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House of Commons
Thursday 28 February 1991
The House met at half-past Two o'clock
PRAYERS
[Mr. Speaker-- in the Chair ]
PRIVATE BUSINESS
Cardiff Bay Barrage Bill
[Lords] (By Order) Order for further consideration, as amended, read.
To be further considered on Thursday 7 March.
Midland Metro Bill
(By Order)
Order read for resuming adjourned debate on Question [21 February], That the Bill, as amended, be now considered.
Debate further adjourned till Thursday 7 March.
London Underground
(No. 2) Bill-- (By Order) Order for Second Reading read.
To be read a Second time on Tuesday 5 March.
Mr. Speaker : As the next 12 Bills have blocking motions, I shall put them together.
Cattewater Reclamation Bill
(By Order)
Hook Island (Poole Bay) Bill
(By Order)
London Docklands Railway (Lewisham, etc.) Bill
(By Order)
Vale of Glamorgan (Barry Harbour) Bill
(By Order)
Birmingham City Council Bill
(By Order)
British Railways Bill
(By Order)
East Coast Main Line (Safety) Bill
(By Order)
London Regional Transport (Penalty Fares) Bill
(By Order)
London Underground (King's Cross) Bill
(By Order)
Midland Metro
(No. 2) Bill -- (By Order)
Redbridge London Borough Council Bill
(By Order)
British Railways
(No. 3) Bill-- [Lords] (By Order) Orders for Second Reading read.
To be read a Second time on Thursday 7 March.
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Oral Answers to Questions
NATIONAL FINANCE
Private Borrowing
1. Mr. Wareing : To ask the Chancellor of the Exchequer what effect changes in private borrowing have had on the economy during the past five years.
The Chief Secretary to the Treasury (Mr. David Mellor) : A number, including notably a means between 1986 and 1989 for companies to finance a 43 per cent. increase in investment--the fastest growth in investment since the war.
Mr. Wareing : Is not the Minister being rather complacent? Is not it true that net personal savings as a percentage of disposable income, which is an important barometer, have fallen from 13 per cent. in 1979 to 5 per cent. last year and that that is reflected in the outstanding consumer credit of £50 billion, much of which has been expended on manufactured goods that were imported by this country because of the inadequacy of British manufacturing industry under the Tory Government to furnish that demand?
Mr. Mellor : It is certainly true that there was a fall in the savings ratio, but we must consider the rates of inflation that prevailed in those two years. The savings ratio for first three quarters of 1990 was back to 8.8 per cent. and is on a rising trend. With regard to credit and demand, the hon. Gentleman failed to take account of the fact that household credit is overwhelmingly for mortgages. He also failed to give us credit for a crucial development : although between 1974 and 1979 consumption rose at seven times the rate of investment, between 1981 and 1989, investment rose at double the rate of consumption, therefore financing plenty more local production for demand to go into.
Mr. Budgen : Does my right hon. and learned Friend agree that when the savings ratio is running at about 5 per cent., it is a clear sign of an excessive boom, such as occurred between 1986 and 1988, but when it is running at 8.8 per cent., as it is now, that is a clear sign that domestic and national indicators point towards a further cut in interest rates?
Mr. Mellor : I thought for a moment that my hon. Friend was going to ask me a question with which I could wholeheartedly agree, but he spoilt the effect somewhat towards the end of his comments. He is aware of our policy and he knows that we will bring down interest rates when it is compatible with our position within the ERM band and when other circumstances permit.
Savings
2. Mr. Waller : To ask the Chancellor of the Exchequer what assessment he has made of the success of TESSAs.
The Minister of State, Treasury (Mrs. Gillian Shephard) : TESSA has got off to an excellent start. The scheme is playing an important part in restoring the habit of saving.
