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Oral Answers to Questions


Growth Rates

1. Ms. Quin : To ask the Chancellor of the Exchequer how many G7 countries will have had a lower average annual rate of growth than the United Kingdom between 1979 and 1992, using the latest International Monetary Fund forecast for 1992.

The Chief Secretary to the Treasury (Mr. Michael Portillo) : None. But between 1981 and 1991, of the G7 countries, only Japan had a substantially higher average annual rate of growth than the United Kingdom.

Ms. Quin : The Minister confirms that the answer is none. Given the low rate of growth that we have experienced since 1979, despite North sea oil, the current weak levels of investment and our record balance of payments problem, how do the Government expect us to obtain increased, long -term and sustainable growth in future years?

Mr. Portillo : The hon. Lady misinterprets my answer. She chose her years carefully to obtain the answer, but she knows that during the 1980s the United Kingdom had a good rate of growth. Between 1981 and 1989, we had eight years of growth averaging more than 3 per cent. a year, and between 1980 and 1990 our rate of growth was faster than that of Germany, France and Italy. By comparison, in the 1960s and the 1970s, we were at the bottom of the league. There is no reason why we should not get back to those high levels of growth.

Mr. Horam : My right hon. Friend is undoubtedly right about the growth rates in the mid-1980s. Does he agree, however, that if we are to return to those growth rates he must, first, cut interest rates further and, secondly, severely restrain the growth in public expenditure--and I mean severely? What are my right hon. Friend's policies in that regard?

Mr. Portillo : I am sure that what my right hon. Friend the Chancellor has been able to do in bringing down interest rates from 15 to 10 per cent. is an important precondition for recovery. My hon. Friend is right to say that it is important that we should fulfil our pledge to reduce our public spending as a proportion of gross domestic product and, in the medium-term, to eliminate our borrowing. Those are important economic objectives.

Mr. William Ross : If, as the Minister says, a decrease in interest rates is a precondition for recovery, when does he expect to fulfil that precondition and substantially decrease interest rates?

Mr. Portillo : The hon. Gentleman is being less than fair about recent events. Since the autumn of 1990 interest rates have been reduced on nine separate occasions and they have fallen from 15 to 10 per cent. That is an important change and it is an important precondition for recovery.

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Mr. David Martin : Will my right hon. Friend give me his judgment on the prospects for economic growth and confidence if the Opposition's policies had been put into effect after the general election?

Madam Speaker : Order. The Minister has no responsibility for that scenario.

Mr. John Smith : Does the Chief Secretary accept that, in view of today's disappointing Confederation of British Industry survey on sales, an apparent post-election recovery has petered out already? Surely, given the continuing malaise in the economy and the constantly rising levels of unemployment and bankruptcies, action must be taken by the Government to stimulate the economy with an early cut in interest rates, such as has been advocated by the chief economist of the Bank of England.

Mr. Portillo : The right hon. and learned Gentleman has possibly not yet had the time to study what the CBI distributive trades survey shows. It shows a strong improvement in business confidence, which bears out a number of recent surveys of business confidence. Confidence is now at the highest level since August 1988 and the distributive trade sector improved strongly in May to plus 32 per cent. It is useful so soon after the election to have confirmation from the Labour party that it would not wish to follow prudent fiscal policies and that it would be interested in moving to lower interest rates, whether that was prudent or not. I am sure that the public, especially the investing public, will note that.

Retail Prices Inflation

2. Mr. Simon Coombs : To ask the Chancellor of the Exchequer what is the current level of retail prices inflation in (a) the United Kingdom, (b) Germany and (c) the European Community as a whole.

The Chancellor of the Exchequer (Mr. Norman Lamont) : In April, retail price inflation was 4.3 per cent. in the United Kingdom ; consumer price inflation was 4.6 per cent. in Germany and 4.8 per cent. in the European Community as a whole.

