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recovery. If we expand alone, our balance of payments deficit could become so large that it would be impossible to finance, and that must be a serious problem.

The autumn statement shows that old-style monetarism and primitive laissez- faire economics are out, and I am glad about that. There is a new agenda, in the United States and elsewhere, and that new agenda implies a more active role for Governments in economic affairs. In the autumn statement, the Government have moved halfheartedly in that direction. But their heart is not in it and, over the next few years, the country will turn to those who really believe in more purposive government--the genuine article, as represented by my right hon. and hon. Friends on the Opposition Front Bench.

6.51 pm

Mr. Michael Ancram (Devizes) : Although I may not agree with everything that the hon. Member for Durham, North (Mr. Radice) said, I think that we would all agree that his new voice of mellow fruitfulness suits him ; we hope to hear it again in the near future.

The debate to which I have listened over the past two days has been one of contrasts--not least that between Conservative Members' optimism and the considerable gloom and doom of the Opposition. I find it difficult to relate the attitude taken by the hon. Member for Peckham (Ms. Harman) to the reaction that I found in my constituency last weekend.

Some time ago, when I asked Honda and Rover in my constituency what they wanted the Government to do, they told me that it would be helpful if the car tax was abolished. That has happened in two phases, and the necessary legislation is now before the House.

Given that jobs are at stake in this essential industry, it is surprising that the hon. Member for Peckham should say, disparagingly and somewhat dismissively, that all that the Government had done was to take £400 off the price of an average car. Car workers in my constituency welcome the change because it makes it more likely that they will keep their jobs in future. I should add that, although £400 may not be much to the hon. Lady, an awful lot of people will regard it as the deciding factor in considering whether or not to buy a car. Some Labour Members' suggestions show them to be quite out of touch with reality.

One or two hon. Members who have spoken have touched on the Government's attempt, which I warmly welcome, to use public sector money to increase private sector investment. That affects a number of areas, the first of which is housing. The Chancellor has told us that £750 million will be made available for the purchase of repossessed houses. I welcome that, because I believe that anything that firms up the housing market must, in the long run, be good for housing. I am sure that I am not alone in knowing of constituents who are holding back from buying a house not because they are frightened because they think they may not have the money to pay the mortgage, but because they think that if they wait another two or three months the price will have fallen ; it becomes a self-fulfilling prophecy. Any measure which firms up the housing market will bring purchasers back into the market and give it the boost that the construction industry and housing in general so badly need.

I hope that my hon. Friend the Financial Secretary will talk in detail to the building societies and housing associations. There is a fear that, as the housing market


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recovers, a case may be made in the building societies for repossessing houses which are not being repossessed at present because their equity value is too low. That would totally undermine everything that the Government seek to achieve. I hope that my hon. Friend will make that point to the building societies.

I hope, too, that my hon. Friend the Financial Secretary was as disturbed as I was to hear suggestions this morning that housing associations would not use the £750 million to buy repossessed houses but would buy new ones. That will not produce the desired effect on the housing market. I hope that my hon. Friend will tell the housing associations, through the Housing Corporation, that the Government have provided the money for a particular purpose. If we are to make money available, we must ensure that it is spent in the most effective way.

I strongly endorse the proposal in the autumn statement to crack open, if not completely abolish, the so-called Ryrie rules. If ever rules prevented public sector finance increasing private sector investment, it was the Ryrie rules. As my hon. Friend the Financial Secretary knows, I have campaigned for some time for their removal, so I welcome that change--even though, at the moment, it does not go far enough.

I was delighted to read the remarks of my right hon. Friend the Chancellor at column 996 of Hansard :

"I have asked my hon. Friend the Financial Secretary to carry forward and develop our policy in this area, encouraging the private sector to bring forward proposals and to help us identify any obstacle which frustrates its success."--[ Official Report, 12 November 1992 ; Vol. 213, c. 996.]

There is enormous scope for private sector investment, and I hope that my hon. Friend the Financial Secretary will explore it to the full. Certainly in respect of joint ventures, where the risk can be reasonably shared, there is enormous scope for the Government and the private sector to work together on projects which will earn in future and which, in the end, will show a return not only for the private sector but for the public sector.

