(No. 2) Bill-- (By Order)
[Lords] (By Order) Orders for consideration, as amended, read.
To be considered on Thursday 7 February.
(No. 2) Bill-- (By Order)
(No. 2) Bill -- (By Order)
[Lords] (By Order)
(No. 2) Bill -- (By Order)
(By Order) Orders for Second Reading read.
To be read a Second time on Thursday 7 February.
Mr. O'Hara : Is the Chief Secretary aware that the Confederation of British Industry has been joined in its call for better training to eliminate the rigidities in our work force by the Employment Institute, the TUC and even the Organisation for Economic Co-operation and Development? Why are the Government ignoring the experts and planning real cuts in the Department of Employment budget in 1993-94?
Mr. Mellor : The recent CBI survey showed that three quarters of those asked were intending to spend as much on training next year as this year and that 29 per cent. were proposing to increase the money spent on training. The guarantees that the Government have given to various groups on training remain exactly as they were. In setting up training and enterprise councils and investing large sums of money in them, we have broadened the range of training and ensured that it reflects all the new insights into how to make it an effective way to get people into good, productive work.
Mr. Loyden : Is not it a fact that, in the traditions of the former Prime Minister, the present Government listen to no one? The CBI--the friends of the Government--has pointed out that rising unemployment and lack of quality training should be tackled at this stage. As my hon. Friend the Member for Knowsley, South (Mr. O'Hara) said, despite those warnings, the Department of Employment is cutting its budget by £1 billion in 1993-94. Is that how the Government treat the question of quality training and unemployment?
Mr. Mellor : The Government have an unprecedented record of success in training. A wide range of training opportunities has been especially successful with young people and with the long-term unemployed, as the figures show only too clearly. I understand that my right hon. and learned Friend the Secretary of State for Employment may have an early opportunity to lay before the House his training plans and when he does so it will be seen that the Government have one of the widest-ranging training plans anywhere in the world.
Mr. Tim Smith : As pressures mount on total public spending as a result of increased social security spending at home and the rising costs of the war in the Gulf, will my right hon. and learned Friend reaffirm the Government's
Column 1091commitment to firm control of both public spending and public borrowing as part of their counter-inflationary policy?
Mr. Mellor : The outturn of public expenditure this year is likely to be only 1 per cent. ahead of plans, as was forecast in the autumn statement and, as is known, inflation was not accommodated in the public expenditure settlement in the autumn. So there is absolutely no doubt that, notwithstanding the obvious burdens caused by changes in the economic cycle and the cost of the Gulf, public expenditure is under firm control today and will continue to be so.
Mr. Charles Wardle : If my right hon. and learned Friend were to signal higher public spending, would not the discipline of his fiscal policy be questioned and might not sterling suffer? Would not the CBI do better to advocate radical changes to the habit of granting automatic annual pay increases, if it wishes to encourage profitability and more industrial investment?
Mr. Mellor : I agree with the thrust of my hon. Friend's question, but in fairness to the CBI it is worth reporting that, in its memorandum on the economic priorities for 1991, it made it clear that tight control of public expenditure is vital. So it has no disagreement with us about that.
Mrs. Beckett : Will the Chief Secretary comment on recent reports of an average cut of some 12.5 per cent. in cash terms in the planning total for programmes for training the unemployed this year, just when the numbers are rising? Is not it at best short-sighted and at worst grossly neglectful of the national interest to cut training--and support for industry--at a time of recession?
Mr. Mellor : The hon. Lady is simply asking me to reiterate points that I made earlier--which, of course, I am only too happy to do, unless the hon. Lady is overruled by the shadow Chancellor, who has already grasped the facts.
The CBI survey shows that there is considerable enthusiasm for enhanced training in British industry, which it is itself funding. As I said, the range of training that we provide is as sophisticated and wide ranging as can be found anywhere in the world, and the new TECs initiative has been widely welcomed everywhere except on the Opposition Front Bench.
