House of Commons Hansard Debates for 19 Nov 1992

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deficits, is it sensible to spend £2 billion a year in that way? We are borrowing from foreigners whom we have to pay back with interest to give to foreigners. We could easily have cut £500 million off that budget, and I hope that the Chief Secretary will consider doing so next year. That would leave us plenty of money for famine aid, disaster aid and other such relief.

I am delighted that, at long last, the outdated Barnett formula for Scotland and Wales, which gave those countries an excessive share of our public expenditure, has been abolished as regards future increases. It was a difficult nettle to grasp, but I congratulate the Government on doing so. However, they have not dealt with the backlog of the past 20 years, whereby in Scotland, expenditure per head of population on education is 36 per cent. higher than in England, and on health is some 29 per cent. higher. It is higher than in the north of England, which is not the most prosperous area.

Next year, the Chief Secretary should look at redressing the balance of the past 20 years. Expenditure in the other countries of the Union should be fixed until the expenditure per head in England has reached the same level.

I accept that the plans for years two and three are slightly tougher. I do not understand why we should start increasing expenditure again in 1995-96. The test will be whether the figures for the next two years will stick. Even if they do, I do not believe that we shall have done enough to reduce the PSBR. If we are to have a strong free market economy, we must bring spending down to below 40 per cent. and balance the budget.

The autumn statement takes us in the right direction but does not go far enough. If we are to deal with the serious problem of the budget deficit, we need another assault on spending next year ; otherwise, we must face the unacceptable alternative of increasing taxation. If the Government are in any doubt about which course they should take, I remind them that the pubic elected us because they believed that we would not put up taxes and that the Opposition would. If my right hon. Friends need any help in deciding, I suggest that they look at what happened to George Bush.

The autumn statement sets out a coherent economic policy for recovery. Anyone who believes that it will not be a long haul is fooling himself. We face the serious problem of a double deficit : a budget deficit and a balance of trade deficit. This country is living beyond its means. This year is the first of what will have to be a number of years of financial stringency if we are to reduce those enormous deficits.

I hope that all Cabinet members have the stomach for the fight. Conservative Members will support them, because what is at stake is the creation of a strong and successful economy. If Cabinet members falter, they should realise that we are behind them and will not hesitate to give them a friendly push.

7.41 pm

Mr. Mike O'Brien (Warwickshire, North) : The hon. Member for Bridlington (Mr. Townend) welcomed the public sector pay restrictions and said that they could not be too tough for him. I wonder why it is that hon. Members with safe jobs and regular incomes are able to call for sacrifices from those who are low paid. Why is it that the call for belt tightening is always directed at the working people of Britain ? It always seems that the people

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who are the greatest scrooges when it comes to public sector spending and pay for the low-paid workers become the biggest Santas when it comes to giving tax cuts to millionaire fat cats. In as much as the autumn statement gives the Government a policy where for two months there was only a vacuum, it is to be welcomed, but the statement will not bring recovery or tackle the fundamental problems of British industry. I also suspect that it will not restore to British industry the long-term confidence that it needs. The Chancellor and the Prime Minister cannot bring confidence because no one can guarantee what their policy will be next week. Indeed, there have been so many U-turns, S-bends and policy gymnastics from the Chancellor that I wonder whether his parents, too, were circus acrobats.

The new economic strategy has been forced on a Government who have appeared out of control and very much at the mercy of events. Many of the more sensible U-turns in the autumn statement--for example, capital allowances-- have been forced on a reluctant Chancellor. Now that the Chancellor has lost most of his totems--from the exchange rate mechanism to M3--we have to rely on his judgment to guide our economic policy.

The quality of the Chancellor's judgment will not, however, inspire confidence in British industry. After all, he is the Chancellor who said no to devaluation, no to leaving the ERM, no to a public sector borrowing requirement of more than £35 billion and no to necessary interest rate cuts in the months up to September, on the basis that we needed to stay in the ERM. The Chancellor's judgment is unsound. He is in partnership with a Prime Minister who was responsible, when he was Chancellor, for guiding the economy into the ERM at too high an exchange rate--also not a man of good judgment. Industry knows that the Government's judgment is unsound, which is why confidence will be slow to return and recovery will not come easily.

The unemployed know only too well that few of them will find jobs as a result of the autumn statement and that many more people will lose their jobs. The two years since the Prime Minister took office have seen unemployment rise by 71 per cent. or 1.2 million people. During that time, the number chasing each job vacancy has risen from 11 to 30. Can Ministers understand the dispiriting desperation of a family man looking for a job when he knows that he has to compete with 29 other people for that job? The number of young people out of work has risen by 323,000. The number of lost manufacturing jobs has risen by 541,000.

