to be controlled by Governments and by the state. It is a matter for great sadness that British Steel, which has been so competitive in many other areas, appears to have been unable to be competitive with the products that it produces at Clydesdale. That is a matter of regret and it is a point that the House is entitled to observe.

Mr. Robert Hughes (Aberdeen, North) : Does not the Secretary of State realise that this further butchering of the Scottish steel industry is the clearest demonstration that we have had of the futility and failure of the Government's hands-off approach? Does not he accept that the reason why there has been so much difficulty in the Scottish steel industry in the past 10 years is the narrow remit that the Government gave British Steel to pursue the quickest profit in the shortest possible time and the failure to look

Column 116

ahead and understand that there is not only the North sea, although that area is valuable for selling products, but the possibility of worldwide export markets, which the Government should have addressed long before now? Will not he see sense and understand exactly what he is doing and will he take action to protect the jobs and the manufacturing industry of this country?

Mr. Rifkind : Behind the hon. Gentleman's rhetoric it is difficult to identify the policy initiatives that he believes ought to be taken. As a member of a party with a new-found commitment to the European Community, he should be aware that its rules prevent direct Government assistance to the steel industry. If he does not know that, it is about time that he found it out.

Mr. Richard Holt (Langbaurgh) : May I remind my right hon. and learned Friend of Corby and Consett in my constituency, where thousands of jobs were lost in the steel industry? Thanks to privatisation and the expertise of the management, today we have a British steel industry on Teesside that is the envy of the world and, instead of whingeing, Teessiders have got on, working in co-operation with the Government so that today even hostile friends are saying that, despite any recession that may be in the air, Teesside is doing very well indeed, thank you.

Mr. Rifkind : I am sure that the whole House will be delighted that Teesside is doing very well. It would be unwise to believe that the interests of any one locality can best be served at the expense of others. We are a united kingdom, interested in the health of the economy of the United Kingdom as a whole.

Mr. Norman Hogg (Cumbernauld and Kilsyth) : Does the right hon. and learned Gentleman recall that yesterday afternoon the Prime Minister, when addressing the House of Commons, chided the Leader of the Opposition for overlooking what she called

"the economic resurgence that we have brought about in the past 12 years"?- -[ 0fficial Report, 7 November 1990 ; Vol. 180, c. 22.] In what context does the Secretary of State place the Prime Minister's remarks, given today's announcement? Where is the economic resurgence that he can be proud of?

Mr. Rifkind : I am happy to respond to the hon. Gentleman. My right hon. Friend was entirely correct. In Lanarkshire alone, unemployment has fallen by 12,000 over the past few years. Scottish unemployment continued to fall in each of the past few months. Prospects for economic growth in Scotland are still deemed to be encouraging by all the economic surveys that have been carried out. The hon. Gentleman appears to regret the fact that the Scottish economy is doing better at the moment than it has done for many years--that is something which he should take great pride in and not regret.

Several Hon. Members rose--

Mr. Speaker : Order. I remind the House that this is a private notice question and that this matter may certainly be raised during the debate on the Queen's Speech by those who have not been called.

Column 117

Autumn Statement

2.53 pm

The Chancellor of the Exchequer (Mr. John Major) : With permission, Mr. Speaker, I should like to make a statement.

The Cabinet agreed the Government's expenditure plans this morning. I am, therefore, now able to inform the House of the public expenditure outturn for this year ; the plans for the next three years ; our proposals for national insurance contributions in 1991-92 ; and the forecast of economic prospects for 1991 required by the Industry Act 1975.

As usual, the main public expenditure figures, together with the full text of the economic forecast, will be available from the Vote Office as soon as I sit down. The printed "Autumn Statement" will be published next Tuesday.

In this survey we have had to take some tough decisions in the interests of the economy and the new plans represent a very tight settlement. But it is a settlement which is fully consistent with the Government's commitments and channels extra resources to the areas where the need is greatest. For this, and other reasons, I should like to pay tribute to my right hon. Friend the Chief Secretary for the skill and persistence with which he has brought the survey to a successful conclusion.