I was interested to hear what the Chancellor said about leasing, which also has great potential--not just leasing on an ordinary rental basis but leasing on hire purchase terms. Some years ago, it was suggsted that prisons, for example, could be built by the private sector and paid for by the Government on an annual basis over, say, 21 years. That project was prevented by the Ryrie rules, which demanded that the total cost was counted in the first year. I hope that my hon. Friend the Financial Secretary will explore such projects, in which I see enormous scope.

If the rules are further relaxed, the private sector can be brought in to provide the investment that we so badly need. I am talking not only about prisons. I hope that my hon. Friend will talk to the construction and engineering industries about projects to build hospitals and colleges, and possibly even to build or repair schools. Such projects could all be handled through the leasing system if it were properly organised. Ultimately, it is for the construction industry itself to produce proposals, but I hope that my hon. Friend will set the scene so that the industry understands its limits and remit and can produce proposals that the Government can accept. The autumn statement is about hope and confidence, as the hon. Member for Peckham said, though listening to her speech I had the horrible suspicion that she was keen to avoid any hope or confidence for fear that it would destroy her case on behalf of her party. I hope that I am


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wrong in that suspicion, but I have to say that that was the tenor of her remarks and of those made yesterday by the hon. Member for Dunfermline, East (Mr. Brown). I have confidence and hope, and I believe that the autumn statement represents the beginning of a new dawn for the British economy.

6.57 pm

Dr. John Marek (Wrexham) : I agree with some of what the hon. Member for Devizes (Mr. Ancram) said, especially about the introduction of private capital into public sector services, although I take issue with his remarks about the reaction to the autumn statement.

When I went to my constituency last weekend, I found that a local creamery was about to close its cheese-making line, with the loss of 250 jobs, that the Inland Revenue was to contract, which may result in the loss of another 200 jobs in the area, and that, instead of spending money on training, the training and enterprise council was to build itself brand new posh offices for senior management, taking another 80 jobs away from my constituency. I suspect that most hon. Members will be able to identify with my constituency experience. If the hon. Gentleman's experience is different, all well and good, but I feel sure that his constituency is not typical.

We have recently heard the alarming news that 5,000 British Rail employees are to get the chop. That will mean dirtier stations, more vandalism, poorer maintenance and a smaller back-up crew in case of illness. Whatever the Government say about improving our infrastructure, they are doing the opposite. As usual, black is white.

Last week The Sun contained a good article entitled "The wisdom of lament". There were four photographs of the Chancellor of the Exchequer in various poses. The article compared what he said last year in his autumn statement on 6 November with what he said this year. The article says :

"Last year he said :

It has become increasingly clear that we are emerging from recession. Our exporters have performed remarkably well.' Fact : Since last November unemployment is up, while output and business confidence have slumped."

The Chancellor is also quoted as saying :

"The monthly rate of increase in unemployment peaked in March and is likely to moderate further in coming months as recovery gets under way."

But the article says :

"Fact : The monthly rise was in fact higher in July 1991 and January 1992 also beat the March peak'."

Last year the Chancellor said :

"Consumer confidence has increased this year and is likely to go on rising as the fear of unemployment begins to abate."

But the fact is that unemployment rose by 380,000 in the past year to 2.85 million, or 10.1 per cent. of the work force.

Last year the Chancellor said :

"We have followed a prudent and cautious monetary policy, whose credibility has been underscored by our commitment to the ERM." But the article says :

"Fact : The pound is in free fall after Lamont blew billions trying unsuccessfully to stay in the ERM."

That was billions of our money. Those are the facts of the matter. That is why Opposition Members do not believe all the talk about the recession being over and the sun rising in the sky.


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We have been treated to a remarkable litany of rows between our Government and those of other member states of the European Community. It began with the social chapter. We had to negotiate an opt-out purely as a result of the dogma of the Conservative party. We did not endear ourselves to other member states.

