House of Commons Hansard Debates for 18 Nov 1992

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Autumn Statement

[Relevant documents : Minutes of Evidence taken before the Treasury and Civil Service Committee on 16th and 17th November (House of Commons Papers Nos. 250-iiiand -iv)].

Madam Speaker : I have selected the amendment standing in the name of the Leader of the Opposition. Between the hours of 6 pm and 8 pm, I have imposed a 10-minute limit on speeches, and I ask other right hon. and hon. Members to exercise some voluntary restraint over the length of their speeches.

Mr. Adam Ingram (East Kilbride) : On a point of order, Madam Speaker. I understand that today the staff and unions at AE Technology were advised that the Government have decided to cancel the European fast reactor programme, to which Britain was committed to the tune of £12.87 million. Given that that announcement pre-empts the Government's review of their energy policy, which is on-going as a result of a resolution of the House, is it not out of order for the Government to act in such a way as to put at risk many hundreds of jobs in districts such as Dounreay in Scotland?

Madam Speaker : I find it strange that hon. Members should raise points of order about such documents, which are not of a parliamentary nature, of which I have no knowledge and which I have not seen, and that a point of order which is out of order is used in order to raise the matter.

3.56 pm

The Chancellor of the Exchequer (Mr. Norman Lamont) : I beg to move,

That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 12th November ; welcomes the Government's continuing commitment to the firm control of public expenditure ; supports the new expenditure plans, which honour the Government's commitments and provide protection of capital spending ; applauds the specific measures the Government has taken to encourage confidence and foster recovery ; and congratulates the Government on achieving a substantial reduction in underlying inflation, which has laid the foundations for sustainable growth.

I welcome the opportunity to have this early debate on the autumn statement. The principal aim of the measures that I announced was to restore confidence and to hasten recovery. To secure that objective I set out four key elements in the Government's strategy for growth : first, spending plans for the next three years which are fully consistent with what the economy can afford ; secondly, within that tight overall settlement, special protection for programmes, particularly capital programmes, which strengthen the long-term health of the economy ; thirdly, a substantial package of measures to boost activity in particular sectors of the economy ; and fourthly, a further reduction in interest rates, following the dramatic progress that we have made in reducing inflation. That is the right strategy for Britain, and it has been warmly welcomed, not just by my right hon. and hon. Friends, but by industry and the country at large. Conservative Members have never believed that the Government can spend their way out of recession. It is the private sector that generates growth and creates jobs--not the state. The hon. Member for Dunfermline, East (Mr. Brown) takes a different view. He believes--as he told a

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recent press conference--that the state is what he calls the "engine of growth", a view that has been discredited and discarded right across the world. It is not even fashionable today in Albania. What the Government can, and must, do is to create an environment in which businesses can plan, invest and succeed, and that is exactly what we have done. British business now has an underlying inflation rate below the European Community average, interest rates that are lower than anywhere else in the European Community, one of the lowest rates of corporation tax in the industrialised world, and the best industrial relations record that we have seen in this country for very many years. On top of all that, British exporters are now nearly 15 per cent. more competitive in foreign markets than they were just two months ago. That gives British industry massive new opportunities to win back markets both at home and abroad.

All too often, economic commentators--joined by Opposition Members--talk down the prospects for business and the outlook for the future. Well, in the months and weeks ahead, Conservative Members will be encouraging business men to seize the opportunities provided by the new environment. Low taxes, low inflation and low interest rates--that is what business has been asking for, and that is what it has got.

Mr. A. J. Beith (Berwick-upon-Tweed) : While that may be so, are there not two things that business men do not know? One is what will happen to the exchange rate, which they knew--or thought they knew--when we were in the ERM ; the other is whether Britain will be in the single currency system or in the forefront of the development of the European Community.

Mr. Lamont : I have repeatedly made it clear that the Government are not operating an exchange rate target, that I believe in a strong currency, and that we will take the exchange rate into account in formulating our anti-inflation policy. The right hon. Gentleman asked about a single currency. We have always made it clear that a decision will be made at a later date. That is the right and appropriate course.