Mr. Coombs : Will my right hon. Friend give a warm welcome to the announcement on Tuesday that producer price inflation is at the reduced level of 3.6 per cent? Does he agree that that figure, coupled with the figure for wage inflation which is also falling, means that British businesses can look forward to an excellent future in a highly competitive position vis-a-vis the rest of Europe, in which we shall be poised to improve on our present position?

Mr. Lamont : My hon. Friend makes an important point, because producer price inflation is a good indicator of what we may expect in future for retail prices inflation. If we take out food, drink and tobacco, which were influenced by price increases in the Budget, producer output inflation was 2.7 per cent. in May, down from 5.4 per cent. a year earlier. That is the lowest rate of increase since June 1969. That is a very clear message and indicator of the way in which inflation pressure has abated in our economy. As my hon. Friend says, that bodes well for the future.

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Mr. Beith : Is the target for inflation now 2 per cent., as the Chancellor says, or zero per cent., as the Prime Minister implies when he talks about stable prices? Does the Chancellor recognise the tendency of inflation to increase in the British economy when there is growth, or is he no longer worried about that now that the growth forecast has been revised from 1 per cent. to 0.5 per cent?

Mr. Lamont : As the hon. Gentleman knows, we have said that our ambition is to get price stability. The hon. Gentleman may remember that we had a discussion about that in the Select Committee and said that, because of changes in the retail prices index, 2 per cent. was probably the equivalent of price stability because the index did not capture all goods and services that come on to the market. The hon. Gentleman is right to emphasise that we need to improve the working of the economy--the supply side--to ensure that we do not have a resurgence of inflation when growth is more firmly based.

Mr. John Townend : Does my right hon. Friend agree that success in bringing down inflation is a prerequisite of lower interest rates? There has been a welcome fall in wage increases in manufacturing industry. Does my right hon. Friend agree that we need a similar fall in wage settlements in the public and service sectors?

Mr. Lamont : I entirely agree with my hon. Friend. It is extremely important that the public sector sets an example and that wage settlements in the public sector are based strictly on what is affordable and what is needed to recruit and retain people in the public service. We cannot go beyond that or we would be asking the private sector to bear the whole burden of adjustment, which would be extremely unfair and unwelcome.

Mr. Chris Smith : Does the Chancellor accept that the underlying rate of inflation, which excludes mortgage interest--which he has favoured in the past over the retail prices index and which is a more appropriate comparison anyway--still shows us performing worse than Germany and worse than the European average? Even that has been purchased at a horrendous cost in terms of recession and unemployment.

Mr. Lamont : The hon. Gentleman should make himself clear-- [Hon. Members :-- "He has."] No, he is contradicting himself. First he says that the underlying rate of inflation is too high and then he says that the policies to get it down are too painful. I have always made it clear that we want not only to get the headline rate down but to get the underlying rate of inflation down. That is coming down and the differential between our underlying rate, minus mortgage interest payments, vis-a-vis that of Germany has narrowed considerably in the past year.


3. Mr. Alexander : To ask the Chancellor of the Exchequer what representations he has received about differing VAT levels throughout Europe on the sale of racehorses ; and if he will make a statement.

The Paymaster General (Sir John Cope) : We have received many representations about the different rates of VAT within the European Community on the sale of racehorses. I understand the concerns of the bloodstock

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industry about the potential position next year, and we are working with industry representatives to explore the options open to them.

Mr. Alexander : I thank my right hon. Friend for his reply. Will he bear it in mind that the Irish rate is 2.3 per cent. and that the French rate is 5.5 per cent? Will he bear it in mind also that large sums are involved in the sale of a racehorse and that it will be much easier for organisations such as Tattersall's and other dealers to take their entire operations to a country where the tax regime is much more favourable? Will my right hon. Friend look at this question urgently and make sure that our breeders and dealers are no worse off than if their business operations were in other parts of the European Community?

Sir John Cope : We are indeed looking carefully at this question, but anybody who is considering moving his business operation should think carefully before doing so because, apart from anything else, the French have not got permission for their reduced rate, although they claim to have it. There is opposition to it from both the Commission and ourselves.

Mr. Enright : Will the Minister consider giving the same sort of consideration to greyhounds and whippets?

