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Mr. Rod Richards (Clwyd, North-West) : The Chancellor's autumn statement has quite rightly been widely welcomed. I endorse what my colleagues have said about it. The welcome is quite simply because it is appropriate for the new circumstances in which we find ourselves, and because the measures it introduces are imaginative. Most of all, it is because the autumn statement is fundamental to building confidence. It describes the Chancellor's economic framework in a way that allows everyone to see clearly his targets and the indicators that he will use to ensure that he attains those targets. The Conservative party has confidence in its Chancellor.

Having heard the shadow Chancellor this afternoon, I feel that Opposition Members might want to reassess their view of his policy. It was revealing that he did not have a good grasp of economics. He drew attention to the fact that one of the measures in the autumn statement was abolishing car tax. He rightly quoted the figure, used by the Chancellor, of a cost of £750 million in the fiscal year 1993-94. That works out at approximately £400 per average family vehicle.

The shadow Chancellor then took the motor manufacturers' forecast of an increase in sales of vehicles of 70,000. Any average GCSE pupil would have told the shadow Chancellor that 70,000 vehicles costing the Exchequer £400 each would result in a cost of £28 million, less VAT. However, the hon. Gentleman did not make

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that computation. In the topsy-turvy world of Labour's "think of a number" policy, he took the Government's cost forecast for the total spend, divided it by the motor manufacturers' extra cars sold forecast, and came up with the cooked answer that every vehicle would cost the Exchequer £10,500. He forgot to mention that almost 2 million car owners will have an extra £400 each to spend, thereby creating demand and boosting the economy.

I know that the hon. Member for Dunfermline, East (Mr. Brown) was once employed as a temporary lecturer at Edinburgh university, and I can understand why it did not offer him a full-time job. His speech proves that Labour cannot be trusted to get its sums right with the taxpayer's money.

I particularly welcome the £6.3 billion settlement for Welsh programmes and the fact that its real value will be maintained for the next three years. I congratulate my right hon. Friend the Secretary of State for Wales on retaining the population-based formula for calculating public expenditure provision. Long may that practice continue.

My right hon. and hon. Friends and I recognise that the recession is global and therefore that any Government's actions are limited. However, Government policy has brought considerable success to Wales over the past 13 years, so the effects of the recession there have been less severe than in the rest of the United Kingdom. At present, 10 per cent. of the potential working population of Wales are unemployed--which reflects almost exactly the figure for the rest of the United Kingdom. In 1986, the comparable figures were 14 per cent. and 11 per cent.

Wales has caught up with the rest of the United Kingdom because its economy has been completely transformed over the past 13 years by Government policy. The basis of the Welsh economy is now much broader than in 1979, when a Conservative Government came to power, when coal and steel were virtually the Principality's only industries. That transformation occurred through the effective use of public funding of inward investment.

Since the general election, my right hon. Friend the Secretary of State for Wales has announced the creation of 3,000 new jobs and that 800 others would be safeguarded, reflecting investment of £78 million and a Welsh Office contribution of selective regional assistance valued at £20 million. To save the shadow Chancellor tripping his fingers over his calculator, that produces a cost of £5,260 for every job created. I am pleased, therefore, with the increase in investment capital allowances, which can do nothing but good for investment prospects for Wales.

The self-employed and small businesses account for the bulk of the Welsh economy. The autumn statement is about confidence, and that is precisely what has been lacking among small businesses in Wales and the rest of the United Kingdom. Inflation poses the greatest threat to confidence, and my right hon. Friend's means of achieving his inflation target are boosting confidence. However, expectations of future inflation tend to be self- fulfilling and to generate their own inflation.

The biggest boost to confidence among the self-employed and small businesses was sterling's withdrawal from the exchange rate mechanism on 16 September. Those to whom I spoke displayed unbridled joy at that development, and the subsequent lowering of interest rates

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meant that many more small businesses will survive the recession. I hope that my right hon. Friend the Chancellor will lower interest rates again when it is prudent to do so.

Having raised the matter of the exchange rate mechanism, the shadow Chancellor and his right hon. and hon. Friends persist in saying that sterling should have been realigned a week or a fortnight before 16 September. I put the question to the Chancellor this afternoon, and I really would like an answer. If the Opposition really believe that the ERM should have been realigned at that time, will they kindly tell the House what, in their view, the central value of the realignment would have been, and what would have been the appropriate base interest rate for that value?