In my constituency of Warwickshire, North the jobless total has more than doubled, from 2,070 to 4,632. Some 587 miners at the Daw Mill pit were told just a few weeks ago that they were about to be made redundant. They have been saved until now only by the review in the coal industry.

The taxpayer pays an average of £9,000 per year--in extra benefits and tax lost--for every person out of work. It has cost my constituents £41.7 million--or more than £560 per voter--to maintain the Prime Minister's high unemployment policies.

After 14 years of Thatcherite policies, the long-term Government policy of individual tax cuts and deregulation of industry has resulted in escalating unemployment, a manufacturing trade deficit, cuts in public services, lack of confidence in the Government, and dismay among the

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British people such as I have never experienced before. There is a desperation among the people that the Government are incapable of finding a solution and are just plain unlucky. People feel that the Government do not know what they are doing and are a bunch of amateurs.

The Government's stated overall long-term aim of further tax cuts and deregulation will only make matters worse, as the price of doing so will be the Government's failure to provide the necessary infrastructure. In pursuit of their ideological objectives, the Government have succeeded only in damaging the economy.

The basic Tory philosophy of government is at fault. For too long public policy has been solely geared to the myth that Britain's future hangs on helping the mini-entrepreneur, the little man in the garden shed. The aim has been to reduce individual taxation and force self-reliance. However, as Robert Reich, economic adviser to President-elect Clinton, has said, in the age of new technology a nation's economic progress depends not so much on individual entrepreneurs as on collective entrepreneurial talent. It does not depend on little men in garden sheds, but on research scientists in well-funded universities developing advanced conductors, on systems analysts devising new software for international companies and on designers applying new technology to consumer requirements. For the collective entrepreneur, taxation and tax cuts are peripheral, and a policy of tax cuts is peripheral to the future prosperity of Britain. Good education, a highly skilled work force and an effective infrastructure are essential, as is a Government working in partnership with British industry.

Japan, Germany, Austria, Taiwan and other countries with successful economies long ago learnt the lesson that the collective entrepreneur, not the mythical individual, is the steam engine of change in the economy. They have recognised the interdependence of the components of the modern economy, including that of Government spending. They know that tax cuts are inefficient if they restrict increased spending on universities, transport and infrastructure.

It is clear that this hands-off Government have produced not more prosperity, but market instability and long-term decline. The ideology of less government has produced less public transport and less education, and less of many of the factors necessary to an economy. The free market has its place, but the hidden hand of the market is not enough. The failure of Thatcherism over the past decade has made that clear. As other economies have found, the hidden hand needs a helping hand--not an interfering hand, but a guiding hand. Governments, through intervention and a clear sense of direction, can be that guiding hand.

The Government have spent 14 years saying that they cannot do much except create a low inflation, low tax regime. Clearly, that policy has failed and we need a Government who are prepared to intervene and work in partnership with industry to end the abdication of responsibility which persisted through all those years of Thatcherism. The Chancellor and other Ministers have spent so long saying that they cannot intervene that now no one has any confidence that they could do so even if they wanted to.

The one nostrum that the Government now believe in is that low inflation is, of itself, a prerequisite to recovery. That is one of the few totems left to them after the death

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of M3 and M1, shadowing the deutschmark and the ERM. However, the intellectual gap in the argument is that our industrial base has been undermined in pursuit of that objective. Industry is now in fundamental trouble. The idea that low inflation of itself will somehow lead to recovery does not make sense. We need a motivating factor and a full-blown Keynesian recovery package if we are to get genuine recovery. Low inflation can only be part of that package. It is the overall package of policies that will bring recovery, and it is the inadequacies of the rest of the package in the autumn statement that will ensure that recovery is still a long time away. This autumn statement is bad for my constituents, bad for the unemployed and bad for the industry in my constituency. It is also bad for the Conservatives in my constituency. Warwickshire is a Conservative-capped county council and a Conservative council ; I would expect the Government to defend it, but I heard this week --

Mr. Deputy Speaker : Order. Mr. Bellingham.

7.51 pm

Mr. Henry Bellingham (Norfolk, North-West) : The hon. Member for Warwickshire, North (Mr. O'Brien) made an eloquent speech, but he wrote it before he heard the autumn statement. He has asked for a package for recovery, including some intervention, and that is exactly what the statement contained. The response to it from builders and people connected with construction and housing in my constituency has been one of pleasure. Small businesses are very pleased ; medium-sized businesses are extremely pleased, because they know that there will be a definite boost for construction and housing. They are particularly pleased that certain crucial infrastructure projects will be preserved and boosted. They are also pleased about the preservation of some of the defence procurement projects.

A number of extremely important road schemes are in the pipeline for my constituency. One of them is dualling on the A47, just west of King's Lynn. We hope that it will come on stream soon. There is also the crucial flyover at the Hardwick roundabout outside King's Lynn--a notorious bottleneck. The flyover should be built in the near future. This is why my constituents and many other people in west Norfolk are extremely pleased that the Government are getting their act together.