Since 1984-85, while the economy has grown by nearly 20 per cent., total public spending has risen scarcely at all in real terms. As a result, the ratio of public expenditure to national income has fallen by more than seven percentage points, the largest sustained fall for 40 years. Moreover, in the past three years large budget surpluses have enabled us to repay debt totalling £26 billion.

Mr. Dennis Skinner (Bolsover) : Not any more.

Mr. Major : We shall add to that this year.

The main objective of economic policy at present must be to bring inflation down, but, as we do so, the short-term prospect is bound to be one of weak activity. [Interruption.] In the past, during similar periods the ratio of public spending to national income has risen strongly. On this occasion it will not.

Planned public expenditure in the current fiscal year is now expected to be £180.6 billion, rather less than 1 per cent. above the planning total set a year ago. A large part of this extra spending is due to an increase in the financing requirements of the nationalised industries, to a surge of common agricultural policy spending on agricultural market support and to expenditure on the Gulf crisis. Notwithstanding this cash overrun, public expenditure remains under tight control. Inflation has been higher than forecast, but it has not been allowed to feed through fully into expenditure. As a result, the ratio of spending to national income in the current year is likely to be slightly lower than projected at the time of the Budget--virtually unchanged from the 1989-90 level.

The decisions on public expenditure for the next three years have been taken against a more difficult world and domestic economic background than for some time. Activity at home and abroad has begun to weaken and some countries such as Canada and the United States are expected to grow very slowly indeed over the coming year. The outlook has also been complicated by events in the Gulf, with the rise in oil prices and the uncertainty that they have produced. Against that background, our new

Column 118

plans are designed to protect the most vulnerable groups in society against the effects of higher inflation-- [Interruption.] I repeat, to protect the most vulnerable groups in society and to maintain longer-term policies to improve the working of the economy. Mr. Robert N. Wareing (Liverpool, West Derby) rose

Mr. Major : I shall of course give way to the hon. Gentleman when we come to questions a little later.

But, beyond that, this is not the year for making substantial additions to plans in other areas. The priority must be to honour existing commitments, within a total for public spending that is affordable and fiscally prudent.

For 1991-92, the new planning total has been set at £200 billion, a little under £8 billion more than the previously published figure. The planning totals in the following two years are £215 billion and £226 billion respectively.

In recognition of the economic uncertainties and the risks arising from the Gulf crisis, these totals include higher reserves than last year's plans : £3 billion in the first year ; £7 billion in the second year ; and £10 billion in the third. I believe that these increases are prudent. Our plans also incorporate an estimate of privatisation proceeds at £5 billion a year that is in line with the average outturn in recent years.

After taking account of inflation, the level of spending next year will be rather less than implied by last year's plans : that is, the cash additions to the planning total do not fully compensate for the higher level of prices now expected for 1991-92. This restraint is necessary, but it means that many of my colleagues have had to drop or postpone proposals that they would otherwise have regarded as desirable.

Nevertheless, within this total there are substantial extra resources in three main areas : health, social security and central Government support for local authority services. These additions to plans total some £7 billion in 1991-92. It has also been possible to make improvements to other key areas including education, public transport, and the environment.

We have also been able to make savings elsewhere, including defence. I can assure the House categorically that financial constraints will not hinder in any way the United Kingdom's military contribution to resolving the Gulf crisis. However, the "Options for Change" announced by my right hon. Friend the Secretary of State for Defence on 25 July will produce increasing savings in the defence budget. Over the next three years the new plans provide for a real reduction in defence spending of about 6 per cent., and further reductions should be achieved in later years as my right hon. Friend's proposals are fully implemented. For the first time in the period since world war 2, we are now able safely to plan on a defence budget that is significantly less than one tenth of all Government expenditure and falling.