Mr. Peter Hain (Neath) : In the light of the widespread view in business circles and elsewhere that the figures in the autumn statement do not add up, will the Chancellor confirm the briefing given to The Sunday Times by "senior Treasury and Downing street sources" that, come what may, the PSBR next year will be kept to 7 per cent.?

Mr. Lamont : I have no idea what the hon. Gentleman means when he says that the figures do not add up. They are set out clearly in the Grey Book. We have published what we believe is a realistic forecast for the PSBR for this year. We do not make a forecast for next year, but we have made an assumption. The PSBR for next year will be set at the right time, which is in the Budget. The hon. Gentleman is concerned about the PSBR, as I am. I should like to know what expenditure Labour intends to cut to bring the PSBR down. I hope that we shall not have any more such talk.

Mr. Gordon Brown (Dunfermline, East) rose --

Mr. Lamont : I shall give way in a minute.

Economic activity is the product of millions of separate decisions by consumers, investors and business. They are

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about whether to spend or to save, to invest today, or to wait until tomorrow. Confidence is the key to unlocking that activity, and Governments must do all they can to build and sustain it. That is why I introduced my package of measures in the autumn statement. I am sorry that the hon. Member for Dunermline, East could not raise even half a cheer. However, I was not surprised, because for him every piece of good news is just another page that has to be ripped out of his speech. With his shopping lists and his grim sound bites, the hon. Gentleman likes to seize on a critical report, perhaps from the CBI, or a gloomy report, perhaps from the Institute of Directors.

I look forward to the hon. Gentleman's quotes in this debate from the CBI, which said that the package

"will rebuild industry's confidence in itself".

The chairman of the CBI's economic affairs committee said : "We needed a whole package of measures and that's what we got. The Chancellor has listened to what industry has said to him." He said that that was what industry needed.

Mr. Brown : Will the right hon. Gentleman give way?

Mr. Lamont : I shall give way in a minute. I have given way twice. The Association of British Chambers of Commerce said :

"Businesses have heard the right messages".

The Institute of Directors said :

"the Chancellor has given businesses the framework needed to begin the recovery."

Those are the views of the leading business organisations in this country. They speak for British business men and know what is actually happening in industry, and they have all endorsed the measures that I have taken.

Mr. Brown : Will the Chancellor also confirm that Mr. Howard Davies, the director-general of the CBI, said that no one could be sure that these measures are sufficient to take us out of recession? The Engineering Employers Federation said that they did not add up to a coherent strategy. Will the Chancellor look at his own figures and confirm that the autumn statement assumes, first, that unemployment will continue to rise ; secondly, that it assumes in the budget to be awarded to the insolvency service that business bankruptcies will continue to rise? Will the right hon. Gentleman confirm that it also assumes that business investment will stagnate? Does that add up to the recovery that the right hon. Gentloman said he would give us?

Mr. Lamont : It was absolutely predictable that the hon. Gentleman would, as always, come out with his long shopping lists. He did not cite the most significant quotations from the largest, most important, and most representative business organisations. If the hon. Gentleman had quoted Howard Davies, the director-general of the CBI, in full, he would have said that Mr. Davies warmly welcomed my measures. To say that nothing can guarantee what happens in the next year is to say something that is true of all measures. There are no measures without risk and none with complete security attached to them. However, the package was warmly welcomed, and rightly so, throughout British industry.

Mr. Patrick Thompson (Norwich, North) : Will my right hon. Friend give way?

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Mr. Lamont : No, because I should like to get on a little further.

My autumn statement was based on two fundamental principles--low inflation and tight control of public spending. Those are the key requirements for any lasting economic recovery, and they are the crucial conditions for the sustainable reduction in unemployment that all of us want to see. Opposition Members have never learnt those basic principles. They have never understood that inflation is the enemy of investment and saving, that reckless spending is the route to slump. That is why, in the past two years, we have fought a remorseless battle to get inflation down to the sort of levels that our European partners enjoy--levels that give our exporters the chance to compete abroad, and give consumers the confidence they need to spend rather than to save.