Sir John Cope : Of course.

Mr. Paice : I thank my right hon. Friend for his obvious commitment to finding a solution. We greatly appreciate the efforts of my right hon. Friend the Member for Norfolk, South-West (Mrs. Shephard) when she held his position. She tried very hard to find a way to deal with this matter. The industry employs about 8,000 people. This country is pre-eminent in the industry and has a positive balance of trade. If we do not find a way through, we shall lose it all. Moreover, the Treasury will lose the VAT.

Sir John Cope : One should not be too apocalyptic about it. Apart from VAT, the racing industry has a number of troubles. Nevertheless, I fully understand the points that my hon. Friend has made.

Interest Rates

4. Mr. Pike : To ask the Chancellor of the Exchequer what discussions he has had recently with the mortgage lenders association regarding interest rates.

The Economic Secretary to the Treasury (Mr. Anthony Nelson) : My right hon. Friend met the Council of Mortgage Lenders on 2 June. A number of issues were discussed on that occasion.

Mr. Pike : I thank the Minister for his reply. Does he recognise that the average mortgage interest rate is still 10.98 per cent. and that since the Tories came to power in 1979 there have been only two months when interest rates were below 10 per cent? Does the Minister recognise that, for many people, continuation of the abolition of stamp duty will not be as important as getting mortgage interest rates below 10 per cent. and keeping them there?

Mr. Nelson : It is a sign of success, rather than failure, that the Government's economic policies have led to nine successive reductions in interest rates, amounting to 5 per cent. The average mortgage interest rate is now under 11

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per cent. On a typical £30,000 endowment mortgage, payments are down by £85 a month since October 1990. By any account, that is considerable progress.

Mr. Colvin : The House is aware of the value of mortgage interest tax relief to home buyers, but has my hon. Friend considered the introduction of a more general housing tax allowance that could be made available to those who rent their homes as well as to those who buy their homes? That would help to bring down the net cost of renting and would also help to bring on to the market some of the 650,000 dwellings that at present are sitting empty.

Mr. Nelson : My hon. Friend makes an interesting suggestion. We acknowledge the importance of the private rented sector. The cost of mortgage interest relief is considerable. The Government have already introduced a number of expensive and worthwhile measures to encourage the private rented sector.

Mr. Battle : Will the Government admit that, according to their figures, since they introduced their relief scheme the number of people in mortgatge arrears who have been taken before the courts has increased every month this year? Will the Government now accept that the scheme has proved to be ineffective and a damp squib? Will they immediately consider a scheme to convert mortgages into rents to ease the mortgage misery faced by many millions of people?

Mr. Nelson : That is certainly not the view of the Council of Mortgage Lenders, which estimates that, as a result of the package of measures introduced by my right hon. Friend the Chancellor, there will be about 55,000 fewer repossessions this year than would otherwise have been the case.

Mr. Nicholls : Contrary to what my hon. Friend has just heard from the hon. Member for Leeds, West (Mr. Battle), the mortgage rescue scheme has been very successful in my constituency. Will my hon. Friend refute the suggestion, implicit in what has been said, that there could ever be a time when some homes are not repossessed? Is it not significant that fewer than 0.5 per cent. of all existing mortgage holders are in danger of having their homes repossessed?

Mr. Nelson : My hon. Friend is absolutely right--the figure is less than 0.5 per cent., although the Government acknowledge that in each individual case that means real distress for the family involved. However, we cannot indemnify every possible position. The measures introduced by my right hon. Friend have brought real relief to many tens of thousands of people.

Mrs. Beckett : Does the Minister recall that when his right hon. Friend the Chancellor announced his scheme just before Christmas, he claimed that it would help some 40,000 families? Most hon. Members understood him to be saying that that would be achieved by August. Can the hon. Gentleman confirm that fewer than 10 families have been helped? If so, as both the problem and the money that the Government set aside to solve it still exist, why do not the Government announce an extension of the scheme?