In certain other areas, we have been able to accommodate increases in expenditure by finding offsetting savings. For example, on the trade and industry and employment programmes we have made selective increases while keeping broadly to existing plans overall, and within the Home Office programme, lower prison population forecasts have enabled us to reduce the prison

Column 119

building programme, while considerable resources have been made available for the refurbishment of existing prisons, including Strangeways.

In July, the Government announced extra support for local authority current spending which will add around £2 billion to previous plans. Current spending by local authorities has substantially outstripped central Government spending over recent years. This year local authorities in England budgeted for increases of over 5 per cent. in real terms before capping. This has led to community charges which in many authorities are far higher than expected or justified. The additional support that we are providing for next year should enable local authorities to finance local services without sharp increases in their charges. My right hon. Friend the Secretary of State for the Environment has already announced that, if required, the Government will make vigorous use of their powers to cap high -spending authorities. I re-emphasise that.

Nearly £3 billion has been added to the social security plans for next year. This mainly reflects the upratings already announced by my right hon. Friend the Secretary of State for Social Security which maintain in full the real value of benefits paid to 10 million pensioners and 11 million people on income-related benefits. The additions also reflect the substantial extra cost of community charge benefit which will help about one in four charge payers. My right hon. Friend was also able to announce selective increases for poorer pensioners, people in residential and nursing homes and families. These improvements will be financed within the social security programme by savings from restructuring the statutory sick pay scheme, as announced by my right hon. Friend on 24 October.

As in previous years, the Government have also made very substantial extra provision for health. Between this year and next, spending on the national health service in the United Kingdom will rise by £3 billion, so that the real resources over and above inflation that are available for spending on health will increase by a further 5 per cent. The total real increase in health service spending since 1979 will now be nearly 50 per cent. This has enabled the NHS to employ some 8,000 more hospital doctors and dentists, and over 50,000 more nurses and, of course, to provide for more sophisticated health care than ever before. As a result, more than 1 million more in-patient and day cases are now treated every year. In the largest sustained programme of hospital building ever seen, nearly 500 major capital schemes have been completed since 1979. The plans that I am announcing ensure that the next three years will see further improvements in services.

Extra finance is also being provided for public transport. London Transport and British Rail have large long-term investment programmes which will enable them to extend and to upgrade the London underground and to prepare for the opening of the channel tunnel. Between them, they will spend some £ billion on safety alone in the next three years. The new plans also consolidate the substantial extra provision for roads that was announced last year and include measures to relieve congestion in London. Investment in public transport in the next three years will be double the level of the past three years.

Central Government spending on education will be increased by more than £500 million next year, largely to finance the record number of students in higher education. One in five of the 18 to 19 age group will be in higher education, compared with one in eight only a decade ago.

Column 120

The number of higher education qualifications gained, as a proportion of the relevant age group, is higher in the United Kingdom than in Germany, France, Italy and almost every other European country.

Following the publication of the White Paper on the environment, the new plans provide significant extra resources for environmental research and in support of environmental bodies such as the National Rivers Authority and the Countryside Commission. There is extra provision also for the Government's programme of action on rooflessness.

Throughout the past decade, we have sustained a high level of capital spending in the public sector. In total, it will approach £30 billion in the current year. Leaving aside defence, our new plans include an extra £1 billion a year for investment by central Government and nationalised industries. There is also extra support for local authorities' capital spending on schools, housing and local transport.

Taking capital and current together, real growth in total public spending over the three survey years will be less than 2 per cent. a year--well within the trend growth of the economy. As I have said, this is a tight settlement and it means that the ratio of public spending to national income should remain stable at its present level for the next two years. Thereafter, as activity strengthens and inflation remains in check, the downward trend will be resumed. I now turn to national insurance contributions. As usual, the review this autumn has taken account of advice from the Government Actuary on the income and expenditure of the national insurance fund, and of the statement on benefits that was made by my right hon. Friend the Secretary of State for Social Security on 24 October. The lower earnings limit at which contributions begin will go up next April to £52 a week, in line with the single person's basic pension, while the upper earnings limit will rise to £390 a week. The upper limits for the reduced employers' rates will also be increased.

