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House of Commons

Thursday 4 February 1993

The House met at half-past Two o'clock


[Madam Speaker-- in the Chair ]


British Railways (No.

4) Bill--

Order for Second Reading read.

To be read a Second time on Monday 8 February at Seven o'clock.

British Waterways Bill

[Lords] (By Order)

Crossrail Bill

(By Order)

East Coast Main Line (Safety) Bill

(By Order)

Greater Manchester (Light RapidTransit System) Bill

[Lords] (By Order)

Woodgrange Park Cemetery Bill

[Lords](By Order)

River Humber (Upper BurcomCooling Works) Bill

[Lords] (By Order)

Allied Irish Banks Bill

Orders for Second Reading read

To be read a Second time on Thursday 11 February 1993 .

London Underground (Green Park) Bill


That the Committee on the London Underground (Green Park) Bill have leave to visit and inspect the site of the proposed works, and any sites which have been proposed as alternatives, provided that no evidence shall be taken in the course of such visit and that any party who has made an appearance before the Committee be permitted to attend by his Counsel, Agent or other representative.-- [The Chairman of Ways and Means.]

Contingencies Fund 1991-92


That there be laid before this House Accounts of the Contingencies Fund, 1991-92 showing the receipts and payments in connection with the Fund in the year ended 31st March 1992 and the distribution of the capital of the fund at the commencement and close of the year ; with the Report of the Comptroller and Auditor General thereon.-- [Mr. Wood.]

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Oral Answers to Questions


Balance of Trade

1. Mr. Barry Jones : To ask the Chancellor of the Exchequer what further measures he proposes to improve the balance of trade.

The Chief Secretary to the Treasury (Mr. Michael Portillo) : The Government can best assist traders by keeping inflation and interest rates low. Inflation is close to its lowest level for a generation and below the European Community average. Interest rates are the lowest for 15 years and the lowest in the European Community. The extra support for the Export Credits Guarantee Department announced in the autumn statement will benefit many exporters.

Mr. Jones : The problem is growing, and growing seriously. Is it not the case that a Government who lack credibility and any strategy have no chance of surmounting the major problem that they face in that respect? Is it not the case also that the nation needs investment in skills and manufacturing? As long as we have a Chancellor of the Exchequer who is isolated and a Prime Minister who is indecisive, the nation cannot see that problem ever being solved.

Mr. Portillo : The country is receiving investment precisely because those investing from abroad have great confidence in this country and in its future. The hon. Gentleman, in particular, ought to know that, because, in his own constituency, the Toyota company is investing £140 million in a car engine plant at Shotton, which will employ 300 people and produce 200,000 engines a year. That is the sort of investment that is attracted to this country, and that is why this side of the House is optimistic. I do not know why the Opposition run this country down.

Mr. John Townend : Will my right hon. Friend tell the House what proportion of this year's balance of payments deficit is likely to be accounted for by Government expenditure on payments to the European Community, foreign affairs, and overseas aid? If Labour Members want a swift reduction in that deficit, should not they join those of us on this side of the House who are asking for cuts in that expenditure? Does my right hon. Friend agree that those European countries that will not send their troops to Bosnia should finance part of the cost, which is £100 million a year?

Mr. Portillo : It is extremely important to maintain tight control on public spending at European Community level as well as at national level. Britain always presses for that, and we are fortunate to have the support of my hon. Friend. It is important also that in the peacekeeping operations mounted across the world, there should be equality of contribution by all the countries with an interest in them. My hon. Friend is also right to make it clear that Government control over public spending can be important in making sure that we keep our balance of payments in a controllable state. Right hon. and hon.

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Members across the Floor of the House are always advocating higher spending and higher borrowing, and that makes the task more difficult.

Mr. Darling : Does not the fact that the trade gap is worsening at the height of a recession, even following September's devaluation, reveal the poor state of our manufacturing base? Does not the Chief Secretary accept that, unless the Government adopt a policy to increase investment in research and development and to build up our manufacturing base, the economy will continue to be weak, the pound will continue to be under pressure and there will be no hope of the economy's recovering in the way that it should?

