House of Commons Hansard Debates for 12 Nov 1992

Column 975

House of Commons

Thursday 12 November 1992

The House met at half-past Two o'clock

PRAYERS

[Madam Speaker-- in the Chair ]

ROYAL ASSENT

Madam Speaker : I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts :

Boundaries Commissions Act 1992

Maintenance Orders (Reciprocal Enforcement) Act 1992

London Regional Transport (Penalty Fares) Act 1992

Price's Patent Candle Company Ltd. Act 1992

Greater Manchester (Light Rapid Transit System) (No. 4) Act 1992

PRIVATE BUSINESS

British Railways (No. 4) Bill

(By Order)

British Waterways Bill

[Lords] (By Order)

Crossrail Bill

(By Order)

East Coast Main Line (Safety) Bill

(By Order)

Greater Manchester (Light Rapid Transit System) Bill

[Lords] (By Order)

Woodgrange Park Cemetery Bill

[Lords] (By Order) Orders for Second Reading read.

To be read a Second time on Thursday 19 November.

Oral Answers to Questions

NATIONAL FINANCE

Subcontractors (Payments)

1. Mr. Flynn : To ask the Chancellor of the Exchequer what new proposals he has to assist the prompt repayment of debts to subcontractors from contractors employed by Government Departments.

The Chief Secretary to the Treasury (Mr. Michael Portillo) : All contractors to a Government Department are required to commit themselves by contract to their subcontractors to pay promptly, ordinarily within 30 days.

Mr. Flynn : Does the Chief Secretary realise that many prime contractors do not consider paying their debts until writs have been issued and that that adds greatly to the climate of fear that is paralysing much of British industry?

Column 976

Will he assure us that the 30-day limit will be rigidly applied? At the moment, there are many exemptions. Will the Chief Secretary consider introducing the right to claim interest on all debts that are not paid within 30 days?

Mr. Portillo : The hon. Gentleman has pursued that matter assiduously with me in correspondence and parliamentary questions. It is a requirement that there should be a commitment within the contract to pay within 30 days. That has been with us since April and the Government take it very seriously. I should be happy to take up on the hon. Gentleman's behalf any case that has arisen. It is possible, as he said, for a company to pursue the matter through the courts. It is also possible for the Government to take account of poor performance when awarding future contracts. Those are the best remedies, rather than imposing interest payments, but the hon. Gentleman may wish to pursue a particular case with me.

Mr. James Hill : Is my right hon. Friend aware that that system is not working, particularly in the private sector? If a subcontractor objects to the main contractor about non-payment within 30 days, he will probably never be given another contract. It is impossible to legislate for such an event. This must be part of the moral factor of a contract that the Government should emphasise in both the public sector and the private sector.

Mr. Portillo : I agree with my hon. Friend that it is easier to see this as part of a culture than as a matter where legislation would be effective, although I do not rule that out entirely for all time. The Government have made efforts to improve the small claims court procedure, which requires large companies to report on their performance in their report and accounts. As I said to the hon. Member for Newport, West (Mr. Flynn), we have taken steps with our own contractors regarding the way in which they deal with subcontractors.

Mr Beggs : Does the right hon. Gentleman accept that it is desirable that subcontractors are protected? A serious problem, which must be addressed, is that after a main contractor has taken over a contract, the subcontractor having been approved by a Government Department, the main contractor could go into liquidation, with no protection for the subcontractor. Will the right hon. Gentleman undertake to look into that problem and endeavour to protect subcontractors?

Mr. Portillo : The hon. Gentleman raises an interesting and difficult problem. I am not sure to what extent Government protection can be extended in these cases. It might help me, however, if the hon. Gentleman were to refer to me the case that he has in mind and we could see whether any general lessons could be drawn from it.

Inflation

2. Mr. Evennett : To ask the Chancellor of the Exchequer what is the latest estimate of the rate of producer price inflation.

7. Mr. Carrington : To ask the Chancellor of the Exchequer what is his latest assessment of the prospect for inflation.

The Chancellor of the Exchequer (Mr. Norman Lamont) : Producer price inflation for manufacturing, excluding food, drink and tobacco, is estimated to have

Column 977

been 2.5 per cent. in October--the lowest rate of increase since May 1969. I shall outline my latest assessment of the prospects for inflation when I present my autumn statement later today.