On Friday, we had some more excellent news on inflation. Underlying inflation is now down to just 3.8 per cent.--below the European Community average and the lowest for four years. The dramatic progress that we have made on inflation has allowed me to reduce interest rates since we left the ERM. More than anything else, that relaxation of monetary policy will help get Britain back to work. Interest rates are now at their lowest level for nearly 15 years ; they are the lowest anywhere in the European Community, and they have fallen by a full 3 per cent. in the past eight weeks. That is a considerable injection of extra spending power in the economy--£45 a month off the typical mortgage payment, and over £3 billion off industry's interest bill. That comes on top of the interest rate reductions that we have seen continuously over the past year. If we are to keep interest rates down, however, it is vital to maintain firm control over public spending. A prudent approach to spending is important for another reason, too--the more of a burden the state becomes, the less companies and individuals strive and prosper.

That means that we have to hold the growth in spending below the long-term growth level of the economy as a whole. That is why we decided to stick to cash plans for next year and to set tight ceilings for public spending for the following two years. Those ceilings are consistent with growth in the new control total of 1 per cent. a year on average. Spending will grow in real terms each year, but the new system that I have put in place will ensure that we spend no more each year than the country can afford.

Mr. Dennis Skinner (Bolsover) : We have heard about the CBI, and it always has a loud voice, and about the Institute of Directors, and it gets a fair showing in the House. However, the Chancellor fails to recognise that there are 4 million to 5 million low-paid people who he is demanding should have either a pay cut or a pay freeze. Their voice should be heard more often.

I have news for him. If he wants to balance the books, why does he not claw back, through taxation, the £26.2 billion that the richest 1 per cent. in Britain had in the first 10 years of the Tory Government ? He should get that back, and then, instead of having a pay freeze for low-paid workers, he could use that money to finance the health service, to pay pensioners and to start building houses again. He should not be calling on low-paid people to clean up the mess created by the Tory Government.

Mr. Lamont : Perhaps I misheard the hon. Gentleman, but I thought that he began by saying something about

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people with loud voices. No one would accuse him of not having a loud voice. He has what often goes with loud voices--a tendency to get his facts completely wrong. It is not true to say that low- paid people are exclusively or predominantly in the public sector. I am afraid that that does not accord with the facts.

In my Mansion house speech, I made clear that I was determined to protect capital wherever possible within this survey. I have done that in two ways : by giving priority within the new spending plans to capital programmes, and by liberalising the rules on private finance.

The new plans support capital projects across a wide range of programmes. We will invest £6.3 billion on roads in the next three years. That is what we promised at the election, and that is what we will do. We will invest more in British Rail next year than in any year in the 1980s. That means that investment is up by one fifth compared with 1979, even after inflation.

We will invest a record £2.1 billion next year on capital projects in the national health service in England ; why do not Opposition Members even begin to welcome that? We shall more than fulfil our election pledge to provide 153,000 homes through the Housing Corporation over three years.

There will be hundreds of capital projects--almost 400 major projects in the NHS ; £1.4 billion of channel tunnel-related projects ; £170 million on new rolling stock for commuter services in Kent ; and twice as many new road starts next year as this.

On top of all that, we have made provision to move ahead quickly with one of the biggest projects that London Transport has put forward for decades-- the Jubilee line extension. That means more work for the construction and engineering industries--perhaps as many as 12,000 on one project alone.

Those plans and proposals ensure that, after a rise this year, total public sector investment will be maintained in the year ahead.

Mr. Richard Tracey (Surbiton) : My right hon. Friend is truly to be congratulated on his spending announcements last week and today concerning the Jubilee line--which even Opposition Members must welcome. However, perhaps he will clarify one point that mystifies me. Following last week's statement, London Transport's chairman said the following day that he was aggrieved that core funding is to be cut over the next three years. What is that supposed to mean? My right hon. Friend announced good news for London Transport, so why does its chairman complain?

Mr. Lamont : Investment in London Underground will be at the highest level for 20 years since records began. Even taking out the Jubilee line-- which is an extraordinary way of looking at things, as though it were not a major project that must be paid for--investment will be higher than in any year other than the current year. By any standards, that is a major injection of funds into London Underground.

Improving the nation's infrastructure is not just a job for the Government. The radical new approach to private finance that I announced last week will, for the first time, really open up infrastructure projects to the private sector.