I also welcome the 1 per cent. cut in the base rate. I only hope that it will be passed on to customers by the banks. The banks have begun to learn that base rate reductions must be passed on. I received a letter the other day from a small business man in my constituency. He was complaining not about the base rate that he was being charged but about the arrangement fees--£1,500 for a new overdraft, a staggering sum. I hope that the Financial Secretary will tell the banks to be more sympathetic to small businesses. Recovery is all about confidence, which until now has proved elusive. It will start to return, however. Many people have been worried about their jobs and worried because they have detected that the Government have been locked into a system of limitations that has reduced their room for manoeuvre. I believe that the autumn statement can present a new way forward which will help to generate confidence, particularly among the crucial people who will

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start moving house or improving their homes and spending more in the shops. That in turn will have a knock-on effect throughout the economy.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and the hon. Members for Caernarfon (Mr. Wigley) and for Warwickshire, North all mentioned the ERM, although the hon. Member for Caernarfon was a good deal kinder about it than was my hon. Friend. I am extremely pleased that we are not tied into what is going on in the German economy any more. I think of it this way : we went into the rottweiler's kennel and we did not get just scratched and nipped--we had a limb bitten off and we came out of the kennel severely mauled. I hope to goodness that we will not go back into that kennel for a long time to come.

I welcome the fact that the Prime Minister said the other day that it is not our policy to go back into the ERM tomorrow or the next day but that we will take stock of the situation and take a decision some time in the future. He has also made it clear that the decision will not be influenced or constricted by the fact that we ratify the Maastricht treaty. The Prime Minister is an honourable man, and I prefer his view on the subject to that of my old friend--

Mr. Budgen : Will my hon. Friend give way?

Mr. Bellingham : No, because of the 10-minute rule. I was referring to my old friend the former Chancellor's nephew. I spent some years of my life in a part of the Fens renowned for its spires and gargoyles, and I had many a happy evening with the former Chancellor's nephew. He is sound on many points and a first-class barrister--I practised with him for a while-- but on this issue his interpretation is over-sentimental and unduly restrictive. I prefer the Prime Minister's view to that of Martin Howe.

I welcome this package, but I am still worried about home owners in my constituency and about those trapped in mortgage equity debt. A home owner told me the other day that he had bought a house for a considerable amount of money and then seen its value drop. His fiance e had left him, he had lost his bonuses at work and he was in dire straits. He had thrown the keys back at the building society thinking that everything would be all right, but he came to my surgery having received a letter from the building society asking what was to happen to the £20,000 that my constituent owed it--he did not understand that the money was his liability.

I ask the Financial Secretary to consider carefully what it would cost to give tax relief to constituents like mine who have lost huge sums of money when their houses have been repossessed. May we have the figure? I urge my hon. Friend also to consider a scheme to encourage mortgage insurance. Many people do not insure their mortgages, but they could. It would make life a lot easier for budding home owners if they knew that they could get tax relief under a mortgage insurance scheme.

Many hon. Members have been selling Britain short, but I do not think that we should. We must try to build up confidence, which is what my constituents need. Small business men who are determined to get going and medium-sized businesses that want to invest--they all need confidence. We have heard a great deal about the decline of British manufacturing, but the figures do not add up to the gloomy totals that the right hon. Member for

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Ashton-under-Lyne (Mr. Sheldon) proposed. Twenty-seven of the top 50 European companies are British. The other day The Economist carried out a survey which discovered that 13 of the top 30 medium to small-sized firms in the world were British. Statistics from America the other day, published in "Week's 5th Global 1,000" showed that 110 of those 1,000 companies were British. It is time we stopped selling ourselves short.

I do not often listen to Radio 4 in the morning, but the other day I tuned in to "Thought for the Day" at the absurdly early hour of 7.50 am. A bishop was speaking and he quoted a remark that I think came from the Bible. He was not asking to avoid trouble, turmoil and tumour ; all he was asking for was to overcome, not to be overcome. I hope that the Chancellor will overcome. This autumn statement is a step in the right direction, and I shall back it wholeheartedly. 7.58 pm

Mr. Matthew Taylor (Truro) : It strikes me that much of the reaction to the autumn statement derived not so much from what was in it but from what was not in it. Many of the plaudits that it earned were a result of briefings emanating from Ministers and their officials before the statement, suggesting that there would be tax increases, cuts in benefits, measures to send people who rely on disability support reeling, and so on. They also suggested that, against the wishes of those who have campaigned for so long to increase overseas aid from this country, it would be cut. After all these behind-the-scenes briefings, reported in the newspapers, we were meant to cheer--Conservative Members did--because these terrible things had not come to pass. It was not a particularly original political trick, nor did it produce an autumn statement that will start to turn around our economic problems. That is the other respect in which the statement was remarkable not for what it contained but for what it did not.