I accept the discipline that the ERM forced upon this country, but now that we are out of it, let us take full advantage of the opportunity. I congratulate the Chancellor on taking the first major step along the road to recovery.

8.25 pm

Dr. Roger Berry (Kingswood) : Earlier, reference was made to a letter signed by several hundred economists in 1981 that was critical of the Government's economic policy. I plead guilty to being one of its signatories. I am not at all embarrassed, given that Conservative Members have spoken this afternoon as if, since 1979, the Government have not had the worst record of economic management of any postwar Government.

The Government have the worst record on growth, unemployment, interest rates, the balance of manufactured goods, and so on. The list is endless. I looked in the autumn statement for remarkable features and for something new. It makes a half-hearted and belated attempt to adopt policies that the Government ridiculed and rejected not only before and during the general election but in the seven months since. They rejected lower interest rates, tax allowances for investment, additional export credit assistance, and the release of local authority capital receipts.

In my maiden speech on 10 June, during the debate on the Finance Bill, and on a Labour amendment calling for enhancement of first-year capital allowances that was rejected out of hand, the Financial Secretary to the Treasury said :

"The facts do not support the assertion that capital allowances increase the flow of investment".

He said that the amendment was aimed at generating an investment-led recovery.

"but history has shown time and time again that investment led recoveries are chimeras."--[ Official Report, 10 June 1992 ; Vol. 209, column 357.]

The Financial Secretary followed the lead set by the Chancellor in presenting his Budget, when he also rejected enhanced capital allowances on the basis that they would not be a sensible use of available resources.

Last Thursday, the Chancellor increased allowances for first-year investment in plant and machinery. There has been much ill-informed talk about investment led recovery, and that was one change of policy. The most dramatic change followed the lengthy call for a reduction in interest rates. A Treasury press release issued last week spoke of the lowest interest rates since 1978. What happened after 1978 to give us record interest rates? The truth is that the present Chancellor and his predecessors

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have been responsible for precisely the record interest rate levels that the Chancellor now seeks to claim credit for reducing. It must be quite easy to be a Chancellor of the Exchequer in such circumstances. You jack up the interest rate ; you wait for a few months ; then you bring them down, and everyone says how wonderfully you have done your job. No doubt some Conservative Members are impressed by such tactics.

In the autumn statement, the Chancellor proclaims the benefits of a devalued pound--he refers to it, of course, as a competitive pound--and the lower interest rates that that allows. There is, however, no hint or whiff of recognition of the fact that this is the same Chancellor who resisted such a policy until it was forced on him ; the same Chancellor who was prepared to borrow £7 billion to throw away more than £1 billion of taxpayers' money in a vain and foolish attempt to prop up an overvalued pound. There is no recognition of the fact that the right hon. Gentleman not only raised the interest rate to 15 per cent. on 16 September, but subsequently told the House that he would have kept it at 15 per cent. if the policy had worked.

Mr. Jonathan Evans : The hon. Gentleman said that he considered the pound to be over-valued at its then rate in the exchange rate mechanism. I seem to recall that, during the general election campaign, the Leader of the Opposition suggested that the Labour party would defend that valuation. Did the hon. Gentleman say then that he considered the valuation too high?

Dr. Berry : I pointed out that it was too high on the very day that we entered the ERM ; it seemed reasonably obvious. My right hon. and learned Friend will speak for himself, but I am convinced that, if he had expressed the view that I now hold in the run-up to the election, he would have been held responsible for the devaluation in the currency. Indeed, incredible though it may seem, I have heard hon. Members in the Chamber trying to blame him for precisely that--although, as the hon. Member for Brecon and Radnor (Mr. Evans) has said, he did not express the view about the devaluation of sterling that I am now expressing.

The point is that, if the Chancellor's policy of jacking up interest rates to 15 per cent. had succeeded in maintaining the pound at DM2.95 in the ERM, we would be debating a slightly different autumn statement. However, millions of people in the country would be seriously worried, and rightly so. On reflection, I believe that that would have been a preposterous proposition--but, according to the Chancellor, it is what he would have done.

