House of Commons Hansard Debates for 22 Jan 1992

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Business failures are even worse. Let us look at the record. In 1980 when the Conservative party had just come to power, there were 10,651 business failures ; in 1991 the figure was 47,777- -another testimony to the hopelessness of the Government. The growth rate under this Government has been 1.75 per cent.--lower than under any other post-war Government. The Government have the worst record since the war. Gross domestic product fell by 2.3 per cent. in 1990, while that of Germany grew by 1.9 per cent., of France by 1.2 per cent. and of Italy by 1.4 per cent. Britain is indeed the poor man of Europe. Manufacturing output growth in the United Kingdom between 1979 and 1991 was the lowest of all the countries in the European Economic Community, except for Greece where it was just 1 per cent. lower than in the United Kingdom.

Last year, in the north, there were 3,730 business failures--an increase of 57 per cent. on 1990. When I looked at the position in the south-east, I felt that the north's figure was not too bad because the figure for the south-east was 9,722. Then I looked at the position in the south-west, because that is where all the Tory Members are. No wonder they are not here tonight. No wonder the Government cannot find speakers for the debate. According to last year's figures, there were 5,401 business failures in the south-west.

The figure for London is even worse, but that is where the Tories hope to gain some seats to win overall control. According to last year's figures, there were 7,731 business failures in London. That is an absolute disgrace. The Government are hoodwinking people in those areas. I hope that one day those people will realise what the Government are all about. The Government are for themselves ; for the rich and for anyone who wants to put something in the coffers of Conservative central office. According to last year's figures, 200 firms a day went under.

Since 1979, unemployment in the north has increased by 39 per cent. in real terms. It has increased from 93,000 in 1979, when the Conservatives came to power, to 129,000. More than 31 per cent. of unemployed people in the north -east are under 25. Fortunately for us, there are Labour Members in the north-east. There are also one or two Conservative Members, but the figures which I recounted will ensure that they are defeated at the next election. Given the figures which I just described, I hope that Conservative Members will also be defeated in the south-east.

Thirty-three per cent. of people in the north-east have been out of work for more than a year. That is intolerable. It is no good the Government telling us, as they tried to tell us today, that everything is hunky-dory and that the recession has bottomed out. According to the 1991 figures, there were 80,000 house repossessions in England, Wales and Scotland. That was a 90 per cent. increase over the 1990 figure. That is the Government's testimony. Mortgage arrears are now at record levels and one in 12 people are two months behind with their mortgage repayments.

In respect of taxation, the Tories believe that their party gives everything away and takes nothing back. Unfortunately, that is wrong. When Labour came to power, VAT was 8 per cent. As we all know, under the Tories today, VAT is 17.5 per cent. That has caused

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problems for working people, because VAT applies to everyone and not simply to the rich. It applies to the low-paid man who has to buy clothes for his children.

Mr. Tim Smith : Value added tax does not apply to children's clothes.

Mr. Campbell : The hon. Gentleman is right ; I apologise. In the last Budget, VAT meant an extra £2 for the average working family. The increase in alcohol duty meant an extra £1 on that family's budget. The tax increase on tobacco in the last Budget meant £1 a week for the average working man. Changes to petrol duty meant an extra 30p a week for the average working man--not many average working men have motor cars, not like some of us in this place who are very rich. In all, last year's Budget meant an increase of £4.30 in taxation for the average working man. It is a fallacy that the Government are not a Government of taxation. They should get out and let another Government come in and do the right thing for the working class of this country.

7.4 pm

Mr. Nigel Forman (Carshalton and Wallington) : It is already crystal clear from this debate and from the official Opposition amendment that, if the Labour party was ever to form the Government, this country would have to spend more, tax more and borrow more. That would be quantitatively and qualitatively far more than if this Conservative Government were to remain in power.

It is also misleading for the right hon. and learned Member for Monklands, East (Mr. Smith) and his colleagues to present Labour's programme as cautious and carefully costed. They must know, just as we know, that it is the cost of a Labour Government over a full five-year term which would concern the British people. That cost would be well in excess--perhaps more than £30 billion in excess--of the Government's current spending plans, which are already based on some pretty optimistic assumptions about future growth in the economy over the relevant period.

The Labour party has sought to lull the British people into a false sense of security by referring only to the first year's cost of its promised increases in state pensions and child benefits. However, any fair-minded observer is bound to conclude, on the basis of previous evidence of the Labour party in office, that there are usually three stages in a typical Labour path to perdition : first, Labour spends more in an effort to redeem its pledges to special interest groups--and it is very close to many producer groups ; then it taxes more, whether via income tax or national insurance, in an attempt to cover at least some of that cost ; then it borrows more and has to raise interest rates higher than they would otherwise have been until the markets or the International Monetary Fund-- possibly both--intervene to stop Labour. That all ends in tears.