Much of the autumn statement is welcome. We argued for many of its measures a considerable time ago. Those who have lost their job in the meantime might well be looking for an apology from Ministers, not just a U-turn. However, its measures go nowhere near far enough to turn the economy round. The job losses and business failures that followed the previous Budget and autumn statement when Ministers made similar predictions prove the point. The action being taken now is too little, too late, a phrase which has been used a lot about the autumn statement.

That the action is too late can hardly be denied by Conservative Members, let alone by the Chancellor and the Financial Secretary to the Treasury. It is self-evidently too late to be taking investment measures--which were advocated so many months ago--for all those people who have lost their jobs and for all those businesses that have gone bankrupt in the meantime, waiting for precisely the kind of U-turn that the Government now claim to have made.

But the action is too little as well. A few weeks ago my hon. Friend the Member for North Cornwall (Mr. Tyler) and I led a delegation of people from Cornwall to Downing street. It was not party political. It was composed not of party politicians but of representatives of a cross-section of businesses, jobs and political viewpoints in Cornwall. It included an architect, a farmer, a

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postmaster, a builder, an hotelier and others who once worked but are now unemployed, who once ran businesses but are now unemployed. Those involved in the delegation were united, not by a political ideology but by a belief in their county and in their ability to put things right for themselves if only they are given a fair wind and the necessary support from the Government. Each member of the delegation wrote to the Prime Minister and the Chancellor outlining the problems in their own sector of the economy. That presentation, "Cornwall's charter for jobs", concluded :

"We now ask this Government to recognise the difficulties we are facing. Most are not of our own making. They have been created by national policies that have treated Cornwall, its people and communities harshly. Our wish is for the Government to behave as any business and employer must : we ask it to become pro-active. We ask it to remove the obstacles to Cornwall's success. We ask it to provide its people with the tools it needs to create jobs for its jobless, and a future for its children."

Those sentiments would be echoed by people throughout Britain, particularly in the rural, so-called peripheral, areas that have been particularly disadvantaged by so many of the Government's policies. Along with millions of people in Britain, people in my part of the world are suffering from the devastation of the economy that the recession has wrought. In Cornwall, male unemployment is approaching 20 per cent. Business failures in the south-west are up 40 per cent. this year on last year. High street banks are closing and tourism, fishing and farming are suffering terribly, too.

I do not ask merely for expenditure ; there are other things that the Government can do. One is to tackle the problems within the banks, not merely the lack of interest rate cuts, but, even more significantly, the way in which the banks treat so many small businesses. I campaigned at the general election, as did my colleagues, for a banking charter. The Government have done nothing to make the banks establish a proper contractual relationship with small businesses that would ensure that when the banks sting their fingers abroad and with big businesses, it is not local small business men who are asked to pay the price.

The cut in interest rates is welcome, but promises of a new economic strategy raised hopes of much more. In many areas such as my own, businesses need a reduction in the uniform business rate, a fully funded development agency and assisted area status to aid investment. Instead, in the longest recession since the 1930s, the Government are proposing to review assisted area status, reducing the area of the country that is eligible for help from 35 per cent. to around 30 per cent. That will cut off the blood supply, the lifeline, for so many more businesses.

More generous investment in the infrastructure would have put our builders, plumbers and electricians back to work on projects for the future. To suggest that future capital receipts will be released for that is a some time, one time, maybe never, kind of promise. Cornwall has money from its capital sales, particularly the council house sales. We have people who are now jobless with the skills to build homes. We have one of the worst problems of homelessness in the country. All we need is the political will from the Government to release even a proportion of those funds for the investment that is needed, but that political will is still not there.

Our businesses face further threats of continued high water rates, higher electricity charges because of the distance from generating stations, the possible termination

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of inter-city rail services at Plymouth and Exeter. Time and again, we have to put up with Conservative Members in the south-west and elsewhere complaining about the effects of the very policies for which they voted in the first place. They have shed crocodile tears about electricity price increases, when they voted for the system that has led to those increases ; about water rate increases, when they voted for the system that led to those increases ; and about rate increases, when they voted for the system that created those increases. Worst of all, they have had meetings with Prime Ministers and Ministers when they hold in their own hands, through their votes, the chance to change Government policy and to defeat Government policy merely by coming together and exercising the power that they have--crocodile tears indeed.

To those Ministers and other Conservative Members who may be worried about taking such a wide turn away from past policies I say that half a Keynesian is better than no Keynesian, but full-hearted policies are what our county and country need.