I have abolished the need for comparison between private and public projects which used to prevent schemes going ahead. Provided a project is self-financing and

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conforms with regulatory requirements, there is no reason, in my opinion, why the Government should stand in its way. I have opened the way to more joint ventures between the public and private sectors, and I have liberalised the rules for leasing, so the public sector can make the best use of the capital resources available. As a start, British Rail will be allowed to lease some £150 million of new rolling stock in the next three years, which will help to develop the leasing market and pave the way to privatisation. That provision comes on top of BR's existing Government funding. There are now immense opportunities across a wide range of projects. I listed some when I made my statement. The way is now clear for the private sector to come forward with further specific proposals for projects that they would like to carry out in partnership with the Government.

The Green Paper on motorway charging, which my right hon. Friend the Secretary of State for Transport will publish in the new year, will be another radical step. Road charging raises many difficult questions, which will need the most careful consideration, but a future decision to proceed with electronic road pricing would open up enormous opportunities for new private sector investment in Britain's roads network.

Of course, the best way of involving the private sector in capital projects is through privatisation directly. The Government have been following that policy for many years, and many successful private companies have been created as a result. Next year, the Government will hold another major sale in one of those companies, British Telecom. That will be done to promote further our policy of wider share ownership.

Mr. Alex Salmond (Banff and Buchan) : Does the Chancellor remember telling me on Thursday--this can be found in column 1009 of Hansard --that Scotland, or "the territories" as he put it, would gain more from the changes in the Barnett formula than it would otherwise have done? Given that the Scottish Office has since estimated the loss over the next three years at £27 million from this year's block allocation, would the Chancellor care to amend his remarks and bring them closer to reality?

Mr. Lamont : I do not believe that I told the hon. Gentleman anything that was incorrect, but I will have a look at what I said. I was explaining that the consequentials formula for Scotland had been adjusted in line with the results of the latest population census ; that strikes me as sensible and, indeed, overdue.

Mr. Gordon Brown : Last week, the Chancellor said that he would recoup the £700 million from the car tax in further taxes for road users. Is he now telling us that his April Budget will feature that plan for all road users? If so, what form will it take?

Mr. Lamont : The hon. Gentleman would be amazed if I gave the full details ; indeed, it would be amazing if I were able to do so. What I said was that the cost of the motor tax abolition would be recouped, and I think that it would be reasonable to expect-- [Interruption.] I have not made up my mind about which part will be recouped from particular taxes.

Capital spending does not just mean more roads, more hospitals and more rolling stock. The Government have also been determined to invest in the future of our people :

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that is why, in this very tight public spending round, we have continued to give priority to both education and health. Education spending will rise by 6 per cent. next year, and by 1995- 96 it will be £1 billion higher. That will allow 222,000 more students to enter further education ; it will also allow Britain to rise nearer to the top of the international league for participation in education by 16-to -19-year-olds. At the same time, we are providing for a growing proportion of school leavers to take up youth training places. Spending on the health service will rise in real terms in each of the next three years. Next year, it will rise by 3 per cent., enabling 2 per cent. more patients to be treated. We have also kept the promises that we made to pensioners and to the less well off, who rely on benefits for their standard of living. That is why child benefit, pensions and other benefits have been indexed in full. We could not have maintained capital spending, while at the same time focusing on health and education and uprating benefits, unless we had been prepared to adopt a firm stance on public sector pay. If we are to control current spending, the choice comes down to restraining the growth in wage bills or restraining the growth of services. In current circumstances, I judged that a policy of pay restraint in the public sector was the correct response.

I know that the limit of 1 per cent. for settlements will seem hard to many who work in the public sector, but the facts must be recognised. In the past two years, earnings in the public sector have outstripped those in the private sector, where settlements are now at a 25-year low. Many private sector employees have experienced a pay freeze or a pay cut. I believe that a 1 per cent. pay ceiling for one year is quite justified in the circumstances, given what it will yield.

The public sector pay bill represents an immense claim on the public finances. Controlling public spending is what we had to do, and what the autumn statement is all about.

I know all too well that the recession has been difficult for businesses and home owners, and particularly for those who have lost their jobs. More recently, the gloomy world background and the blow to confidence caused by the suspension of our ERM membership has raised renewed concern. But the fact is that, over the spring and into the summer, car production rose, being up 19 per cent. in the first half of the year, manufacturing production rose in the first and second quarters, and retail sales rose in the second quarter and again in the third.