We saw all that before, between October 1974 and October 1976. If the British people were foolish enough to return a Labour Government once more, we would see it again. The bills to the taxpayer may be delayed somewhat under the formulae espoused by the right hon. and learned Member for Monklands, East, but they would all be in the post--as the saying goes-- even if, under Labour, that would be a pretty inferior second-class post.

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Furthermore, in a modern society such as ours, Labour would soon encounter a taxpayers' revolt if it pursued its irresponsible public spending plans. Notwithstanding all the adult education that Labour Members have received during their long years in opposition, they do not seem to have learnt that large and rapid increases in public spending are not the most efficient way to meet genuine social needs or to get maximum value for money in the public sector. Too much of an extra spend of that kind tends to be absorbed in a rapid pay increase.

Labour's redistributive politics--the politics of envy as it was once called--would involve robbing middle-class Peter to provide services for middle-class Paul. Indeed, because of the pattern of use in many public services, it would often be a case of increasing tax on the relatively lower-paid in work, or national insurance contributions, to increase pay in the public sector and provide services which the hon. Member for Birkenhead (Mr. Field)--who, alas, is not in the Chamber today--and others have shown are secured disproportionately by what the hon. Member has described as the "sharp elbows" of the middle class.

The wrong way in which to promote an investment-led recovery, which is precisely the objective in the Opposition's amendment, is to pursue policies that would raise interest rates, increase taxation and national insurance and weaken market confidence in the currency. However, those would be the consequences of Labour's high-spending and high taxation policies.

The Opposition's amendment refers to other desirable measures, such as those designed to promote education and training, but they are medium to long-term measures. They would have no positive impact during the current phase of economic recession. In any case, the private sector has commendably continued with its expenditure on human capital throughout the recession in a way that it did not do in the last recession. However, private firms do not want the prospect of a statutory training levy, something that they would get from a Labour Government, which would be rigid and unfair and would add to their costs.

Against that background, the autumn statement is a worthy document which catalogues the Government's commitment to increase public spending in our priority areas--for example, the national health service. However, the obligatory forecasting duty that the Industry Act 1975 imposes leads to some forecasts that are more than usually inaccurate--for example, forecasts about the pace and scale of economic recovery, and especially about the turnaround in consumer expenditure and fixed investment. I regard this as a pity, because it may have served to raise among the public some hopes whose fulfilment now seems destined to be deferred.

However, there is good news in the autumn statement. Much of this should breed confidence that the recovery, when it does come, will be soundly based and sustainable. For example, consumer price increases have halved since their peak last year, unit labour cost increases have halved since their peak last year, and sterling remains securely within its agreed ERM bands. I believe that, on this basis, we can be confident that the coming year will see the beginnings of recovery after what may turn out to have been the longest and deepest recession of the post-war period.

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Incidentally, we should not really have been surprised at the extent of the recession, as the downturn is not confined to this country. But, primarily, the boom that preceded the downturn was also the longest and strongest period of continuous economic growth in this country since the 1930s. These experiences have obviously had their behavioural and psychological effects in both phases of the economic cycle.

Against that background, my right hon. Friend the Chancellor was right when he said in the House last week that reduced inflation is absolutely the first condition for medium-term prosperity. Having heard his speech today, I am confident that he will stick to his view into and beyond the next election. He was also right, in a recent Financial Times interview, to reject the temptation to buy votes in the election period. Only an irresponsible Government would seek to do that. It would be completely wrong for my right hon. Friends even to contemplate such action--not least because Conservatives intend in the next Parliament to inherit the consequences of current policy decisions.

7.12 pm

Mr. William Ross (Londonderry, East) : At the time of the autumn statement, I asked the Chancellor whether it did not represent a decisive shift from the concept of balanced budgets. He replied that he intended to balance the budget over the cycle. Since he uttered those words, I have given some thought to them, but have not yet been able to figure out what period of years, from inflation to deflation to inflation, he was talking about.

I have not been able to figure out whether the right hon. Gentleman intended to retain the same burden of debt over a very long period--perhaps permanently--and whether that burden would be in cash terms or real terms or would be expressed as a percentage of gross national product, or whatever. I hope that the Front-Bench spokesman, if he is unable to give me the information tonight, will have the courtesy to write and let me know what maintaining a balance over the cycle means. Quite a number of people will be interested to hear. I should like to know whether the current Administration or their predecessors ever intended to diminish central Government debt, or even the entire public-sector debt, as a matter of policy, or whether the diminution was simply the result of a happy accident that occurred because they got their sums wrong. Governments seem to be very good at getting their sums wrong. In the very rumbustious electioneering speeches that we have heard from the two Front Benches and from some other Members today, there was some evidence of that. As neither of the major parties will make any impact in the election in Northern Ireland, I can take a more casual, and perhaps a more objective, view and can state what very many people in the country are thinking.