The British public are forgiving of people who make U-turns. They know that if one drives down the wrong road, the most sensible action is to turn round at the earliest moment and find the right route. They ask only two things--first, an apology for the mistake and, secondly, that there is some indication that, having turned round, the Government know where they are going. For a start, it is better to go back up the road one has come down than to drive off into the fields or woodlands on either side where one is only likely to become bogged down and in a worse situation than when one started. One area that is being attacked because the Government believe that they must tackle spending in some small way is legal aid. The legal aid changes are designed to save money for the Government, but they will make no great difference to our general economic problems or fortunes. However, they will make an enormous difference to those individuals who can no longer obtain the legal help that they would once have had.

Millions who were once eligible for legal aid have already been taken out of it. The Government say that legal aid costs have increased, but that is because of the complexity of cases, not because more people are eligible for it ; fewer are eligible for it. The Government should be tackling the legal system, not the legal aid. They should be seeking to create simpler routes by which people can obtain the genuine redress to which they should be entitled in our modern society. The Government are tackling the symptom, not the cause, and millions of people, many of them those hit hardest by the recession, will suffer as a result.

Those changes could have been included in the autumn statement. They could have been made. I fear that the Government have realised their mistakes and pulled into the field only to find themselves bogged down. I fear that unemployment will continue to increase this autumn

Mr. Deputy Speaker : Order. Mr. Douglas French.

8.8 pm

Mr. Douglas French (Gloucester) : I have no hesitation in welcoming the autumn statement as a reasonable formula to provide a short-term way out of our current economic problems, but I have the greatest difficulty in

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being persuaded that it was the logical next step in a long-term policy strategy. We must consider carefully what our long-term aim for the economy is.

Like other hon. Members, I remain extremely uneasy about the planned level of public borrowing. In the 1991 autumn statement, borrowing was set at £19 billion ; by the time of the 1992 Budget, it was at £28 billion. We are now told that it will be £37 billion in 1992-93--about twice the original estimate. The forecast for 1993-94 puts it at £44 billion. I cannot help fearing that it is heading inexorably towards £50 billion, which would be 8 per cent. of gross domestic product and would take us back into IMF territory. We must avoid that at all costs.

Some forecasts--even those of reputable City analysts--now suggest that the figure may reach £65 billion in 1994. Goldman Sachs, using a 1.5 per cent. growth projection, puts it at £80 billion. If such figures are really being contemplated, they are much too high. As we know, a burden of debt must be serviced. In the past 10 years we have made impressive progress in reducing debt servicing ; we do not want to make a deliberate decision to return to it now.

My right hon. Friend the Chief Secretary to the Treasury said that we had managed to cut the debt-servicing burden by £10 billion. It seems, however, that we are now set on moving in the opposite direction. We had a hard lesson to learn, and I am disturbed by the possibility that we shall have to learn it again.

Many hon. Members have mentioned the 1981 Budget. I agree with my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) and with the hon. Member for Durham, North (Mr. Radice) that the situation in 1981 was different from the present situation, but there is some common ground. The public borrowing level was then far too high. I well remember the difficulty experienced by the then Chancellor--not his nephew--in trying to decide how to handle the deficit. He had to make the difficult decision to raise taxes--not a welcome decision, given that the 1979 general election had been fought on a platform which preached the virtues of a low-tax economy, but a decision that had to be made to reduce public borrowing. Within a short time, things were moving reliably in the right direction. Although I am a great advocate of low-tax regimes, if I had to choose between borrowing moving out of control and increasing taxation, I would reluctantly choose to increase taxation. One of the worst courses is to pretend that tax increases may not be necessary, before eventually finding that they have to be imposed after all. What worries me particularly about the present circumstances is the speculation now rife in the press that taxes will have to rise in the next Budget. Such speculation is most unhelpful and pulls us in exactly the opposite direction from the one in which we should be moving. If the aim is to create confidence, the chances of creating it will be undermined when people start worrying about facing tax increases before long. The prospect of an increase in indirect taxation --in VAT, for example--may conceivably have a beneficial effect in bringing forward a purchase, but it will result in a vacuum later. Threats of income tax increases cause people to worry about their household budgets and are likely to prevent the renewed confidence that the rest of the strategy seeks to promote.

It is very unwise to let it be known that taxes are likely to rise or, indeed, to set out a package in which the arithmetic points inescapably in that direction. If tax

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increases are eventually to be necessary, the longer they are delayed the more damage there will be. More debts are incurred, more uncertainty is caused, confidence is undermined, and the economy remains further away from where we want it to be.

My right hon. Friend the Member for Worthing (Mr. Higgins) mentioned the change in Budget timetables. I think that mini-Budgets should be avoided wherever possible. They do not help the continuity of policy, they do not increase confidence, and they do not provide the reliable framework that businesses need. If judgments are sound at the time when a Budget is made, they ought to remain in place for at least a year.

I welcome the bringing together of the income and expenditure statements, but I view with dismay the prospect of another Budget in March and a further one in December. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) referred to two Budgets in a year ; in fact, there will be three in a little over a year. That is unnecessary, and almost certain to undermine confidence.