One feature of the autumn statement is its acceptance of some of the arguments advanced by Opposition Members and others. Today, people are talking about the awarding of marks to schools, and about league tables. I would like to award marks for economic literacy to the autumn statement--I would not give it many. First, why start with a planning total of £244.5 billion when the circumstances in which that total was set last year have changed so radically? The dramatic recovery to which the Chancellor referred last year has signally failed to materialise, and there is no economic rationale for sticking to a figure when it is out of date.

Secondly, why assume that improved confidence--a phrase that is used repeatedly throughout the autumn

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statement--will miraculously follow interest rate reductions, when the private sector is debt-ridden on an unprecedented scale, and unemployment is still rising? Thirdly, why continue to assert that conquering inflation whether that is interpreted literally as the achievement of zero inflation, or more liberally as achieving any old rate between 1 per cent. and 4 per cent. is the key to sustainable growth? No economic theory or empirical evidence demonstrates that ; indeed, a few years ago, the Financial Times pointed

out--correctly--that there was no perceptible link between the inflation rate and the rate of economic growth.

Fourthly--this annoys me most--if, as the Chancellor says in the autumn statement, it would be damaging to seek to prevent the PSBR from rising in a recession owing to the loss of tax revenues and the payment of benefits-- a view with which, incidentally, I agree--why is it not better to increase the PSBR to invest in economic recovery? The statement gives no answer to that question.

As my hon. Friend the Member for Pendle (Mr. Prentice) has pointed out, at the last general election the Government made much of Labour's spending programmes ; indeed, they assumed that all our expenditure on every conceivable programme would be incurred in 12 months. That would have required a significant increase in public sector borrowing--probably of the order of that the Government propose for the PSBR in the current year. The Government's wheeze has been to achieve a similar figure without any improvement in services, with employment accelerating to 3 million-- according to their figure ; on the bases of calculations made before they fiddled the statistics, the figure is nearer 4 million. It is difficult to imagine a more damning condemnation of economic incompetence.

That brings me to the most remarkable feature of the autumn statement. As many of my right hon. and hon. Friends have said, it fails to address the real issue : how we can secure economic recovery, and reduce unemployment and the record number of bankruptcies. Most significantly, it fails to appreciate that, without sufficient demand in the economy, unemployment will continue to rise and firms will continue to go bust.

As hon. Members on both sides of the House have pointed out, supply side policies are important. Our appalling balance of trade in the midst of recession is evidence of that. They are not enough, however ; our economy's output will not be purchased unless there is sufficient demand in the economy. In my constituency, the owners of businesses are working every hour that God gives. They have made every conceivable supply-side improvement. The only thing that keeps newsagents, local garages and other small businesses in operation and secures jobs is the arrival of more customers spending more money. An increase in demand is not merely sufficient, but absolutely necessary, if the country is to emerge from recession.

The Government appear to believe that the private sector will somehow generate that increase in demand. They seem to think that consumers will get hold of their plastic cards--observing that interest rates have fallen by another point--shoot out into the high street and increase their expenditure, thus bringing the country out of recession. I believe that the Government hope and pray that that will happen, but the problem is that it will not happen.

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Interest rates are not particularly low at present ; and in the United States, where rates are around 3 per cent., the recession continues. The private sector in this country--whether it is the corporate sector or private consumers--is more debt-ridden than that in the United States. It is inconceivable that an interest-rate reduction will be sufficient to regenerate economic recovery : as a number of hon. Members have said, what we need is an increase in public expenditure.

I have looked carefully at the figures in the autumn statement. If we accept all the Government's assumptions about a 1 per cent. growth rate next year, and their assumptions about the components of demand arising from exports, private investment and private consumption, the fact remains that there is a yawning gap in demand. There is not enough demand even to prevent rising unemployment.

Having taken account of the knock-on effects, I believe, as my hon. Friend the Member for Neath (Mr. Hain) has said, that we need an increase of £10 billion in public expenditure to make any impact on unemployment. It should be targeted at investment in industry, public works infrastructure and construction, for three obvious reasons. First, it would use unemployed resources to create productive assets ; we should be investing in projects with rates of return in excess of the cost of borrowing. Secondly, public expenditure on investment would have less of an impact on imports than the equivalent increase in private consumption, even if that could be engineered. Thirdly, such a package would immediately be self-financing in part as tax revenues rose and social security payments fell.

