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Mr. David Shaw : Will the right hon. and learned Gentleman give way?

Mr. Smith : No.

To be fair to the ex-Chancellor from whom we have heard today, he reminded us in his last public speech

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before today that his biggest problems, one might say his major problem, had been inherited. It was a cruel twist of fate to have to succeed the right hon. Gentleman the Prime Minister. No doubt he is now reflecting that he is well out of it all.

There is proof abundant that this is a Government who are untrustworthy and incompetent--deeply untrustwor-thy, hopelessly incompetent. Perhaps their most defining characteristic is an aggressive, bullying and dogmatic obstinacy which assumes that they are entitled to control our affairs without the slightest recognition of the expertise of others or any opposing opinion.

The tragic farce of the education tests is a case in point. The Government are now a laughing stock as boxes of unopened test papers accumulate in schools all over the land. Of more than 4,000 secondary schools, only a handful took part. It is not that the Government were not warned ; parents, teachers and head teachers unitedly told them they were wrong, but the expertise of the teaching profession is of no interest to the arrogant Secretary of State for Education. Even the right hon. Gentleman's own advisers could not stay on the obviously sinking ship. The noble Lord Skidelsky attacked what he called "the Byzantine complexity" of the proposals :

"I was amazed,"

he said,

"at how insensitive they were to spending large sums of money on things that were no good."

He should not have been so surprised ; they have a long record of doing just that. At a time when educational spending is under threat, perhaps it is worth remembering that the Government's own advisers tell us that this year's tests alone will cost £35 million. It is of course interesting that the Government propose tests only for schools in the public sector. If they are such good news, why are the private schools to which most Conservative Ministers send their children not covered by the tests at all? Ministers know perfectly well that private schools do not want them, and they will not have to accept them--one role for schools that the Government favour and another for the rest. That is hypocritical as well as dogmatic. Fresh from those triumphs, the Secretary of State for Education is on a collision course again with parents, teachers and head teachers, with his threats to end graduate status for primary school teachers--ideas much more associated with the last century than with the next. When will the Government learn that the teaching profession is the fundamental profession? It should be strengthened, supported and encouraged--not threatened, undermined and abused.

Dr. Robert Spink (Castle Point) : What is the right hon. and learned Gentleman's view on testing? Would he abandon the three children in 10 who leave school still unable to read and write properly? How does he intend to drive up education standards? What is his education policy?

Mr. Smith : There is a perfectly good case for sensible tests agreed with the teaching profession and with parents--as is occurring in another part of this country which is not England or Wales, but which happens to be governed by the same Government. That is how the issue is being

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approached there, and there is no reason why the same cannot be done in England and Wales. It is not the principle of testing that is in question but the ham-handed, arrogant and foolish way in which this incompetent Government have handled it.

What possible justification can there be for the absurdities being proposed in the name of rail privatisation? What on earth makes the Government so determined to scorn the opinions of transport experts and of nearly every member of the travelling public? Hardly a day goes by without more evidence of the cost, folly and dangers of the Government's privatisation plans.

The latest assessment by Steer Davies Gleave, a transport consultancy that the Government themselves use, shows that the operating costs of a privatised rail network are likely to be £500 million more than the existing system. A Government in the grip of the privatisation virus appear immune to such compelling evidence.

Mr. David Tredinnick (Bosworth) : Were not the same arguments deployed against bus privatisation, which has been an overwhelming success?

Mr. Smith : I do wonder about the Conservative party. One does not have carefully to prepare traps for it--it invents its own. Is the hon. Gentleman aware of what the people of this country think about bus privatisation? I dare say that he has not been on a bus for some time.

Even worse, this week ABB Transportation, better known as British Rail Engineering Ltd., announced 900 redundancies because of a shortage of new orders amid the uncertainties of rail privatisation. That company is the only British rolling stock manufacturer that makes all its components here in Britain. Thus is delivered a further blow to British manufacturing capacity and to the skills that are needed to sustain it.

We know from other privatisation examples that the principal victims of the process are British suppliers--whether it is coal equipment, buses or trains. If we lose manufacturing capacity at York, Crewe and Derby, the inevitable result is that future rolling stock, whether for the national railway system or for London Underground, will have to be purchased abroad, adding a further dangerous twist to our already serious balance of payments deficit.