The Government did not only get their sums wrong in relation to the whole United Kingdom ; they got their sums wrong over Government expenditure in Northern Ireland in the current year. But there is something that annoyed some of us even more. When, some weeks ago, the Secretary of State for Northern Ireland announced the moratorium on certain aspects of public expenditure in Northern Ireland, he did not have the guts to do so in the

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House. I do not wish to be impolite, but I must point out that it was in reply to a planted question that he told us that the Government were at least considering the matter.

That was followed up with a statement that the overspend of about £30 million had been identified by early December, that it represented 0.5 per cent. of the Northern Ireland block grant, and that the right hon. Gentleman intended to correct what was amiss. The 0.5 per cent. does not seem very much. Given the magnitude of the mistakes that have been described in almost all speeches today, there could very easily be an underspend of 0.5 per cent., or even 2 or 3 per cent. That being the case, I wonder whether the corrective measure is somewhat premature.

Even worse is the fact that the Government's first excuse for this moratorium in Northern Ireland expenditure was the high cost of compensation for damage and injury caused by terrorist activity. That was the most foolish of remarks. Everyone in Northern Ireland knows that bills arising from terrorist damage do not come in during the financial year in which the damage occurs. The great bulk are received the following year, and sometimes even later. The sums that have been set out for future years seem to suggest that the Government do not expect to conquer the terrorists in the near future.

When, in this case, the Government were blown off course, they had to come up with some other excuses. The real problem is simply that they got their sums wrong, and they do not yet know where the moratorium and the cut will fall. When I put a question about this matter, the Secretary of State had to say that he did not know. He did not say it quite so baldly, but that is what he meant. He said that the changes would be laid before the House in February. Well, we look forward to February, but when we receive the figures, we shall have to search through the whole mass of detail and make comparisons with the previously published figures to work out exactly where things went wrong. The Government would have been rather more honest if, at the beginning, they had regarded this as a contingency matter--it arose out of terrorist activity--and had decided that the sums required should be provided out of the United Kingdom contingency fund. That is what would happen in respect of any other part of the United Kingdom.

On the national scene, the Government are confronted with a rising budget deficit. The Chancellor now finds himself with a fixed exchange rate. I remember the joy that was demonstrated in this place when we were told that we were to go over to a floating exchange rate. Sometimes I wonder how long the Government stayed with the floating exchange rate. However, they have decided to move to the fixed exchange rate, and the whole economy of the nation is at the mercy of an arbitrary standard that the Chancellor of the Exchequer cannot control.

I feel sure that the Chancellor--whoever he may be--will find the role of a supplicant at European summits very humiliating. Perhaps it will be good for the soul--which, in this case, certainly requires some purification. The Chancellor has no control whatever over interest rates. Would any hon. Member deny that the Chancellor would be overjoyed if he once more had the capacity to reduce interest rates and manage the economy of the nation? After all, that is what he was elected to do. I feel very sad that he has thrown that power away, and I hope to live to see the day when it is restored.

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The right hon. Gentleman's alternatives are few. I believe that, very soon, he will find himself in the position of his predecessors, who had to wrestle with fixed exchange rates. I believe that he will be forced, through this wonderful economic cycle, to create inflation or to deflate according to whether the value of the currency is rising or falling. It is not a prospect that any Chancellor would welcome, but it is one with which the present Government have chosen to live.

The problem is that that will continue until we either leave the ERM or become part of a federal Europe with one currency and, inevitably, one budget. When Europe reaches that stage--and I hope that we are not still part of it--that currency will float. It will be bought and sold on the world currency markets because that is the only way in which its true value can be found. If the Chancellor is prepared to deny that that currency will float, I should like to hear him say so. I do not think that I will hear it this evening. Two minor matters also concern me. Perhaps they are not that minor because they have been the making and the breaking of many a person's fortune. They have cost people their businesses, their dwellings and their incomes. The first is the problems that small businesses face because of the high level of bank rates and the horrendous activities of the banks.

When a business is in trouble and its owner goes to the bank and explains the problem, instead of being sympathetic, the bank says, "You are a risk," and bangs another 3 or 4 per cent. on to the interest rate. We have heard a great deal about caring banks--but from the banks themselves, not from business men or people who owe them money. By putting up the interest rate, the bank ensures that the business goes under and the jobs of its employees are lost. The second point is the high level of rates being charged on retail premises. It appears to many of us, and especially the retailers, that, every time another few quid has to be found for the local economy, the attitude is, "Get it from retail business." It does not matter whether it be central Government or a local authority, that is the attitude, and it has led to the destruction of many small businesses--the very group the Government say they rely on and want to encourage.

