Order for further consideration, as amended, read.
To be further considered on Thursday 23 January.
The Chief Secretary to the Treasury (Mr. David Mellor) : Privatisation proceeds are expected to be £8 billion in 1992-93, and £5 billion in 1993-94 and 1994-95. These are as announced in the Chancellor's autumn statement of 6 November 1991.
Mr. Mullin : What will we live on when the oil revenues have all gone and there is nothing left to privatise? Or will the Chief Secretary and his friends be sunning themselves in some tax haven by that time?
Mr. Mellor : I suspect that we will live on the talents of the British people, which will be greatly assisted by the tax and spending regime--[ Hon. Members :-- "On the backs of the working class."] It is clear how rattled the Labour party is, as it has to start barracking this early in the proceedings. The real question that the hon. Gentleman should put is to his own party : how will it keep tax and spending plans going if it does not have the benefit of privatisation revenues?
Mr. Marlow : Apparently there are some interesting, exciting, progressive, damn fool ideas going around about renationalising the water industry. How much would it cost if fair compensation were paid to the standard rate taxpayer each year if that were to be done?
Mr. Mellor : My hon. Friend touches on an interesting point. The Labour party has become ever so coy about the details of its renationalisation plans. The last time it was asked about them by The Times , the best that it could do was to put up a research assistant to the hon. Member for Dunfermline, East (Mr. Brown) to answer. I think that in due time the British people will want to know a bit more than that.
Column 1082the 3 million people on the pile of human misery known as the dole queue will be given a chance to work and to provide tax and insurance. Then, if I have anything to do with it-- [Interruption.]
Mr. Skinner : We shall take back from the richest 1 per cent. of the population the £26.2 billion that they have had in tax cuts and use it for the national health service, pensioners, schools and all the social services.
Mr. Mellor : I am sure that the hon. Gentleman's application for a job has been noted in the quarters which matter. What the hon. Gentleman must explain away is why, with the reductions in the upper rate of tax which have taken place under this Government, the contribution of higher rate taxpayers as a proportion of income tax is so much higher. It is because a low tax regime is a stimulus to effort, a way of ensuring that the British economy works effectively and that people are put back to work. I do not doubt the hon. Gentleman's aspiration to get people off the dole queue, but I doubt whether he has any policies to achieve that.
2. Mr. Peter Bottomley : To ask the Chancellor of the Exchequer what is the policy of the Inland Revenue in respect of charging penalty tax for a period before retroactive primary legislation is passed.
Mr. Bottomley : As the problem which prompted the question has been resolved by the Inland Revenue, will my hon. Friend pass on to its staff the thanks of many Members of Parliament for dealing with issues that we have raised on behalf of our constituents and say that we hope that the problems will continue to decline as tax rates come down rather than go up?
Mr. Maude : On behalf of the Inland Revenue, not always the best loved department of Government, I accept the kind compliments that my hon. Friend has paid to it ; I am sure that they will be echoed in all parts of the House. The Inland Revenue does a difficult job in difficult circumstances extremely well.
My hon. Friend is right to make the point that the job of tax collecting is very much easier with a tax system based, as ours increasingly is, on low rates of tax.
Mr. Thompson : In view of the CBI's projected figure for 1992 of a 4.4 per cent. fall in manufacturing investment, and of the 20 per cent. fall in 1991, is it not time that the Chancellor considered adopting the Labour party's policy on investment?
Column 1083Mr. Lamont : I am grateful for that suggestion, but I am not sure which Labour party policy the hon. Gentleman is suggesting that I adopt to encourage investment.
One of the most important parts of investment is inward investment into this country, which is very much encouraged by our low rates of tax--by our low rates of corporation tax and by the fact that we have a low higher rate of income of tax. We all know what the Labour party will do to the higher rate, but even it does not seem to know what it will do to the tax on middle managers--national insurance contributions. If Labour Members want to encourage inward investment, they should come clean and clarify in their own minds what their plans for national insurance contributions are.
Sir Ian Stewart : As the future of manufacturing investment depends on confidence in future economic performance, does my right hon. Friend think that anyone contemplating what will happen to his income will feel more confident if he is threatened with slow torture rather than immediate amputation?
