House of Commons Hansard Debates for 19 Nov 1992

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cent. of the purchase price. That was not an investment incentive ; it was an investment disincentive. Those who invested in plant and machinery lost money.

I am also delighted that the Chancellor has restricted the measure to plant and machinery. I have repeatedly argued for that as well. Much so-called investment is not real investment at all : it may be spent on office furniture and fancy reception areas. Investment in plant and machinery is the closest that we can get to a definition of true investment. I should, of course, have been happier if the Chancellor had increased the allowance to 60 or even 70 per cent. There was a time when free depreciation operated.

I understand that the allowances are to be time-limited, but I do not believe it. I think that they will be built into the new sensible approach to manufacturing industry, and will become a permanent memorial to the Government's change of attitude. At least they are now facing the realities. It is a pity that this is happening during a recession, because we shall not see the desired levels of investment ; but at least something is being done.

I was pleased to note that Howard Davies of the CBI was inching back to a better understanding of manufacturing industry. I also welcomed the formation of the National Manufacturing Council. Its members, however, cannot forget their past : they still feel constrained to make a bow to their past political errors. They talk of the record of the 1980s, and state that manufacturing made considerable strides then. That is obvious nonsense. I lost 33 per cent. of my companies between 1979 and 1981. The council also mentions progress since 1985, but its views sound like those of Tory politicians rather than representatives of manufacturing industry. As I have said, I lost one third of my companies, and I feel badly about it. They were not old-tech companies ; they were medium-tech companies of the kind that can be seen in France, Germany, Japan and indeed every country in the world. Those companies went bust and closed their doors, and it is possible that a further 10 per cent. will go.

The country as a whole has experienced a similar decline. These are serious matters : the narrowness of our present industrial base is one of the country's main problems. We have an horrendous balance of payments deficit, in the middle of the deepest recession since the war. Along with that deficit--a deficit of historic proportions--we are experiencing the miserable failure of our export performance. We must ask why that is happening. In the past the two developments would never have coincided, but we have grown accustomed to experiencing a balance of payments deficit in the midst of a slump.

Sir Terence Beckett, the former director general of the CBI, once called for a bare-knuckled fight. He did not like the Government's attitude to the slump between 1979 and 1981. He came from manufacturing industry and realised the damage that was being done to it, but he did not realise that powerful importers and financiers were members of the Confederation of British Industry. Conservative party voices had high places in the CBI. Unfortunately for manufacturing industry, therefore, Sir Terence was soon brought to heel. That was very sad. He understood manufacturing industry. He thought that the CBI represented it, but it did not. At least the CBI is making up a bit for that now. Howard Davies and a few other voices are moving in the right direction. It is up to us to encourage them.

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British producers have been helped by the depreciation of the pound. It was fixed at an absurd level. I should have preferred the pound to be somewhat lower than it is now against the deutschmark. Failing a revaluation of the deutschmark, it is a pity that we and the other European Community countries found it impossible to get together and devalue our currencies so as to force a revaluation of the deutschmark. That cannot be done, though ; the differences between us are insuperable.

I have always been and I am still in favour of a fixed exchange rate. Wildly fluctuating rates of exchange are a barrier to competitive pricing. We cannot price finely when the rates are going up and down every day and every week. There has to be a readjustment of exchange rates every two or three years, though. Even if the readjustment is 10 per cent. or 15 per cent., it is less expensive than the violent fluctuations that force manufacturers to fix high prices in order to cover their profit margins.

At one time it was possible, depending upon whether one was importing or exporting, to hedge in the forward market. If one sold a batch of goods that went on a certain ship on a certain day, one could hedge perfectly. We cannot do that now. The home and the export markets are much the same. People buy over a long period, then cancel, or hold one up. If one hedges against that, one may lose money on one's currency as well as losing money on one's sales. Therefore, manufacturers cannot operate in that way. We must therefore accept the need for fixed exchange rates that will have to be readjusted every so often. We cannot fix the exchange rates for ever. Capital programmes take time to come to fruition. The new deal in the United States resulted in the great Tennessee valley authority, but it was several years before they began to feel the effects. We are experiencing the same problems. It takes time before people can be employed. However, we can do something about housing starts. We can free the capital resources held by local authorities, though not enormously. I have enough of the Treasury mentality still in me to know that one cannot throw those resources away, but we can do something in that direction.