Despite the gloomy headlines of the last few months, some of these hopeful indicators have been maintained. Car production again in October was 22 per cent. higher than a year earlier ; industrial production rose in the third quarter ; and today's new figures show that retail sales were up for the third month in a row, to their highest level for well over two years.

Over the months ahead, we need to see that this progress is consolidated and spread to those sectors, particularly housing and construction, which have been especially hard hit. It was to reviving confidence in those hard- pressed areas that the package of measures that I announced last week was addressed. Those measures, together with the cuts in interest rates, will provide major opportunities for businesses.

First, on the housing market, the Government are providing £750 million in the next four months to remove at least 20,000 empty properties off the market. The more private finance, and the better the terms, that can be

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secured, the more such properties will come off the market. Housing associations will be looking to builders, building societies and the whole range of lending institutions to get involved. This measure has been warmly welcomed by all those who care about the housing market. The National Association of Estate Agents has already described the move as "a recipe for recovery".

Secondly, as to the construction industry, local authorities now have a one -off opportunity to spend all the receipts they get over the next year. That should boost capital investment by local councils by over £1 billion extra money for house renovations or refurbishing schools. My right hon. Friend the Secretary of State for the Environment has taken steps to ensure that the extra investment is spread widely and has the maximum impact. Opposition Members were asking the other day why more could not be done. It can. They should go and tell Labour local authorities to sell their council houses and spend the money on the improvements we all want to see.

Thirdly, I have given exporters new opportunities to compete and succeed. I have increased export credit cover by £700 million for this year and next to help exporters take advantage of their new competitiveness and win new orders in world markets.

Fourthly, in regard to investment, with increased capital allowances and the lowest interest rates in Europe, every company has opportunities to invest. Even today, business investment accounts for a higher share of GDP than at any time during the 1970s. The higher capital allowances that I announced will add to this by giving firms the extra incentive they need to bring their investment plans forward.

Fifthly, the abolition of car tax will provide another major boost to Britain's car industry and to suppliers and component manufacturers throughout the country. That is why the Society of Motor Manufacturers and Traders said :

"we can now look forward to the motor industry leading the economy out of recession".

British industry, which is the largest purchaser of cars produced in this country, will also benefit. The chairman of Lex Service, the car retailers, said that the abolition of car tax would

"reinforce the improvement that has already been seen in the new car market in recent months".

As I have said, there have indeed been improvements in the car market in car sales and in car production.

Low interest rates, low inflation, a package to build confidence and recovery--those are the steps which we have taken to tackle unemployment. Governments beat unemployment by encouraging growth and creating the conditions which business needs to invest and prosper. Job creation is a consequence of economic recovery, not its cause. Unemployment cannot be solved simply by letting the state sector grow year by year, as Opposition Members seem to believe.

Indeed, because of their commitment to minimum wages, any Government formed by the Opposition would increase unemployment, not reduce it. That is not just my view. After the election, the hon. Member for Kingston upon Hull, East (Mr. Prescott) explained it all. He said :

"I knew that the consequences were that there would be some shake out. Any silly fool knew that."

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I repeat :

"Any silly fool knew that."

Apparently not. No one would accuse the right hon. and learned Member for Monklands, East (Mr. Smith) of being a silly fool. However, it was the right hon. and learned Member who described Labour's minimum wage plan as

"an unwavering commitment, not open to negotiation"--

even by any silly old fool. However, Labour's confusion over the minimum wage is nothing compared with the shambles of its tax plans.

Ms. Hilary Armstrong (Durham, North-West) : How dare he?

Mr. Lamont : The hon. Lady shouts, "How dare he?" Does the hon. Lady mean, how dared we tell the British people at the time of the election, and was it not outrageous for us to do so?

Before the election, Labour's finely tuned, finely targeted answer to the recession was the biggest increase in taxes on incomes since the war. Since the election, the right hon. and learned Member for Monklands, East, has been unrepentant. He explained :

"I strongly defend these proposals."

However, the hon. Member for Dunfermline, East takes a different view.

Mr. Gordon Brown indicated dissent.