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Mr. Waller : Does my hon. Friend agree that any improvement in the underlying savings ratio, which has been relatively low in this country, has beneficial effects on the economy? In view of the success of TESSAs, will my hon. Friend and her colleagues consider similar stimuli for this year and in the future generally?Mrs. Shephard : My hon. Friend is right. There has been a very good improvement in the savings ratio, which is now back up to 8.8 per cent. That has been encouraged by the number of developments in savings schemes introduced by the Government. As for my hon. Friend's further request, I remind him that I can give no idea of what might be in the mind of my right hon. Friend the Chancellor of the Exchequer on 19 March.
Mr. Timothy Congdon
3. Mr. Campbell-Savours : To ask the Chancellor of the Exchequer what representations he has received on the level of interest rates and the value of the pound from Mr. Timothy Congdon over the last few weeks.
The Chancellor of the Exchequer (Mr. Norman Lamont) : None, Sir.
Mr. Campbell-Savours : Is not the leaking of information about Government policy by a Bank of England official to a bank in the City an offence and should not the use of such information by a bank become an offence under insider trading legislation?
Mr. Lamont : I should like to consider the hon. Gentleman's last point. The answer to his first point is, obviously, yes. However, I am afraid that I can give the hon. Gentleman no further answer in addition to what I have already told him in a written answer. If the hon. Gentleman has any evidence or information that he wishes to place before me or the relevant authorities, I am sure that he will do so--
Mr. Campbell-Savours : I am asking about the law.
Mr. Lamont : I have answered the hon. Gentleman's specific question.
Sir Peter Hordern : Why should my right hon. Friend pay any more attention to Mr. Timothy Congdon's views than to those of the 364 economists who wrote a letter to The Times in 1981 and got it wrong then?
Mr. Lamont : I hesitate to divulge it to my hon. Friend, but some of the Liverpool six are quite well known to me. I have had discussions with some of them from time to time. They may not be family friends, but I know that they are not always correct.
Mr. Beith : Has the Chancellor noticed the strange alliance between the Liverpool six, the family friends, some of his own Back-Benchers and members of the Labour party in support of the proposition that it does not matter if a substantial cut in interest rates is followed by a devaluation? Does he agree that the last thing that this country needs is a reputation for devaluing its way out of trouble and that what is really needed is an anti-inflationary policy that would provide the credibility that would make interest rate cuts possible?
Mr. Lamont : I agree with the hon. Gentleman. It is no answer to the problem of inflation or interest rates to say
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that we must devalue the currency to equate with our costs. The real answer is to make our costs equate with the currency and that is what we are doing.Mr. Ian Stewart : I congratulate my right hon. Friend on the way in which he has absolutely refused to entertain any devaluation of the pound now that it has joined the exchange rate mechanism. Does he agree that even to entertain such a move would undermine the framework of the anti- inflationary policy that he has adopted and that, over time, it would make it more difficult to bring about the necessary reductions in interest rates than would adhering to the framework of the ERM?
Mr. Lamont : I agree entirely with my right hon. Friend. I have set out our precise policy on interest rates to the House on several occasions. I am not going to take any risks with either interest rates or inflation, which must remain the main objective of our policy. We have too high a rate of inflation vis-a -vis our European competitors and I am determined that we should get it down, and quickly. I hope that my hon. Friends will not have exaggerated ideas about interest rates that may or may not be possible.
Interest Rates
4. Mrs. Heal : To ask the Chancellor of the Exchequer how many letters he has received from small businesses about the high level of interest rates.
The Economic Secretary to the Treasury (Mr. John Maples) : My right hon. Friend has received a number of such letters.
Mrs. Heal : Despite the Conservative party's claim to be the party of small businesses, in the west midlands region business failures have increased by 36 per cent. and in Mid-Staffordshire many small businesses have either failed or are struggling to survive. For them, yesterday's announcement of a 0.5 per cent. cut in interest rates is welcome, but a mere drop in the ocean. When will the Minister announce even further cuts in interest rates and end the slow torture of small business men?
Mr. Maples : Once again, a representative of the Labour party is willing to play fast and loose with devaluation and inflation--
Mr. John Smith : That is not true.
Mr. Maples : It is what the hon. Lady said.