I am also not in favour of time-limited incentives. I thought that we had learnt our lesson when Lord Lawson ended the system of dual mortgages on single properties, and in doing so caused no end of trouble. We then tested the market with a temporary moratorium on stamp duty, which had absolutely no effect. Now we have a 40 per cent. capital investment allowance, which is apparently to end towards the end of 1993. Trying to concertina people into making decisions in such a limited time is likely to undermine the quality of the decisions made. I firmly oppose time-limited incentives as they merely distort markets and increase speculation.

I accept that some of the measures in the autumn statement were necessary because the recession was so deep, but I suspect that some would not have been necessary if interest rates had come down earlier. Here I entirely agree with what was said by my hon. Friend the Member for Bridlington (Mr. Townend). The policy of dribbling the rate down one percentage point at a time strikes me as being open to considerable doubt. The single percentage point was invariably heavily trailed, discounted in advance and implemented in a diffident fashion, with an obvious fear of the exchange rate consequences. At no time did it look as though that would be the end of the matter. It always looked as though there might be a further instalment, and the reduction was frequently accompanied by a warning that in the event of adverse consequences the rate would have to rise again. It never looked to business men as though rates were set to remain at a particular level for any length of time ; the old enemy, uncertainty, was a constant factor.

It is hardly surprising that in such circumstances a business man should defer decision making, and hardly surprising that it should be concluded that low interest rates alone were not enough to get his business moving and to move us out of recession. It was clear that a further raft of measures would be needed.

From the point of view of the international capital markets, it is clear that capital movements are influenced by comparative interest rates, but interest rate levels are only one indicator of the health of the economy.

Capital, after all, seeks out currencies in anticipation of potential movement in their capital value. That is bound to be a reflection of international judgment of the underlying health of the economy involved. Capital likes to move into a currency when, on a balance of probabilities, it is likely

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to be at its lowest and ready to move up ; strong currencies are those that markets expect to move up, and weak ones are those that they expect to move down.

That perception could better have been created if at some stage in the downward spiral a reduction of two percentage points had been made. It could have been done without adverse exchange rate consequences. I very much regret that the Chancellor did not choose to make that reduction. Had he done so at the right time, I believe that much of this package of measures would have been unnecessary. 8.19 pm

Mr. Clive Betts (Sheffield, Attercliffe) : Last Thursday Conservative Members waved their Order Papers after the Chancellor's speech. The same Members waved their Order Papers after the Budget statement earlier this year. The difference is that in his Budget statement the Chancellor forecast that growth would be 1 per cent. this year, but in his autumn statement he forecast a 1 per cent. reduction in growth. In his Budget statement, the Chancellor forecast a current account deficit of £6.5 billion, but he is now talking about £12 billion. In his Budget statement, the public sector borrowing requirement was to be £28 billion, but it is now forecast to be £37 billion. With that forecasting record, one has very real doubts about whether the forecast for next year of 1 per cent. growth is right. If it is not, the economy will continue to decline. It is not just the figures that have changed. The words have changed, too. Last spring, unemployment was still "the price worth paying" for reducing inflation. Now the accent appears to be on growth, jobs and dealing with unemployment. Even borrowing is no longer a dirty word on the Conservative Benches. It hardly could be, given the amount of Government borrowing.

When one looks at the details of the autumn statement, which we have had the opportunity to do since last Thursday, one finds that they contain no coherent or effective plan of action to deal with the depths of the recession and depression that the Government have created. There is no effective plan of action to create the jobs that people require.

We find that there is no new money in the autumn statement, but if we are to create jobs we shall have to spend money. The Government are constrained by their own problems with the public sector borrowing requirement--a self- inflicted problem. The Opposition support a major expansion of investment in the infrastructure. We make no apology for saying that the public sector has to be the motor for recovery. Of course we want investment in the private sector, but, at a time when confidence in the private sector is so low, the public sector has to be the catalyst to get the private sector going. That may demand, in the short term, a further increase in the public sector borrowing requirement, but if it is properly managed it will generate the revenues that are necessary to pay for it in the medium term.

Before the Government accuse the Opposition of wanting to increase the PSBR, I should like them to explain how they calculated the autumn statement figures relating to public expenditure and the PSBR. Why do the Government believe that they are the right figures to deal with our present economic problems ? The figures for public expenditure have all the signs of having been

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decided before the Government made their U- turn, to some extent, and of the Government not having altered them in the light of the circumstances that we now face.

As well as there being no overall increase in expenditure, most of the schemes put forward are not new, either. The Government have highlighted certain key projects, but in the last few months there were suggestions that they would be cut. The Government now claim a victory and a boost for recovery, simply by maintaining schemes that were already in the programme.