A special provision for Britain on economic and monetary union had to be written into the Maastricht treaty. The Government have always denied that there is any need for harmonisation of excise duties, yet now they are slowly beginning to talk about the problems that will face us on 1 January when it will be legal for citizens of Britain to import cigarettes in quantity and wine in almost unlimited quantities.

Even Chancellor Kohl had to rebuke the Chancellor of the Exchequer for his interpretation of events leading up to black Wednesday. Today, the French have attacked us for what they say is the aggressiveness, incompetence and selfishness of the Minister of Agriculture, Fisheries and Food in his tendentious statements about how the GATT negotiations were conducted.

Whatever the truth of the matter--I do not say that all the criticisms of the Government are right--the rows, taken in their entirety, show that we are not popular in Europe. As the Chancellor had to take us out of the ERM, against all his policies, he has no credibility with our colleagues in Europe. I do not make any personal attack on him, but he got it wrong, and he should be given another job so that someone else with more credibility can take over the extremely important position of Chancellor of the Exchequer. Unfortunately, integrity is not a trait of the Government. Members of the Government hang on to office. Black is often white. This afternoon, the Chief Secretary to the Treasury said that the 1.5 per cent. limit on public sector pay rises was not an incomes policy. I guarantee that, if he went out into the street and asked members of the public, they would say that it was an incomes policy. Yet the Government say that it is not, simply because they want to be seen to adhere to their political dogma. They know full well that they cannot, so they act differently but maintain that they are not doing so. The Chief Secretary said that building up a good infrastructure was too great a task for the Government alone. That is a clear-cut example of black being white. The House will not need to be reminded that the Government went to extraordinary lengths in section 40 of the Channel Tunnel Act 1987 to ensure that they were prohibited from providing any money for the development of the fast link from London to Folkestone and the channel tunnel.

Yet the Chief Secretary told us this afternoon that infrastructure is too great a task for the Government alone, and they must bring in private investment. I do not believe the Government, and I have not believed them for many years. In this matter, they have not changed their ways one iota.

It is true that, after black Wednesday, certain facts dawned on the Government. They realised that one needs a sound economy to back up any political or monetary theory which one may wish to put into practice and on the basis of which one may wish to experiment with the British people.

The autumn statement contained some changes. Let us take British Rail as an example. Leasing will be allowed. There has been great talk about the Jubilee line, as if it will


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save the whole country from John O'Groats to Lands End. On Monday, Tuesday, Wednesday, Thursday--every day--we are told in press releases that the Government will build the Jubilee line. Great--I have no objection whatever--but is not a policy or a philosophy : it is a tame excuse for the Government's inadequacy and unwillingness to do anything else.

Why can we not have a fast link between the capital and Heathrow? Why has there been delay and procrastination for years? Other modern capitals in western Europe, such as Frankfurt and Amsterdam, have a fast transport system between their main airport and the city. Yet the British Government refuse to act. Their policy is abject, and our condemnation must be total. Tonight we hear that 5,000 jobs are to go at British Rail. That will make our infrastructure even worse. I conclude on a slightly more technical point, but one which demonstrates the inability of the Government to govern the country properly. On 3 November, British Rail issued a press release saying that it intended to sell its consultancy subsidiary, Transmark. It said :

"Last year Transmark had a turnover of nearly £10m and an operating surplus of £1.1m. Its team of consultants worked on more than 200 projects in 30 countries. The company also carried out work for the BR businesses, for Passenger Transport Executives and for County Councils in the UK."

British Rail drew upon that subsidiary's expertise and resources. There might have been a book transaction for services rendered between one part of British Rail and another.

If that subsidiary is sold, British Rail will be forced to go out to private consultants elsewhere : or, if it has financial difficulties, it will not seek the expertise of consultants. It follows as day follows night and night follows day that the quality of decision-making and management at British Rail will deteriorate if Transmark is sold and its services are not available to British Rail as part of its inherent structure.

Yet the Government, in a triumph of political dogma over common sense, are forcing British Rail to put that small subsidiary on the market and obtain a few measly millions of pounds to reduce the borrowing requirement from perhaps £47 million to £49 million.

Mr. Radice : My hon. Friend means "billion".