We hear platitudes from the Prime Minister about his concern for manufacturing industry, but his policies do it the most deadly damage. Evidence of that is vividly shown not just in public finances, serous though they are, but in two other crucial aspects of economic performance-- high and continuingly high unemployment, and a dangerous balance of payments deficit.

Britain has the worst deficit of the Group of Seven leading industrial countries. Most alarming of all, even after the last Tory record-breaking recession, there was a balance of payments surplus of £6.7 billion at the end of the cycle. This year, as we struggle for recovery, we face an enormous £17.5 billion deficit--which, according to the Budget, is forecast to be even worse in 1994, at £18.5 billion.

That simply reflects 14 years of neglect of Britain's manufacturing sector. In sector after sector, there really is no adequate British industrial capability. Our economy is too small to be able to create the wealth on which we need

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to rely. As Goldman Sachs commented in its latest economic review--it put it quite well--the British economy has suffered from "an apparently permanent shift in the structure of the economy towards excess consumption and away from manufacturing, investment, exports and employment"--

all the things that really matter to a successful economy. That is the key problem with the British economy. All the other depressing symptoms that we have to consider flow from that central cause. That is why we need a wholly new start in economic policies, not just a shuffle of personalities. It was deeply depressing that the need for a new approach was totally ignored by the Chancellor of the Exchequer when he breezily appeared on Radio 4 this morning. What we need is what the Opposition have long argued for--an industrial policy that recognises that Britain's fundamental wealth creator is our manufacturing industry, and that supports it by the encouragement of sustained investment in new technology, research and development, regional policy and, above all the skills of our work force.

Dr. Spink : Will the right hon. and learned Gentleman give way?

Mr. Smith : I have given way already.

It is depressing that, as today's Financial Times reports, a Department of Trade and Industry study shows that United Kingdom companies spend significantly less than our competitors on research and development, and it is extremely worrying that the United Kingdom share of United States patents has fallen from 10 per cent. in 1980 to 6 per cent. in 1991.

No wonder that, when Management Today, in its latest issue, asked leading industrialists whether they felt that the Government had a clearly defined industrial policy, 90 per cent. said no. When they were asked whether they believed that the present Government's policy was the most effective for United Kingdom industry, again 90 per cent. said no. They understand that the purpose of an industrial policy is to co-ordinate to maximum effect investment, regional development, technological improvement and export performance. We believe that to be vital ; it is, after all, what other successful countries do.

We need a new approach to tackle Britain's intolerable level of unemployment. Do not the Government yet realise that the biggest drain on our public finances is the cost of the unemployment that they have created- -£9,000 a year for every person unemployed? It is the greatest misery in modern Britain--for individuals, families and whole communities--and, perhaps worst of all, a massive waste of invaluable human resources. We need action on unemployment, and we need it now.

I again ask the Government to act to help our beleaguered construction industry. Why do not the Government do what we and so many others have urged and allow local authorities to spend their own capital receipts on house building and house improvement programmes, helping both the homeless and the hundreds of thousands of unemployed construction workers? Once re- employed, those workers will start to pay taxes instead of drawing benefits, and companies will make profits on which they will pay taxes, rather than declaring losses on which they pay no tax at all.

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This policy is backed by the construction industries, local authorities, the Institute of Housing and many City commentators. Midland Montagu has urged the Government

"to leap at the opportunity of adopting a policy full of common sense and compassion that efficiently targets the homeless, the housing market, the construction industry, and the South East." All we have heard from the Government is the usual dogmatic and obstinate refusal.

It is no wonder that the Government have slumped in popularity. According to the front page of today's Daily Telegraph --on which I rely for my information about the Conservative party--senior Tories on the 1922 Committee executive are to hold an inquest on the failure of the ex- Chancellor's sacking to halt the biggest slump in morale since the Profumo affair 30 years ago. No doubt the Prime Minister will dismiss this too as scaremongering, but as a principal participant in the Profumo affair might have said, "He would say that, wouldn't he?"