We can do something even better in the case of housing repairs. They get people working next week. There are jobs that I could hand out straight away to people who come to my advice bureau. I am sure that every other hon. Member is in the same position. It is a pity that we have not turned our attention to that aspect.

As for the international dimension--GATT and Maastricht--the economic aspects of Maastricht do not bother me that much. I do not believe that monetary union will ever work, so I am more relaxed about it than are some of my colleagues. Does any hon. Member really believe that Italy will fit in with a German-dominated, fixed and unalterable economy? I just cannot see it. It is dreamland. I have seen the results of some of the intervention policies in relation to farm subsidies.

In one instance, Germany had about 500 cases of fraud each year ; we had about 600 cases ; and Italy had about three. There are differences between countries. Anybody who thinks that we can merge countries together just like that is mistaken. I am not bothered about that, however : it will not happen. It is a pity that all the European Community countries will not consider the Bill in Committee. Committee stages expose such nonsenses. I am sure that they will be exposed during our Committee stage.

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Mr. Budgen : Does the right hon. Gentleman appreciate that he has touched upon one of the many arguments used by those in the Conservative Whips Office--"Vote for the treaty," say they. "We know that it's a complete nonsense, but if you're right in saying that it's nonsense, it will break up and it won't have the effects that you say it will have". Is it not a fact, however, that to vote for nonsense probably imposes upon the British people the risk of a return to the over-tight credit that they have endured for the last two years, and that, before it breaks up, a great deal of damage will have been done to our fellow citizens?

Mr. Sheldon : My feeling, although it is not so strong as it is in relation to my previous comments, is that we shall not get that far. We can see the cracks now. We shall not need to wait very long. The danger about bothering about that is that we are not bothering enough about what is even more important. The Prime Minister was right to draw attention to the difference between Maastricht, which is a nonsensical problem, and the real problem of GATT and the equally great economic problems of Russia and the eastern European countries. It may not be long before they cease to be economic problems. They could become political problems, and even military problems. It is wrong to concentrate on these preoccupations and to ignore the greater problems that could yet face us.

The return to growth promises very little. It also depends upon the Government's incomes policy--compulsion in the public sector and exhortation in the private sector. The first will not work very well. The second will be a complete failure. The Government talk about the failures of the past. They need to think about the failures of the present. The autumn statement suggests that they have quite a bit to learn.

6.6 pm

Mr. James Hill (Southampton, Test) : It has been extremely interesting to hear the old and the new economic voices of the Labour party. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) made a strong case for manufacturing industry. I suppose that he is unaware of what is happening in the far east, in the ASEAN countries, and I suppose that he is unaware that China is building hundreds and hundreds of factories, using local labour. British, Hong Kong and Taiwanese companies are investing in China and are producing exactly what the right hon. Gentleman looks back to--almost to the old Commonwealth preference days when it would all have come right again.

I have visited the Shanghai Tool company. I do not know whether the right hon. Gentleman has visited it. It is an enormous conglomerate. It makes tens of thousands of tool kits, spanner sets and all the other goods that we import. If we went into any hardware shop, we should find that nearly 80 per cent. of the goods on sale there come from the far east. They certainly come from Taiwan. They certainly come from the Shanghai Tool company. Apart from our own peripheral problems, we shall be forced to compete with giants, in manufacturing terms. Sometimes we lose sight of what is happening in the rest of the world.

This debate ought to be called a confidence debate. Our society needs to place more confidence in our banking industry, our investors and our shippers. Anyone listening to Opposition Members today would have gained little

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confidence from them and would not immediately have rushed out to phone their broker and say, "Buy me into UK Limited."

Years ago, we had the British disease in manufacturing, but now we have despondency. We cry immediately that nothing will work out. I view the autumn statement as a good step towards restoring confidence in the private sector. Shadow Ministers have a great responsibility to advance their party's policy, but they must ensure that they do not denigrate everything that this House or the other place is doing. That is a road to disaster.

I do not think that everyone needs to have run a business to understand business. We are more a university of business than a house of business and sometimes our theories go a little awry. Some years ago, I tabled written questions on joint ventures between the public and private sectors on road and bridge construction. I am pleased that at long last we are moving strongly in that direction. That is exactly what is happening in China, Taiwan and Singapore, and it is a good example to follow.

