House of Commons Hansard Debates for 9 Jun 1993

Mr. James Clappison (Hertsmere) : The debate has touched on some important issues, such as public spending, revenue and the borrowing requirement, but it has also had some of the characteristics of a parliamentary set piece and all the rituals that go with such an occasion. There were all the charges, counter-charges, froth and bubble that one usually associates with such occasions. The right hon. and learned Member for Monklands, East (Mr. Smith) took his full part in the ritual, as did the right hon. Member for Yeovil (Mr. Ashdown), but with--I do not mean to be too damning of the right hon. Gentleman--much less skill than the right hon. and learned Member for Monklands, East.

I would not concur with the judgment of the hon. Member for Alyn and Deeside (Mr. Jones) that the right hon. and learned Member for Monklands, East was hypnotic. I do not think that the public will be entranced by his lack of alternative concrete policy. The test that the right hon. and learned Gentleman must pass will come later, not today.

Opposition Members should not have too many illusions about public confidence in the Labour party and the policies that it has espoused over the past 14 years. In particular, they should have no illusions about the extent to which Conservative values are now shared. Those values are now shared more widely than ever before among the electorate, particularly values concerning the delivery of high-quality public services and value for money. [Laughter.] The hon. Member for Great Grimsby (Mr. Mitchell) may find that remark funny, but I am sure that the people of Grimsby do not. It is an important issue throughout the country.

Opposition Members should have no illusion about the need for sound finance, which has been an important hallmark of the Government over the past 14 years, the need to constrain public expenditure as a proportion of national income and the need to aim to balance the Budget over the Budget cycle.

I concur with what my right hon. Friend the Member for Worthing (Sir T. Higgins) said about timing and economics and about economic judgments being somehow different from judgments that are made in everyday life. Of course that is right, but Conservative values are echoed throughout the country. That is particularly true in respect

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of public services. Whatever other charges can be levelled against Conservative Front-Bench Members, it cannot justly be said that over the past 14 years there has been a lack of resources in public services, and certainly not when measured in real terms. That is true in respect of education and health.

On education, it was noticeable that the right hon. and learned Member for Monklands, East chose to make testing the focus of his attack on the Government. It is an important subject and there is certainly an issue about the administration of such tests, but it is not the touchstone of whether adequate revenue and resources have been devoted to education.

I should have thought that there was a more accurate reflection of the increase in real terms of expenditure on education and the vastly increased proportion of young people who are now entering higher education compared with the number under the previous Labour Government. Opposition Members talk about a high-skill economy and a better trained and educated work force. They might care to reflect on the fact that nearly one in four school leavers now go into higher education, compared with one in eight under the previous Labour Government.

Whatever Opposition Members might say about health--of course they disagree with the health reforms and think that the Government are wrong--they cannot dispute that spending has increased massively by about a half in real terms over the past 14 years. Opposition Members used to talk about the proportion of gross domestic product spent on health. That proportion, too, has risen. There has been a massive increase in resources, which has been reflected in public confidence in the quality of our public services, particularly the health service and education, and that has been reflected in election results over the past 14 years.

Opposition Members have talked about public finances. I echo the sentiment that was expressed by my right hon. Friend the Member for Horsham (Sir P. Hordern) when he talked about the state of finances and considered the timing of public finances, especially debt and debt repayment. Over the past 14 years, although public spending has increased in real terms, the Government have had success in constraining the proportion of Government expenditure as a proportion of national income.

They were able to bring the proportion beneath 40 per cent., which was a considerable achievement. They have also had considerable success in balancing the Budget. As my right hon. Friend the Member for Horsham rightly said, repayments of debt were made until as recently as 1990. For a substantial part of the latter 1980s, repayments were made, and that reduced the absolute level of debt. We all know that things have changed since then, in large measure because of the recession.