The Financial Secretary to the Treasury (Mr. Francis Maude) : The top 10 per cent. of taxpayers paid about 35 per cent. of the total yield of income tax in 1978-79 and 1981-82. That rose to 42 per cent. in 1990-91.
Mr. Bowis : Does not my hon. Friend's answer show that, as the Government's policy of reducing tax rates continues, those who can afford the most will bear the biggest share of the tax burden? Does not it also show that, as tax rates come down, tax revenue goes up, enabling us to afford to care for those in need, pay for better-quality services and cover eventualities and emergencies such as the Gulf war?
Mr. Maude : My hon. Friend puts the point very well. It is disturbing to find that--in the face of both the strong theoretical case that lower tax rates increase the yield of tax and the practical experience that demonstrates it conclusively--the Labour party still clings remorselessly to the old, faded dogmas of the past. Even as my hon. Friend asked his supplementary question, Labour voices could be heard saying, "There could be more : we could be raising more." I can tell the right hon. and learned Member for Monklands, East (Mr. Smith) that the one way to ensure that more money is not raised from the better off is to increase the high levels of tax levied on them.
Mr. Skinner : Why does not the Minister admit that, in the first 10 years of this Tory Government, the wealthiest 1 per cent. in Britain have received £26.2 billion in tax cuts, while the poor have been taxed to the hilt? Does not the Minister appreciate that that money should have been spent on hospitals, homes, education, pensions and on getting rid of cardboard city?
Mr. Maude : The hon. Gentleman simply has not been listening : if he had, he would have heard that the top 10 per cent. of taxpayers--those who are best off in society--have paid more and more in tax. They have also been allowed to keep more and I do not think that there is anything deplorable about that. The only argument for increasing tax rates for the better-off is based wholly on spite and envy ; it is certainly not based on the desirability of increasing the yield to the Government.
Dr. Marek : Will the Minister admit that the increase in Treasury revenue might have something to do with the fact that the rich--for example, the chief executives of our companies and industries--may just have been paying themselves more? For the past few years, they have been paying themselves 30 per cent. more each year, while the overwhelming majority in the country have received wage increases of less than 10 per cent.
Mr. Maude : Again we hear the old, faded voices calling for a return to the politics of spite and envy. British industry and British business are now vastly more successful, and have created much more wealth for everyone in society, than was the case before ; if managers and executives have played an important part in that, I see nothing wrong with rewarding them.
5. Mr. Martyn Jones : To ask the Chancellor of the Exchequer what proportion of gross domestic product manufacturing investment, including leased assets, represented in 1979 ; and what it represented in 1989.
The Minister of State, Treasury (Mrs. Gillian Shephard) : The figures are 3.6 per cent. in 1979 and 2.8 per cent. in 1989, but this has to be seen against the background of the absolute level of manufacturing investment reaching an all-time high in real terms in the first quarter of 1990.
Mr. Jones : Will the Minister acknowledge that this is a worrying trend, despite the rider to her answer? Does she suggest that British industry will be able to cope when we come out of this appalling recession? If it is unable to cope, what is the balance of payments likely to be?
Column 1093Mrs. Shephard : It is misleading to concentrate on just one sector, such as manufacturing. In advanced industrial economies all sectors of business are interdependent. The point is that the quality of investment is much better now than it was in the 1970s, when investment decisions were distorted by negative real interest rates and public sector subsidies. That improvement is demonstrated by the fact that profitability is now much higher than it was in the 1970s.
Mrs. Peacock : Is my hon. Friend aware that many businesses in Yorkshire are anxiously looking for a reduction in interest rates? Is she also aware, however, that many manufacturing industries are so confident about the future that they are investing millions of pounds in new factories to prevent more imports from being sucked into this country?
Mrs. Shephard : I am delighted to hear that good news about Yorkshire. My hon. Friend well understands that the real threat to manufacturing is inflation and the important point is that interest rates are on course to reduce inflation.