Conservative Members are fond of chanting the dogma that the Government cannot spend their way out of recession. That is a fatuous excuse for Government inactivity. It is incontrovertible that to get out of recession requires increased expenditure on the nation's output. If the Government will not help bring that about, who will? If there is one reason why I shall be voting against the autumn statement, it is the abject failure of Government to answer that simple question. The autumn statement is not a programme for recovery ; it is not the programme that my constituents and millions of others need so desperately.

8.41 pm

Mr. Richard Spring (Bury St. Edmunds) : May I add my

congratulations to my right hon. Friend the Chancellor on presenting to the House an autumn statement which has won plaudits not only in the House but amongst many independent commentators. His emphasis on capital spending, his commitment to keeping a lid on inflation and his commitment to reviving growth have been greatly welcomed. The events of the last four months have produced a number of instructive lessons. A financial whirlwind forced us to leave the ERM but the whole country now welcomes the cuts in interest rates since our departure. However welcome the new minimum lending rate of 7 per cent. is--hopefully with more to come--it marks a stage in a volatile roller coaster ride of interest rates--7.5 per cent. to 15 per cent. and back to 7 per cent. While I greatly welcome the Chancellor's firm commitment to low inflation, the post-war swings and roundabouts of interest rate policy have bedevilled the economy. For example, the

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credit boom of the late 1980s bore great similarities to credit conditions in the early 1970s. Sadly, history has had a habit of repeating itself.

The Maastricht treaty requires during the second stage that member states should start the process leading to the independence of their own central banks. It is not clear that we would find it desirable to move towards a single currency or indeed that the convergence criteria will ever be successfully met.

I turn to the domestic argument. There is no doubt in my mind that the wave of money moving into the deutschmark this year was due to the belief of the markets that the Bundesbank would pursue policies essentially unfettered by political influence. The markets were proved right. In its policy objectives, the Bundesbank has been by and large successful.

The Bundesbank is more substantially independent than the Bank of England. That is important. The IMF working paper, "Central Bank Independence : Issues and Experience", noted that the results of most studies are that countries with independent central banks tend to deliver better inflation outcomes. Had the Bank of England been considerably more independent, over the past four decades we would have enjoyed lower inflation, a more stable currency and less volatile interest rates. Surely it is time, particularly after the turbulent experiences of the summer, to look seriously at the structure of the bank and thereby the conduct of our monetary policy.

Given the enormous and justified importance which hon. Members place upon debate and parliamentary scrutiny, there might be concern that an independent Bank of England would be unaccountable. There is clearly a difficulty, with a tension between parliamentarysovereignty and central bank independence. That needs to be addressed. The fears of lack of democratic accountability to Parliament could be addressed if the Governor were made regularly accountable to the Select Committee on the Treasury and Civil Service. The ingredients for that exist already. The Select Committee could have an enhanced role in monitoring the bank's performance. Basic to the independent bank's charter would be an absolute commitment to stable prices. The Select Committee could examine the conduct of the bank's monetary policy. A mix of a statutory commitment to price stability and parliamentary accountability would enhance the conduct of future monetary policy.

If ever, heaven forbid, we were beset again by the same financial whirlwind that we saw in the summer, we would be better able to withstand it. I urge my right hon. Friend to give serious consideration to that proposal.

There has been a great upsurge in concern about the future of small business. The huge increase in small businesses and entrepreneurial activity in the 1980s was welcomed and was a great triumph for the Conservative Government. As is happening tragically everywhere in the world, small businesses here are being hit very hard by the recession.

My hon. Friend the Member for Colchester, North (Mr. Jenkin) very ably highlighted small business problems in the House last Friday, and in Adjournment debates my hon. Friends the Members for Langbaurgh (Mr. Bates) and for Tiverton (Mrs. Browning) dealt with specific difficulties facing the small business community.

Small businesses face a liquidity crisis despite lower interest rates. My hon. Friend the Member for Surrey,

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North-West (Sir M. Grylls), with all his years of distinguished commitment to small businesses, has spelt out eloquently the lack of long-term assured capital which has been so damaging and debilitating.