Mr. Evennett : I am grateful to my right hon. Friend for that information. Does he agree that low inflation gives British industry a great opportunity? Furthermore, will he urge British business men to build on the Government's achievement of low inflation by going out into world markets and selling more British goods?

Mr. Lamont : My hon. Friend is absolutely right. Low inflation is the most important aspect of competitiveness. As long as other countries have low inflation, we cannot afford to have high inflation. That is why it is good news for our exporters to Europe that our level of inflation has been below the European Community average. I hope that our exporters will take the maximum advantage of that.

Mr. Carrington : The news about inflation is extremely good. Does my right hon. Friend agree, however, that the dangers of an increase in inflation are ever present in the economy, particularly given the decrease in the value of the pound? Will he reassure the House that his determination to continue to fight inflation is undiminished?

Mr. Lamont : My hon. Friend is right to emphasise that excessive depreciation of the pound would endanger our inflationary objectives. That is why I have consistently made it clear that I am not prepared to take risks with inflation or the exchange rate. Having said that, the depreciation that we have experienced and the fact that our inflation is lower than the European average mean that our exporters have a considerable opportunity.

Mr. Beith : As the Chancellor often pointed out that the exchange rate mechanism partly helped us to achieve low inflation, is there a level below which he would not wish the pound to sink because of inflation dangers? If he will not tell us what that level is, how are markets to believe that he will pay more attention to the level, which may be in his mind, than to all the pressures from behind him?

Mr. Lamont : As I have repeatedly made clear, we do not have a formal or informal exchange rate target. But I have made it crystal clear that we believe in a strong exchange rate. The right hon. Gentleman asks why people should believe that we care about inflation or that we will do what is necessary. The one thing that cannot be denied is that in the past couple of years we have fought a tough battle, stuck with difficult policies and succeeded in getting inflation down from nearly 11 per cent. to under 4 per cent.

Mr. Skinner : Has not the Chancellor of the Exchequer got a cheek telling the House that he is capable of bringing down inflation, or anything else, after the misery of the past few weeks? Is this not the Chancellor of the Exchequer who borrowed £7.25 billion not to bolster social services but to throw money at the stock exchange, and the same Chancellor who condemns the Labour party for borrowing money to provide services despite throwing £10 billion down the black hole at his City friends?

Mr. Lamont : The hon. Gentleman is quite wrong--I do not know whether intentionally or otherwise--if he is implying that money spent on supporting the pound might have been available for public expenditure. As he knows,

Column 978

we exchange one currency for another by using reserves or by borrowing. The cost to the public sector depends on what happens to the trend of the exchange rate. Much of the reserves that were deployed to support the pound were acquired at a lower level than that at which they were sold and we made a profit.

Mr. David Martin : Will my right hon. Friend confirm that the battle against inflation remains the central aspect of the Government's economic policy and that, in the long term, policies based on debauching the currency will lead only to economic ruin, as we saw for so many years under Labour Governments--when we last had them?

Mr. Lamont : I hope that I have made it clear that we have not gone through the past couple of years--the sacrifices, effort and difficult policies that have been pursued--to throw it all away. As various of my hon. Friends have said, a low rate of inflation is vital for our competitiveness and the future of jobs and therefore important to the country as a whole.

Mr. Gordon Brown : Given all that the Chancellor says about the prospects for inflation, will he explain why, in the months after devaluation, input prices for manufacturers rose by 2.5 per cent. in only four weeks? In answer to a question on inflation several months ago, the right hon. Gentleman said that unemployment was a price worth paying. Will he now apologise to the million people who have lost their jobs since he made that statement? Can he now tell us when unemployment will come down?

Mr. Lamont : The most important thing for unemployment is, first, that we get recovery and, secondly, that we have low inflation. Those are the most important factors that will affect unemployment. I am certain of one thing about input inflation : those figures in that one month do not reflect the depreciation of the pound. The hon. Gentleman may have noticed that producer output inflation, minus food, drink and tobacco, was the lowest since May 1969. The trend of producer prices is a good guide to future inflation and is extremely encouraging.

Mr. Burns : Does my right hon. Friend agree that low inflation figures are one of the factors that are crucial for restoring consumer confidence? Will he deplore the practice of certain business organisations, political and economic pundits and Opposition Members who constantly talk down every good statistic that is published, thereby undermining any increase in confidence?