Dr. Marek : Yes. But the Government will not save even £1 billion. They will save £0.1 billion or perhaps even £0.01 billion. There is a long way to go, and the Government have not learnt much. They are on a learning curve and some things have been done, but they must answer the questions, "Why privatisation? Is it good for the country?" and decide whether there should be a policy change. Is privatisation absolutely necessary for British Rail, since not one expert has backed the Government's plans for the rail system and the Select Committee on Transport has asked the company to delay privatisation for some time?

I must finish, as I see flashing lights ahead of me. The Government have been listening for once. I commend them for that--they do not often do so-- and I hope that they will take some notice of what I have said.

Mr. Deputy Speaker (Mr. Geoffrey Lofthouse) : I remind the House that between now and 9 o'clock speeches will be limited to 10 minutes.


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7.10 pm

Mr. Nicholas Budgen (Wolverhampton, South-West) : People who try to protect me from myself often tell me that I ought not to talk so much about interest rates and monetary policy. However, even people who are uninterested in the subject should notice the cost of the most recent--and most fortunate--occasion when we broke out of a great monetary mistake.

Before and around white Wednesday, the Government lost three times as much money as they hope to save in the public sector pay freeze. They borrowed $10 million in ecus, partly to encourage support for the exchange rate mechanism, and that cost will be increased by the 15 or 16 per cent. devaluation. Then they tried--on their own behalf--to support the pound, which is likely to cost between £1.5 billion and £2 billion, although they say that the amount can never be crystallised. If it could be today, it would be at about £1.5 billion. The Government will receive a large bill from the Bundesbank for the activities that it carried out on their behalf. Many people in the markets think that that bill will also be about £1.5 billion. So I shall tell constituents who ask me why I do not ask more questions about the level of public pay or ask for more money for this or that industry that getting monetary policy wrong is expensive. It can be seen to be three times as expensive as the savings made at the expense of public sector employees.

During our recent history we have made two important monetary mistakes and we may make yet another vast mistake. The first mistake was when Lord Lawson shadowed the deutschmark with the pound between 1986 and 1988. Secondly, it has now become politically correct to remark that it was perhaps a mistake to have such a tight monetary policy between 1990 and white Wednesday. I always know when things become politically correct because my right hon. Friend the Member for Worthing (Mr. Higgins) enunciates them and he said that it was clear that monetary policy was too tight in our recent history. My hon. Friend the Member for Canterbury (Mr. Brazier) also gave a clear sign that monetary policy was too tight before we came out of the ERM.

The issue is not merely academic. It is not academic to someone who has a negative equity in their house, or to small business people who have been squeezed into the ground in the past two years. It is not academic to the banks--I understand that it is popular to attack them--because their credit base has been severely eroded as a result of the considerable fall in property values. Having lent so unwisely to big property companies, it is understandable that the banks have to preserve their position at the expense of small borrowers, who are being screwed into the ground. Those are not mere academic mistakes and they could be repeated.

I take up the argument put so well by the right hon. Member for Ashton- under-Lyne (Mr. Sheldon). By way of an aside, he said that he was in favour of fixed exchange rates but that monetary union would never come about. As I pointed out to him, the rougher but more eloquent members of the Tory Whips Office tell recalcitrant Conservative Members that that is why they should vote for Maastricht. They say, "Okay lad, if you say it's a complete mess-up, it will come apart at the seams so you might as well vote for it rather than ruin your career."

Voting for nonsense is an integral part of the political process, but Maastricht is nonsense which could do a great


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deal of damage before it breaks up. It is important to understand that, under the proposals for monetary union in the Maastricht treaty, it is at least arguable that we are under a legal obligation to return to the ERM and to stage 2 of monetary union. The fact that we could be forced by the European Court back into the ERM and thus into stage 2 after 1 January 1994 has been well argued. If that happens we shall be ruled by German monetary policy, as we were between 1990 and 1992. I am not attacking the Germans : they are perfectly entitled to run their economic policy in the manner that they regard as appropriate to their economy. The people who put us under German surveillance should be attacked and anyone who votes for the Maastricht treaty is likely to submit us to that.