Mr. John Smith : Is not it appalling that, as the economy plunges deeper into recession, the Confederation of British Industry predicts a 16 per cent. fall in investment by manufacturing companies? Why is it that Britain is the only country in the European Community that is suffering from such a disastrous fall in investment in its manufacturing sector? What do the Government intend to do about it?
Mrs. Shephard : The CBI forecast predicts a much sharper fall than do most other forecasts. A number of firms expect investment to drop markedly in 1991. That is to be expected after the record investment levels that were reached in early 1990. However, the right hon. and learned Gentleman will also have noticed from the 3i survey that 80 per cent. of the largest United Kingdom businesses think that business now is much better able to cope.
Mr. Roger King : Is my hon. Friend aware that when the Labour Government went out in 1979 so did Red Robbo, the Cowley mole and ancient and obsolete trade union practices? During the past 10 years there has been massive investment in the British motor industry by Nissan, Toyota and Honda, among others, leading to new factories, new plant and massive investment--a long-lasting testament to this Government's performance.
Mrs. Shephard : My hon. Friend is always an excellent advocate for the car industry. I am glad to be able to draw the attention of the House to the fact that in the fourth quarter of 1990 the volume of car exports increased by 37 per cent. compared with the previous year. The figures strikingly illustrate the strong improvement in the performance of the British car industry.
Mr. Caborn : The Conservative party declares that it is the party of the family. Will the Chancellor of the Exchequer discuss child benefit with the Equal Opportunities Commission? Child benefit is one of the best fiscal ways to help families. Will the Government also discuss restoring the level of child benefit, in April 1991, to the operational level of April 1987? Will the Minister repudiate the Policy Studies Institute argument that child benefit should be removed from children over the age of five? May we have a Government commitment that the suggestion will not be considered by the Treasury?
Mrs. Shephard : The hon. Gentleman would not expect me to make any comment that might predict the content of the Budget. However, the Government have a two-pronged approach to help families with children through the social security system. There is child benefit, which will be costing £5 billion a year with effect from April with the extra £1 for the eldest child in each family, and special help targeted on poorer families which, at the moment, is £400 million a year extra in real terms and has been so since 1988. The real help for families with children has come from the strong growth in earnings that those families have seen under this Government.
Sir Robert McCrindle : As the Chancellor of the Exchequer is said to be under some pressure to restore child tax allowance, presumably in lieu of child benefit, will my hon. Friend remind him that we had the abolition of child tax allowance and transfer to child benefit some years ago because child benefit was thought to be the most effective way of bringing assistance to the maximum number of parents? Will she remind my right hon. Friend, if he is tempted to restore child tax allowance, that although it would no doubt benefit taxpayers, only the maintenance of child benefit and --one hopes--its restoration to its true level will continue to affect all families and all children within them?
Mrs. Shephard : Like the hon. Member for Sheffield, Central (Mr. Caborn), my hon. Friend is dangerously close to trying to get me to make some sort of Budget predictions. Perhaps I should remind my hon. Friend of the statement by my right hon. Friend the Secretary of State for Social Security when he said to the House that child benefit is and will remain an important element in the Government's support for the family.
Mr. William Ross : Will the Government give careful consideration to the very real difficulties and problems created for families with young people beyond the age of 19 who are in full-time education? Will the Government reconsider the possibility of restoring child benefit to the end of the academic year in which the child reaches the age of 19 so that the hardship might be relieved?
Column 1095The Chancellor of the Exchequer (Mr. Norman Lamont) : The latest figures show that the personal sector saving ratio was nearly 9 per cent. in the third quarter of 1990.
Mr. Bruce : I thank my right hon. Friend for the excellent news about savings going up. Does he agree that probably the best way to reduce inflationary pressures and interest rates is to encourage further spending- -[ Hon. Members :-- "Oh!"]--further savings? Does my right hon. Friend agree that the Government's new TESSA scheme is probably the best form of saving and probably the best way of encouraging saving in the nation?