Mr. Lamont : I agree with my hon. Friend. Indeed, I have made the same point from time to time. My hon. Friend is also right to say that low inflation is vital for consumer confidence.

Devaluation

3. Mr. Betts : To ask the Chancellor of the Exchequer what estimate he has made of the future effect on United Kingdom inflation of the devaluation since he suspended the United Kingdom's membership of the exchange rate mechanism.

The Paymaster General (Sir John Cope) : As my right hon. Friend said just now, he will be publishing a revised forecast of prospects for inflation in the autumn statement in the usual way.

Column 979

Mr. Betts : Given the Chancellor's previous statements of confidence about the level of inflation--a confidence which is not shared by many private sector analysts, including the London Business School--why do the Government wish to rejoin the ERM? Do they intend to rejoin the ERM before or after the Danish referendum?

Sir John Cope : As the hon. Gentleman knows, we pay tribute to the ERM, for the way in which it has helped us to get inflation down. That is part of the reason why we will re-enter the ERM when times are right.

Mr. Butterfill : Will my right hon. Friend confirm that the recent easing of monetary policy is by no means inconsistent with a policy of keeping inflation low, provided that we maintain controls over public expenditure, particularly revenue expenditure?

Sir John Cope : Indeed, and we shall hear more about that later today. My right hon. Friend the Chancellor has reaffirmed that he is not prepared to take risks with inflation.

Mr. Darling : Notwithstanding what the Chancellor said about the 2 per cent. rise in input prices last month, does the Minister not accept that, although there is spare capacity in the United Kingdom economy, our economic base is so weak that, unless remedial action is taken, there will be a substantial risk that inflation will rise beyond the upper estimate of 4 per cent. which the Chancellor gave? Can we take it from the Minister's comments about the ERM and his tribute to it that the Government regard a managed exchange as being dead?

Sir John Cope : On the contrary, I said that we would rejoin the ERM when times were right. As we have made clear before, that is what we shall do. There are still strong deflationary pressures in the pipeline.

Civil Service Relocation

4. Mr. Ian Bruce : To ask the Chancellor of the Exchequer what payback period his Department demands for civil servant relocation projects ; and what plans he has to bring these into line with those pertaining in private industry.

The Financial Secretary to the Treasury (Mr. Stephen Dorrell) : In common with private industry, we require relocation proposals to offer good value for money.

Mr. Bruce : I am disappointed that my hon. Friend does not appear to know that the answer that I received from the Ministry of Defence about a week ago was that there was a 25-year pay-back period on relocation whereas private industry has a three-year pay-back. My hon. Friend will see an announcement at 4 o'clock which will add to the relocation out of my constituency. A total of 2,300 jobs will be moving. The Treasury has approved some of these moves, at a cost of £60,000 per move. Will the Minister give an assurance that he will look at the matter with renewed vigour?

Mr. Dorrell : Of course, I understand the considerable impact that the proposals will have on my hon. Friend's constituency. He will know that the proposals are being announced, subject to discussion with the trade unions. Of course, we shall take those discussions seriously.

Column 980

It is not correct to imply that there is a firm rule or a piece of algebra that exempts decision makers from the necessity to make a judgment. We do not define a piece of algebra. We ask people to apply a wide range of tests so that when proposals to relocate staff from one part of the country to another are put into effect, they can insist that good value for money is delivered to the taxpayer, taking all taxpayers into account.

Housing Market

5. Mr. Duncan : To ask the Chancellor of the Exchequer what steps he has taken to assist the housing market ; and if he will make a statement.

The Economic Secretary to the Treasury (Mr. Anthony Nelson) : A package of measures was implemented to reduce the number of repossessions. I also announced recently two measures--top-up loans and security substitution--to help borrowers with negative equity. The fall in mortgage interest rates should bring relief and help stimulate a revival of confidence in the housing market.

Mr. Duncan : I am grateful for that answer because the problem of negative equity is simply that, more often than not, people cannot move house even if they have a willing buyer. As it does not worsen the risk position of the lender in any way if a borrower moves into a similar house, will my hon. Friend put as much pressure as possible on lending institutions to allow people to move within the new guidelines? That would inject much-needed activity into that sector of the housing market.