One of the best confidence-boosting measures in the autumn statement is that designed to deal with the problems of the housing market. Once again, it has been denigrated as being too little, too late, but £750 million has been allocated to buy unoccupied homes which are falling into disrepair. We have some magnificent housing associations, and I can think of two in my constituency--Hythe and South Bank housing association and Swaythling housing association. They will be eager to obtain some of those millions, with which they could buy quite a number of empty properties that are being vandalised. In the short term, it will do much to house homeless people and to reduce council lists.

Mr. George Howarth (Knowsley, North) : It will not work.

Mr. Hill : The hon. Gentleman obviously did not listen to the first half of my speech : we must have some confidence, and £750 million is not an insignificant sum.

Mr. Howarth : But not false confidence.

Mr. Hill : I eagerly await the hon. Gentleman's speech, which will be very depressing.

The issue of councils being able to spend capital receipts has been running for some years. It became apparent during the election campaign that councils could spend 25 per cent. of their receipts from sales, but now they will be able to spend 100 per cent. That is a good move, but not all local authorities have been assiduous in selling their council house stock. Some of them have made it almost impossible for tenants to buy, and we had to enact legislation to force them to sell. Tremendous incentives are now on offer to councils which have not been politically inspired to sell council houses.

My right hon. and hon. Friends in the Treasury could consider the provisions on the purchase of capital equipment. Increasing allowances from 25 per cent. to 40 per cent. is a bit mean. Manufacturers are looking forward to selling JCBs, tractors or anything made in the United Kingdom and to a higher allowance than 40 per cent. Perhaps that could be considered in the next Budget. I am pleased to see that an extra 8 per cent. has been allocated to further education colleges, but we now have a problem with primary schools. In Hampshire, 72 primary

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schools are consulting on whether to close, merge or continue. At little cost, some of them could be turned into joint primary and middle schools and could be used to the benefit of the community. The community is adapting to primary school policies, and volunteers have much to offer. Sometimes the most run-down areas have the most enthusiastic volunteers, but a little more expenditure should be allocated to primary schools.

We have honoured our manifesto commitment to pensioners and families. That was surprising, given the despondency about the Government's proposals.

We must deal with the desperate state of our communications infrastructure, which is as essential to industry as industry itself. If a factory incurs extra cost in getting its products to a port or airport, or has to use a long winding route, that increases costs. I hope that I have not spoken for too long. We must ensure a successful conclusion to the GATT round. I shall mention that to Delors and Mr. Mitterrand, who are playing a very dangerous game. Until they come round and see the benefits of GATT for the whole world, rather than a few hundred French farmers, we shall be in difficulty. It appears that there will be a push to get a decent settlement to the GATT talks, but I dislike the nationalistic approach to world problems.

6.18 pm

Ms. Janet Anderson (Rossendale and Darwen) : The autumn statement represents the vacuum at the heart of the Government's policy--the gap between what Ministers promise at the election and what they do when they are re-elected. It is a question of trust, and the Government can no longer be trusted. As my hon. Friend the Member for Dunfermline, East (Mr. Brown), the shadow Chancellor, said yesterday, it is more a matter of misrepresentation to the people than representation of the people.

The Chancellor, who claims to favour capital investment, has cut the capital programme for London Transport. Much-needed renovation to lines that cause misery to London commuters is to be cancelled, and he refuses to provide urgently needed funds.

Mr. Mark Wolfson (Sevenoaks) : Will the hon. Lady give way?

Ms. Anderson : I will not give way at this stage.

The Chancellor refused to provide urgently needed funds for the electrification of the west coast main line, which is vital to the economic regeneration of the north-west and is of considerable interest to businesses and people in my constituency.

I have to tell the Chancellor and other Conservative Members that the business men and women of Rossendale and Darwen view that omission with considerable concern and regret. It came as no surprise to me recently to receive a letter from a business man in my constituency who told me that, although he was a former Tory voter--he voted Conservative at the general election--he would vote Labour from now on. His letter ended with the words :

"Never has so much harm been done to so many businesses by so few".

The Chancellor talks about giving the construction industry a kick start, yet he refuses to allow local authorities to spend the £5 billion of existing capital receipts to fund new housing. The builders in my constituency will not forgive him for that, either.

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The Chancellor talks about growth, and the need to boost consumer confidence, yet he imposes a 1.5 per cent. ceiling on pay increases for some of the lowest paid workers in the country.

Meanwhile, the Secretary of State for Employment--I am sure that by rights he-- [Hon. Members :-- "She."]--should now be renamed the Secretary of State responsible for unemployment--proposes to turn the screw further by abolishing the wages councils.