Mr. Lamont : My right hon. Friend is absolutely right. The Labour party talks all the time about investment, but the other side of investment is savings. There is no investment without savings. The Labour party's way of encouraging savings seem to be the ingenious one of putting extra taxes on it.
Mr. John Smith : Does the Chancellor appreciate the harm being done to the economy by the 20 per cent. fall in investment in manufacturing industry and the CBI's prediction of a further 4 per cent. fall? Bearing in mind that unemployment is rising yet again, and that 900 companies are going bust every week, when will the Government realise the depth of the recession that their policies have caused and do something to stimulate investment in our manufacturing industry?
Mr. Lamont : I note what the right hon. and learned Gentleman says about investment. As he knows, it has fallen from high levels. Business investment grew by 45 per cent. between 1986 and 1989. He will also know that manufacturing investment actually rose in the third quarter of last year. He will also know that, notwithstanding the CBI's prediction, the latest Central Statistical Office intention survey predicted a 2 per cent. increase in manufacturing investment this year.
The right hon. and learned Gentleman has advanced his idea of how to encourage manufacturing investment. He says that there should be an increased capital allowance for this year, cunningly saying that it would cost nothing in the first year ; that is equivalent to saying that the bill is in the post, as we all know that it is paid after 12 months.
Column 1084of thousands of people directly and indirectly? Will she send out a message to those who oppose smoking and belong to the brigade who say, "Do as I say and as I instruct you," to the effect that they should leave ordinary people to get on with the job of smoking and supporting the economy?
Mrs. Shephard : I note what my hon. Friend says. At this time of year we receive many such representations, but they must be weighed against the annual death toll of 110,000 people which is associated with smoking. Employment in the tobacco industry, which my hon. Friend mentioned, has been falling steadily due to increased automation and the long-term decline in smoking.
Mr. Radice : While we are on the subject of indirect taxes, will the Government tell the House how they will continue to cut direct taxes and improve public services without at the same time raising VAT as they did in 1979 and in the last Budget?
Mrs. Shephard : I certainly would not like to prejudge what my right hon. Friend the Chancellor might announce in his Budget. It was interesting to read in the Daily Express about Labour's plan for a luxury VAT rate.
Mr. Mitchell : Does my right hon. Friend agree that increasing expenditure on day one of a new Government while failing to deal with the important issue of taxation is the fastest way back to the high levels of inflation which characterised all Labour Governments?
Mr. Lamont : My hon. Friend is absolutely right. There is nothing wrong with massive increases in public expenditure, provided that the Opposition are open about the fact that they plan massive increases in taxation to finance them.
Mr. MacKay : Does my right hon. Friend agree that it is difficult to take Labour seriously on unemployment when under its policy inflation would rise following increases in public expenditure and our competitiveness in world markets would diminish?
Mr. Lamont : My hon. Friend is absolutely right. Labour does not seem interested in getting inflation down. Indeed, the Leader of the Opposition never even mentioned inflation in his speech at the party conference. Reducing inflation is the absolute first condition for medium- term prosperity. The fight again inflation must go on.
concentrating--unsuccessfully--on bringing down inflation, unemployment is raging and further factory closures and redundancies have been announced nearly every week
Column 1085since he came to office. When will he take steps to reduce interest rates to give some of the companies in Britain an opportunity to survive, fight and compete internationally? Should not the Chancellor hang his head in shame and resign now, and let the Labour party get on with bringing this country back to the richness that it deserves?
Mr. Lamont : I am sure that the hon. Gentleman will welcome the reduction of 3.5 percentage points in interest rates in the past 12 months. I am sure that he also welcomes today's news that the Abbey National, Halifax and Nationwide building societies are reducing their lending rates to, as they put it, give a fillip to the housing market. I am puzzled by the hon. Gentleman's comment that we are unsuccessful in getting inflation down. At 4.3 per cent., our inflation rate is below the average of the European Community. I hardly dare to mention the 15 per cent. average rate of inflation under the last Labour Government. Everything that Labour says about public spending shows that it is completely indifferent to inflation, which would have a bad effect on unemployment.
Ms. Armstrong : Will the Chancellor explain why after the 1983 and 1987 elections inflation and other indicators rose significantly but the Government managed to get them down just before those elections? Is that the Government's real policy? What sort of guarantee can the Chancellor give that that sort of thing will not happen again? The only guarantee that I can give is that there will not be a Tory Government after the 1992 election.