Has the desire of banks to repair profitability by extending margins something to do with lack of liquidity in the banking system? In the 1980s bank credit to the private sector, which is most sensitive to interest rate changes, grew by 20 per cent. per annum. The growth of money supply in the early 1980s fell to a more sustainable 12 per cent. because of Government overfunding, that is, selling more Government debt to non-banks than the PSBR and using the excess proceeds to repay Government debt held by banks. Surely now we are in exactly the reverse position, as indicated by my hon. Friend the Member for Milton Keynes, South-West (Mr. Legg). We need to liquefy the system by underfunding, that is, by the Government financing at least part of their PSBR from the banks. That system was in force prior to 1985 and was considered to be successful. That approach to monetary policy is practised widely in other parts of the world. The collapse of broad money growth from 18 per cent. in 1990 to 5 per cent. now suggests that greater short-term monetary expansion is called for.

May I be technical and illustrate the extent of this dire problem ? In the year to the third quarter of 1988 the rise in bank deposits held by unincorporated businesses, mostly small businesses, was 28.9 per cent. In the year to the second quarter of 1992 it fell by 0.1 per cent. Small business liquidity has been severely cut at a time of recession by lack of growth in broad money. Surely, therefore, the Treasury should consider under-funding to make up for the lack of credit growth. Broad money needs to grow, to boost liquidity in the short term before levelling off in years to come. That is the real world that business--small businesses in particular--has to live in. By liquefying the banking system, the lending practices of banks would surely not be so damaging and obstructive as they clearly are at present. Therefore, I urge the Treasury to address that problem, in the face of rising business illiquidity and bankruptcy.

All that having been said, the business community in west Suffolk, in my constituency of Bury St. Edmunds and in the nation at large greatly and without reserve welcomes all the measures that the Chancellor took so boldly last week. We now have in place a strategy for new growth, which I greatly welcome and fully support. 8.50 pm

Mr. George Stevenson (Stoke-on-Trent, South) : The autumn statement can rightly be described as containing very small crumbs of little comfort. It should have been about reversing our industrial and economic decline and establishing a structure for long-term growth. In reality, it continues to destroy credibility and it certainly does not hold out the prospects for an improvement in confidence. The main reason is that the Government have singularly failed to recognise that unemployment is the greatest threat to a return of confidence. Unless the Government recognise that fact, confidence--which is so elusive--will not be generated. Unless the priority objective is employment, not unemployment, we shall continue to suffer.

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The Chancellor's autumn statement and his subsequent contributions contained hardly any reference to unemployment. That had to be dragged out of him by means of questions. Finally, he had to admit that unemployment would continue to rise. What a disgraceful statement to have to make after 13 years of Tory government. The autumn statement provides official recognition of the fact that the Government's philosophy has been completely discredited. We have been asked to believe that what we have to do is to drive down pay and increase poverty, as those elements are vital to recovery. The other element that we are asked to accept in the deadly economic cocktail with which we have been presented is chronic short-termism. We are told that increased capital allowances will be helpful to business and industry, but they are available for only one year. That is unlikely to provide an incentive to stimulate investment. What is needed is a long-term strategy, but no evidence of such a strategy can be found in the autumn statement. The Treasury's economic model makes it clear that any possible benefits from devaluation, allied to the Government's present policies and any growth, if it happens, will be short lived and quickly reversed. The Government seem equally unable to realise that lower pay will depress much-needed domestic demand. Short-termism, incompetence and cuts in living standards will create further economic and social divisions. Apart from the damage that that does, it is irrelevant as we search for a solution to the chronic economic problems that the Government have created. As they continue to stagger from crisis to crisis, the suffering of the British people intensifies. One can detect no reasonable prospect of any reversal of the decline, let alone any prospect of the promotion of economic growth.

The Chancellor told us that he anticipates a 1 per cent. increase in growth next year. If we were to depend upon the reliability of past predictions, we should be looking at another example of an economic blind date. Any talk by this Government of growth and of an increase in jobs borders on the obscene. More than 3 million people are on the dole. The pits closure programme will lead to another 4, 000 job losses in my constituency of Stoke-on-Trent, South alone. Will the Chancellor come to my constituency and explain to those 4, 000 people who are to lose their jobs how the economic miracle will enhance their job prospects?

Another bombshell is lurking in the background. The British people should be given clear notice of what is going to hit them. We can predict with reasonable confidence that the Government will be forced to increase taxes, in one form or another, in the very near future. The public should not be deceived into believing that any other prospect is open to the Government.