The Government admitted to some cuts last Thursday--cuts in legal aid and invalidity benefit, which I deplore. Since last Thursday, however, we have found hidden cuts that were not declared. There is to be a cut in the urban programme, which represents the expenditure of money that is targeted directly on the most deprived areas of the country. The Government have placed particular emphasis during the past few years on spending to help to generate economic activity in the most deprived communities--in particular, expenditure on infrastructure projects. The end of the urban programme will affect people who have the least change of getting jobs and will increase unemployment where it is already at the highest level. That cut ought to have been explained openly to the House. It is a disgrace that it was not.

When we hear about local government expenditure proposals next week, we shall no doubt find that there are further hidden cuts. Every local authority--not just Labour local authorities--is talking about the jobs it will have to shed next year and the people it will have to get rid of. It is yet another aspect of the autumn statement that will lead to increased unemployment, not to more jobs.

On the question of public sector pay, we were told this afternoon that this is simply a matter of employers dealing with the employment costs of their workers. That is an incredibly narrow view for the Government to adopt. They are an employer, but they are also supposed to be managing the economy. If we take spending power away--for that is what reduced wages mean--from the poorest in our community, we shall reduce demand in the economy. That, in turn, will create job losses in other sectors of the economy. This is yet another measure which will have a depressing effect on jobs in general.

Where the Government have acted, they have acted insufficiently. Why did they not let local authorities spend the housing capital receipts that they now hold? My hon. Friend the Member for Peckham (Ms. Harman) well illustrated the problems that local authorities will face in trying to sell assets in a depressed market. Why force local authorities to do that when they already hold sufficient resources? New homes are needed. Houses and schools need to be repaired. Expenditure on housing repairs could be put into effect very quickly. The need is there ; the money is there ; and the private sector has the capacity to carry out the work. Why will the Government not put the money held by local authorities to work in the private sector and therefore meet the needs of local communities? It would be a simple matter for the Government to do that.

It is worse than that, however. The Chancellor of the Exchequer referred to adjusting the capital control totals of local authorities. I have an awful feeling that when local authorities are told how much their capital allocations are to be, they will find that part of the miserable amount of

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extra money that they received through the capital receipts initiative will be clawed back by means of a reduction in the credit that they are allowed to have in the next financial year. The effect of the measure, therefore, will be even less than the Government pretend.

I welcome the reduction in interest rates and the relaxation of the ridiculous rule that prevented private sector capital expenditure in the public sector. That rule is nonsense. We ought to get rid of it. However, the Government will not face up to the fact that the lack of confidence in the private sector means that these measures will have little impact. We can reduce the cost of money to as low a level as we want, but if the private sector does not feel that the risk of investment is worth taking, investment will not occur. That is the problem that the Government face. The reduction of interest rates by 3 per cent. in the United States has not stimulated much investment in the private sector. That is why a major public sector thrust is needed.

The autumn statement contains no reference to European-wide initiatives. We have the presidency of the European Community for six months. What a wasted presidency it has been. The Government refused to put European economic recovery on the agenda. By doing so, they have failed not only the British people but all the people in the European Community. They should be ashamed of themselves. There is a medium-term problem for the housing market. We have heard a great deal about the immediate crisis that faces the housing market. In real terms, house prices are falling. Money is relatively cheap. People are using their savings to reduce indebtedness. Building societies are not lending much money. No new houses are therefore being built. If confidence returns in two or three years' time, it will amount to a potentially lethal mixture that will lead to another massive increase in house prices.

The autumn statement will do nothing to get the economy moving. There is no coherent strategy, beyond the immediate survival of the Government. There is no new money. There are few genuinely new schemes. There are hidden cuts and missed opportunities. There is no European perspective. The package is long on rhetoric but short on any real strategy to assist the unemployed and to create the climate for economic success. It is a missed opportunity for the Government, but, more importantly, it is a missed opportunity for the country. 8.29 pm

Mr. David Willetts (Havant) : I should like to give a wholehearted welcome to the autumn statement. I should have liked to give it a fulsome welcome, but, with the constraints of the 10-minute rule, suffice it to say that with the lowest interest rates and tax rates in Europe we now have the basis to rebuild consumer confidence, which is crucial. We hear so much talk about investment as though it were virtuous and consumption was somehow naughty. The only reason for investment is that there is already consumer demand, which the investment is aimed at meeting. I have no hesitation in emphasising the elements of the Budget that will encourage consumers to spend more.

The figure for lending in October was £5.1 billion--the highest since November 1990. That is one small sign that perhaps consumers are feeling more optimistic about the future. It was an encouraging indicator.

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I know that many people in the Treasury still have at the back of their minds the terrible warning of 1972, when we left the previous attempt at a fixed exchange-rate link with the continent of Europe. It was the basis on which the Barber boom subsequently took off. We allowed borrowing to rise out of control and eventually suffered the inflationary consequences.