In addition to those changes, there will be reductions in the contribution rates paid by employers. As my right hon. Friend explained in the House on 24 October, the restructuring of statutory sick pay will add modestly to employers' costs from next April. It is right that the Exchequer should share these costs. Therefore, the main employers' contribution rate will fall next April from 10.45 per cent. to 10.4 per cent. and each of the lower rates will be cut by 0.4 per cent. This relief through contributions will limit the impact of the statutory sick pay adjustments on employers of lower-paid workers in particular. The necessary legislation will be laid before the House. The contribution rates paid by employees and the class 4 rates paid by the self-employed will remain unchanged.

I am publishing today the economic forecast required by the Industry Act 1975, the first since we became members of the exchange rate mechanism. I must emphasise at the outset that the Gulf crisis and its effect on world oil markets make the future unusually difficult to predict. The United Kingdom, along with other countries, has already seen some of the adverse impact on consumer price inflation. The oil price rise is likely also to contribute to the general slowdown in the world economy that was already under way before the Gulf crisis.

For the Industry Act forecast I am following the practice of international institutions such as the International Monetary Fund and assuming some fall in

Column 121

oil prices from recent levels to around $25 a barrel by the end of 1991. But I must reiterate that the situation in the oil market remains very volatile.

Despite these uncertainties, however, it is now clear that the tight United Kingdom policy stance of the past two years is bringing about an easing of domestic inflationary pressures. This will make possible both a sharp fall in retail prices index inflation next year and a strengthening of output.

So far this year, the public sector debt repayment has been running below both last year's outturn and our expectations at Budget time. Local authority borrowing was particularly high earlier this year as some authorities experienced delays in collecting non-domestic rates and the community charge. Public corporations' finances have been adversely affected by the slowdown in economic activity and central Government spending has also been higher. Nevertheless, despite this, I still expect a significant debt repayment in the year as a whole of £3 billion. This amounts to per cent. of GDP and represents a strong fiscal stance at this stage of the economic cycle.

Mr. Skinner : What was the right hon. Gentleman's forecast?

Mr. Major : For the benefit of the hon. Member for Bolsover (Mr. Skinner), we have a stronger fiscal position than Germany, France, the United States and every other member of the Group of Seven, with the solitary exception of Japan.

Thus our public finances remain strong. Given our membership of the exchange rate mechanism and the counter-inflationary strategy that we are pursuing, it is essential that they remain strong. As I made clear to the House last month, the Government remain committed to the medium-term objective of a balanced budget. That is why we have continued our firm restraint of public expenditure in the current year.

Turning to demand and output, it is clear that growth has now slowed down sharply. GDP is forecast to grow by 1 per cent. this year. This figure is the same as the forecast I made at the time of the Budget, but the path has been slightly different, and I expect output in the second half of the year to be down on the higher than expected and projected level in the first half.

This period of weak activity should last until early next year, after which I expect growth to resume ; GDP is expected to grow by over 2 per cent. in 1991, though year-on-year growth is forecast to be only per cent.

Unemployment has been rising since the spring and may continue to rise in the months immediately ahead, but job prospects will improve with a resumption of growth, the more so if employers keep tight control of costs, including pay rises.

Within domestic demand, growth of consumer spending has now slowed markedly from over 7 per cent. two years ago to under 3 per cent. in the first half of this year. The signs are that it will fall further over the year ahead as consumers continue to adjust to lower growth of real incomes, following the high borrowing of recent years. Business investment rose by an unprecedented 45 per cent. in the three years to 1989, taking investment to an historically high level as a share of GDP. It may have fallen slightly in 1990 and is expected to fall a little further

Column 122

next year. A modest downturn from such a high level is unsurprising ; indeed, it would be extraordinary if it did not occur at this stage in the cycle. It will still leave investment over 50 per cent. higher in real terms than in 1979.