The autumn statement was greeted with a certain amount of euphoria by Tory Members. It occurred to me that the shouting and cheering grew in intensity as the Government's credibility fell. I do not know what is going to happen in future. I think we can expect more shouting and more cheering. However, this mini-Budget has been received throughout the country with as much enthusiasm as a sun-ray lamp would be welcomed in the Sahara. It is perceived to be irrelevant and useless.

The Government have no control over the economy. They have no commitment to economic recovery. The plain fact is that they are just not believed. The Tories have cashed in all their credibility. The biggest obstacle to the

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return of confidence are the Government. They pursued dogmatic policies for so long that they caused enormous damage. The Prime Minister told us that any change in the Government's policies would be a betrayal of our future. The collapse of the Government's economic policies, however, has forced them into changing their policies.

It is impossible to believe that the country is now being asked to accept that the policies contained in the autumn statement are virtuous and that they were planned all along by the Government. That is patent nonsense.

It is clear that the only question that remains to be answered is not whether these measures will restore confidence but when--if not--there will be a further retreat by this incompetent Government. No Cabinet reshuffle, whenever that comes, will hide that fact, or con the British people.

The Government have been described as a busted flush. I do not know whether I accept that. Nevertheless, they display all the characteristics of a spare trick at a whist drive. "Trick" is the operative word. The people of this country were subjected to a tragic confidence trick at the general election.

These measures are marginal indeed. They are designed to attract more Tory cheers. They do not address the deep-seated problems that face the country. They are motivated by desperation, not by conviction, and have little chance of success. They expose the disastrous policies of a discredited Government, who have a knee-jerk philosophy that masquerades as economic policy. It is no substitute for a radical new direction based on partnership between government at central and local level, and business and industry throughout the country. We need real investment in training, real investment in business and industry, an urgent job programme and an immediate attack on mass unemployment. Only then shall we see any real prospect of a return to much-needed confidence.

My contention, which will be supported by many hon. Members in the Lobby tomorrow night, is that confidence will not return as a result of the Chancellor's package and will certainly not return while this Government are in office.

8.58 pm

Mr. Mark Wolfson (Sevenoaks) : I welcome the autumn statement because it represents a change in policy. If we had not seen that change, I would have taken a different view. The Government's previous economic policy was proving inadequate because it was based on forecasting that was clearly flawed. As evidence developed that the recession was not over, a change was urgently necessary. It was certainly no part of my own election platform, of our party's election platform or of Ministers' election platforms that we should continue to preside over a continuing recession. This necessary change in our economic policy was clearly overdue. Before the autumn statement and black Wednesday, the emphasis that was so heavily on the control of inflation was no longer making sense to business, to home owners or to the public in my constituency and elsewhere. It was increasingly obvious to them and to many Conservative Members that growth in the economy had to become the new and central focus. That is why, as a result of the autumn statement, we have a welcome for the policy from

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the Confederation of British Industry and from the Institute of Directors. More importantly to me, the policy has got a welcome from those active in business at all levels in my constituency. I do not recognise that there has been a gloomy response to the autumn statement, as Opposition Members have suggested. They may not like it, but my constituents and people in business who have been looking for a more hopeful and positive outlook are pleased with the results.

The measures in the autumn statement are now regarded as realistic and sensible. Those running industry and business may not have got everything that they wanted, but they did not expect to get everything. They realise that the Government cannot get the country out of recession by themselves. The Government can only take certain measures to act as a stimulus.

There is a real change in perception in the country about what the Government are now doing on the economic front. I support the Chancellor in his efforts to hold the level of public spending below the level of growth in the economy as a whole. I share the concern expressed by other speakers today about the level of borrowing. Once I had heard the Chancellor say what his borrowing forecast was for this year and for the years ahead, I no longer expected that we would get two points off interest rates at this moment. However, I hope that the downward pressure on interest rates will continue as a result of a prudent and balanced policy now.

It is entirely proper that the statement should contain a pay ceiling of 1.5 per cent. in the public sector. That leaves room for productivity arrangements and for some recognition to be given to improvements in the operational efficiency of those in the public sector. A nil increase would not have allowed that and would have been a mistake.