7.21 pm

Mr. Nicholas Budgen (Wolverhampton, South-West) : It is a privilege to follow the hon. Member for Londonderry, East (Mr. Ross). In so much of what he says he shows the fundamental agreement that there has always been between the Tory party and the Ulster Unionists. He makes us realise how many mistakes have been made by successive Tory Governments and how easy it is to understand the despair and resentment felt towards us by many Ulster Unionists. I hope that he and they understand that there are many on the Conservative Benches who have noted those mistakes and who, across the barrier of resentment and misunderstanding, feel strong affection and admiration for our cousins in the Province.

I listened with care to the two opening speeches. I was reminded of the agreeable battles--and "agreeable" is the right adjective--that used to take place in the 1970s between Lord Whitelaw and Lord Jenkins, as they have now become, when they discussed home affairs. Lord Jenkins treated Lord Whitelaw with that urbane

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condescension for which he was rightly known, and Lord Whitelaw--with genial good will--accepted the role made for him by Lord Jenkins. Both of them were united in the view that it was crude, vulgar and against the public interest to say anything about immigration, which at that time was a subject of some interest to the public. Such vulgarity was avoided in all discussions of home affairs.

The position is similar today. The two Front-Bench spokesmen, who are now carrying out the economic policy of the Bundesbank, did not for a moment allow the words "exchange rate mechanism" to pass their lips. It was left to later and more vulgar speakers to mention those words. My hon. Friends the Members for Bridlington (Mr. Townend) and for Winchester (Mr. Browne) put the fundamental and first arguments against ERM with great force and clarity.

It is interesting that we are now debating these matters in the shadow of the great intellect of my right hon. Friend the Member for Blaby (Mr. Lawson). After all, he was the single most important politician of the period between 1974 and his resignation, because economic policy decides so much in our political affairs. Between 1974 and 1979, he helped us to understand the three most important factors that would guide Tory economic policy between 1979 and 1985. They were, first, that there would be a decline in the increase in money supply ; secondly, that there would be floating exchange rates ; and thirdly, that, as far as possible, we should aim for fiscal neutrality. It is one of the great tragedies of the Tory party that he who understood everything was, perhaps, less strong in belief. In 1985, my right hon. Friend went to a great conference--the new field of the cloth of gold--which was a meeting of the G5 at Plaza. He went along with what was then the new American fashion of interfering with exchange rates. No doubt, having been persuaded that it would be of temporary advantage, he persuaded my right hon. Friend the then Prime Minister--who was not immune to the charms of American persuasion--that if the Americans wanted it, it must be good for Britain. The then Prime Minister went against what had been the firm convictions of the Tory party for the whole of the period since the agony of it, having so unnecessarily lost power in 1974.

From starting to rig exchange rates, my right hon. Friend the Member for Blaby then laid the ground for those who wanted to go into the ERM and to move from fixed and variable rates to fixed rates. The consequence of that was that in 1985 he did not merely undermine the argument for a floating exchange rate ; he undermined the argument for the medium-term financial strategy and also, in the end, the argument for fiscal neutrality.

It is important that my right hon. and hon. Friends who may be saying to themselves, "There is a risk that we might lose the election", know that if we do lose it, in the end it will be because of what happened at Plaza in 1985, which ended up with Britain joining the ERM. We abandoned the three tenets of a highly successful Tory policy as it was applied between 1979 and 1985.

I hope that my right hon. and hon. Friends will note some of the consequences of the abandonment of those policies. Let us consider the consequences of having what, in practical terms, is a fixed exchange rate. The first is the political consequence. Anybody who has read, thought

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about or experienced in close circumstances the period of the Callaghan-Wilson devaluation knows what happened. It is a constitutional necessity for the Chancellor of the Exchequer of the day to keep saying, "There will be no change in the value of the currency." He goes on saying, "We shall defend the currency to the last man and to the last drop of blood", but suddenly it changes and not only does the Chancellor have to resign but the Government of the day suffer a considerable political setback as a consequence of having said so much that requires the eating of words.

It also becomes clear that intervention--no matter by how many Governments- -is not enough to stand against market forces. Governments then come to the conclusion that they very much dislike using the interest rate weapon when it is so obviously at variance with domestic needs. So what happens? They do things such as reimposing exchange controls. Let us remember that when the Tory Administration abolished exchange controls in 1979, they did so in the belief that they would always be supporting floating exchange rates. Exchange controls are extremely useful with either a variable or a fixed exchange rate.

It will not be long before people start advocating exchange controls, which will considerably affect the viability of the City of London. And it will not stop there--if one has to have a fixed exchange rate, one can no longer remain neutral between exports and imports. We shall be back to import surcharges and to saying that imports are wicked and that exports are morally good. It is highly likely that we shall find that the new privatised arrangements for export credit guarantees are deficient. We shall have to have some system of state subsidy for exports.