Mr. Lamont : Perhaps the hon. Lady will tell me under which of the three Conservative Governments since 1979 the average rate of inflation was remotely near that of the Labour Government from whom we took over.
Mr. Tim Smith : Will my right hon. Friend confirm that the figures for factory output prices, which were published earlier this week, show that the underlying rate of inflation continues to fall? What effect does he expect the very welcome news about mortgage interest rates to have on the retail prices index?
Mr. Lamont : My hon. Friend is drawing attention to an important point about the underlying rate of inflation. We have had some excellent producer prices figures. Excluding the volatile food, drink and tobacco sectors, which are influenced by Budget changes, the rate of inflation has fallen to 3.8 per cent. It is forecast to be 3 per cent. in the fourth quarter of this year, which will be the lowest figure since 1969. The fact that the underlying rate of inflation is falling so sharply is a very good indicator and is very encouraging for the trend of the headline rate.
As for the second part of my hon. Friend's supplementary question, I cannot anticipate entirely what will happen, but the reduction in mortgage interest rates will obviously have a beneficial effect.
Mrs. Beckett : Does the right hon. Gentleman recall telling the House that a rise in inflation was expected in these months for what he called "technical reasons" shortly after the Prime Minister told the country that the Government had inflation licked? Did the Prime Minister speak in ignorance, or was he trying to keep the British people in ignorance before a possible November election?
Column 1086right hon. Friend said that we had inflation licked in a way that we had not had it licked for years. The trend of inflation is very good. The statistics prove that absolutely, and everybody except the hon. Lady knows it.
Mr. Mellor : Measured at constant 1985 prices, plant and machinery investment was £19.7 billion in 1979, £19.4 billion in 1983 and £25.9 billion in 1987. Complete figures for 1991 are not available, but in the first three quarters plant and machinery investment was at an annual rate of £29 billion, and 52 per cent. above its level in the comparable period of 1979.
Mr. Mellor : The figures reveal the full extent of the increase in investment in the 1980s as a result of the Government's policies, an increase which has been maintained even during this period of recession. In absolute levels, we have fallen off only from the historically high 1980 figures. Comparison with other OECD countries is extremely interesting. In the 1970s, the average increase per annum in business investment in the Group of Seven was 3.1 per cent. whereas for the United Kingdom it was 2.3 per cent. In the 1980s, the average increase in the Group of Seven was 4.6 per cent. and in the United Kingdom it was 6.8 per cent.
Mr. Robert Sheldon : Has the right hon. and learned Gentleman not been listening to the chorus of demands from the CBI, from the trade unions and now also from a number of Conservative newspapers for an increase in capital allowances for manufacturing industry? Why does he not take note of that widespread feeling?
Mr. Mellor : We do take note of that feeling. The right hon. Gentleman, who was a Treasury Minister throughout the lifetime of the Labour Government, will appreciate that figures such as those that I have just disclosed to the House would have been regarded as a complete impossibility in his time.
Mr. Budgen : Does my right hon. and learned Friend agree that the level of investment is most of all decided by the real rate of interest? Does he also agree that there has been a noticeable change of opinion in the business community, in that in 1990 it thought that we could go into the exchange rate mechanism without any disadvantage whereas it is now beginning to realise that the ERM obliges us to have a higher exchange rate and higher real interest rates than are appropriate for domestic needs?
Mr. Mellor : I do not know whether my hon. Friend read Gavyn Davies's recent article, which showed that what most greatly influences investment is availability of markets and demand, and that running costs come very much second to those factors. Evidence shows that expected productivity in unit labour costs of British industry are more competitive now than they were when we entered the ERM.
Mr. Norman Lamont : Complete data for 1991 are not available. In the first three quarters, manufacturing investment at constant 1985 prices was 15 per cent. below its level in the comparable period in 1990.
Mr. Wareing : Does the Chancellor agree that our abysmal economic growth performance since the Government took office in 1979 is due largely to the dismal performance of British manufacturing industry, and that the forecast for the year 1991 of a 15 per cent. fall in investment is a testimony to the failure of the Government's policies? Was it not sheer arrogant complacency for the right hon. Gentleman to tell the National Economic Development Council at its recent meeting that if he had known before that there would be a fall of 15 per cent. he would still have done nothing? Is it not time he retired and let somebody do something?