Clearly the emphasis on protecting capital investment and increasing capital spending is right. I welcome the emphasis on housing, on roads and on railways, and I especially welcome the commitment to build the Jubilee line extension. Concern has been expressed today about other areas of capital expenditure for London Transport. The tube strike threatened for next week is an appalling example of Luddite mentality. How can it be right to upgrade the capital investment in London's tube lines if those operating the lines are not prepared to make necessary changes to increase efficiency and, under the schemes, increase the earnings of the majority of people employed by London Regional Transport? I hope that the union will see sense and not cause unnecessary difficulties and problems for Londoners next week.

I welcome the new rules for funding public sector projects such as the joint private-public ventures. The advent of leasing arrangements will be particularly helpful for my constituents who commute to London, who are absolutely fed up with low-grade rolling stock. That proposal will provide a way forward to deal with that problem faster than before.

The ideas of charging for motorways and ultimately for electronic charging for other roads are also ways to improve Britain's infrastructure so that it can compete with the rest of the world, and particularly with Europe, without placing an unrealistic burden on public funding.

I question whether the privatisation plans for British Rail, which are very much linked to the level of PSBR and the Government's ability to fund rail infrastructure, are

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likely to be really effective in their present form. Clearly much further consideration will be given to that issue in the House. I ask the Government Front Bench, and in particular my right hon. Friend the Chancellor, to continue to focus on the importance of manufacturing industry. There is a good story to tell here. Manufacturing accounts for 50 per cent. of consumer purchases in this country and 70 per cent. of exports. It employs 5 million people directly and another 5 million indirectly.

Manufacturing industry's record in the 1980s was one of considerable progress. Output has risen by 22 per cent. and productivity by 58 per cent. from the low point in the early 1980s. Our share of main manufacturing countries' exports recovered from a low point of 7.6 per cent. in 1985 to 8.7 per cent. in 1991. Most importantly--and this point is often missed--is the fact that business expenditure on research and development rose 6 per cent. a year in real terms in the decade 1981-91. We are all well aware of the fact that industrial relations were transformed over that period. A gap still exists of between 20 and 40 per cent., on whatever range of measures one uses, between the United Kingdom's ability in manufacturing industry and that of our major competitors. Therefore, much remains to be done. Part of the Government's policy in future should be to ensure that we put manufacturing industry at the top of our agenda, that we recognise and promote the importance of a strong manufacturing base and that that point is taken account of in every area of Government policy.

That is not to suggest that Government can do industry's job, which is to manage, sell, achieve and be profitable. However, I believe that it is important that we learn from the lessons of the past when at one stage it was said from the Conservative Benches that manufacturing industry was not as important to the country as it had been and never would be again. I want to raise the emphasis in that respect. The policies that we are now following are sensible in terms of the future of British industry. I hope that the focus on the importance of manufacturing will remain a fundamental tenet of Government policy in future.

9.9 pm

Mrs. Helen Jackson (Sheffield, Hillsborough) : The Chancellor began his autumn statement by stating the three principles on which it was based. The third principle was his wish to make markets work better. However, he did not make it clear for whom he wanted markets to work better. Did he want markets to work better for the public good, for people who are working, for people who are out of work, for people who are looking for work, or for some financial institutions? It is important to look at the fine print in documents such as the autumn statement. I was made aware of the fine print when I received a letter from the Parliamentary Under- Secretary of State for the Environment, the hon. Member for Hornchurch (Mr. Squire), only yesterday, spelling out the implications of the autumn statement for economic development in inner-city areas. The autumn statement does not reveal that the implications for inner-city areas will mean that urban programme funding is maintained, to use the Minister's word, at £176 million.

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That is a decrease on this year's figure of £237 million, to £91 million for 1994-95, and virtually nothing for the year after that. In my constituency of Sheffield, Hillsborough that means that about 200 economic regeneration schemes ranging from very small schemes such as a £300 toy provision for a mother-and-toddler library to essential regeneration projects to equip the city's media centre will finish next March unless the proposals are changed.

Let us consider the benefit of urban programmes. In my experience, 90 per cent. of urban programme funding is directly felt by people, 37 per cent. of schemes are promoted by the voluntary sector, 25 per cent. of schemes have a positive action element, and a large number of schemes have European partnership funding. The autumn statement told us nothing about how to work with European funds to obtain better regeneration.