Devaluation has cut the living standards of ordinary people, and so will the new incomes policy of a Government who are supposed to believe in the free market. While Lord King awards himself a pay rise of no less than £1,000 a week, those who work in the public sector are being asked to shoulder the burden of the Government's economic incompetence. According to the Government's logic, the cosseted privileged public sector workers must take their fair share of the pain of the recession. I suggest that Ministers tell that to the 3, 500 staff who have lost their jobs in the national health service since the general election.

We are told that nurses can afford to take what amounts to a pay cut because they have greater job security than workers in the private sector. If that is true, the Government should guarantee that there will be no more nursing redundancies. Why should nurses take the blame for the Government's failure? Yet that is what has happened. The council tax is bad enough, but the tax on nurses, on whom we rely for our health care, is not only morally reprehensible but unjust and shortsighted. It is indicative of the Government's short-term approach to everything.

Another example of that misguided philosophy, hidden in the small print of the autumn statement, is the postponement of nurse prescribing. The general secretary of the Royal College of Nursing says that nurses have suffered a double blow in the autumn statement. Not only do they face a pay cut, but their long struggle to win prescribing rights has been swept aside in favour of short-term cost cutting.

The Department of Health's research into the cost of nurse prescribing proves it to be cost effective, and recognises that patients would be treated faster and nurses would gain increased job satisfaction if nurse prescribing were introduced. The Government fought a general election on a pledge to introduce nurse prescribing, and the Secretary of State for Health has made several commitments to the scheme, including one to implement it by October 1993. The Conservative manifesto said :

"We will introduce powers for nurses to prescribe where appropriate".

The Secretary of State said in the House on 3 May that the Government were fully committed to the idea of nurse prescribing. In a speech to the Royal College of Nursing congress on 22 April she said :

"Nurse prescribing makes sense. It is a proper recognition of community nurses' skills. We will implement nurse prescribing by October 1993."

In November 1991 the Department of Health published a cost benefit analysis of nurse prescribing which found that the savings that it generated almost exactly offset the cost of implementing and running the scheme, even before a value had been placed on the improved service to patients.

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The declared aim of the National Health Service and Community Care Act 1990 was to put patients' interests first. Similarly, the citizens charter and patients charter are based on that philosophy. If the Government are serious about putting patients first and delivering an effective health service, they should reconsider their decision to postpone nurse prescribing. 6.25 pm

Mr. Julian Brazier (Canterbury) : I join other Conservative Members in welcoming the autumn statement as an important step in the right direction, but I shall also sound two possible notes of caution. The first is that there is still a danger that the money supply may be too tight. The second is that, in common with several of my right hon. and hon. Friends, I am concerned that the fiscal side is in danger of becoming too loose. The combined effect of those two factors could be a double squeeze on the private sector--which, after all, generates all wealth.

Two monetary features of my right hon. Friend the Chancellor's public spending announcement are welcome. The first is the 1 per cent. cut in interest rates. The second, and the more important, is his commitment to a monitoring range for broad money--M4.

After a third successive cut in interest rates and a substantial devaluation against all other currencies, it may seem churlish to suggest that the money supply may still be too tight. None the less, if we look around us at the economy, all the indicators are still of tight money, with the solitary exception of the narrow money measure MO. This morning's figures confirm that M4, which has fallen from a peak of more than 18 per cent., remains at about 5 per cent. I believe, as does the Bundesbank, that M3 is a better measure of economic output--and that has fallen from 22 per cent. to about 3 per cent. now.

The anecdotal signs in the economy, too, still suggest that money is too tight. I welcome my right hon. Friend the Chancellor's initiative with the banks. I believe that bankers are being thoroughly greedy at the moment, but we must recognise the fact that, as well as being greedy, they are frightened.

The situation in the motor industry is definitely improving ; yet Ford has recently announced that it is substantially increasing its payment period to small suppliers in stages from 30 days to 120 days. That, too, is a sign of the tightness of money in the economy. What one company is doing is reflected in many others.

A third factor which suggests that money is too tight is the kind of national balance sheet analysis carried out by people such as Tim Congdon--

Mr. Matthew Taylor (Truro) rose --

Mr. Brazier : I will give way in a moment.