But he knows, does he not, the menace of these men in grey suits? After all, he was the beneficiary of their deadly manoeuvres against his predecessor--although he no doubt reflects that, while it took 10 years to move against her, after only 12 months they have him in their sights. If I were he, I would worry most if they sought to reassure me. Most of all, I would worry if they sought to show their solidarity with a man in a spot of bother by giving him a present--perhaps a watch inscribed, "Don't let the buggers get you down." After all, it appears to be a coded message that it is time for an early and a swift departure.

The Prime Minister cannot complain about the giving of a watch. He himself says that it is not a hanging offence. What we know, from the botched reshuffle and the abrupt dismissal of the former Chancellor, is that a hanging offence in this curious Government is loyally to carry out the Prime Minister's own policies, especially to the accompaniment of effusive declarations of his support.

The British people deserve a better Government, for they dislike intensely the concoction of betrayal, incompetence and dogmatism which are the characteristics of the present occupants of the Treasury Bench. What people are beginning to dislike just as much is the low ambition that these people have for our country.

The people of Britain do not want the low-skill, sweatshop economy which is the miserable Tory response to the challenge of competiton from Europe and the wider world. What they want is for us to become a high-skill, high- tech, high-wage economy, able to compete with the best and to succeed on the basis of our ability and the quality of our products in the markets of the world.

Mr. David Shaw : What are you frightened about? Why will you not answer a question on the nepotism and corruption on Monklands district council? [Interruption.]

Madam Speaker : Order. Unless the hon. Gentleman resumes his seat and stays there, I shall take disciplinary action against him.

Mr. Smith : The people of Britain do not want any more years of high and debilitating unemployment, which destroys opportunity, squanders talent and wastes our resources. They want economic policies which support steady growth and rising employment, and which give our young people a chance to succeed.

The people of Britain do not want to see competition and dogma in the classroom. They want the best possible

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education for their children in properly resourced schools from teachers whose vital contribution is valued, not scorned. They do not want the ever-increasing commercialisation of their health service. They want once again to feel secure in the knowledge that, when it is needed, they will be able to obtain the care that they and their families need at the time that it is required. The people of Britain do not want a Government who twist and turn, who betray their promises and dishonour their pledges. Above all, they want a Government that they can trust. No amount of reshuffling, repackaging or re-presentation can now disguise from the British people the stark reality of a discredited Government, presided over by a discredited Prime Minister.

4.33 pm

The Prime Minister (Mr. John Major) : I beg to move, to leave out from House' to the end of the Question and to add instead thereof : welcomes the widespread indications of economic recovery in the United Kingdom at a time when many other major economies are in deepening recession ; recognises that the interests of industry are at the heart of the Government's policy and acknowledges the comprehensive programme of training and employment opportunities for unemployed people that the Government has put in place ; welcomes the Government's commitment to its Manifesto pledges including its commitment to improving the efficiency and effectiveness of public services through the Citizen's Charter ; deplores the scare-mongering stories about public spending peddled by the Opposition ; and applauds the Government for its determination to maintain low inflation, sound public finances and firm control over total public expenditure upon which a sustainable economic recovery depends.'. As the right hon. and learned Member for Monklands, East (Mr. Smith) sits down, I have little doubt what is in his mind : "That'll keep John Edmonds quiet for a week or so."

Before I turn to the substance of the debate, I wish to say a word or two to my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) regarding his remarks at the commencement of today's debate. In his speech, my right hon. Friend spoke of a number of matters of very great importance, including the case that we have discussed on many occasions over the past two years for an independent central bank.

I share my right hon. Friend's loathing of inflation. That is an issue that we discussed frequently. We both saw the case for an independent central bank, able to take decisions on the implementation of monetary policy. There is a genuine case for that. I do not dissent from my right hon. Friend's remarks about it. The very real concern that I have always faced is one that I believe is spread widely across the House : the need for accountability to Parliament for decisions on monetary policy matters. Were a way to be found to get the benefits of an independent central bank without the loss of parliamentary accountability, my views would be very close to those of my right hon. Friend, but I have to say to my right hon. Friend--I believe, from our many discussions, that it is a view he shares-- that what is more important than the institutional arrangements is the underlying policy that is actually being followed. On that, I do not believe that an independent central bank would have brought down inflation any more rapidly than we

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have been able to achieve. [Interruption.] That is something for which I am happy to pay tribute to my right hon. Friend.