Mr. Portillo : I get very tired of hearing the Opposition bad- mouthing our country, belittling the achievements of our industry, sapping confidence in the country and discouraging foreign investors. As the hon. Gentleman ought to know, our manufacturing productivity grew the fastest among the G7 countries during the 1980s ; it was at record levels in the three months up to November last year ; and it is now growing at the fastest rate for five years. It is for those reasons that we feel confident in the country, and we only wish that we could hear some expressions of confidence from the Opposition.

Mr. Budgen : Is not a fall in the external value of the pound the market's way of dealing with the deficit in the balance of trade? Is it not important for the Government to point out that a depreciation in the value of the pound affects some but not all prices, and does not cause inflation, which can be caused only by an increase in the money supply?

Mr. Portillo : I agree with two aspects of what my hon. Friend has said. First, Britain's competitiveness will undoubtedly be very high in the coming year : we expect it to increase by 16 per cent. on last year's figure. It is also true that there are strong disinflationary influences in the British economy. No one should jump to any conclusions about the effect of the exchange rate on the rate of inflation.

House Prices

2. Mr. Orme : To ask the Chancellor of the Exchequer if he will make a statement on house prices.

The Chancellor of the Exchequer (Mr. Norman Lamont) : The latest estimate from the Halifax building society is that average house prices fell by 7.7 per cent. in the year to January 1993. However, recent signs of rising activity are consistent with the view that I expressed in my autumn statement that house prices could start to rise this year.

Mr. Orme : Does the Chancellor recognise that housing is at the centre of some of our economic problems? Repossessions are proceeding apace ; in no sense can they be said to be halting. What action will the Government take to help people in the housing market--not only those who face repossessions, but those who want to buy, as some of my constituents do?

Mr. Lamont : I should have thought that the lowest mortgage rates for 25 years were quite a good beginning.

I agree with the right hon. Gentleman that housing has been at the centre of the country's economic problems, but

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I hope that he is not advocating a return to house-price inflation and inflation generally. That is not what we want. The right hon. Gentleman will have noticed the encouraging signs of increased activity in the housing market : the Nationwide house price index rose by some 1.2 per cent. last month. He will also have observed that the number of contracts completed, particulars delivered, in December was up by over 20 per cent.

The right hon. Gentleman asks what the Government are doing about repossessions. The Government struck a deal with the building societies, which has had a significant effect. Repossessions were down in the second half of the year compared with the first--and, for those in arrears, the sharp, deep cuts in interest rates will be a significant help.

Mrs. Angela Knight : Does my right hon. Friend agree that the reduction in interest rates and the cost of mortgages has proved a real benefit to home buyers, and has brought stability to the housing market? Has he read the report in last week's Derby Evening Telegraph in which Derbyshire business men predict an economic upturn? There is a real improvement in confidence, not just in the high street but in the housing market.

Mr. Lamont : I have to tell my hon. Friend that although I read the Grimsby Evening Telegraph I do not read the Derby Evening Telegraph, but I certainly shall in the future. In confirmation of what my hon. Friend says, she is absolutely right about the effect of mortgage rates, a point I made in answer to the right hon. Member for Salford, East (Mr. Orme). It is indeed cheaper for first-time buyers to buy a house now than it has been for several years.

The National House Building Council's index of ability to buy is at an all- time high, indicating that houses are extremely affordable. The housing market package that I announced in the autumn statement is well on course. I fully expect that some 17,000 houses will be taken off the market in England alone before the end of March. That is a direct result of the actions that the Government have taken to help the housing market. It is why confidence is rising in the housing market and also why, as my hon. Friend says, confidence is rising generally, not only in Derby but in the country as a whole.

Mr. Gordon Brown : Will not the Chancellor's personal legacy when he goes be that more people have lost their homes, more people have homes that are worth less than they paid for them and more people are in mortgage arrears than at any point in our history? Does the Chancellor not understand that his answer to the cause of that, which is rising unemployment since he became Chancellor, has been to cut work and training places for the unemployed by 100,000? Is it the unemployed who have failed to work for the Government or is it the Government who have failed to create work for the unemployed?