Mr. Nelson : I think that I can help the hon. Lady because her facts and her understanding are wrong. The Council of Mortgage Lenders has confirmed that, in its

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opinion, the package introduced by my right hon. Friend the Chancellor will save not 10 but 55,000 people from repossessions. It is true that only a limited number of people are being helped by schemes at present, but that is also a reflection of the fact that many people have been saved from repossessions and so are able to continue to occupy their homes.

Mr. David Shaw : Does my hon. Friend agree that one reason why there have been so many reductions in interest rates is that the markets have considerable confidence in the Government? Does he further agree that, to retain that confidence and to make further interest rate reductions possible, we need policies to ensure that public expenditure is restrained and that pay policies in both the public and the private sectors are moderate in the forthcoming pay round?

Mr. Nelson : My hon. Friend is right ; the Government are fully committed to constraining public expenditure and reducing inflation. That is the surest way to bring about further reductions in interest rates and mortgage interest rates.


6. Mr. Roy Hughes : To ask the Chancellor of the Exchequer what was the level of VAT in 1979 and in each succeeding year.

Sir John Cope : From 18 June 1979 the highest rate of VAT, which was 12 per cent. was abolished and the standard rate of VAT was increased from 8 per cent. to 15 per cent. On 1 April 1991 that rate was increased to 17 per cent.

Mr. Hughes : Does the Minister acknowledge that VAT was 8 per cent. when the Labour Government left office but that it is now 17.5 per cent.-- an increase of 119 per cent? Does not that bear heavily on poorer homes? The Government claim that they are reducing taxation and many people appear to believe that. Does the Minister agree that the conclusion to be drawn from that is that although the Government are not good at reducing taxation, they are most adept at black propaganda?

Sir John Cope : The hon. Gentleman is drawing attention only to the standard rate of VAT in 1979. Of course, what matters is real disposable incomes, not just the tax burden. As the Institute of Fiscal Studies said, there were real gains in all parts of income distribution between 1979 and 1988.

Mr. Dunn : Can my hon. Friend confirm that there is no question whatsoever of the United Kingdom being forced to give up zero rates?

Sir John Cope : I can indeed. Our zero rates are guaranteed by the sixth VAT directive and they can be changed only by the unanimous agreement of all member states. Obviously, we have no intention of agreeing to that.

Dr. Marek : May I welcome the Minister to his first Question Time as the Paymaster General? Will he not be corrupted immediately by using selective statistics and admit that the burden of taxation has gone up and that, in spite of what it says, the Conservative party has increased the burden of taxation on the British people compared with the days when Labour was in office? Will he also

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make the pledge that the Prime Minister made before the election, that the scope of VAT will not be widened one iota during this Parliament?

Sir John Cope : I am happy to reinforce what my right hon. Friend the Prime Minister said, in so far as I can add anything to it. Obviously, we stand entirely by what he said. On the earlier part of the hon. Gentleman's question, I certainly have not been corrupted and I have no intention of being corrupted. The statistics that I gave are the relevant statistics and they are extremely important to the people concerned. In any case, the amount of taxation to which the hon. Gentleman and the hon. Member for Newport, East (Mr. Hughes) referred concerned VAT.

Building Societies

7. Mr. Peter Bottomley : To ask the Chancellor of the Exchequer on what dates building societies objected to the unequal impact of the Income Tax (Building Society) Regulations 1986 ; and how many judicial reviews have ensued.

Mr. Nelson : Building societies have raised this issue on a number of occasions. The 1986 regulations have been subject to judicial review, and further action is under way arising out of legislation last year.

Mr. Bottomley : Is my hon. Friend aware that there is unparalleled interference in the conclusions of the courts ; that there is an unequal impact on building societies, whereby the Woolwich is separated from the Leeds, the Loughborough, the Greenwich and others ; that it is unjust to treat people in different ways ; and that that approach will be unsustainable when the matter gets to Europe? Would it not be a good idea if my hon. Friend and his colleagues got together with some of the affected societies and drew the sorry business to a conclusion? That would probably be done at a cost of less than £100 million out of the £15,000 million of taxation imposed on building societies over the past five years.