Also, I entirely share my right hon. Friend's vision of the economic goals of this Government-- [Interruption.] --and of the difficult path that we have had to follow to achieve and maintain low inflation and restore sustainable growth-- [Interruption.] --and employment. My right hon. Friend and I-- [Interruption.]

Madam Speaker : Order. The House must settle down. Hon. Members do not have to listen, but whoever is speaking has to be heard. There is a great distinction between those two statements. The Prime Minister.

The Prime Minister : My right hon. Friend and I faced crises both before and after September last year. We worked together towards objectives that we shared, and we were always agreed as to our main goals : low inflation, sustainable economic growth, an increase in prosperity for all our people as medium and long-term objectives. I believe that history will look favourably on my right hon. Friend's economic and financial skills, but a strong Government need political skills as well-- [Interruption.] --when leading a democratic society and, in particular, when handling a lively House of Commons with a small majority.

Dealing with the problems of a small majority is a fundamental fact of democracy that no one dare or should even attempt to overlook. However, as we have shown in the battle over inflation and in our pursuit of European policy, against great difficulties in this House, we were not prepared in the Government to allow short-term difficulties to deflect us from what were the right long-term policies for this country. That was the position, and it is the position.

I am grateful to my right hon. Friend for his support and help throughout the past two and half difficult years. I acknowledge the difficulties that he has faced and the courage with which he has faced those difficulties, and I accept the support that he has offered to the Government for the future. I welcome the opportunity to debate economic policies at a time when output is up, exports are up, productivity is up, confidence is up and, as announced today, when business starts are up.

The right hon. and learned Member for Monklands, East has just made the speech that we expected of him. At the end of it, we are no better informed about his economic policies than we were at the beginning of it--or even about whether he has any economic policies or whether he has progressed beyond the sound bites that so frequently construct them.

We do know something about the right hon. and learned Gentleman. We know that he is the man who announced the biggest tax increase in peacetime history, just before the general election. He is the man who said confidence would carry on falling, just before the CBI announced the highest level of confidence in 10 years, and he is the man who calls for a debate on the economy just as the economy is recovering. I hope that, with timing like that, the right hon. and learned Gentleman never takes up boxing, because it would be very painful. Many things can be said about him, but "floats like a butterfly, stings like a bee" is clearly not among them.

What does seem right about the right hon. and learned Gentleman was said by the right hon. Member for

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Chesterfield (Mr. Benn). I remind the right hon. and learned Gentleman what his right hon. Friend said about him :

"I do not think that Members of Labour's Front Bench would have even two ideas about what to do with the economy if they came to power a series of sound bites glued together and called an economic policy is not an economic policy."--[ Official Report, 20 May 1993 ; Vol. 225, c. 420.]

That remains as true at the end of the right hon. and learned Gentleman's speech as it was before.

Today's debate goes right to the heart of the fundamental divide between the Conservative party and the Labour party. The Labour party stands for higher public spending, higher taxation and more state interference in business and industry. We stand for controlling public spending, bringing direct taxation down where we can and getting the state off the backs of businesses and individuals. Let me deal with one matter that was fundamental to the right hon. and learned Gentleman's speech. Let me turn immediately and clearly to social policy. I did not come into politics to dismantle the welfare state. I have no intention of doing so and neither does my party. At the moment, in different parts of the country there are many vulnerable people who are worried. They are worried because the Opposition systematically, day after day, leak after leak, sound bite after sound bite, have sought to frighten them. The Opposition have peddled scare after scare--

Several hon. Members rose --

The Prime Minister : I will give way later.

The Opposition have peddt the man to spread scare stories ; surely not a man to condone scare stories, so let me be charitable to him. Perhaps he did not know--had no idea--when the hon. Member for Livingston (Mr. Cook) swore that we would privatise the national health service, when the right hon. and learned Gentleman must have known that that was untrue. He could not have known about that, because he is an honourable man.