All those distortions will inevitably flow from having abandoned those three important tenets that we worked so strongly and so well towards in our difficult period in opposition between 1974 and 1979. But it will not end there. Indeed, it is obvious that it has not ended yet. In my opinion, the system of fiscal neutrality was a good one. Most of all, it said that politicians should not decide who has the tax breaks and that, on the whole, that should be left to the market and we should have low taxes and few tax breaks. If we abandon the principle of fiscal neutrality, we lay ourselves open to every interest group and to every section of the community that can get support from a grouping of Members of Parliament or others who want some special deal.

I regret the way in which in 1985 we abandoned so much that was so successful. I hope that the Tory party will soon reconsider the advantages of so much that was so good between 1979 and 1985. 7.32 pm

Mr. John Battle (Leeds, West) : It is only two months since the Chancellor presented his autumn statement with all its false economic optimism. The period since then has been characterised by short-term electioneering tactics. It seems that the Government's whole approach is now to appeal to the presumed amnesia of the British people about what has actually happened during the past 13 years and then to deny any responsibility for it.

Week by week, another proposed quick fix leaks out from the Government-- another spurt of spending for power with a short-term election-winning adjustment. Was not an example today's rumour that the 20 per cent.

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mandatory poll tax may go, although only two months ago all Conservative Members voted to retain it? That strategy is based on a short memory and on the hope that everyone will forget that this is the Government who were elected in 1987 on a manifesto that never even mentioned the poll tax--an experiment that has cost thousands of millions of pounds of public money. The Conservative manifesto never even mentioned that VAT would be pushed up from 8 per cent. right through to 15 per cent. and this year to even 17.5 per cent. That manifesto never even mentioned that child benefit would be frozen solid for three years or that pensioners' incomes would be undermined by reductions in housing benefit. The Conservative manifesto never even mentioned that cuts in income support would lead to homelessness among youngsters.

It is worth recalling that in 1979 child benefit was 7 per cent. of average earnings. It is now worth only 4.8 per cent. In 1979 social security benefits, such as sickness benefit, were worth 29.2 per cent. of average earnings, but are now worth only 20 per cent. The Government were elected in 1979 on the basis of getting unemployment below its previous level, but they have had to make 30 alterations to the way in which the official figures are calculated. Yet under the Tories, since 1979, unemployment has never been lower than the figure that they inherited then, which was 1.08 million people, or 4 per cent. of the work force. It is worth recalling that in 1979 unemployment benefit was 29.2 per cent. of average earnings, but is now only 20.9 per cent. That is the real price that people in our society are having to pay for the Tory Government's economic con tricks over the past 13 years.

The Prime Minister told us to pretend that what is happening is a form of sadistic tonic, saying, "If it isn't hurting, it isn't working", but the many who are not working have had their lives effectively broken by the Government. For millions of people in our society these have been 13 years of economic pain, and that economic pain has been because of a deliberate Government policy. They have been quite conscious and deliberate in their experimental attempts to solve the economic crisis that they created by shifting Britain in the last decade to being a vulnerable, low-wage economy.

When Conservative Members talk about such things now, they say that they cannot improve things overnight. They pretend that they have just taken over and that the Prime Minister inherited a mess for which he is not responsible, yet that same man has been both Chief Secretary to the Treasury and Chancellor of the Exchequer. The economic mess and the illusion that one can both cut taxes and increase public spending is of the Government's conscious making. Conservative Members voted night after night in the House to set that policy in place.

The Government are trying to create the illusion of increasing public spending while cutting taxes, but not only has the overall burden of taxation been increased from 34.7 per cent. in 1979 to 37 per cent. now, so that the tax burden for a typical family with two children has increased by 13 per cent. since the years 1978-79, but the Government have effectively cut public spending on the national health service, education and training, and on housing in particular. In 1987, the pre-election bribe in the autumn statement that preceded the election was the promise of an increase in public spending over the next three years of £11.2 billion above and beyond the amount

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that was needed to make up for expected inflation. However, there was no increase whatsoever. There was a cut of £12.7 billion. That was the way in which that promise was fulfilled.

When the Prime Minister was asked on "The Frost Programme" on Sunday whether VAT would increase under the Conservatives if they were re-elected, the right hon. Gentleman said :

"We have no plans for an increase in VAT."