The fact is that there is still a substantial net increase in the number of new small businesses. In 1989, 87,000 more businesses were registered for VAT than left the register and in 1990, 50,000 more businesses registered than left the register. The failure rate is under 1 per cent., whereas for the period 1983 to 1986 it was over 1 per cent.
Sir William Clark : Does my hon. Friend agree that it is much better to reduce the base interest rate cautiously and thus avoid a fall in sterling which might mean that the rate would have to increase again? Is not it much better to reduce interest rates cautiously so that we can sustain a permanent reduction in the base rate?
Mr. Maples : My right hon. Friend is right. The purpose of our policy is to bear down on inflation. It would be completely counter- productive to take any risks with inflation.
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Mrs. Beckett : Does the Minister recognise that the complacency of his reply will be a shock to small and large businesses alike? Is he aware of not only the "Trade Indemnity" results from last year, which showed a 77 per cent. increase in business failures in 1990, but the forecast of a further 25 per cent. increase in business failures in 1991? Is not that an indictment of the Government's handling of the economy?Mr. Maples : Of course, it is sad when any business goes out of action. I merely sought to point out that the figures were not out of line with those for the mid-1980s. I do not remember the hon. Lady or any of her hon. Friends at that time making the point that she made today. We have noticed that her party is prepared to spend, borrow and cut interest rates on a reckless scale which would play fast and loose with inflation.
Mr. John Townend : Does my hon. Friend accept that many small businesses that were created in the enterprise culture of Thatcherism are suffering considerable pain as a result of interest rates--despite the recent welcome reductions--and a loss of demand? Will he persuade the Chancellor of the Exchequer to ease the pressure in his Budget by concentrating any tax reductions on the business sector and in particular to consider making the first £5,000 of retained tax profit of a small business tax free?
Mr. Maples : I am sure that my right hon. Friend the Chancellor heard my hon. Friend's Budget representation.
Pools Betting Tax
5. Mr. McAllion : To ask the Chancellor of the Exchequer what has been the revenue cost to date of the reduction of pools betting tax from 42.5 to 40 per cent.
Mrs. Gillian Shephard : The revenue cost to the end of January 1991 was £15.25 million.
Mr. McAllion : The Minister will know that the reduction in betting taxes is for a period of five years, to coincide with the time scale within which clubs must comply with the Taylor recommendations. As the Government have agreed with the football associations in Scotland that smaller and significantly less wealthy clubs in the lower divisions may have 10 years within which to comply with Taylor, will she consider extending the time scale for reducing betting taxes so that money will be available to the Football Trust to help smaller clubs beyond the current five-year cut-off period?
Mrs. Shephard : The hon. Gentleman has a considerable interest in this matter. The ability of the smaller league clubs, not only in Scotland but in England and Wales, to meet the August 1999 deadline for all-seater stadia would, of course, be considerably strengthened if my right hon. Friend the Chancellor of the Exchequer extended the cut in pools betting duty, as the hon. Gentleman suggests. My right hon. Friend has said that he will be prepared to take an early decision on the matter as soon as it is clear that football is contributing on a significant scale out of its own resources to the work that needs to be done. The sooner that that commitment is made, the sooner my right hon. Friend will be able to take a decision. There is some
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progress, but any encouragement that the hon. Gentleman could give in Scotland and elsewhere would bring forward the date of that review.Dr. Marek : May I partly thank the Minister for her reply, which shows that not everything ahead of us is as dark as night? Will she admit that some of the third and fourth division clubs simply cannot go ahead with safety improvements to their grounds and desperately look to the Government to provide not only an incentive but a little more so that the safety of grounds can be assured? Will she assure the House that the scheme will be prolonged to ensure that every football league ground is safe by 1999?
Mrs. Shephard : The hon. Gentleman should know that the Government help that has been promised is a generous response to the Taylor report. They will provide an initial £100 million over a period of five years for capital works to make football stadia safer. I repeat to the hon. Gentleman that the game must demonstrate its commitment to match the Government's response before my right hon. Friend can review the position.