Mr. Lamont : I see that the hon. Gentleman has had to work hard to get his supplementary to that question. Usually he asks me outside the Chamber which question I am answering in order that he can put his supplementary to the appropriate question. [ Hon. Members :-- "Oh."] There is nothing more difficult than having to think of a supplementary on your feet, is there?

The hon. Gentleman should recognise that the thing that will most help the housing market and the

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employment market is the reduction in interest rates and the relaxation in monetary policy which we have made. That, combined with the measures that we have announced on the housing market, has reduced repossessions in the second half of the year compared with the first.

The hon. Gentleman asked about the Government's credibility. I just note his credibility. I notice what his hon. Friend the Member for Dagenham (Mr. Gould) said about the hon. Gentleman's budget for jobs. He said that it had sunk

"without trace as virtually all of Labour's economic policies have sunk without trace in recent years".

When asked why, the hon. Member for Dagenham said that no one believed that their policies could ever work. That is what hon. Gentlemen think about the hon. Member for Dunfermline, East (Mr. Brown).

Sir John Hannam : Will my right hon. Friend confirm that, having secured the lowest level of inflation for more than six years, he will not allow that excellent progress to be jeopardised in any way?

Mr. Lamont : My hon. Friend is absolutely right. I have made it consistently clear that the interest rate policy that the Government will follow is one of achieving low inflation combined with a sustained recovery. That is the objective of monetary policy. The reduction in interest rates that we made a week ago was consistent with low inflation, based on the advice that we had from the Bank of England and is consistent with sustained recovery. However, my hon. Friend is absolutely right to remind the House that inflation must be at the centre of our objectives. Having done so well to get inflation down, not only below the average of the European Community but below the average of the G7 group of countries, we cannot throw it away.

Exchange Rate Mechanism

3. Mr. Hoon : To ask the Chancellor of the Exchequer what factors the Government will take into consideration in deciding when to rejoin the exchange rate mechanism.

Mr. Lamont : I set out the conditions for rejoining the ERM in my letter of 8 October to the Chairman of the Treasury and Civil Service Select Committee.

Mr. Hoon : Given that what now passes for Government economic policy involves the persistent devaluation of the pound, and given the chronic uncertainty that that causes for British business, when can we expect the British Government to go back to their previous policy of managing the exchange rate?

Mr. Lamont : The Government have made it clear again and again that we do not seek a depreciation of the currency, but we have made it clear that interest rates will be set according to a range of factors. That includes domestic money conditions, asset prices--particularly house prices --and also the exchange rate. The exchange rate will continue to be among the factors that we take into account in assessing interest rates, and markets should remember that interest rates can go up as well as down.

Sir Peter Tapsell : Has my right hon. Friend noted that when, yesterday, Japan reduced its discount rate to 2 per cent., the lowest base rate in the developed world, the Japanese yen strengthened against the European

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currencies and against the United States dollar? Does not that demonstrate yet again that the quality of industry and the level of investment in research and development ultimately determines exchange rates, and not political manoeuvres by politicians, often with little commercial experience, as exemplified by the disastrous experiment with the exchange rate mechanism and the unrealistic economic and financial convergence criteria of the Maastricht treaty?

Mr. Lamont : I hope that my hon. Friend is not suggesting--I am sure that he is not--that the recent reduction in interest rates was other than fully justified and justified by economic criteria. I certainly believe that it was. It was based on the advice of the Bank of England ; it was based on what is happening to money supply and to asset prices. I believe that the reduction in interest rates that we have had was very fully justified and a good decision.

I agree with what my hon. Friend says about Japan, but the markets, in their reaction to Japan, also take into account the fact that they have a very low rate of inflation and they have a near to balanced budget as well. That is part of Japan's strength, and my hon. Friend should remember that as well.

Mr. Andrew Smith : Does the Chancellor agree that the activities of speculators inflict enormous damage on prospects for trade, for investment and for jobs? Should not he now tell the House what the true cost of Black Wednesday really was? What proposals will he bring forward to tackle the power of the speculators? While he is at that, will he answer one very simple and important question : does he believe in managed exchange rates or in floating exchange rates? Opposition Members have had enough of his casino economy.