The current account has now begun to improve markedly. With low growth of domestic demand, import volumes have shown virtually no growth over the past year and import prices have been falling in recent months as a result of the firm exchange rate. Export growth, on the other hand, has remained strong over the past year so that the United Kingdom's share of world trade in manufactures has risen for the second year running. The deficit on visible trade has followed a welcome trend and has virtually halved since the middle of 1989. This progress has been partly offset by poor figures for invisibles in recent quarters, although in the past these have, more often than not, been revised up later--at times, substantially.

I now expect that the current account deficit in 1990 will remain close to the forecast I made at the time of the Budget--at just over £15 billion. With domestic demand and import growth likely to stay low, I expect a considerably improved performance next year, with the deficit falling to £11 billion despite some slowdown in export growth as world trade decelerates. As a proportion of gross domestic product the deficit is expected to fall from 3 per cent. last year to 1 per cent. in 1991--a sharp improvement.

I am now certain that inflationary pressures have been brought firmly under control. The monetary indicators show this clearly. The growth of M0 has fallen every month since April and is now considerably within its target range, while growth of the wider measure, M4, and lending have fallen sharply to 14 per cent. and 15 per cent. respectively. With demand and output slowing markedly over the past two years, it is clear that inflation will come down next year. The fall in the headline figure will be very sharp as the effects of the past mortgage rate rises, of the high initial level of the community charge and of recent petrol price increases cease to influence the inflation rate by the end of next year. From a peak at the current level of about 11 per cent., I expect RPI inflation to fall to around 5 per cent. in the fourth quarter of next year. In summary, the plans that I have announced today honour our existing commitments and provide additional resources for key areas--notably for the health service, for pensioners and for investment. They are within an overall total we can afford and they avoid the sharp upturn in the share of expenditure in national output which has occurred at similar stages in previous economic cycles. They are, therefore, consistent with the tight fiscal and monetary policies that will lead to a falling trade deficit and to a sharp reduction in inflation. They are, in my judgment, the right policies for building on the economic achievements of the past decade and I commend them to the House.

Mr. John Smith (Monklands, East) : Can the Chancellor of the Exchequer explain why, in his analysis of our economic situation, he was unable to utter the word "recession"? Is not it clear from the surveys compiled by the Confederation of British Industry and by the chambers of commerce, let alone from the experience of commerce and industry from one end of the country to another, that

Column 123

we are the midst of a recession and that the outlook for an economy with falling output, with declining investment and with rising unemployment is far from encouraging?

From table 11 in the "Economic Prospects for 1991" section of the autumn statement, is not it clear that output is predicted to fall significantly in the second half of 1990 and in the first half of 1991--that is, for a whole year or for four quarters? By any definition, is not that a recession? Why is that information hidden in a table at the back of the published document? Why does not the Chancellor come to the Dispatch Box and admit that, as his figures prove, we are in a recession and that the recession has been caused by the Government's economic policies? Is not it the case that the only way in which he can justify the phrase in his statement about "strengthening of output" is by a leap of faith that output will suddenly increase in the second half of 1991?

Is not it clear from the Chancellor's document that, having predicted in his Budget--not all that long ago--that manufacturing output would increase by per cent. in the first half of next year, he now predicts that it will fall by per cent. for the whole of that year? In the Budget, investment was forecast to decline by per cent. in the first half of next year ; now it is forecast to be falling by 1 per cent. for the whole of 1991. In the Budget, exports were predicted to increase by 5 per cent. ; now they are forecast to rise by just 2 per cent.