Mr. Lamont : I thought for a moment that my hon. Friend was announcing a novel fiscal principle, but I agree with his revised remarks. A high level of savings is extremely important for countering inflation. Of course, interest rates play an enormous part in balancing savings and investment. As my hon. Friend said, we have introduced a number of measures, including personal equity plans and TESSAs, which have been extremely popular and TESSAs have got off to an excellent start. I note what my hon. Friend said, but I cannot anticipate any further measures that might be in the Budget. I should tell the House that, as forecast in the press, the Budget will be on 19 March.
Mrs. Wise : As it is impossible for anyone to save without an income, what is the Chancellor's message to the 5,000 or so shop workers employed by Lewis's department stores who went to work this morning to find the doors closed for trading until further notice with no guarantee of wages after today?
Mr. Lamont : We have made it clear that we expect unemployment to rise this year, but it remains a fact that Britain has experienced fast growth in employment and that unemployment here is still much lower than the European average.
Mr. Hind : Does my right hon. Friend agree that one of the best ways of fighting inflation is to encourage people to save and that through TESSAs, PEPs and other measures the Treasury has encouraged that development? Will he continue to pursue that policy in the forthcoming Budget to help to press down inflation?
Ms. Abbott : We listened with much interest to what the Chancellor said about the savings ratio. In giving evidence to the Treasury and Civil Service Select Committee, Sir Jack Hibbert, director of the Central Statistical Office, said that the savings ratio is subject to quite a wide margin of error and that small differences from quarter to quarter should not be regarded as significant. [ Hon. Members :-- "Reading."] Does the right hon. Gentleman agree that savings are an important indicator of the economy? If he
Column 1096wants evidence of the Government's disastrous stewardship of the economy, he should consider the statistics on savings as a percentage of gross domestic product in the past 10 years which have halved--[ Hon. Members :-- "Reading".]
Mr. Lamont : On the hon. Lady's point about the margin of what is statistically significant, the rate has increased from 5 per cent. to 9 per cent. in the third quarter of 1990 which is well outside what might be called the margin of error. She made a serious point--that for a long time Britain has been a low-savings country. One reason is that many people borrow to purchase houses. None the less, as my hon. Friends have said, the quite sharp rise in the savings ratio in the recent past has been extremely welcome.
Mr. Gill : In framing his Budget proposals, will my hon. Friend take into account the desirable and beneficial effect on the economy of allowing successful companies to retain more of their earnings, which would inevitably be spent on research and development, training and more capital investment? Will he further bear it in mind that the ploughed-back profits of private companies are inevitably their only source of capital?
Mr. Maude : Our rates of corporation tax are already exceptionally low, which is helpful to the corporate sector. Our regime for small companies is the most generous in the industrialised world. My hon. Friend will have been encouraged by the survey published by the CBI this week, which shows that a majority of companies expect to maintain or increase expenditure on training and to maintain expenditure on research and development. That is particularly encouraging because in the downturn of the early 1980s those two items were the first to be cut.
Mr. Robert Sheldon : The hon. Member for Ludlow (Mr. Gill) was at least partly right. Companies that intend to use their money for investment should be given some incentive. Should not that incentive be a change in the capital allowances? This is a period in which there will be some disinvestment. It falls to the Chancellor to ensure that at such a critical time, investment is maintained as far as possible. The 25 per cent. capital allowances level is nonsense.
Column 1097value of investment. If anything, it is more generous than the economic assessment of the depreciation. The Opposition have maintained for a long time--and I agree with this--that spending on research and development, and on training is an investment as well, so we should seek to maintain spending there. I am less gloomy than the right hon. Gentleman seems to be and I draw great comfort from the indications in the Confederation of British Industry survey.