Such a balance sheet analysis shows, for example, that the ratio of mortgage debt to the value of the nation's housing stock is at an all-time high. The situation is similar in the commercial property sector, and that is especially important to the banks.

I am certainly not a gloom monger. I firmly believe that the measures announced by my right hon. Friend last week are exactly what we need to move us on towards recovery.

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However, I suggest that in at least one respect--on the residential side--there is a danger that the property market may go further. There are two reasons for that, the first of which is historic. The ratio of house prices to earnings is now 3 : 1. It is important to look back to the last sustained period of low inflation for a comparison, because I believe that the Government have cracked inflation, so I shall look back to the decade from the mid-1950s to the mid-1960s. The ratio then was exactly 3 : 1. Because that ratio is a lagging indicator, in a recession, especially in the latter portion of a recession, one would expect it now to be rather below trend. So there are historical reasons for believing that house prices may fall further.

That reason is reinforced by a geographical fact : for the first time in its history, this country is about to have a land border--via the channel tunnel. The extreme disparity between house prices in south-east England and those in north-west France cannot continue to be as wide as it now is. Several of my constituents are already buying second homes, or even retirement homes, across the channel. I suggest to my hon. Friend that it is possible that the housing market will have one further stage of readjustment to make and that that may result in further monetary tightening as people become less willing to spend as a result.

I do not suggest for a moment that we should try to persuade water to run uphill on house prices, but I believe that there are two respects in which it is important that we keep our eye on monetary policy. First, my right hon. Friend should think of tightening the monitoring range for broad money from a monitoring range to a firm target. If we find that M4 moves below the 4 per cent. bottom, we should then be willing, whatever is happening to the exchange rate, to loosen the money supply.

Secondly, and in some ways more importantly, we must look again at our funding policy. My right hon. Friend the Member for Worthing (Mr. Higgins) was right to suggest that borrowing some of our money from abroad had a welcome loosening effect on monetary policy, which shows up in this morning's figures. I suggest that we should be willing to do not only what we did 10 years ago, but also what the Americans are doing now through the Federal bank : we must be willing, up to a certain point, to underfund. That is a way in which to get more liquidity back into the banks.

The fear of a £40 billion policy of gilt-edged sales next year is a significant factor in the tightness that we find in the market now. Long- range interest rates did not fall at all last week when base rate came down. Long-term interest rates actually marginally hardened, and they are now about 8.5 per cent.

That point brings me naturally to fiscal policy, the other side of my speech. As I stressed, we should underfund. However, no serious economist of any school believes that we could monetise the whole of next year's prospective deficit. Like others of my hon. Friends, I feel that we must be willing to consider some very unpalatable and painful choices in the medium term. We should plot a path over the medium term of five or six years back to a balanced budget and we should firmly commit ourselves to that path.

We must be willing to look at some unattractive choices, on both the tax and spending sides. I mention three items on my own shopping list on taxation, none of which would be very painful and each of which should be

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considered. First, we should end the anomaly whereby married couples can opt to have it both ways. Married couples can opt to be taxed separately and to claim the married person's tax allowance. I am all in favour of choice, but it seems wrong that a couple should be allowed to choose to have it both ways when public borrowing is so stretched.

Secondly, with the welcome measure to abolish car tax--a thoroughly sensible measure to assist a very important industry--it would be reasonable to complete the sensible move towards full fiscal neutrality on cars as a perk. My right hon. Friend the Chancellor has already gone a long way towards that. He should complete the move in next April's Budget.

Thirdly, we should abolish the 50 per cent. discount on council tax for second homes, if they are genuinely second homes. There should, of course, be sensible safeguards for those in special circumstances, such as those who have had to move although the sale of their original residence has fallen through.

One area on the spending side in which I would not suggest further cuts is defence spending. That may come as no surprise to my hon. Friend the Financial Secretary. I make two points. First, in a single decade--from the mid-1980s to the mid-1990s--on our present plans we shall have cut defence spending as a proportion of GDP from 5.2 per cent. to 3.2 per cent. Even if the international changes were as rosy as we thought they were when "Options for Change" was launched--I am not convinced that the international outlook is especially rosy--that is still a massive reduction in spending. It is far larger than the planned reduction in manpower. I suggest that further cuts in defence spending beyond our present plans would be unwise.

Secondly, it is now the defence procurement budget, almost alone of the various areas of Government spending, which directly and immediately reaches forward into manufacturing industry. When companies have short order books in other areas, it is potentially economically costly to cut defence orders. Such a cut could undermine the design bases of the companies involved.