Mr. Nelson : I agree with my hon. Friend. I acknowledge that negative equity can be a problem for some borowers. [Interruption.] For some borrowers, yes ; for others, it is not a problem. The Bank of England recently estimated that up to 1 million people may find themselves with negative equity. I hope that the two measures that I have announced will help tens of thousands of negative equity borrowers. However, it will require the assistance of the building societies and their schemes. I hope that they will heed my hon. Friend's words.

Dr. Lynne Jones : Will the Minister consider making capital financing available, through either the borrowing allocation or the use of capital receipts, so that local authorities and housing associations can help people trapped by negative equity to buy houses that are empty, under do-it-yourself or other shared ownership schemes?

Mr. Nelson : Even under existing spending plans, it is anticipated that by the middle of the 1990s housing associations will spend about £2 billion a year ; so a considerable commitment has already been made. I ask the hon. Lady to await the statement that my right hon. Friend the Chancellor of the Exchequer will make later.

Mr. Watts : Is my hon. Friend satisfied that mortgage lenders are as quick to pass on reductions in base rates as they are to pass on increases in base rates?

Mr. Nelson : I hear what my hon. Friend says, as will the building societies. Of course, the building societies also consider the competitive interest rates offered by other savings products. I, too, am mindful of that when influencing the rate of national savings products. I hope that the building societies will heed what my hon. Friend

Column 981

says if there are any further reductions in interest rates. Their alacrity in passing on reductions to borrowers will be welcome.

Ms. Harman : Given that the Government's policies have left 60,000 families homeless, 400,000 construction workers on the dole and 1.5 million families in houses that are worth less than their mortgage, does the Minister recognise the failure of the Government's policies? Does he recognise that the housing market will not pick up until the economy recovers? It is because the Government have no policies for recovery of the economy that the housing market continues to look gloomy.

Mr. Nelson : I acknowledge that the housing market has gone through a difficult period, as has the construction industry. However, to listen to the hon. Lady, one would think that there was no good news on the scene at all. Indeed, the good news is welcome. For example, there was strong growth in housing transactions in the third quarter of this year and a significant drop in the number of repossessions in the first half of this year. The affordability of homes for first-time buyers is extremely good. We do not want to fuel house price inflation and have the sort of housing boom that put housing beyond the reach of ordinary people and first-time buyers.

Mr. William Powell : Is my hon. Friend aware that a significant part of the problems in the housing sector has arisen as a result of negative equity in home income plans? Is he aware that all right hon. and hon. Members have constituents who have been adversely affected by the lending institutions' refusal to come to terms with some of the ruthless consequences of the sale of such plans? One of my constituents committed suicide because of it. Will my hon. Friend take a more active stance than hitherto in trying to bring the building societies and others to realise that they must solve the problems?

Mr. Nelson : I share the sentiments expressed by my hon. Friend, and I know that they are shared by hon. Members on both sides of the House. The Government, too, have been concerned by the marketing of some of the home income plans--I replied in a debate on the issue in the House recently. The problem has been largely resolved for the future, but many people have still lost out in the meantime. That is why I welcome the fact that the Financial Intermediaries, Managers and Brokers Regulatory Organisation has set up a one-stop shop to try to resolve some of the problems. Again, that will require the assistance of the building societies and other lenders, which I hope will be forthcoming.

Balance of Payments

6. Mr. Hall : To ask the Chancellor of the Exchequer what measures he is taking to reduce the United Kingdom's balance of payments deficit.

Mr. Portillo : The recent reductions in interest rates, our low inflation and the competitive level of sterling offer significant opportunities to exporters and to firms competing against imports in domestic markets. The key to long-term success remains United Kingdom producers' ability to keep costs down and quality high.

Mr. Hall : Is the Minister aware that PowerGen has decided to import 6 million tonnes of coal from Colombia

Column 982

and China through the Liverpool docks? That will serve only to increase our balance of trade deficit. It will result in the closure of Parkside colliery, the only remining pit in the Lancashire coalfield, and it has threatened the jobs at the Point of Ayr colliery. Will the Minister join me in condemning the politics of the madhouse, which we see here this afternoon?