Mr. David Shaw : Will my hon. Friend examine the amount raised by corporation tax over the past few years and will he reflect that the vastly increased amounts raised are a result of the successful way in which the Government have run their economic policies and of the great expansion of British industry? Nevertheless, in framing his Budget, will my hon. Friend take into account the fact that the successes of the past are now resulting in considerable corporation tax having to be paid at a time of cash flow difficulties and the fact that too much tax paid to the Government will have an effect on investment? Perhaps my hon. Friend and his colleagues will consider reducing the rate of corporation tax for private companies in the forthcoming Budget.
Mr. Maude : I hear what my hon. Friend says. He would not, of course, expect me to anticipate my right hon. Friend's Budget statement. My hon. Friend is right to draw attention to the very desirable increased profitability of the corporate sector in recent years, which is a reflection of the considerable success of the Government's economic policies.
Mr. Nicholas Brown : The Minister's own Department estimates that some £5 billion of tax, including corporation tax, remained uncollected last year. What plans does the Minister have to collect that tax? What proportion of it is corporation tax? What is the Minister going to do to block tax-planning devices, such as those that the Conservative Government introduced in the Finance Act 1981, because the burdens fall on the rest of our citizens?
Mr. Maude : The short point is that the best way to prevent tax avoidance is to have a tax system that is simple and straightforward and has low rates. We have pursued that policy and, especially with corporation tax, to which the hon. Gentleman referred, it has resulted in a substantial increase in yield. We are keen at every stage to ensure that loopholes are blocked and that avoidance is prevented. We shall continue to pursue those aims.
Mr. John Townend : Is my hon. Friend aware that in the small business sector, cash flow is becoming very difficult? Will he, therefore, when framing his Budget, consider making the first £1,000 of taxable profit in unincorporated businesses and in businesses paying the small business rate exempt from corporation tax, to help their cash flow?
Mr. Norman Lamont : At close yesterday, three-month interbank market rates were 13.9 per cent. in the United Kingdom and 9.2 per cent. in Germany. However, today the Bundesbank has raised its official discount and Lombard rates by a further per cent.
Mr. Grocott : Does the Chancellor agree that any neutral observer hearing those figures for the first time would assume that Germany was the country with oil? After 12 oil-rich years and with sky-high interest rates, sky-high mortgage arrears, sky-high repossessions and sky-high bankruptcies is not it time that the Government broke the habit of the past 12 long years and apologised to the electorate?
Mr. Lamont : The hon. Gentleman might also have referred to the fact that in the 1980s, the British economy grew faster than the Germany economy. He seemed to leave that out of his comparison between this country and Germany. I appreciate that interest rates are high and that that is causing great difficulties for many businesses. However, the discomfort for the business sector is inevitable if we are to get on top of inflation. Inflation, especially for businesses in the international market which compete against German businesses, matters too. Businesses will not be able to compete against Germany unless we get inflation down to levels far closer to Germany's.
Sir Peter Tapsell : In view of today's raising of the discount rate by the Bundesbank, can we politely make representations to the Bundesbank and the German Government, as I assume we already have, explaining that, while we fully appreciate the great burden on them posed by the economic refurbishment of eastern Germany, we very much hope that they will seek to deal with this by fiscal rather than monetary methods? If they continue to raise their interest rates it will cause considerable problems for partners of theirs in the exchange rate mechanism and, indeed, possibly have an adverse effect on both American and Japanese interest rates as well.
Mr. Lamont : As my hon. Friend would expect, we have discussed the question of the German deficit and the financial consequences of the unification of Germany both at the G7 meeting and at the recent meeting of EC Finance Ministers. The Germans have made it very clear that they understand our concerns and, most important, that they intend to limit their budget deficit and to make the expenditure and tax adjustments necessary so to do.
Mr. Beith : Does the Chancellor agree that if it were widely believed that the Government were on course to defeat inflation the pound would not be so low in its exchange rate bands and the Chancellor would find it much easier to narrow the gap with regard to German interest rates? Are not our present penally high interest rates a premium for the Government's past mistakes?