What did the hon. Member for Holborn and St. Pancras (Mr. Dobson) say? He said that the Government were

"threatening to cut pensions and benefits for the worse off." In the autumn statement 13 days later, pensions and benefits rose. I am sure that the right hon. and learned Gentleman did not know what his hon. Friend would say, because he is an honourable man and would not have sanctioned it.

It was the right hon. and learned Gentleman's party that repeatedly claimed that trust hospitals were leaving the health service. They were not : the Labour party knew that they were not, yet it needlessly scared sick people for a vote or two, time after time. The right hon. and learned Gentleman could not have authorised that, because he is an honourable man--or so I had thought. But then I discovered what he had to say :

"What's going on will lead to the privatisation of the NHS." That was flatly untrue, of course, and another scare. I wonder who could have spread it? The right hon. and

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learned Gentleman spread it. In the Labour party the scares come from the top and behind that moral righteousness is someone who has no scruples whatever.

The right hon. and learned Gentleman claims that the Conservative party won the election by telling untruths. Let me remind him about that election. It was his party that published 10 patient case histories and had to withdraw them when it turned out that it had made them up. It was his party that made up untruths about a sick little girl and spread them across the country. That is the party that dares to talk to us about standards. There is a word for that, but it is not parliamentary.

Let me turn to the subject of public spending. The Government know that, if the economy is to grow, the tax man cannot take more of the proceeds than the country can afford. In the Conservative party, we understand that people want more money in their own pockets and do not want the Government to spend their money for them. Of course, in the recession, spending had to increase. I do not apologise for that increase in spending--it was necessary in the recession and it was necessary to protect the vulnerable. I saw no support from Labour Members for any expenditure reductions throughout the recession and every support for dramatic increases week after week from every Member of the Opposition parties.

Mr. Calum Macdonald (Western Isles) : Will the Prime Minister give way?

The Prime Minister : Later.

During that recession, not only did expenditure necessarily rise but income necessarily fell and that added to the borrowing requirement. Even though a great deal of that will reverse as growth returns, it is going to take time. That is why we have embarked on the public spending review. Governments have to take difficult decisions. We have to face structural increases in public spending, as any Government would. There are demographic changes, changes in student numbers and more elderly people, especially the very old. As we address those problems, the Opposition gaily spread mischief--a little fib here, a little scare there--yet as it does so it is carrying out a review into social expenditure. It does not have the courage to do it directly ; it has farmed it out to the commission on social policy. The only form of contracting out that the Labour party approves of is contracting out difficult decisions to other people.

The right hon. and learned Gentleman cannot run away from what he said :


--that is, the Labour party--

"should be prepared to re-examine everything. I have not ruled anything out".

That is its position on social policy and Labour Members nod in agreement. Daily, the Labour party invites us to rule things out, while it examines everything--pensions, child benefit and every other aspect of social policy.

How responsible the right hon. and learned Gentleman is. I suppose that that comment shows that he wants to grapple with real problems, but when he faces other audiences, he wants to rule everything out. Which is the real right hon. and learned Gentleman? The gritty, determined facer of problems who wants to examine everything where nothing is ruled out, or the wriggler, twisting and turning, saying one thing to one audience and another thing to another audience?

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Mr. John Garrett (Norwich, South) : Could the Prime Minister, First Lord of the Treasury, tell us what he was doing during the long period of recession, which has caused so much misery throughout the country? Was he looking the other way? Was he train spotting? Was he walking into cupboards? Has there ever been a more wimpish approach to the problems that face this country than that which he has shown?

The Prime Minister : I shall tell the hon. Gentleman directly : we have been presiding over a policy that brought inflation down to 1.3 per cent. and interest rates down to 6 per cent. so that this country is now poised for the largest growth in the European Community this year, next year and probably for the years beyond that. We have been taking the long- term view, not the short-term, option. That is what we have been doing--I am grateful to the hon. Gentleman for giving me the opportunity to point that out--while he has opposed every policy that has brought down inflation and interest rates.

The Opposition will be glad to know that our review of public spending will be careful and thorough. There will be two criteria : are any changes fair, and are vulnerable people protected? When the answer is no, we shall not make the changes. When the answer is yes, we shall set out to the House the implications of those changes. There are no soft options. The Government's duty is to examine them all and pick the right ones. We know that we need to reduce public borrowing, which is why, in the last Budget, we decided that some increase in revenue was necessary.