Mr. Lamont : As regards what the hon. Gentleman has said, I do not entirely agree with him about speculation in foreign exchange or other markets. Speculation is a fact of life. The truth is that Opposition Members have never adjusted to the fact that we live in a global economy. That is why they are so hostile to inward investment. They think that we can pursue policies on our own, regardless of the world outside.

As regards the hon. Gentleman's question on exchange rate policy, I am astonished that he should put it to us. We are totally at a loss to know whether the Labour party wants or does not want to join the exchange rate mechanism again.

Mr. Marlow : Given the recent devaluation of the Irish punt and yesterday's pressure on the Danish kroner, would it be a good thing or a bad thing for the United Kingdom if the exchange rate mechanism were to collapse altogether?

Mr. Lamont : I do not believe that it would be in the interests of this country if the exchange rate mechanism collapsed, as my hon. Friend said. I have, however, made it clear to the House on many occasions that I do not think that, in present circumstances, we can contemplate rejoining the ERM as long as economic conditions in this country and in Germany are not in step. I am sure that the whole House will want to join me today in welcoming the reduction in German interest rates which has taken place. It is something which I think should have taken place somewhat earlier.

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Balance of Payments

4. Mr. Raynsford : To ask the Chancellor of the Exchequer if he will make a statement on the balance of payments.

5. Ms. Walley : To ask the Chancellor of the Exchequer if he will make a statement on the balance of payments.

10. Ms. Quin : To ask the Chancellor of the Exchequer what the balance of trade between the United Kingdom and other countries was in 1992.

Mr. Portillo : The current account deficit in 1992 was £12 billion. Nevertheless, I find it encouraging that export volumes have been at record levels in recent months. Lower interest and exchange rates give a significant boost to our export prospects. It is vital that exporters keep down their wage costs.

Mr. Raynsford : Does the right hon. Gentleman recognise that a deficit of £12 billion in the depth of a recession is an appalling indictment of the Government's record? He used comparisons with other G7 countries in an earlier answer. Can he now tell the House what was Britain's visible trade balance with each of the other G7 countries in 1992? Was there a surplus in any of those cases?

Mr. Portillo : The hon. Gentleman makes the point which was made earlier, that the balance of payments deficit is at the bottom of a British recession. I say to him that most of the world is in recession, and our exporters must compete in that recession. It is remarkable to see export volumes of our manufacturers at a record level in the three months to December--5 per cent. up on the previous three months. It is the case that not only Britain but the world is in recession and our exporters are performing magnificently in that situation.

Ms. Walley : Why is it that we have not heard anything about the contribution that British shipping makes to the balance of payments? Does the right hon. Gentleman not agree that the contribution of the shipping industry over the past three years has been £11 billion gross and £3 billion net? Does he agree that unless he makes some contribution to British shipping, the merchant fleet of this island nation will sink without trace and the balance of payments will be much worse as a result?

Mr. Portillo : I believe that the British shipping industry is extremely important, and the hon. Lady is right to draw attention to it. Naturally, we receive all sorts of representations in the run-up to the Budget and she would not expect me to comment on that. One source of new business for the British shipping industry will be the high level of British exports of motor cars in the coming years with investment by companies such as Nissan which will export two thirds of its United Kingdom -produced cars, which involves 90,000 cars per year. That is an opportunity for British shipping which I hope the industry will be able to seize.

Ms. Quin : Is it not the case that the Government originally forecast a deficit last year of £6 billion, which was bad enough, but in reality it turned out to be twice that amount? Why did the Government get it so wrong?

Mr. Portillo : I believe that many experts were not able to predict the exact figures. I do not know why the hon.

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Lady revels in the trade figures or what point she is trying to make. I am speaking up for those people who are making a good job of exporting for Britain, and the Labour party constantly runs down their efforts. I call that deplorable.

Mr. Forman : In a world in which capital and investment flows are becoming every bit as important as trade flows, does my right hon. Friend agree that it is an encouraging sign that we still have a strongly positive balance in our net overseas assets?

Mr. Portillo : Yes. My hon. Friend is absolutely right to draw attention to that. The prediction that we have for invisibles is that our invisible surplus should double in the coming year compared with last year.