Mr. Lamont : Exchange rate markets--although I may be overstating the hon. Gentleman's influence--are also influenced by endless calls for premature cuts in interest rates. No, I do not agree with what the hon. Gentleman says. Indeed, I think that it is very clear from looking at outside forecasts that people expect us to reach our inflation target and many independent forecasters think that we may do rather better.
Column 1099Mr. Ian Taylor : Does my right hon. Friend agree that the determination by the British Government to hold to the central rate within the ERM will increase the confidence of the holders of sterling in continuing to hold sterling and therefore allow a lower rate of premium for sterling interest rates against those of the deutschmark? Is not this the most virtuous way of ensuring that our rates will fall as inflation falls?
Mr. Lamont : My hon. Friend is absolutely right. We all knew what the consequences would be when we chose to join the exchange rate mechanism and I assume that right hon. and hon. Gentlemen who urged us to join were also aware of the consequences. Our overwhelming priority must be to stick within the bands of the ERM, but it is true that, as the underlying rate of inflation is seen to come down, so the scope for interest rate reductions may become wider.
Mr. Chris Smith : Does the Chancellor accept that, even with this morning's announcement from Germany, our interest rates are still very substantially above those elsewhere in Europe? Will the Government finally wake up to the fact that their policy of exclusive reliance on high interest rates for demand management has succeeded in plunging this country into recession, starving industry of investment funds and ensuring that our economic performance has been far worse than Germany's?
Mr. Lamont : I do not see how the hon. Gentleman can say that our economic performance has been worse than that of Germany when our growth rate, our manufacturing output performance and our manufacturing investment in the recent past have all grown faster than those of Germany. As regards the hon. Gentleman's last point, I do not understand why he persists in saying that we rely only on interest rates when we have one of the tightest fiscal positions of any of the G7 countries. As regards the hon. Gentleman's first point, our interest rates are higher than those of Germany because our inflation rate is higher. Our real rates of interest, which measure the real burden on industry, are not higher than those of France, Germany or, indeed, Italy.
Mr. Wells : Does my hon. Friend agree that that performance shows the success of the Conservative Government's economic policies? Will not we need more and a longer period of such Conservative Government policies now that we have joined the European exchange rate mechanism, because manufacturers can no longer take refuge in a devaluation of our exchange rate and must increase their productivity still further?
Mr. Ron Brown : Is not it the case that our manufacturing production will go down if ICI leads the fertiliser business? That is likely simply because of dogma. The Secretary of State for Trade and Industry has blocked Kemira, a state-owned company, from taking over the fertiliser business owned by ICI. Is not that a disgrace when we remember that, in my constituency of Edinburgh, Leith and south of the border, many people are likely to lose their jobs? What does the Minister intend to do about that, remembering that a fight-back will take place and that a general election is just around the corner?
Mrs. Shephard : The hon. Gentleman raises a matter which, as he recognises, is more properly for my right hon. Friend the Secretary of State for Trade and Industry. However, I make the general point that an increase in unemployment depends crucially on how companies and labour forces split an essential reduction in unit labour costs between pay settlements, lower investment and fewer jobs.
Mr. Favell : As it is clear that the social charter would have an adverse effect on manufacturing productivity, may I have my hon. Friend's cast-iron assurance that the Government will not give in to Commissioner Papandreou and agree to the social charter?
Mr. Boateng : Given the current state of the Government's economic policies and their perverse and asinine equation of working with hurting, how many people have to be flung out of work before Ministers go to the Dispatch Box to tell us that their economic policies are working--2 million or 2.5 million? Have they any idea?
Mrs. Shephard : The real threat to employment and to economic success is inflation. I repeat my point that the increase in unemployment will depend crucially on the way in which management and labour forces deal with wage settlements. We do not need any lectures from the Opposition when we remember that manufacturing output under Labour fell by 2 per cent.