I have a helpful suggestion. We are fortunate in having an extremely persistent and persuasive barrister, called Martin Howe--I do not know whether he is also learned--who also has the good fortune to be Lord Howe's nephew. He has written some interesting documents which comment on the Maastricht treaty. In one paper, which was recently published by the Centre for Policy Studies, he said that if we ratified the Maastricht treaty and did not go into stage 2 and join the ERM we might find that the court ordered us to do so. Mr. Howe also says of the opt-out, which has been such a source of pride to the Government :

"The implications of the UK's Treaty obligations would appear to render its position, if opted out of Stage 3 monetary union, quite invidious. The UK would then be obliged by Treaty to seek to maintain a narrow band parity against the ECU block. However, the UK would be excluded from voting on the Governing Council which takes interest rate decisions for the ECU currency. The UK would be obliged to follow ECU interest rates in order to maintain its parity, but would have no say in setting them. This consideration renders the UK opt-out' from Stage 3 so unattractive that it must be queried whether its insertion in the Treaty can be regarded as anything more than an attempt at window dressing."

I assume that he does not want to be hit on the head with a frying pan by Lady Elspeth Howe at Christmas, and so I assume that he must have thought carefully before he said that.

We need an advisory ruling from the European Court or, at the least, an indication of the view of the Commission towards the whole subject. We do not want to vote for the Maastricht treaty and for monetary union and then find that we are under increasing pressure, to which our leaders may give in, to go back into the ERM and stages 2 and 3. We must make sure that we retain the right to run our monetary policy in the way that is appropriate to the British economy.

7.20 pm

Mr. Dafydd Wigley (Caernarfon) : I suspect that we shall hear a great deal more of the subject raised by the hon. Member for Wolverhampton, South-West (Mr. Budgen) in the coming weeks and months. Indeed, it might be a good idea to apply the 10-minute speaking rule to all stages of the Maastricht Bill.

Our problem was not that we were in the ERM but that we were in it at an over-valued level. We said in October 1990 that the pound was at far too high a parity. Having settled down at about DM2.40 to the pound, with a 7 per cent. interest rate, it seems now to be at a reasonably sustainable level. People in other EC countries recognised


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way back that a realignment was inevitable, as I discovered when I discussed the matter at length in Brussels in February.

Developments have occurred in an uncomfortable manner, and the whole issue could have been better arranged. Even so, there appears now to be some basis of stability. Does the Treasury see the autumn statement as contributing towards greater convergence or divergence within the figures that are monitored when considering the likelihood of our re-entering the ERM? In that context, will the Minister comment on the Government's latest thinking about the likelihood of our re-entering the ERM, a subject that must have considerable significance for the economic policies that we should be following? The objective of further pressure on inflation, towards which the Government have been working up to now, is no longer necessary and could be dangerous. It is possible for us to live with somewhat higher inflation--of perhaps 4, 4.5 or 5 per cent.--with an interest rate of 7 per cent. We now need more than anything a period of stability. We also need some strategy. We still face the danger of short- termism, which, particularly on the industrial scene, causes much of our difficulty.

I hope that the autumn statement will lead to greater confidence in industry and that that confidence will be based on stability and a willingness to accept greater risk-taking. That has been missing for a long time. We must ensure stability of demand, stability of interest rates, stability of currency and stability of inflation. I am not yet convinced that those have been achieved, although I have no doubt that the autumn statement reflects a basic change in Government policy.

It will be interesting to see how that change works through. After all, the requirements to which I referred are needed not simply for manufacturing industry but for housing. In particular, they are needed to encourage risk- taking in housing by private individuals. I also hope that the GATT round problems can be solved. It would be disastrous if the GATT position went wrong.

I am perturbed about the lack of reference to unemployment in the speeches of Conservative Members. Unemployment must remain an overwhelming worry. Hundreds of thousands of people in Britain with a contribution to make to the economy are denied the opportunity of contributing. It must be part of the Government's strategy to create employment so as to overcome unemployment, and I hope that when he replies to the debate the Minister will say how the Government expect their employment strategy to work.