Mr. Lamont : The hon. Gentleman's question was supposed to be about investment, but he has asked about growth in general. I cannot understand why he referred to poor growth performance in the 1980s unless he thinks that it is poor to have grown faster than France and Germany. That is an extraordinary assumption. He seems unaware that our exports in manufactures have recently been increasing their share of world trade. That cannot be described as a poor performance. The hon. Gentleman should get up to date with his facts.
Sir William Clark : Does my right hon. Friend agree that, although the Opposition seem to delight in talking down the United Kingdom economy, the confidence of the foreigner investing in this country is great and we have the highest rate of inward investment in the EEC, despite the pessimism that the Opposition are always trying to spread?
Mr. Lamont : My right hon. Friend is absolutely right. As he said, inward investment is one of the great success stories of the last decade. We have achieved more inward investment than any other European country. The great thing about that inward investment is that some of the most successful countries in the world have chosen this country in which to invest.
Mr. Beith : Will the Chancellor assist businesses in making their investment plans by telling us whether he has revised his growth forecast for this year in the light of the Prime Minister's statements in his new year interview, which seemed to cast considerable doubt on the growth forecasts given earlier? In the light of what surely must be a changed forecast, will the right hon. Gentleman review his hostility so far to careful public expenditure designed to create infrastructure improvements for the future and to get the economy moving?
Mr. Lamont : I note the hon. Gentleman's early Budget representation. I note that, unlike the Labour party, when the hon. Gentleman's party advocates increased public spending, it is at least honest enough to say that it will put up the basic rate of tax. However, the hon. Gentleman's position does seem a little curious. His party says that it will put up the basic rate of tax. Yet, at the same time, it
Column 1088said that if there were a coalition Government, it would stop the Labour party putting up the higher rate of tax. That is a curious position to occupy.
Mr. Mellor : United Kingdom exports have grown 23 per cent. over the past five years, and reached record levels during 1991. I am pleased to say that after decades of decline, the United Kingdom's share of world trade in manufactures flattened out in the mid-1980s, increased in 1989 and 1990, and looks most likely to have increased again in 1991.
Mr. Pawsey : I thank my right hon. and learned Friend for that extremely encouraging response. Does he agree that much of our country's undoubted export success has been due to competitive premium Export Credits Guarantee Department rates? Is he aware that many industrialists are concerned that we shall be unable to maintain our export performance due to uncompetitive rates, particularly vis-a -vis our principal competitors such as Germany, France and Japan? Will my right hon. and learned Friend therefore have a meeting with his opposite number at the Department of Trade and Industry and endeavour to bring ECGD rates down to a level which would be more favourable to British exporters?
Mr. Mellor : We regularly discuss such matters, which I recognise are important, but, as my hon. Friend will appreciate, ECGD premiums must reflect the risk for the taxpayer in export credits. He will be aware that losses by ECGD of £3 billion, which have already been disclosed, with the possibility of a similar sum in the pipeline, suggest that we cannot afford to underestimate the possible losses to the nation if we get the ECGD judgments wrong.
One key way of protecting ourselves in future is to ensure that the premiums charged fully reflect the risks that the country has to take on in allowing such cover to go forward. I acknowledge that we must have an eye to the international experience, and our work internationally is to try to ensure that other countries, too, put up their premiums in a way that sensibly recognises the problems of such cover throughout the world.
Mr. Mellor : I have already told the House that the export performance of United Kingdom industry has been extremely good, with an increase of nearly 25 per cent. over five years, and an increase in manufacturing exports even during the past year of recession, in excess of 3 per cent. The question that the hon. Gentleman has to answer is what nostrums put forward by his Front-Bench spokesmen would make such a record possible under a Labour Government.
Mr. Beaumont-Dark : Self-regulation in the City was meant to be a panacea which would solve most existing problems. Since then we have had Polly Peck, Brent Walker, the scandal of the Bank of Credit and Commerce International, and then the greatest scandal of all--the Maxwell scandal. As self-regulation is proving somewhat less than satisfactory, is it not time to consider establishing a Securities and Exchange Commission--an SEC- -as exists in America?