Mr. Portillo : If coal is imported, clearly the balance of payments suffers to that extent--but that is not by any means the end of the story. If British industry is obliged to take electricity and other fuel supplies at prices higher than those paid by our competitors, that is bad for both imports and exports. The hon. Gentleman will know that my right hon. Friend the President of the Board of Trade is considering a broad range of issues in relation to the coal industry. The hon. Gentleman should not be allowed to get away with such a simplistic statement about the economics as they affect this country.

Mr. David Shaw : Will my right hon. Friend confirm that the balance of payments deficit is relatively small compared with our gross national product and that it is well financed by the massive increase in overseas earnings from interest and dividends from successful British companies and investment overseas?

Mr. Portillo : The balance of payments is indeed financeable, but I should not like to say that it is small--clearly, it is a matter of concern to the Government, and that is why we pursue policies to enable our economy to grow and our manufacturers to do well in export markets. My hon. Friend made a good point about inward investment. As a result of Nissan's investment in this country, that company now exports half what it produces in Sunderland, and the United Kingdom is set to become a net exporter of television sets.

Mr. Andrew Smith : Is it not a measure of the Government's utter industrial failure that our balance of payments deficit is now running at £1 billion a month? When will the Government start backing British exporters, as other countries back theirs? What action will the Minister take to cut the export guarantee insurance premiums which so undermine the efforts of British exporters?

Mr. Portillo : There has been a substantial increase in the cover provided by the Export Credits Guarantee Department for our exporters. Last year, that cover provided for £2 billion worth of British exports. We have been fighting hard in the European Community to reduce trade barriers, and I believe that the single market is worth £400 million in savings to British business. We have successively cut the rate of corporation tax on businesses, which has given them a tremendous competitive advantage. My right hon. Friend the Prime Minister has led the fight to keep alive the general agreement on tariffs and trade negotiations, because that is the most important development possible for British exporters. All those measures have been substantial commitments to British business. What is more, we have created a climate in Britain that has enabled us to attract half the investment into Europe from Japan and the United States. All that improves our export opportunities.

Column 983

Public Sector Debt

8. Mr. Shersby : To ask the Chancellor of the Exchequer what are the latest figures for net public sector debt as a proportion of gross domestic product ; and what the equivalent figure was 10 years ago.

Sir John Cope : At the end of March 1992, net public sector debt amounted to 28 per cent. of GDP, compared with 47 per cent. at the end of March 1982.

Mr. Shersby : Is my right hon. Friend aware that his answer to what I can only describe as the Uxbridge question is most satisfactory and that my constituents will regard it as a record of prudent financial management by the Government, in sharp contrast to that of the last Labour Government? How does the position of the United Kingdom compare with that of our Community partners?

Sir John Cope : Yes, my hon. Friend is quite right. It is a great tribute to Conservative government over the years that we have such a strong position in that respect. Only Luxembourg in the Community has a better ratio of Government debt to GDP.

Mr. Nicholas Brown : How much of the change is due to debt repayment and how much to inflation? What contribution has privatisation of public assets made to the change--privatisation which has been carried out, as the hon. Member for Uxbridge (Mr. Shersby) could tell the Paymaster General, at a substantial loss to the public purse?

Sir John Cope : A whole series of factors have gone into it, not least tight control on Government spending over many years. Debt repayment has been very significant and places us in a much stronger position now.

Public Expenditure (Index Linking)

9. Mr. Barry Field : To ask the Chancellor of the Exchequer how many items of public expenditure are index linked.

Mr. Portillo : Certain social security benefits, public service pensions and some debt interest are linked to increases in prices either by statute or ministerial pledges.

Mr. Field : Does not indexation amount to institu-tionalising inflation, something the private sector can never afford and which the British taxpayer should not be asked to underwrite? With the retired population exceeding the working population for the first time in the nation's history by the year 2005, is not indexation the economics of the mad house?

Mr. Portillo : My hon. Friend makes an extremely good case for low inflation because inflation causes indexation to be a burden. I believe that people who have contributed all their lives to social security benefits are entitled to see those benefits rise in line with inflation. It is the Government's duty to ensure that inflation is kept to the minimum. My hon. Friend raises a most pressing problem for all economies in the west. As time passes and the retired population becomes larger, so the burden falling on the working population becomes very large indeed. That is one reason why the Government have been so keen to help people make provision for themselves beyond and outside the state sector with personal and occupational pensions.