I seem to remember that that is exactly what the former Prime Minister said in 1979, in 1983 and in 1987, and she subsequently increased VAT. It seems that the promise further to cut income tax has been suspended from today's speeches but it might be a better idea for the Chancellor to come to the House to say that he will cut the 20 per cent. mandatory poll tax payment because that is one of the measures that has hit hardest the poorest in our society. We need to bear in mind exactly who is paying the price for the Government's decisions. Primarily, it has been the unemployed. In the past year, unemployment has soared to 2.5 million--mainly young people--with the biggest annual rise since 1980. A total of 703,000 people joined the dole queue in 1991. Last month saw a 31,100 rise, bringing the total to 2.5 million people, or 9 per cent. of the working population. That was the worst rise since the first year of the Thatcher Government when in 1979-80 the total number of unemployed rocketed by 738,000 to 1.8 million people. That was what happened under a Government who were elected on a pledge to reduce unemployment, and in the 13 years since then unemployment has never been at a level lower than it was in 1979. Each registered job vacancy is now being chased by 23 unemployed people. That is the real, personal tragedy--a tragedy of lives blighted by the lack of work and purpose. Those people are certainly paying the price for the Government's misguided, short -term economic experiment.

As the trends continue, millions of people begin to feel that they are only a pay cheque away from the dole queue. For every extra 1,000 unemployed, social security spending is increased by £300 million. That is the real waste. Worse, 11 separate cuts in unemployment benefit have saved the Government between £5 billion and£6 billion. In my constituency, while the unemployed poor pay the price, those in work face a future of low investment and low output under the Government's current economic strategy. Since 1979, the Government have almost seen off manufacturing industry : Britain is now the only EC country in which manufacturing investment is lower than it was in 1979. According to a detailed survey carried out by the Amalgamated Engineering Union, 170,000 jobs were lost in manufacturing industry last year, and 22,000 were lost between October and December. Since the completion of that survey, a further 3,500 jobs have gone. My region, Yorkshire, is highlighted as one of the worst hit. Paradoxically, the United Kingdom is the second largest world owner of multinational assets. Its economy has been starved of capital investment, as-- paradoxically again--the increase in part-time work demonstrates. The country is crying out for Labour's manufacturing investment initiative, which would bring enhanced first-year capital allowances for investment in plant and machinery, innovation and design. That is why we need a strong regional policy, to tackle the divide that is the legacy of the Government's strategy.

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It is not only the unemployed who have been forced to pay the price. An estimated 10 million people on the poverty level have suffered real cuts in income since 1979, while 1 per cent. of the population--more than half a million adults with the lowest incomes of all--have experienced a cut of no less than 22.6 per cent. in living standards, in real terms. As Ministers go around the world advertising Britain's special economic advantage of low labour costs, it should be remembered that a further10 million people--those earning less than the Council of Europe's decency threshold of £5.15 an hour--are also paying the price of the Government's policies, and paying it every week.

There has been a massive income shift from the poorest third of the population to the better-off two thirds--and, above all, to those who are genuinely rich by any standards. The homeless, too, are helping to pay the price of that shift. Every "light at the end of the tunnel" forecast by the Government seems to be yet another oncoming train. The only chance now seems to be a general election, which would offer the people some hope for the future--the hope that a Labour Government is elected.

7.42 pm

Mr. Tim Smith (Beaconsfield) : As is so often the case, the real debate about economic policy has taken place almost exclusively on the Conservative Benches. Labour Members have produced a torrent of statistics, but they have given us little in the way of constructive alternative policy. The speech of the right hon. and learned Member for Monklands, East (Mr. Smith) was even more notable than his previous speeches for the paucity of policy proposals that it contained.

The hon. Member for Leeds, West (Mr. Battle) has just told us of his wish for enhanced capital allowances, which he believes would lead to increased investment. Although, in the late 1970s, such allowances may have led to an increase in the quantity of investment, they distorted economic decisions : investment decisions are made for tax reasons rather than on their merits, and the quality of investment was affected.

Even if such a policy proved successful, it would be

counterbalanced by another policy--the policy of increasing tax on savings. How can a party that proposes policies to encourage investment also propose policies to increase savings taxes? How can that encourage people to save, and therefore to invest?

I have listened carefully to my hon. Friends--especially my hon. Friends the Members for Wolverhampton, South-West (Mr. Budgen), for Winchester (Mr. Browne) and for Bridlington (Mr. Townend). My hon. Friend the Member for Winchester, in particular, seemed very complacent about the prospects for inflation. The great advantage of our membership of the exchange rate mechanism is not that it will lead to a reduction in inflation--although that has already happened--but that it will ensure that inflation is kept down. On too many occasions in the past, we have succeeded in getting inflation down, only to let it rise again, thus throwing away the benefits of a successful policy.

It is only 15 months since we decided to join the ERM, and that policy is widely supported in the House. My hon. Friend the Member for Wolverhampton, South-West is

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one of the few Members who criticised the Government's monetary policy at the appropriate time, in 1987 and 1988. The right hon. and learned Member for Monklands, East called for further interest rate reductions when interest rates were running at 7.5 per cent.