We must face the fact that there will have to be some cuts on the spending side. I shall mention three areas that we could consider. The first is one aspect of higher education. I am a strong supporter of the increase in opportunity for higher education that we have provided. Participation in higher education has doubled. However, there is waste in one area of higher education. We have an extraordinary system--I do not know of any other country which has such a system--of sending the majority of our students away from home to study on courses, hundreds of miles away in some cases. In most other countries, the majority of people study at their local university, so neither taxpayers nor parents face the cost of accommodating them elsewhere.

The second area that we should consider is the legal aid budget. I welcome the modest step that my right hon. and noble Friend the Lord Chancellor has taken. When I hear some of the howls of outrage, I am reminded of the old adage that hell hath no fury like a vested interest masquerading as a principle. The legal aid budget has doubled in four years and a 10 per cent. real increase is planned in each of the next two years, so we should look harder still at it. We should consider reducing the scope of legal aid as well as eligibility on which we have started.

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The third area is spending on local government. We should ask ourselves whether we can justify each of the extra duties imposed on local government over the past few years. Many of them are welcome, but do we really need all of them? Last week, I came across one small example involving £30 million to £40 million a year. How could we have agreed to a new arrangement for the typing of Crown prosecution service documents which will cost an extra £750,000 in Kent alone next year? We must go through the fine print of such arrangements. We must be willing to take every step that we can, in little bits and in larger bits, to get the fiscal deficit down so that we can see a return to a balanced budget within five or six years.

I end where I came in. In a number of ways, the autumn statement is the package that we need for recovery. We have seen a substantial easing of monetary policy, although I should like to see us go further. We have seen a return to a monitoring range for broad money, and we have seen a number of welcome individual fiscal measures which will help vital industries towards recovery.

If the Government develop their policy further, we shall see a return to growth--sustainable growth--over the next year or two. It will be non- inflationary growth. We have beaten inflation. It is right that the clear, single objective of non-inflationary growth has been the Government's consistent objective since 1979.

6.38 pm

Mr. Giles Radice (Durham, North) : My speech will be mercifully short because of the weakness of my voice. Autumn may be a season of mists and mellow fruitfulness, but in the House of Commons it is a time of sniffles and hacking coughs. I am no exception.

I suggest that the autumn statement may be a turning point. Sadly, it is not a turning point in the nation's economic fortunes. As the autumn statement itself shows, the economy is still in profound recession, with rising unemployment, falling investment, and a large and growing balance of payments deficit at a time of recession, which must be very worrying.

It is, however, I believe, a turning point in the Government's approach to fiscal policy, and here I want to refer to the area about which the hon. Member for Canterbury (Mr. Brazier) was speaking, although perhaps in a rather different way. Many commentators have concentrated on devaluation and the ability to reduce interest rates since we were forced out of the ERM. But of course there is little new about this. All that has happened is that we have returned to the floating world of the 1980s, a world which I thought had very grave disadvantages.

What is different in the autumn statement is that for the first time since 1979 the Government are overtly using fiscal policy in what can be described as a Keynesian way. Of course, Ministers are denying that this is the case. The Chancellor continues to say, as he said to the Select Committee on the Treasury and Civil Service, that he does not believe in kick-starting the economy by "some artificial stimulus or device." This new approach has been forced on the Government by the depth of the recession, and of course the measures that the Government have adopted are too little and too late. Even so, most people would see measures such as the £750 million to buy empty houses, the temporary freedom of local authorities to use future

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capital receipts, the capital allowances for industry and the removal of the tax on motor cars as stimuli or devices to assist recovery.

Anybody who really believes that Tory economic policy is a seamless web, which is the line that is often peddled before our Select Committee, should compare the 1992 autumn statement--which I agree is a sort of mini-Budget-- with the Budget of 1981. In the March Budget of that year the Government drastically tightened the fiscal stance even though the economy was in deep recession. The then Prime Minister's economic adviser called it the biggest fiscal squeeze of peacetime. We have been reminded by my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) what that did to industry. The 1992 autumn statement, with its £37 billion public sector borrowing requirement, its automatic stabilisers--I agree with the right hon. Member for Worthing (Mr. Higgins), who was such a good Chairman of our Select Committee, that the automatc stabilisers are fully working--and, of course, the so-called recovery package, modest and inadequate though that is, is totally different in tone and emphasis from what happened in 1981.