Column 984

Mr. Sheldon : On a day when even Sam Brittan accepts the need to learn from John Maynard Keynes, does the Chief Secretary to the Treasury agree with him? Will the right hon. Gentleman do something to promote sensible public investment?

Mr. Portillo : I do not think that I have seen the article to which the right hon. Gentleman has referred. However, we have made it perfectly clear throughout the public spending round that we believe that we should do all we can to protect capital spending. However, the extent to which we can do that depends on the extent to which we can find savings in current spending. Given the present levels of borrowing and spending, I believe that it would be irresponsible to propose, as the Labour party proposes, that we should borrow more.

Mr. Oppenheim : Are not we fortunate that spending on health in Britain has not been strictly index linked since 1979 bearing in mind that under this Government spending on the health service has increased far faster than inflation? In contrast, were not we unfortunate in the late 1970s that health spending was not index linked, bearing in mind that Labour slashed the hospital building programme and on one occasion cut nurses' pay in real terms?

Mr. Portillo : Yes. The instinct of the Labour party when it concerns itself with controlling public spending is to cut capital projects wherever it can. It always takes the short-term, short-sighted view. That is not the view which we would want to take. My hon. Friend is absolutely right to say that spending on the health service has increased far faster than inflation. But the case is much stronger. Because of our efficiency gains and the reforms that we have made to the health service, the output which we get from that money is even greater than the amount would suggest.

Mr. Salmond : Some public expenditure items are linked to inflation and some to population. Now that the right, hon. Gentleman has routed the Scottish Secretary of State on the Barnett formula, is not it convenient for him to judge these things on population since it means that the more he depopulates Scotland the less he has to spend on it? If expenditure on Scotland is to be judged by population why is not expenditure on the London docklands judged similarly?

Mr. Portillo : The hon. Gentleman's last question is completely beside the point. He will find this afternoon that a very fair settlement has been made for Scotland. My right hon. Friend the Secretary of State for Scotland will be able to announce proudly the outcome of the public spending review. He has protected Scottish interests in a difficult round and he will have every reason to come away with considerable pleasure.

Debt-income Ratio

10. Mr. Duncan-Smith : To ask the Chancellor of the Exchequer how many G7 countries have achieved a fall in their debt-income ratio since 1980.

Mr. Nelson : Only the United Kingdom of the G7 countries has reduced its ratio of general Government debt to GDP since 1980. The ratio has fallen by over 19 per cent. to 35.4 per cent.

Column 985

Mr. Duncan-Smith : Does my hon. Friend agree that these are significant figures? The simple fact that we are the only G7 country to have reduced the ratio, coupled with the earlier answer that, bar one, we are the lowest in the EC, makes a mockery of what the merchants of doom in the Opposition say when they make their comparisons with international figures. Does my hon. Friend agree that we should welcome these figures and trumpet them, which of course the Opposition will not do?

Mr. Nelson : My hon. Friend is absolutely right. Our public sector debt of £195 billion is relatively low compared with other G7 countries. We are in that strong position partly because of the repayment of significant amounts of public debt in the late 1980s and also because of the significant growth that has taken place under the Conservative Government.

Mr. Tony Banks : Do not the figures that the Minister has just announced to the House make a clear case for massive public sector investment by the Government?

Mr. Nelson : That is typical of the hon. Gentleman. His party has always been the party of big spenders at somebody else's expense. His party has no qualms about handing on an inheritance of increased debt to the next generation and it has no worries about the impact of extra borrowing on interest rates and inflation.

Mr. John Townend : Does my hon. Friend agree that to reduce national debt as a proportion of GDP to the level of 1991 means that we will have to bear down heavily on public expenditure not just this year but for the foreseeable future?

Mr. Nelson : Again, my hon. Friend is absolutely right to make strictures about the need to restrain public expenditure. Unless growth is to increase dramatically, we will need to restrain the extent to which the public sector borrowing requirement is allowed to rise. That has implications for fiscal policy as well.

Government Deficits

11. Mr. Soley : To ask the Chancellor of the Exchequer by what date he estimates the United Kingdom will have met the convergence criteria on Government deficits as laid out in article 104c of the treaty of Rome, proposed under the Maastricht treaty.

Next Section

Home Page