There is also concern about what will be the policy of the Department of Trade and Industry towards regional investment. The figures coming from the autumn statement suggest that there will be a rundown in regional spending, and that may result in our not being able to take full advantage of the resources that may come from the European Community in terms of regional policy, with areas such as Wales and Scotland, and some of England's depressed areas, missing out.

The Chief Secretary said that the level of public expenditure as a proportion of GNP had dropped from 46 to 40 per cent. It is projected to increase to 45.5 per cent. Despite his intervention, I suggest that the Chief Secretary misled us by suggesting that the effects of privatisation had been totally taken out when formulating the figures.

I accept that money received from privatisation is not taken into account in the figures, but taxation revenue that


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used to come in to pay for, say, the water services in years gone by, certainly in the early 1980s, is now in the private sector lock, stock and barrel. The industry is no longer part of the public sector. People are now paying water taxes, as it were, and are thereby paying the water companies for what used to be public sector services but which are now private profit-making activities. That must be taken into account.

Mr. Michael Stephen (Shoreham) : Does the hon. Gentleman accept that, if the water companies had not been able to go out to borrow money, financed by slightly increased charges, taxes would have had to be increased and they would have had to be paid by the very people of whom he is speaking?

Mr. Wigley : Perhaps, but that should be taken into account in the money that is being spent on public sector or quasi-public sector activities and be part of the overall services that in 1980 were in the public sector.

I wish to examine the figures applying to Wales, although most of the figures that we need to see the true picture are not available. I hope that the Welsh Office will be forthcoming in providing the figures in due course. I am disturbed by the fact that the figures for 1993-94 show a reduction for the Welsh Office of £50 million compared with the previous plans.

That is worrying, because the areas that come under the Welsh Office, from the point of view of its activities in Britain as a whole, show increases-- agriculture by £590 million ; trade and industry by £1,220 million ; employment by £170 million ; housing by £230 million. All those areas are analogous to Welsh Office responsibilities, but in Wales the total expenditure is to go down by £50 million. In Scotland, expenditure will go up by £70 million and in Northern Ireland by £50 million, but in Wales it will go down by £50 million. We must have an explanation for that, because the implications could be far- reaching.

The figures for Wales have been fudged by the changes in definition. Expenditure on our university and further education has come through to the Welsh Office, along with additional spending on care in the community and the effect of the coal closures, which no doubt are being taken into account. We need clarification from the Welsh Office and, once that has been provided and the figures are available, we must have a debate on the implications of the changed Government economic strategy for Wales.

I press the need for investment programmes in the long term. Those programmes must provide not only financial but social and environmental benefits. For example, I have pressed in the past for house insulation programmes. The implementation of those would save energy costs and, by that means, help disabled and elderly people, who are particularly dependent on energy and spend a large proportion of their budgets on it.

Proper energy-saving policies would also reduce the demand for energy, and that would have implications for the depletion of energy reserves and the avoidance of large-scale capital spending on unnecessary energy projects. That money could be redirected to hospitals and schools. The provision of energy is labour-intensive, so it could be geared to areas of high unemployment.

I also press for more capital expenditure on renewable energy sources, in particular on hydro, tide and wind power projects. The post-1998 position applying to the non-fossil fuel obligation must be clarified as soon as


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possible. We must spend more on recycling. Such capital expenditure would bring great revenue and environmental benefits in the longer term. We must spend more on public transport, including the electrification of the railway line to Holyhead and the south Wales line right through Pembrokeshire.

We have heard that £700 million will be devoted to the purchase of houses. I hope that the Government, and the Welsh Office in particular, will allow part of that money to be used to buy houses that have been used as second homes or holiday homes, many of which are for sale because people cannot afford to retain them. When the market is depressed, there is often a negative equity element in such homes. Those houses can then be used urgently to provide homes for those on waiting lists.

The cuts taking place in the legal aid scheme are the largest since its introduction 40 years ago. I am concerned not for the well-being of solicitors but because those proposals could hit at least 10 million people who are dependent on legal aid to get justice out of society. If they lose their ability to take their cases to the court and get justice, they will miss out. I hope that that is not the Government's intention.