Mr. Nelson : I understand why my hon. Friend feels that the regulations were unfair, but I do not agree with him. The matter was carefully considered during debates on section 53 of the Finance Act 1991 and Parliament accepted that the 1986 transitional provisions did not involve double taxation. What is now in question in the Leeds case is not transitional tax due from building societies but mainstream composite rate tax, for a number of years payable by all CRT payers. The Government are right to put that beyond question by confirming the intention of Parliament.

Exchange Rate Mechanism

8. Mr. Martin Jones : To ask the Chancellor of the Exchequer when he last met his European counterparts to discuss the operation of the exchange rate mechanism.

Mr. Nelson : My right hon. Friend regularly attends meetings of the European Council of Finance Ministers with his Community colleagues. The operation of the exchange rate mechanism has been discussed at a number of past meetings.

Mr. Jones : Will the Chancellor say whether a revaluation upwards of the deutschmark within the ERM would be good or bad for the British economy?

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Mr. Nelson : It is not for my right hon. Friend or for me to comment on prospective movements in exchange rates.

Mr. Morgan : Why not?

Mr. Nelson : What it is right for the Government to comment on is that we are committed firmly to maintaining our position within the exchange rate parameters, which we have done to the benefit of the country in terms of a sound exchange rate, and reducing the levels of inflation and interest rates.

Mr. Renton : Will my hon. Friend confirm that sterling being within the exchange rate mechanism has added considerably to the stability of sterling in the past 18 months? Will he confirm also that it is the Government's wish to enter the narrow band of the exchange rate mechanism in due course? Has my hon. Friend any idea when that might be practicable?

Mr. Nelson : We will move in due course to the narrow band at the current central parity of DM2.95 to the pound. In the meantime, it is our firm intention to remain in parity with all the existing currencies within the exchange rate parameters.

Mr. Skinner : Why does not the Minister let the Chief Secretary to the Treasury answer this question so that he can make a statement not only about the exchange rate mechanism and whether it will be shifted, but about the principle of the common market in the Maastricht treaty? Let him stand up and tell us. His right hon. Friend the Secretary of State for Social Security has answered--

Madam Speaker : Order.

Mr. Nelson : My right hon. Friend and I are at one on this issue as, indeed, on all others.

Mr. Winterton : I fully accept that the ERM is an efficient anti- inflationary discipline, but does my hon. Friend accept that if we could react to the health of our economy, with inflation just above 4 per cent., interest rates in Britain could be reduced to 8 per cent. if we were outside the ERM? That would be of immense benefit to manufacturing and to mortgage payers in Britain.

Mr. Nelson : I understand what my hon. Friend says, but I do not agree and nor do the Government. Indeed, a strong case could be put that interest rates would have to be higher if we were outside the ERM rather than within it.


9. Mr. Campbell-Savours : To ask the Chancellor of the Exchequer, pursuant to the Prime Minister's oral answer of 21 May, Official Report, column 494, what evidence he has suggesting that inflation will fall to 1 per cent. by mid 1993.

Mr. Nelson : The forecast for producer-price inflation is underpinned by the prospect of further marked improvement in unit labour cost performance. Lower wage settlements have still to feed through fully into earnings, and productivity will continue to recover.

Mr. Campbell-Savours : Is it not true that if producer-price inflation dropped to 1 per cent., it would mean that the economy was flat on its back? Is it not also

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true that if the economy took off, inflation would inevitably rise because Britain has lost its productive capacity?

Mr. Nelson : I suggest to the hon. Gentleman that economies such as Germany and Japan, which have low producer-price inflation, can hardly be described as flat on their backs--far from it. Low inflation of both retail and producer prices is more likely to lead to sound economic growth.

Mr. Mans : Does my hon. Friend agree that long-term low inflation and long-term growth depend on our international competitiveness, which is a lot better now than a decade ago?

Mr. Nelson : My hon. Friend is absolutely right. Confidence is returning. That is reflected most markedly perhaps by the substantial and buoyant levels of inward investment.