Mr. Lamont : He told a press conference last week :

"Further tax increases at this time would be a mistake." So who is right? Is it the leader of the Labour party, or is it the shadow Chancellor? Opposition Members will remember that there is only one way to settle this sort of dispute. They did it before the election and they can do it again : clear the diary ; get on the phone ; call in the journalists ; book a table at Luigi's ; and settle down to a bit of spaghetti diplomacy. The fact is that the Labour leader's tax plans have been buried by the hon. Member for Dunfermline, East. His shadow Budget, launched in such splendour and media hype, has been quietly, thank God, laid to rest.

However, Labour's problems will not go away that quickly. As usual, the Labour party's response to the outcome of the public spending round defies, as it always does, every known law of arithmetic. On pay, the hon. Member for Dunfermline, East believes that we have been too tough and he would like more. I should be surprised if he were to deny that. On capital spending, the hon. Gentleman says that we have not spent enough. Again, he would like more. However, when it comes to borrowing, the hon. Gentleman says that it is too high and should come down. On taxes, he says, "No, not today."

It does not even begin to add up. The hon. Member for Dunfermline, East does not know how much he would spend ; he does not know how much he would tax ; he does not know how much he would borrow. [Interruption.] We are not talking about next year's Budget. We are talking about the situation today and Labour's response to the plans that we have put forward.

When the hon. Member for Dunfermline, East was asked what was wrong with the Government's plans and what he was proposing, he replied : "I'm not prepared to put a figure on it."

He is the first shadow Chancellor to have volunteered for permanent purdah. This afternoon, we on this side, and the country, would like some answers. If the hon. Member

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for Dunfermline, East wants higher public sector pay, where would he get the money from? Would he take it from patient care in the health service? Would he cut spending on schools? Would he axe the Jubilee line? Would he cancel the hospital building programme? That was the pattern followed by previous Labour Governments. These are the questions that the hon. Gentleman must answer when he seeks to make any points about the statement that I have presented to the House.

The autumn statement is about tight control of public spending, protecting capital programmes and encouraging recovery in key sectors. This party alone has the policies and the determination to achieve those goals. British industry now has its best opportunity in years to attack the markets of its competitors and show what it can do. Low inflation and a competitive pound, the lowest interest rates for nearly 15 years, time- limited tax measures, low rates of tax and good industrial relations all give Britain the edge as a place to invest and to do business.

Yes, we have been firm on public sector pay--firm so that we can build roads, so that we can build hospitals, so that more and more of our young people can have the education that they deserve. We have been firm on what we pay ourselves today so that we can build a more prosperous country for tomorrow.

Now is the time for business leaders and managers to make the most of these opportunities to invest, to export and to build for the future. They can do so in the knowledge that behind them are a Government investing record sums in the nation's infrastructure and in the nation's future.

That is why this statement has given an opportunity to every business man and has set the right course for this nation's spending priorities in the years ahead. It has been warmly welcomed across the country, and it deserves the wholehearted support of this House. 4.29 pm

Mr. Gordon Brown (Dunfermline, East) : I beg to move, to leave out from House' to the end of the Question, and to add instead thereof :

regrets that the Autumn Statement confirms that the recession is continuing and that unemployment and bankruptcies will continue to rise ; regrets also that investment which has fallen substantially during the recession will fall again for 1992 and will at best, according to Government forecasts, rise by only one quarter of one per cent. during 1993 ; deplores the worsening balance of payments and the failure of the Government to recognise the need for a policy for manufacturing and for the regions ; demands an emergency employment programme to reduce unemployment and the fear of unemployment and additional investment measures to boost the construction industry and business as a whole ; and calls for a long-term industrial and training policy for Britain.'.

When unemployment is approaching 3 million, when long-term unemployment is almost 1 million and when investment is falling, I do not think that the House has heard such a complacent statement from a Chancellor as we have heard this afternoon. If the Chancellor is in any doubt about the problems that British industry faces, will he talk to the Government's own Insolvency Service?

In the autumn statement forecast, the Chancellor assumes a large increase in the budget of the Insolvency Service merely to deal with the problems of business bankruptcies over the next year. Does he agree that the number of bankruptcies--20,000--with which the service dealt two years ago will rise to more than 40,000 in the year

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