Although I welcome the cuts in interest rates, I hope that the Chancellor and the Financial Secretary will be able to make it absolutely clear that, if there is any prospect of inflation rising above the target range, and particularly if the growth of M0 and M4 are rising towards the top of their target range, they will have no hesitation in increasing interest rates. The only thing that would be worse than the recession of the past two years is if it were to be followed by the same mistakes as happened during the Barber boom. I want to dwell briefly on one exciting element of the autumn statement--the proposals on private finance for public projects. I welcome the special responsibility that the Financial Secretary is being given to carry that initiative forward. I am sure that he well knows that there is a history of Treasury teasing on the subject. We have been told before that liberalisation of the rules on private finance for public projects is to take place. Ingenious schemes are proposed by merchant banks and construction companies for building and operating prisons, roads or hospitals, but the Treasury says, "This is all very interesting and is a good idea, but, of course, it would be cheaper if it were carried out in the public sector, with borrowing at gilt rates"--and, sadly, we decide not to carry them forward. According to that argument, we would nationalise ICI to reduce the cost of borrowing to finance investment. I hope that this time around the changes are serious.

I have noted in particular how the stress has been put on private sector road building and toll roads. Of course I welcome interesting innovations, but the significant feature of the roads example is that there is a private stream of revenue that the firm operating the road can enjoy. The significant challenge or test for the Treasury is whether it is prepared to bring private finance into schemes where services will be sold to the public sector.

I am rather troubled to see that such schemes are described by the Treasury in the autumn statement as leasing arrangements. I regard leasing as financial engineering to get around a public expenditure constraint. I would not support leasing fiddles where something impossible under normal public expenditure disciplines was allowed simply because of a change in the financial structure. That is not what we are looking for. We are looking for Treasury recognition that, if the private sector is free to build and operate a private prison or hospital and sell its services on a long-term contract to the public sector, that arrangement may release new ideas for better management, use of labour and maintenance of capital and achieve improvements that, sadly, have not been realised in the public sector.

Hitherto, Departments have not registered the fact that, if the public sector is to run a hospital in a different way--possibly by saving staff or using them differently--it wants to be able to design the hospital so that the physical plan matches the way in which it wishes to use staff. In other words, if I may slip into the jargon of economics, it wants the physical capital for which it is

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responsible to embody working arrangements that it can achieve but which have not proved possible in the public sector.

The ultimate argument in favour of private finance and private management for such projects is that they are better managed and more efficient and innovative than if they remain in the public sector. They are far from being leasing fiddles. I therefore very much hope that the Financial Secretary will be able to assure us of the energy with which he will approach his exciting remit.

The Chief Secretary should be congratulated on the way in which he has conducted the Treasury's negotiations. He has at last been able to get the message home that, if public expenditure negotiations are to be responsible, they should be on priorities within an agreed total rather than attempt to overturn financial discipline. I welcome the new public expenditure control arrangements, which seem to have achieved that conspicuous success.

I welcome the statement's focus on the medium term. Too often, public expenditure negotiations have degenerated into horse trading about next year, with years two and three in the survey largely being ignored ; they are left for next year's negotiations. This time, we had serious negotiations on years two and three, and the Treasury achieved new figures for growth in years two and three of 0.75 per cent. real growth and 1 per cent. real growth. That is a conspicuous achievement, on which I congratulate the Chief Secretary. Having achieved those marvels of public expenditure control under the new Cabinet Committee arrangements, I am surprised that the Treasury is further considering more institutional change next year. My right hon. Friend the Member for Worthing (Mr. Higgins) spoke about that. I am worried about the change in the timetable for economic decision-taking, so that expenditure and tax announcements are brought together in the autumn.

There are three reasons for my concern. First, I hope that my hon. Friend the Financial Secretary will accept that I am truly concerned about the work load that is falling on him and other Treasury Ministers. I am sure that being a Treasury Minister is a tough job. Between September and December, there will be the major international conferences, the tough public expenditure negotiations in the Committee that is now chaired by the Chancellor, with the Chief Secretary actively involved ; and at the same time the Chancellor and the Financial Secretary will be considering Budget starters and trying to reach tax decisions. That is a heavy burden.

My second concern is an operational one. Many public sector bodies such as local authorities and district health authorities need to know as soon as possible what their budget will be for the following year. After the autumn statement, Departments spend weeks working out what the overall expenditure figures mean for local authorities, health authorities, the remaining nationalised industries and other public bodies. Next year's autumn statement may be a month later than this one, so there will be less time for public bodies to take important operational decisions.

Finally, there is a risk of the Treasury, having established control over public expenditure this year, sacrificing control over taxes next year. If public expenditure negotiations and tax negotiations are being conducted together, spending Departments may be tempted to press for tax increases to finance higher

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