Mr. Morgan : Will the Chief Secretary have a word with the Prime Minister when he returns and tell him to desist from the practice of continually switching to the measure of inflation which gives the Government the greatest short-run presentational benefits? They switch from headline inflation to core inflation to underlying inflation and now to the new measure of factory gate inflation. To most people in the street, that means that the price of factory gates has fallen but nothing else. I understand that the word "portillo" means factory gate in Spanish, unless my Castilian has been struck by lightning. Perhaps that is one reason why the Government use that measure--I do not know--but I should be grateful if the Minister would have a word with the Prime Minister and tell him to stop trying to deceive the British public.

Mr. Nelson : The hon. Gentleman's complaint should be with not the Prime Minister but his hon. Friend the Member for Workington (Mr. Campbell- Savours), who asked the question about producer-price inflation. I am entitled to reply by pointing out that producer-price inflation, which was down to 2.7 per cent. in May, is the lowest for some 23 years. That is surely good news which the whole House welcomes.

European Community (Contributions)

10. Mr. Riddick : To ask the Chancellor of the Exchequer what was the United Kingdom's net contribution to the European Community in 1991 ; and what it is expected to be in 1992.

Mr. Lamont : The United Kingdom's net contribution to the European Community budget in 1991 was £545 million. It is forecast to be £2.6 billion in 1992.

Mr. Riddick : I congratulate my right hon. Friend on defeating the wholly unwarranted and expansionary budget plan proposed by Jacques Delors earlier this week. Does my right hon. Friend agree that so long as Britain makes such massive net contributions to help the supposedly poor countries of the European Community--Portugal, Ireland, Spain and Greece--we shall find it virtually impossible to meet the United Nations target for overseas aid to third-world countries in genuine need?

Mr. Lamont : I am grateful to my hon. Friend for those remarks. He will be encouraged to know that the majority

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of European Community Finance Ministers agreed with him because they took the view that the proposals by the President of the Commission for an expansion of the Community budget were not justified. That must be right when one considers that the suggestion is that the Community should expand spending at the rate of about 5.6 per cent. per annum in real terms. Frankly, that is unaffordable. As my hon. Friend said, it is extremely difficult for Finance Ministers in each country to justify economy at home when such incredible extravagance is proposed at European Community level.

Mr. Dalyell : Yah-boo apart, is the House of Commons not entitled to a serious answer from the Chancellor about the Chief Secretary's attitude to that matter?

Mr. Lamont : I can tell the hon. Gentleman that my right hon. Friend the Chief Secretary is strongly in favour of economy in the European Community budget. I do not know why the hon. Gentleman expects anything else.

Mr. Wilkinson : Does my right hon. Friend agree that if the Government are serious about reducing public expenditure, as they ought to be in view of the forecasts of how it is rising, a good place to start is our net contribution to Brussels? Should it not be reduced rather than increased?

Mr. Lamont : I have already explained the position that the Government and the majority of other Governments in Europe take. The Community ought to take into account the fact that, even within the existing own resources ceiling, there is plenty of room for increased expenditure. Under the existing guidelines, it could increase by more than 3 per cent. per annum in real terms. The ambitious plans for interference in European industry and trans-European networks are not projects that we can endorse. I accept my hon. Friend's point. There are many competing claims for public expenditure in this country, and Europe ought to take that into account before telling us that we should economise at home.


11. Mr. Bayley : To ask the Chancellor of the Exchequer if he has received any recent representations to make changes to value added tax rates.

Sir John Cope : My right hon. Friend receives many representations on taxation.

Mr. Bayley : As the Minister responsible for setting VAT rates, can the right hon. Gentleman tell me the current percentage rate charged on the following products : a milk chocolate digestive biscuit, a deep frozen chocolate mousse, and a Kit Kat bar? If he cannot give an answer, will he get rid of the confusion by rating all such products at the general food rate of zero?

Sir John Cope : It would probably be more useful if I told the hon. Gentleman that Customs and Excise are reviewing legislation on the VAT treatment of snacks to take account of developments in the market.

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