Mr. John Greenway : Does my right hon. Friend agree that the insurance and financial services industry in Great Britain is one of those industries that make a positive contribution to Britain's balance of trade? Does he agree that it is important for our insurance companies to take full advantage of the single market in insurance and, financial services and, therefore, that they need the same tax treatment as is enjoyed by companies on the continent?

Mr. Portillo : First, I pay tribute to the performance of our financial sector industries. They play an important part in the British economy. They play an important part in creating for us an invisible surplus which means that the current balance is better than the visible balance. As I said a moment ago, we expect that invisible balance to improve in the coming year. I do not think that my hon. Friend will expect me to comment now on the tax treatment of financial industries.

Mr. Evennett : Does my right hon. Friend agree that it is time to congratulate our exporters on their magnificent efforts on behalf of Britain and to urge industrialists and other exporters to take advantage of the benefits of low inflation and low interest rates to export even more for the benefit of Britain?

Mr. Portillo : My hon. Friend is absolutely right. Over the recent period, car exports have risen by 23 per cent. We are now a net exporter of television sets. The pharmaceutical industry has pushed up its exports by 16 per cent. in the past year. All those industries are surely worthy of congratulation. That is why it is so depressing to hear the Opposition talk as though those acheivements had not occurred.

Mr. Oppenheim : Is not the truth of the matter that in the long term our balance of trade was in serious decline every year since the war until 1979 and that in recent years, for the first time, our share of world trade in exports of manufactures has stabilised and improved slightly? Are not structural reforms, expecially reforms of education which Labour has opposed, the best way to ensure a long-term improvement? Would not the worst policy be to go back to the bad old days of penal corporate tax, with union militancy, which hamstrung British industry and forced multinationals such as Ford and General Motors to fall over themselves to resite manufacturing away from Britain?

Mr. Portillo : My hon. Friend is right. For some decades, the United Kingdom's share of world trade in manufactures was in decline. During the 1980s that share

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stabilised, and we predict that it will rise in the year ahead. My hon. Friend is right to say that one of the reasons for that is the improvements that were made in the efficiency of the British economy and, in particularly, the reforms on the trade union side. My hon. Friend will need no reminding that we have recently seen jobs move from Dijon to Scotland precisely because, as President Delors said, Britain is a paradise for foreign investment.


6. Ms. Short : To ask the Chancellor of the Exchequer what assessment he has made of the causes of the increase in unemployment since 1979 ; and whether he will make a statement.

The Economic Secretary to the Treasury (Mr. Anthony Nelson) : The level of unemployment since 1979 has been influenced by a number of factors, including the cyclical performance of the economy, the growth in the size of the labour market and the competitiveness of British industry. Government policy is to create the conditions for sustained growth in output and jobs, and to make the labour market work efficiently.

Ms. Short : Is not the truth that in the 14 years during which the Government have been in power unemployment has risen from slightly more than 1 million to 4 million on the old method of counting and that that is a disastrous record for people who are unemployed? It is disastrous also because it leads to massive Government borrowing and it partly explains our balance of payments crisis. We need an apology, a U-turn and a Government who get unemployment down and investment up. Otherwise, the long-term future of our economy is deeply worrying.

Mr. Nelson : The Government are, of course, concerned about the hardship and uncertainty which unemployment visits on individuals and families, but 1.3 million people more are employed now than 10 years ago. Unemployment has been rising in all the EC countries and all the G7 countries during the years in question. It remains a fact that a higher proportion of our adult population is employed than in any other EC country except Luxembourg and Denmark.

Mr. Mans : Does my hon. Friend agree that the Prime Minister's recent success in the middle east in selling Tornados to Saudi Arabia has resulted in 12,000 extra jobs in Lancashire and that Lancashire now has a lower unemployment rate than Hampshire, Kent, Essex or Hertfordshire?

Mr. Nelson : My hon. Friend is right. The very important deals concluded by my right hon. Friend both with the sultanate of Oman and with Saudi Arabia have major employment implications nationally and regionally and should be welcomed by the whole House.

Mr. Beith : Has the Treasury made an examination of the likely costs of a workfare programme and, if so, have the results been communicated to the Prime Minister?