Share Ownership
6. Mr. Gregory : To ask the Chancellor of the Exchequer if he will make a statement on his policy on promoting share ownership.
Mr. Maples : The Government are committed to achieving wider and deeper share ownership. Very significant progress has been made thanks to the success of Government initiatives.
Mr. Gregory : Does my hon. Friend agree that wider share ownership schemes have resulted in an increase in the number of share owners from 3 million in 1979, under Labour, to 11 million currently, and will he confirm that he wishes to extend that still further? Will he consider the possibility of companies being able to extend the range so that employees can participate as they have in Yorkshire in British Telecom, British Airways, Northern Electricity and other such companies?
Mr. Maples : My hon. Friend is a long-time proponent of wider share ownership and his figures are right. The number of individual shareholders in Britain has risen from 7 per cent. 12 years ago to nearly a quarter-- some 24 per cent.--of the population now. The Government have introduced a variety of employee share ownership schemes as a result of which about 2 million employees have benefited from about £6 billion worth of shares and options over that period. But we shall certainly look at those schemes to see whether there are any ways of improving them.
Mr. Cryer : Is not the best form of share ownership for the nation as a whole to own a service instead of selling it off to a clique of friends of the Tory party, many of whom have contributed to Tory party funds? Is not the Minister ashamed of the way in which, for example, water services owned by the nation have been sold off, have increased their prices and, like other sold-off services, have produced a shoddier service for the people?
Mr. Maples : There we have the true voice of the Labour party. Only three days ago the Leader of the Opposition and the shadow Secretary of State for Trade and Industry made speeches trying to camouflage the sort of sentiment
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that the hon. Member for Bradford, South (Mr. Cryer) has just expressed and trying to pretend that their industrial policy had been dragged into the 21st century. We find that yet again they are in favour of nationalisation, with industries to be run by unions and subsidised by the taxpayer.Mr. Colvin : Does my hon. Friend recall that in the 1974 Labour party manifesto, Labour pledged to bring about a fundamental shift of wealth in favour of working people and their families? Is not it a fact--
Mr. Speaker : Order. This is about share ownership.
Mr. Colvin : Does my hon. Friend agree that Conservative policies encouraging wider share ownership and home ownership have honoured that pledge?
Mr. Maples : My hon. Friend is right. We believe that if people own their own homes and have stakes in the companies in which they work, they have the sort of interest in the success of the economy that we want them to have and from which they will benefit.
Growth
7. Mr. Radice : To ask the Chancellor of the Exchequer what are the latest OECD forecasts for growth in the United Kingdom and Germany in 1991.
Mr. Mellor : The OECD, in its December "Economic Outlook", forecasts GDP growth of 0.7 per cent. for the United Kingdom and GNP growth of 3.0 per cent. for West Germany. No figures are available for the united Germany.
Mr. Radice : Does the Minister agree that those official OECD figures, which probably underestimate the fall in British output, show clearly that the British problem is home grown and is caused by two years or more of very high interest rates?
Mr. Mellor : I appreciate the seductive quality of that argument for the hon. Gentleman, but, unfortunately, it is not true. A number of countries--the United States, Canada, Australia and Sweden--are in recession and in France GDP fell in the last quarter. So the hon. Gentleman is not paddling the right canoe.
Mr. Ian Bruce : Does my right hon. and learned Friend agree that Germany's one advantage is that it has a population who believe in low inflation and that when wage demands are made by trade unions, they talk about paying for increases by greater productivity? Does he further agree that if we could follow their example--keeping inflation low and having wage demands met by productivity--we, too, could achieve continued growth without high inflation?
Mr. Mellor : My hon. Friend is right. Indeed, we have proved it to be so. Between 1980 and 1990, the United Kingdom economy, by learning those lessons, grew faster than that of West Germany, whereas when the Labour party was in power we were bottom of the European growth league.