Mr. Favell : Here speaks an hon. Member who was not at all happy about ERM entry. My hon. Friend says that he believes that the ERM will keep inflation down ; but, when my right hon. Friend the Member for Blaby (Mr. Lawson) was Chancellor and our currency was shadowing the deutschmark, we had to reduce interest rates to such a level that inflation took off. How would my hon. Friend ensure that we do not have to reduce them to the same level while we are in the ERM straitjacket?

Mr. Smith : With economic policy, it is necessary to go either forward or back, and my hon. Friend wants to go back--he wants to withdraw from the exchange rate mechanism. I think that we must soon move on--that is, move into the narrow ERM bands and thence, soon, to a single currency. It is vital for us to "progress" the policy.

Mr. Budgen : Surely the problem is the fact that we are now in an unstable, intermediate period. There is a case for the policies that I suggested, and there may be a case for a single currency according to those who believe that there is such a thing as a European nation.

Mr. Smith : There is something in what my hon. Friend says, but I feel that he sometimes underestimates the value of exchange rate stability to those in business. That is why the CBI is so enthusiastic about Britain's ERM membership : a business man who is trying to plan ahead will need some indication of the future level of inflation, interest rates and exchange rates. It is very difficult to carry out either import or export business if exchange rates are fluctuating like a yo-yo. That is why I think that the policy will bring about long-term benefits--although I understand how frustrating it is for some people that we cannot lower interest rates in the way that they would like.

The United States, after all, has reduced interest rates substantially, but as yet it has experienced no economic recovery. I think that people's main concern is less about the level of interest rates than about the level of debt, which is unaffected by the level of interest rates. Like people in the United Kingdom, they are concerned about the debt that built up in the late 1980s, and they want to repay some of it.

In the long term, that is good news : the savings ratio is holding up well, which means more money for investment. It is good that people are repaying their debt, although in the short term an increase in consumer spending would be desirable. It is extraordinary that, in the present circumstances, Labour should propose an increase in taxes on savings. We want to encourage people to save, so that there is more money for investment.

I think that the autumn statement had it about right. A substantial increase in public spending--an increase of some £11 billion--is proposed for next year. Labour would like to increase spending further-- much further, no doubt. My right hon. and learned Friend the Chief Secretary has costed all Labour's proposals, and they total £37 billion. [Interruption.] Very well. Let us look at the interesting table on page 27 of the autumn statement which shows the record of public spending from 1963-64 onwards. In the first and second years of the last Labour

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Government, public spending increased hugely. As a proportion of gross domestic product it rose from 41 to 49 per cent. in just two or three years. That is what would happen if another Labour Government were elected.

There is another side to this question. It illustrates why people do not believe what the Labour party says about taxation. On 26 March 1974, the right hon. Member for Leeds, East (Mr. Healey) introduced his first Budget as Chancellor of the Exchequer. He said : "Finally, I turn to the rates of income tax I require to raise from the taxpayer a substantial amount of additional revenue for the coming year I propose to increase the basic rate of income tax by 3p in the pound."--[ Official Report, 26 March 1974 ; Vol. 871, c. 325.]

The rate was 30p ; it was increased to 33p. There was no mention of that in the Labour manifesto of February 1974. There will be no mention in Labour's 1992 manifesto of an increase in income tax. However, the poll published in The Sunday Times shows that most Labour Members of Parliament want income tax rates to be increased. It happened again. On 15 April 1975, the right hon. Member for Leeds, East introduced his third Budget and said :

"I therefore have no alternative but to raise the income tax ... My proposal is to raise the basic and higher rates of income tax by 2 percentage points".--[ Official Report, 15 April 1975 ; Vol. 890, c. 317.]

On that occasion, the standard rate of income tax was raised to 35 per cent. Again, there was no mention of that proposal in the Labour manifesto of October 1974. Labour did it before. It will do it again.

7.51 pm

Mr. Thomas McAvoy (Glasgow, Rutherglen) : According to the Prime Minister, there are an awful lot of dismal Jimmies, as he called them, about. With the exception of just two Conservative Back Benchers, every Conservative Back Bencher agrees that there has been a recession, a depression or a slump. The last one to disagree with that proposition, the hon. Member for Beaconsfield (Mr. Smith), was, I think, given a job to do. That may have satisfied him, because he is patently trying to get a job in Government.

I take no pleasure in agreeing with most Conservative Back Benchers that the British economy is in a deep and damaging recession. Far from there being a recovery, which Ministers have told us over and over again is about to happen, the British economy is still in the middle of a severe recession. There is talk of a plunge down again--the so-called double-dip recession.