As we are clearly experiencing a recession, why do the Government continue to cause reductions in the investment expenditure of the Department of Trade and Industry? Why is it cut by £250 million in cash terms, and by even more in real terms? As we prepare for 1992, should not we be increasing investment in the regions, in training, in export promotion and in research and development?

Can the Chancellor tell us whether he has reversed the cuts in the training budget that he announced last year? The Department of Employment appears to have sustained a cut of £370 million ; I understand that some of that is accounted for by £254 million going to Scottish Enterprise, which will take over responsibility for some of these functions in Scotland. I must tell the Chancellor that, with considerable difficulty, I was able just a few minutes ago to extract from the Department of Employment its press release explaining its figures. It said :

"Employment training, which is already running substantially below capacity this year, will be reduced in scale and reshaped to give TECs more discretion in matching the needs of their local labour markets Payments to TECs will be more closely focused on their success in securing jobs and qualifications for participants." We have learnt from the past that--as far as the Government are concerned--closer focusing equals reduction. While we are in the midst of our present economic difficulties, why on earth are we cutting spending on training? Will the Chancellor tell us what the cut is and will he tell us why?

The Government will also seek to take credit for the instances in which there are planned increases in the totals for public expenditure. Will the Chancellor reflect on the experience of last year? The figures provided today show that a planned expenditure total of £179 billion turned out to be £180 billion. However, the GDP deflator--which was estimated last year at 5 per cent.--turned out to be 8 per cent. because of inflation.

Is not it clear that the promised increase in public spending announced this time last year did not materialise? The public know that. That is why they know that the

Column 124

services on which they depend have not improved--that teacher shortages are increasing, and hospital waiting lists are at record levels. Do not the Government's own figures about the effects of inflation on the projected increases for the year to come show that those figures corroborate the experience of all our constituents in relation to public services? Does the Chancellor think that it was a bit much to talk in his autumn statement about protecting the "vulnerable groups in society", given the Government's position on child benefit, which was announced only a few weeks ago?

Will the Chancellor explain the cuts in the Department of the Environment budget? There appear to be cuts in the total, although the text that he read out mentions increases. Will he say whether less will be spent next year than is currently being spent on water, environment and the countryside?

Will the Chancellor tell us who invented the word "rooflessness"? Is it meant to be a synonym for being homeless? Was the word introduced because Ministers and the Chancellor cannot bring themselves to talk about the state of homelessness that they have caused for so many people in this country?

The Chancellor made some predictions. Has he reflected on the record of the Treasury at making successful economic predictions? I assume that he has read the Treasury bulletin issued recently which confirms that in 1988 the Treasury was wrong by 288 per cent. about the balance of payments ; in 1989, it was 30 per cent. wrong about the balance of payments ; and in 1990, 20 per cent. wrong-- [Hon. Members :-- "Getting better."] Getting better, certainly, but there is still a long way to go. Conservative Members clutch at any crumb of comfort, but if they find these figures comfortable they need to think again.

On inflation, the prediction in 1988 turned out to be 62 per cent. wrong ; in 1989, it turned out to be 38 per cent. wrong ; and in 1990, it turned out to be 40 per cent. wrong. All the same, inflation kept peaking and blipping along while these errors were being made. Does the Chancellor recall coming to the House last year with his autumn statement and saying that inflation now would be 5.25 per cent? And what is it? It is 11 per cent. The Government keep making predictions that lack credibility. Does the right hon. Gentleman understand that this is the fifth occasion on which the Government have predicted a fall in inflation? Why should we believe this one any more than the others? And since the right hon. Gentleman is predicting a fall in the headline rate, will he tell us what will happen to the underlying rate? What will be the underlying rate in the fourth quarter of next year?

We have received uncertain predictions from the Government and they have usually turned out to be incorrect. We have received poor policies and poor purposes. The most disturbing aspect of the autumn statement was the Chancellor's statement that there will be no change in economic policies. It was those economic policies which got us where we are now and they will make matters worse until they are changed.

Next Section

  Home Page