Mr. John Smith : Can the Chief Secretary explain why, after 11 years of Conservative rule, the United Kingdom is the only country in the European Community to be in
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recession by having a fall in GDP for two quarters and is the only country in the EC to be cutting investment in the manufacturing sector?Mr. Mellor : The right hon. and learned Gentleman knows that there have been falls in productivity, output and production in a number of European countries. He also knows that the 1980s was a decade of unparalleled success for the United Kingdom economy. With the greatest respect to the right hon. and learned Gentleman, he could not have said that about the previous decade when he was a Cabinet Minister.
Mr. John Marshall : Does my right hon. and learned Friend agree that one year's forecast is not a totally accurate guide to the health of an economy, but that a decade is a much better guide to the success of economic policies? In the 1980s our economy thrived, unlike many in the European Community.
Mr. Mellor : That is exactly right. We were at or near the top of most of the economic indicator leagues in the Community, whereas under the Labour Government our economy was at the bottom of those leagues. The Opposition keep on talking the British economy down, but we have confidence in it.
Inflation
8. Mr. Bell : To ask the Chancellor of the Exchequer what is his forecast for the rate of inflation for October 1991.
Mr. Norman Lamont : The autumn statement forecast is for a sharp fall in all-items RPI inflation to 5 per cent. by the fourth quarter of this year. I will publish a new forecast with the Budget.
Mr. Bell : I thank the Chancellor of the Exchequer for that forecast. The Chief Secretary to the Treasury spoke about the "unparalleled success" of the economy. Does the Chancellor recall a statement by the Prime Minister on 24 April 1988 that what was unique about the recovery in the 1980s was that there was sustained growth without the resurgence of inflation? At the time of that statement inflation was 3.9 per cent. Now there are record house repossessions, record business failures and record unemployment. Who will take the blame for this sad and sorry situation--the Chancellor of the Exchequer or the Prime Minister?
Mr. Lamont : Like the right hon. and learned Member for Monklands, East (Mr. Smith), the hon. Gentleman ignores all the good things that happened in the 1980s and focuses on one statement in one year. He ignores the fact that throughout the 1980s employment in the United Kingdom grew faster than in most other European countries and that we had lower unemployment than in Europe. He also ignores the fact that in the 1980s output in Britain was higher than that in France or Germany and that business investment grew faster than in any of the G7 countries except Japan. Those factors show that the 1980s were years of considerable economic achievement.
Mr. Burns : Will my right hon. Friend contrast that forecast with an annual rate of inflation in August 1975 of 26.9 per cent? May I take it that as inflation continues to fall and when it is economically prudent interest rates will continue to fall, too?
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Mr. Lamont : As I have already emphasised, we can cut interest rates only as and when it is prudent to do so. My hon. Friend is right on his first point. The speeches by the right hon. and learned Member for Monklands, East, (Mr. Smith), if they are anything to go by, and his public spending plans and attitude to interest rates in 1987 and 1988 show all too clearly that Labour would again spark off a great inflationary cycle.Mr. John D. Taylor : It is encouraging to hear the Chancellor of the Exchequer suggest that the inflation rate will fall to 5.5 per cent. in October. Is that an appropriate rate of inflation for a general election?
Mr. Lamont : Fortunately, that is not within my departmental responsibility. I repeated the forecast contained in the previous autumn statement and I said that another forecast would be issued at the time of the Budget.
Mr. Simon Coombs : Does my right hon. Friend agree that Labour policies would be likely to drive inflation up to the levels mentioned by my hon. Friend the Member for Chelmsford (Mr. Burns)? Will he confirm that it remains Government policy to achieve long-term zero inflation?
Mr. Lamont : It does not look as though France, Germany or Japan are about to achieve zero inflation. Our first objective must be a sharp reduction in inflation to bring it down to the level of that of our competitors. We are absolutely on track to do that and will not be blown off course in our objective.