7.29 pm

Mr. John Townend (Bridlington) : I welcome the recovery package in the autumn statement, because it includes a number of initiatives that my hon. Friends and I have been calling for for some time, particularly to stimulate the housing market and encourage exporters and investment. I welcome it also because it brought an interest rate cut.

Although the package should bring the confidence that we have been lacking for several months, it would have been better to have it five months sooner. That was not possible because we were locked into the exchange rate mechanism in a straitjacket. As my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) said, the Chancellor is now on record as saying that, because of those constraints, monetary policy was too tight during the summer. My hon. Friend spoke about the adverse effect that that had.

I remind those who criticise the Government that both the Labour and Liberal parties supported our membership of the ERM to the bitter end. Now that that debacle is over, I wish that the Government would remove uncertainty and make it clear that we shall not return to the ERM. I am afraid that they will not do so, because of the ratification of the Maastricht treaty.

I want the Treasury to reduce interest rates much less frequently but, when they do so, in bigger tranches. Interest rates have fallen by 3 points since white Wednesday. Because they have gone down by one at a time, there has not been the fillip to confidence that there would have been had they been reduced by 3 points immediately we came out of the ERM, and had we taken the strain off the exchange rate in one go. Nigel Lawson made the same mistake when the economy was overheating. Instead of putting interest rates up by 2.5 per cent. to bring that overheating to a halt, he imposed death by a thousand cuts--two cuts of 0.5 per cent. and one of 1 per cent.

The subjects of public expenditure and Government debt have exercised my mind ever since I have been in the House. Indeed, I have spoken in every autumn statement


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debate since 1979. As a chartered accountant, my natural instinct is for sound money, control of public expenditure and a balanced budget. However, far too often I have had to chide my Front-Bench colleagues for planning to spend too much or for having spent over their budgets. That failure has resulted in frequent changes in Government spending.

Way back in 1981 or 1982, I said in a speech in the Chamber that the problem of controlling spending was that we had a system in which everybody demanded what they wanted and every spending Minister put in a bid, inevitably causing upward pressure on expenditure. I said that we should change that system and that the total should be fixed and then divided among spending Ministers, who should be told that that was all they would receive and must do their best with it. I am therefore delighted that the Government have now accepted that suggestion, which has long been forgotten, and have adopted a top-down formula, which will go a long way towards preventing slippage in expenditure plans, particularly in the second and third years of the cycle.

Owing to the inexorable rise in public spending and the sharp decline in revenues caused by the fact that the recession has been longer and much more severe than anticipated, our public finances are deteriorating significantly. This year, the public sector borrowing requirement will be £37 billlion, probably rising to £44 billion next year. These two years alone will increase interest costs by some £6 billion, which means £6 billion more taxation or £6 billion more expenditure. Naturally, it will cause upward pressure on interest rates and difficulty in funding, which might crowd out private investment.

I was delighted to hear the Chancellor's commitment to return to a balanced budget, and I strongly supported him when he said that it would be a tough spending round. With our public sector finances in such a state, it could not be tough enough for me this year. I welcome the limit on public sector pay. Indeed, a couple of weeks ago I suggested that there should be a freeze. However, when one looks at the figures in detail, one must ask how tough it has really been. Has the Chancellor really made the spending Ministers' pips squeak? Where is the evidence of blood on the floor? I regret to say that there is not much.

After allowing for inflation, the planning total will go up by almost 4 per cent. and even the new control total, which excludes the cost of recession, shows an increase in real spending of 2.3 per cent. Considering the fact that public sector wages will be fixed at 1.5 per cent., the real increase in programmes is considerably more than 2.3 per cent. That is hardly a tough spending round when our budget deficit is soaring.

If one looks at individual departmental budgets, one would think that those Departments with a high labour content--Education and Health--would show a reduction but, even with the pay freeze, the education budget will go up by 3.6 per cent. and the health budget by 1 per cent. in real terms. Clearly, the money that we are saving in public sector pay restraints will not reduce the budget deficit but will increase programmes. I just hope that the Minister can convince me that that increase will go into capital projects, but I do not believe it will.

Overseas development will go up by £100 million this year. When we have large balance of payments and budget


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