Mr. Nelson : I acknowledge that there is, rightly, growing public interest in the remarks of the Prime Minister last night. My right hon. Friend opened the debate and it is for Lord Wakeham, who is chairing a committee looking into various aspects of the matter, to produce some conclusions. It is important to remember

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that my right hon. Friend was not referring to workfare. That has been added to his remarks subsequently-- [Interruption.] Those who examine his words will see that my right hon. Friend talked about "offering or requiring some activity from unemployed people in return for benefit."

That already happens to some extent, and there is no reason why we should not consider ways of building on that.

Mr. John Marshall : Has the Minister made a survey of the impact of inward investment on the level of unemployment, and has he made a survey of what would happen to inward investment if we adopted the social chapter?

Mr. Nelson : My hon. Friend rightly draws attention to the important impact of inward investment on employment in the United Kingdom. It is a matter of congratulation for the policies of this country and the attractions of our regions that we have taken the lion's share of inward investment, certainly from Japan. My hon. Friend is right to point out that that has implications for employment and to draw attention to the fact that much of that would not have happened if we had imposed labour costs required by the social charter which have proved such a disadvantage to others and an attraction towards ourselves.

Ms. Harman : Is the Minister now distancing himself from the Prime Minister and--we want to be clear about this--are the Government now in favour of workfare?

Mr. Nelson : Obviously, as I said, the Government are conscious of the growing public interest in the matter and, in particular, the question raised by the Prime Minister about whether paying benefit to the unemployed without requiring any activity in return is helpful to the unemployed or to society as a whole, but no decisions have been taken and I cannot anticipate whether any new measures will be introduced.

Mr. Streeter : Does the Minister agree that the best and perhaps the only way to create new jobs is to put in place the right conditions for economic growth, which are low inflation and low interest rates? Does he agree that those are precisely the conditions that the Government have now put in place?

Mr. Nelson : My hon. Friend is spot on. Nobody can deny that low inflation and low interest rates are a pre-condition for a return of confidence, but it is important also to contain wage settlements and labour costs, both of which have been falling sharply.

Yorkshire and Humberside

7. Mr. Hinchliffe : To ask the Chancellor of the Exchequer what assessment he has made of the impact of his policies on Yorkshire and Humberside.

Mr. Nelson : I pay attention to a range of statistics and information--for example, the economic survey of the Association of Yorkshire and Humberside Chambers of Commerce, which showed an improvement in sales, exports and business confidence for the fourth quarter of 1992.

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Mr. Hinchliffe : My children aged seven and four have asked me to press the Government on their concern about the fact that the ice cream man no longer comes down our street-- [Interruption.]

Madam Speaker : Order. Such interruptions are a tremendous waste of our valuable time.

Mr. Hinchliffe : How do I explain to my children that the ice cream man has joined the 250,000 other unemployed people in Yorkshire and Humberside and that his company, which produced excellent ice cream for generations of my constituents, has gone bust and is yet another casualty of the Government's lunatic economic policies?

Mr. Nelson : I am sorry to hear about the ice cream man. I must confess that that was one supplementary question that I did not anticipate, but perhaps I can say to the hon. Member, as someone who frequently visits his constituency and knows that area well, that perhaps his children will take more comfort from the fact that Wakefield has been chosen as the site for the British Rail channel tunnel freight centre. That will mean a £150 million scheme involving the employment of some 4,900 people. Is that not good news?

Sir Donald Thompson : Will my hon. Friend bear in mind that industry in West Yorkshire is among the most prosperous in the country and will he make sure that he and his colleagues do nothing either fiscally or regionally to disturb those deep-rooted businesses?

Mr. Nelson : I agree entirely with my hon. Friend. I would only add that since this Government came to office some £300 million of Government support has been made available to companies in the region to create and safeguard jobs. Added to the investment and enterprise in the area, that is a powerful combination which should give encouragement and confidence.

Value Added Tax

8. Mr. Tony Lloyd : To ask the Chancellor of the Exchequer what recent representations he has received concerning rates of VAT.

11. Ms. Estelle Morris : To ask the Chancellor of the Exchequer what recent representations he has received concerning rates of VAT.

The Paymaster General (Sir John Cope) : Many representations have been received, and these will be considered in the run-up to the Budget.

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