The City of London is important to the invisible exports of this country, and we cannot allow scandals such as those that have happened in the past. Under self-regulation people tend to protect one another so that they do not get caught. Let us get things out in the open and have an SEC to ensure that the honour of the City of London is well protected by a statutory authority.
Mrs. Shephard : I hear what my hon. Friend says. We have certainly seen some large and spectacular frauds uncovered recently, although they were not all in financial institutions. Clearly, however, that does not mean that the City is riddled with fraud or that the regulatory system has failed. I am sure that my hon. Friend will agree that no system of regulation can ever give complete protection against a determined thief or fraudster. The Government have done more than any other Government to tighten the regulation of the City, through a series of powerful pieces of legislation. In the end, a balance has to be struck between tight regulation and cramping any sort of innovation or initiative in the financial services sector, as the Labour party would advocate.
Mr. Vaz : Could the Government be prevailed upon to persuade the City institutions to provide more positive assistance for depositors, creditors and former employees of the Bank of Credit and Commerce International? The Minister will know that former depositors will have problems getting facilities for mortgages. She knows, too, that representations have been made to the Chancellor of the Exchequer. Could the City institutions be made positively to assist people who, through no fault of theirs, have lost a considerable amount of money?
Mrs. Shephard : The hon. Gentleman will wish to know that that point is being pursued. He will also be aware that arrangements are in place for the liquidators to aid banks in their assessment of applications made by small businesses and personal customers for alternative facilities.
Sir Peter Tapsell : May I support what my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) has just said in urging the Government to give serious consideration to the establishment of a Securities and Exchange Commission in Britain. Is it not clear that the multiplicity of often overlapping self-regulating authorities are not adequately protecting the national interest? Will my hon. Friend the Minister bear it in mind
Column 1090that many of the frauds that have come to the attention of our regulating authorities were first discovered and reported to them by the American SEC?
Mrs. Shephard : Of course, that was not so in the case of BCCI. I repeat to my hon. Friend that, while there is cause for concern about the large spectacular frauds that have been uncovered, the Government have done more than any other with the Financial Services Act 1986, the Banking Act 1987, the Building Societies Act 1986 and amendments to the Companies Acts to regulate the City of London.
Mr. Salmond : In discussions with the Governor of the Bank of England on City institutions will the Chancellor discuss how to circumvent the damage done to hopes to locate the Eurobank in the United Kingdom by the Government's opt-out policy on the single currency? Will he further discuss whether it would be better to argue for Edinburgh as a location for the bank--a location much more acceptable to other Europeans than London, which the Labour and Tory Front-Bench teams have argued for?
Mrs. Shephard : No decision needs to be taken for some time on the location of the European central bank. The Government have made it clear that a decision on the site would be premature at this stage. Whatever happens, the Government will do what they can to advance the case of the most credible United Kingdom candidate.
Mrs. Gillian Shephard : We expect to continue our excellent record in attracting inward investment. Latest available estimates are that between 1984 and 1988 the United Kingdom received about one third of all inward direct investment to the EC--higher than any other member state.
Mr. Hind : My right hon. Friend the Chancellor of the Exchequer said that the success of inward investment depends on availability of markets. In my hon. Friend the Minister's view, what would be the effect on the economy and inward investment if she abolished the ceiling on national insurance, increased the ordinary rate and basic rate of tax for a third of the population in the south-east and introduced a higher rate of value added tax on luxury products--all measures proposed by the Labour party?
Mrs. Shephard : The attraction of the United Kingdom to inward investment is the skilled labour force, low unit costs compared with other EC countries and, of course, the competitive tax system with the lowest rate of corporation tax in industrialised countries. I fear that many of those features would be threatened by the policies of the Labour party.
Column 1091investment into Britain, but does my hon. Friend not agree that all the paraphernalia that would be inflicted on industry by a Labour Government would be disastrous for inward investment? Will she also emphasise that we are building on success and, to this end, will she give the House the figures for 1988, 1989 and 1990 on the proportion of American and Japanese investment in the EC which came to Britain?
Mrs. Shephard : In 1988-89, 62 per cent. of all United States inward investment in the EC came to the United Kingdom and 42 per cent. of all Japanese direct investment in the EC came to the United Kingdom.