We decided to introduce value added tax on fuel and power, not least because it would help meet our Rio commitments, commitments that the Opposition urged us to extend. We had every reason to expect cross-party support. The Liberal Democrats had stated in their green paper :

"Liberal Democrats advocate as a first priority the imposition of a tax on energy The UK is unusual amongst EC members in not applying even standard rates of VAT on domestic fuels we would press forward by ending the anomalous zero rate of VAT on fuel".

Where were those men of principle in the Division Lobbies after the Budget?

What did the Labour party say? It said :

"Zero rating on items such as food, fares, books and children's clothing should remain as an essential part of the VAT system." That was quite clear. It continued :

"We will also use the tax system, as well as regulation, to help protect the environment."

That can mean only one thing. In the list of zero-rated items, there is no reference to zero rating for domestic fuel. The Opposition intended to put it up, and they know it. If they did not, will they tell me now why it was not in their list of zero-rated items? The right hon. and learned Member for Monklands, East does not answer--no doubt, as a QC, he believes in the right to silence for an accused.

When we introduced VAT on fuel and power, we made it clear that there would be extra help for less well-off pensioners and others on low incomes. I am glad to repeat that commitment. In recent months, the right hon. and learned Gentleman has made a great deal of the VAT increase, as have his hon. Friends.

Ms Hariet Harman (Peckham) : So have the voters.

The Prime Minister : So did the voters, says the right hon. Lady. What the right hon. and learned Gentleman did not mention is that he was the Energy Minister who let

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electricity prices rise. What was the increase--5 per cent., 10 per cent., 15 per cent.? No, it was 30 per cent. over and above inflation. What did the right hon. and learned Gentleman do to help the less well-off? I shall tell the House what he did--absolutely nothing. The position is clear.

The right hon. and learned Gentleman cares about pensioners when he is in opposition--how he cares about pensioners in opposition--but in government he disregards them absolutely. One may think that that was a single lapse but, in case anybody thinks that that is so, let me say that the right hon. and learned Gentleman was a member of the Government who twice held back the Christmas bonus and cut capital spending on the health service. That is his record, and he should be ashamed of it.

There is another case where the right hon. and learned Gentleman's actions do not match his words. Today, he again attacked our borrowing levels, but his election promises would have put up borrowing way above the present level. He is still at it. "Let's spend £6 billion of capital receipts," says the right hon. and learned Gentleman. "Let's spend an extra £1.5 billion on public sector pay." The shadow Chancellor says, "Let's renegotiate our rebate and pay more to the European Community."

Is there any area of Government spending that the Opposition are prepared to cut? Perhaps the shadow Chancellor can tell us. Perhaps we could have another sound bite to tell us where he would find the necessary savings. Or perhaps the deputy leader of the Labour party can tell us ; after all, she came into government to implement the cuts in education that her hon. Friend the Member for Eccles (Miss Lestor) refused to make.

Mr. Geoffrey Dickens (Littleborough and Saddleworth) : Will my right hon. Friend explain why, if the Opposition are sincerely worried about the disadvantaged people of this country, they demand more and more overseas aid, day in, day out? [Interruption.]

Madam Speaker : Order. We all like a little bit of fun and hilarity, but we also want to hear the Prime Minister.

The Prime Minister : The fundamental point about overseas aid is that, in order to sustain it as the Government have done, one needs to pursue the right economic policies, as we have also done. I am glad that the motion mentions manifesto promises--glad, but a little surprised because the right hon. and learned Gentleman has scrapped all his election promises. We stand by our manifesto policies. We promised action on trade unions, housing, lotteries, railways, education and asylum, and we have kept our promises. Bills on each of those matters have already passed through the House. We promised to uprate pensions and benefits, and we have done so. We promised to maintain child benefit, and we have done so. We promised to increase real resources for the health service, and we have done so ; year on year, spending is at record levels. They are the promises we made, and we have kept each one.

Mr. John Fraser (Norwood) : When the Prime Minister went on his trip down memory lane to Brixton and other ethnic areas, did he tell the people that he was going to take away the right of appeal for visitors?

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