Unemployment increased by 31,000 in December, bringing total unemployment up to 2.54 million, a rise of over 800,000 in the last year alone. Output, if North sea oil is excluded, was down again in the third quarter of 1991-- the fourth consecutive quarter that output was down. Repossessions are running at 300 each working day. Business failures were running at 200 each working day in the last quarter. Consumer confidence is down. Business confidence is also plunging. The latest Confederation of British Industry survey shows that there is no expectation of a pick-up in the distributive trades. Faced with all those signs, what did the Chancellor of the Exchequer, the Prime Minister's right-hand man, do ? He has done absolutely nothing to help the economy. Throughout the time that he has been Chancellor he has been complacent. His predecessor as Chancellor, the present Prime Minister, said :

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"I do not myself believe that a recession is likely or necessary." When the present Chancellor realised that that statement was untenable, he switched to saying that the recession would be painless. On 5 December 1990, he told the Treasury and Civil Service Select Committee :

"I think there are reasons why one could believe that it will be relatively short-lived and relatively shallow."

When that no longer held water, the rhetoric switched swiftly to talk of an imminent recovery. In his 1991 Budget speech he said that there were good reasons to expect that the recovery would begin in the second half of the year. In the following month he told everybody, amazingly, that economic recovery was around the corner. The hon. Member for Beaconsfield had the cheek to tell us that no one believes us. The Prime Minister added to the nonsense by saying in April 1991 that Britain's position was strengthening month by month. I could refer to many other remarks which have been made which show the complacency of the Prime Minister or, if I were to be more frank, his incompetence and that of the Chancellor in failing to realise the serious state that this country is in and to do something about it.

We have referred frequently in this debate to the Prime Minister's heartless statement that, if it is not hurting, it is not working. [Interruption.] Conservative Members do not like the truth. The Prime Minister's statement showed that he personally was all right. Despite all his whining and moaning about the hardship of his early life, he cares nothing for the people who face the consequences of his economic policies.

The Prime Minister tries to blame Britain's economic woes on a massive worldwide recession. He would have us believe that the recession has nothing to do with him or the Chancellor. The Prime Minister was, however, Chancellor of the Exchequer. He has therefore tried to distance himself from the economic mess in which we find ourselves. The present Chancellor of the Exchequer has been a Treasury Minister since 1986 and a member of the Cabinet since 1989. Between 1987 and 1989 the Prime Minister was second in command to the right hon. Member for Blaby (Mr. Lawson) when he was Chancellor and he was also a member of the Cabinet. Then he became Chancellor of the Exchequer before he was appointed Prime Minister. Therefore, the present Chancellor and Prime Minister helped to plan the top rate tax cuts of 1988 that fuelled the credit boom.

The Chancellor and the Prime Minister told us of the economic miracle that meant that we would have boom times for ever and that people should not hesitate to take on more debt. All of us could give instances of credit being made readily available ; people could take on any amount of debt. That was disgraceful, given the misery that it caused. No other country is in such dire straits. The current recession was brought about by the present incumbents of Nos. 10 and 11 Downing street.

Britain was the first major country to go into recession. It has had the deepest recession and, if one considers current form, it may be the last country to come out of the recession. The only other countries within the European Community or the Group of Seven that have experienced serious declines in output in recent times are the United States and Canada. In each case, the fall was smaller than in the United Kingdom.

It is totally misleading to suggest that all countries are facing surging unemployment. The damage done by the

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Government to my part of Scotland was illustrated again when British Steel decided to close Ravenscraig. My constituency borders on Ravenscraig. Many of my constituents work there. The closure of Ravenscraig will affect them but, to quote the Prime Minister again, if it is not hurting it is not working. Again, though, he is not the one who is getting hurt.

The hon. Member for Beaconsfield referred to Labour's programme and said that it would cost £35 billion. In The Daily Telegraph today--a newspaper that does not usually support the Labour party--its city editor says :

"Conservatives, you remember, are the people who are pledged to cut taxes ; so they have, if the only tax that matters is income tax. But other tax rates, notably Value Added Tax, have doubled since and the proportion that a manual worker earning the average income pays in taxes, both direct and indirect, is higher now than it was then." There is another article in The Guardian today which also questions the Government's credibility. It talks about the Government's campaign about the Opposition's so-called £35 billion spending plans. It says :

"the campaign was slightly dented by remarks last night by Brendan Bruce, former Conservative communication director, who said : No-one sensible in the Tory Party actually believes the Labour Party will put up public spending by £37 billion.' "

The Conservatives are criticised by their own. The Government know that what they are saying is false.

The Chancellor suggested that the Labour party would raise the basic rate of income tax to 35 per cent., but that was dismissed as absurd by Andrew Dilnot, the director of the Institute of Fiscal Studies. That suggestion shows, yet again, nothing but scaremongering by the Conservatives to undermine the Labour party.

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