On 2 June, in an answer to me, a Minister said that he did not expect the establishment of the urban regeneration agency to have any effect on the future financial provision for the urban programme. We continued to plan excellent schemes and projects to regenerate our economy in Sheffield. After such a statement, I did not expect to find that, at a stroke in the autumn statement, the urban programme in major cities had virtually been aborted. The excuse is that it is aborted in favour of £20 million, which is a mere quarter of the money that has been cut and which has to be matched by capital receipts this year. Have Conservative Members tried to sell a house lately? There is not an enormous market. The money will not be forthcoming. The fine print in the autumn statement will be disastrous for poorer city areas.

I urge hon. Members from urban areas to consider the detailed implications of the autumn statement and put pressure on the Government to ensure that their policies work for everybody in city areas, not just for the few.

9.14 pm

Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury) : I, too, welcome the excellent autumn statement of my right hon. Friend the Chancellor. I also pay tribute to him for the two excellent reforms that he has introduced. First, he has planned an expenditure total and then worked out which Departments would have what proportion. Secondly, this will be the last autumn statement in its present form. That is a long overdue reform. In future the autumn statement will be made and tax-raising measures will be announced at the same time at the end of the year.

My right hon. Friend's planned expenditure total of £244.5 billion is a 7 per cent. increase over last year, on top of a 10 per cent. rise the year before. So any talk of cuts from the Opposition is absolute nonsense. That is why Opposition Members' comments were so empty last Thursday. All the wind had been taken out of their sails, because all the budgets had been maintained.

However, there is a danger in the planned expenditure total. It represents some 45 per cent. of gross domestic product and a public sector borrowing requirement of about 6.5 per cent. this year. If some of the forecasters are right, the PSBR could well rise to 9 per cent. in the next two years. The PSBR was zero in 1990-91, so this year's PSBR represents quite an increase. My right hon. Friend the Chancellor will have to pay careful attention to it.

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In order to make the public expenditure round work, my right hon. Friend had to save some £1.5 billion by putting a curb on public sector wages. Approximately 5 million people are employed in the public sector. That has fallen from 5.9 million a year ago, and I hope that the trend will continue.

My right hon. Friend has direct control of about 3.5 million of those 5 million employees. The remaining 1.5 million are employed by local authorities. If the local authorities wish to hold their council tax to a reasonable amount and preserve their budgets, it would be very much in their interests to hold wage increases for their employees to about 1.5 per cent. in forthcoming wage rounds. There is a great deal of talk about holding down wages in the public sector. However, public sector employees mostly have protected and generally well paid jobs. They have plenty of fringe benefits. Many of them have pensions linked to inflation. But, above all, they have a job, and in that they are an awful lot better off than people in the private sector who have lost their jobs. Surely it is right that a sector which has enjoyed real increases in wages in the past 10 years should at this stage of the economic cycle take part in the economic stringency which so many employees in the private sector have had to endure.

The autumn statement has put us well on the way to recovery. We have a reduction in the value of the pound against the deutschmark and the dollar of some 15 per cent. That will be of major benefit to our exporting companies. Much more importantly, we now have lower interest rates. They are down from 9 per cent. a few weeks ago to 7 per cent. I hope that my right hon. Friend will be able to reduce them further, to 6 per cent., before Christmas.

Even at the present rate, interest rates are at their lowest since 1978. We have lower rates than any of our major European partners. If that will not stimulate confidence and recovery in the consumer market, I do not know what will.

I and my constituents in Cirencester and Tewkesbury--especially the business men--congratulate my right hon. Friend on his measures to bring about investment in the economy next year, and on his imaginative statement.

9.18 pm

Mr. Andrew Smith (Oxford, East) : We have had an interesting and wide-ranging debate, as befits an autumn statement which was dressed up as a mini-Budget. As the Chancellor spoke, it became clear that the statement had a great deal more to do with reviving his reputation and that of the Government than reviving the British economy. What is more, it failed on those counts. Had the Chancellor been here to listen to all the contributions in the debate, including those from his side, he would have heard Conservative Members on the Benches behind him voicing a sombre tone, which did not reflect the exuberant self-congratulation with which the Government tried to launch the mini-Budget.

The right hon. Member for Shropshire, North (Mr. Biffen), who is always an interesting, and frequently a sombre, contributor, set great store by devaluation. He and other devaluationists--including any Opposition

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