Mr. David Willetts (Havant) : Does the hon. Gentleman not recognise that in the circumstances of the 1981 Budget we were looking at inflation of over 10 per cent.? Does he not accept that now, with inflation below 4 per cent. and still falling, it is a very different economic situation?

Mr. Radice : I agree that it is a different economic situation to this extent : that the recession is deeper, probably, and has lasted much longer. Therefore, it is right that we should be doing something about it.

Mr. Budgen : Since many hon. Members are concerned about the comparison between 1981 and 1992, there is a further difference. The period before 1981 had been marked by very considerable increases in the money supply and there was no doubt that for quite considerable periods credit had been much too lax. On the other hand, the period before today has been one in which credit has been much too tight.

Mr. Radice : I do not want to intervene in the grief of the monetarists because I do not really believe in all that stuff, as the hon. Gentleman knows perfectly well.

Unfortunately, though it may be different in tone, it is unlikely that this package will be enough to bring about the recovery that we all want. The Chancellor has pointed to interest rate reductions as his main weapon in bringing about recovery, but it will not necessarily do the trick. We have only to look at what has happened in the United States, where interest rates are much lower than they are in the United Kingdom, yet, even so, there is not a full recovery taking place there.

Anybody who wants to see what has happened to our debt ratio need only turn to chart 3.8 on page 65 of the autumn statement. It really puts the problem in relief, and it is a very severe problem. Lord Lawson, who was, of course, the chief architect of our financial liberalisation, has admitted that he underestimated the impact that it was likely to have, and it has brought this debt problem with it. The question is whether the reduction of interest rates will be enough to stimulate consumer spending. I do not believe that it will and I do not think that we can risk it.

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That is the case for Government action and for a more significant package than the Government have brought to the House in the autumn statement.

The Government have missed a tremendous opportunity in one area. They should have used all the existing capital receipts so that local authorities could go ahead with investing in useful projects. I believe that the package should be paid for by borrowing at this time. In a slump of this scale and length, the proper reaction is the Keynesian one of deficit Government financing.

I share, however, the worry about the size of the PSBR ; it is £39 billion, I think, in the coming year and it could go up to £50 billion the year after, which would be 7 per cent. of gross domestic product, according to the Grey Book. I agree with my pair, the right hon. Member for Shropshire, North (Mr. Biffen), that we cannot allow the PSBR to continue at that level for any length of time. We see only too clearly the consequences in the United States not only in inflation but of the fact that, if the PSBR continues at a very high level for a long time, the Government lose their ability to act, their flexibility.

That is why I agree with the right hon. Member for Shropshire, North and believe that there is a case for increasing taxes, not necessarily in the next Budget but when the economy is on the path to recovery. We have to use all the weapons at our disposal and it is about time the Conservative party stopped its ideological objections to putting up taxes, even direct taxes, because they may need to do so and they should face up to that.

Mr. Higgins : The PSBR that the hon. Gentleman is talking about here is the one before the automatic stabilisers have worked through. He needs to place his worries about taxation against the background that we are back in a situation where they have worked.So I do not share the view expressed by my right hon. Friend the Member for Shropshire, North (Mr. Biffen) yesterday about taxation.

Mr. Radice : The right hon. Member for Shropshire, North wanted it in the next Budget ; I do not want it in the next Budget. I want recovery on the way before we start operating. The right hon. Member for Worthing is, of course, right that once there is a recovery that in itself improves the PSBR, because expenditure on unemployment, one hopes, begins to come down and the tax take increases.

I also believe that there are very considerable problems with Keynesianism in one country, as we saw in France in 1981-83. There is always a danger if one expands one's economy when others are contracting theirs. That is all the more true in the United Kingdom when we have this enormous structural balance of payments deficit. I was very alarmed to see on page 65 of the autumn statement that the Government, or at any rate their forecasters, are predicting a further rise in import penetration. That must be extremely worrying and it suggests, as the Confederation of British Industry has pointed out, that our manufacturing base may now be too small, so that if we start to expand we shall suck in imports from abroad.

That makes the case for a European-wide programme of infrastructure projects, as suggested by Mr. Jacques Delors, but turned down by the Prime Minister at the Birmingham summit. I hope that the right hon. Gentleman will take a more sensible attitude at the Edinburgh summit. Certainly there is a case for European-wide

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