Mr. Nicholas Brown : Two of the major factors in stoking up inflation in recent months have been public utility price rises in the run- up to privatisation and its aftermath and, of course, the poll tax. I do not know whether Finance Ministers ever get nicknames such as Stormin' Norman, in the same way as military leaders do, but it would be nice if the Chancellor would tell us his plans to bear down on those two elements of inflation.
Mr. Lamont : The Government's intentions on the community charge, as my right hon. Friend the Secretary of State for the Environment said, will be announced to the House in due course.
I do not agree with the hon. Gentleman's first point. Utility prices in recent years have underperformed inflation in many spheres. The real causes and origins of our inflation go back to 1987-88 when, with hindsight, our interest rates were too low.
Interest Rates
10. Mrs. Maureen Hicks : To ask the Chancellor of the Exchequer what is the current bank base rate.
13. Mr. Ashton : To ask the Chancellor of the Exchequer if he will make a statement on the present level of interest rates.
Mr. Maples : Bank base rates are 13 per cent.
Mrs. Hicks : Surely an encouraging combination of good news for business in the west midlands is the reduction in interest rates yesterday and the Gulf victory today. However, in defence of businesses in my constituency, does my hon. Friend agree that we still have a long way to go and that businesses need, above all, to
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plan for stability, confident in the knowledge that there will be further interest rate cuts as soon as possible and that we shall, in the process, conquer inflation?Mr. Maples : I hear what my hon. Friend says. In the mid-1980s, investment by those businesses grew at a record rate, and the growth in the economy that resulted could not be sustained. I am afraid that one of the unfortunate facts of life is that those moves must be followed by a slow- down and it is necessary to keep interest rates high in order to bear down on inflation. We shall continue to pursue interest rate policies that are consistent with maintaining our position in the ERM.
Mr. Leighton : Did not the high interest rates show what a blunder it was to have joined the exchange rate mechanism, because interest rates can now no longer respond to the obvious needs of the domestic economy but must be used to prop up an uncompetitive and overvalued exchange rate, which will push the country further into recession and cause, in the coming months, an explosion of unemployment?
Mr. Maples : I sometimes wonder whether Opposition Members write such questions weeks in advance of Question Time. We have been able to reduce interest rates by 2 per cent. since we joined the ERM. The inflation -adjusted exchange rate of the pound against ERM currencies over the past 10 to 20 years shows that the rate at which we entered the ERM is close to the average inflation-adjusted rate over that period. The pound is not uncompetitive against the deutschmark. If it were, how could exports to Germany have risen by 17 per cent. last year?
Manufactured Goods
11. Dr. Michael Clark : To ask the Chancellor of the Exchequer what is the latest trend in the balance of trade in manufactured goods.
Mr. Norman Lamont : The deficit in the United Kingdom's trade in manufactures is clearly on a downward trend. In the three months to January 1991, the deficit was £1 billion, or 1 per cent. of GDP, compared with a peak deficit of £4 billion, or 3 per cent. of GDP, in the third quarter of 1989.
Dr. Clark : Does my right hon. Friend agree that those figures show a significant improvement and are part of an encouraging trend? Is not that because of the underlying strength of manufacturing industry which, during the lifetime of the Government, has improved productivity, the quality of goods and delivery times? Would not it be more appropriate to cheer on those companies that sell abroad rather than disparage them, as the Opposition do?
Mr. Lamont : I entirely agree with my hon. Friend. There has been an encouraging trend in manufactured exports. As my hon. Friend knows, our share of world trade in manufactures has been broadly stable in the past few years and increased last year. We expected a further increase. Certain sectors have dramatically increased their exports, particularly the motor industry, which increased exports by 50 per cent. That is a remarkable achievement.
Mr. Robert Sheldon : Is it not clear that, as anyone who knows what is happening in the manufacturing industry, let alone the high street, will confirm, firms are all busy
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reducing their stocks and that, as they do so, one might have expected a dramatic decline in imports of manufactured goods and imports generally? The fact that that has not happened to anything like the extent expected is a serious matter to which the Chancellor should address himself minutely.
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