I must now express the views that were forcefully put to me in my county of Hertfordshire. Hertfordshire is one of the areas of the south-east that have endured the recession. It had a good period in the middle of the 1980s, but it went into recession earlier than some other parts of the country. By its good standards of prosperity and growth, it has suffered during the recession. I am glad to say that the people of Hertfordshire have kept faith with the Conservative party over that period, and they look to the

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Conservative party to provide growth now. Certainly, there is no lack of concern about unemployment in Hertfordshire. Conservative Members feel for our constituents who have endured unemployment and for businesses that have had to struggle. There is no doubt about the struggles that many have faced.

The most important issue for the success of local economies, the national economy and the state of public finances is growth. Just as recession led us into the current state of public finances and the public sector borrowing requirement of £50 billion, so we must look to growth to put workers back into jobs and to put businesses back into profit--workers working once again and paying tax as before. We have to look to growth as the principal way of dealing with the public sector borrowing requirement.

I firmly endorse the use of the word "fragile" by my right hon. Friend the Member for Worthing. It was an apt description ; growth is fragile. In the past few weeks, I have spoken to many business men, business men's leaders, local chambers of commerce, the Confederation of British Industry and others, and the word "fragile" has been used many times. They are delighted to see the signs of growth. Across the board, they see growth coming and a change in the atmosphere, but the word that keeps coming back is "fragile". They believe that growth is being sustained, but that it needs to be nurtured and built on. I strongly endorse the comment of my right hon. Friend the Member for Worthing that the overriding priority must be the nurturing of growth. All other policies must be subordinate to that, both for the sake of businesses and for the sake of the PSBR and the country's finances. Anything that disrupted that growth or that turned us back into recession would have a bad effect on public finances, as well as being undesirable from the point of view of business. I urge Ministers to make the matter a top priority. That is the test that the Government and Opposition Members will face. The real test for Opposition Members does not lie in the ritual of these set-piece occasions ; it is whether their policies are more or less likely to bring about growth.

Mr. Andrew Smith (Oxford, East) indicated assent.

Mr. Clappison : I am glad to see that the hon. Gentleman agrees. That is the first time today that real commitment has been given to growth. The Leader of the Opposition made a speech which, although it involved great ritual, did not set out Labour's alternative strategy for growth satisfactorily. We heard little about what the Labour party has set forward as its policies for growth.

Where are those policies? The minimum wage, the centrepiece of the Labour party's main policies, is one of the few policies not discarded since the election. The hon. Member for Oxford, East (Mr. Smith) looks less interested now. Does he think that that policy is more or less likely to promote growth? More important, what do business men, who are more reliable witnesses, think? Can the hon. Gentleman find many business men who support his contention that the minimum wage would improve job prospects and growth?

I can tell the hon. Member for Oxford, East that business men in my constituency are not exactly dancing with glee at the prospect of a minimum wage, nor are they dancing with glee at the prospect of being signed up for the social chapter. That does not lead business men to have any joy in my constituency--nor, I suspect, would it

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induce international investors to queue up for an aeroplane ticket to London rather than to Frankfurt or Paris.

We could also do with less talk about sweatshops. There should be less of that derisive talk. That expression was used again this afternoon by the right hon. and learned Member for Monklands, East. It does this country no good whatever to hear that sort of talk. What is important is for the competitive advantages of this country to be sold abroad as effectively as possible and not to be talked about in terms of sweatshops. Thousands of constituents of hon. Members on both sides of the House are benefiting from that internationally competitive position, attracting inward investment into this country.

Ms Ann Coffey (Stockport) : I wonder whether the hon. Gentleman is aware that, in a recent survey in Japan among Japanese firms that were asked about the factors that encouraged them to invest in this country, labour cost was the least consideration. The consideration that was important to those firms was local authorities' enthusiasm for their being here, the English language and grants that were available. I wonder whether the hon. Gentleman would feel better--I can see that he has a great interest in the economy--if he dealt in the facts of the matter.

Mr. Clappison : I doubt very much that Japanese investors would be impressed by the prospect of a return to the 1970s or by the implementation of the social chapter. They would not be impressed by bureaucracy, unnecessary costs, more regulation or higher labour costs, all of which are implicit in the social chapter and in the other policies of Opposition Members.

One of the expressions about which we have heard much less recently from the Opposition is "two nations". That was quite a fashionable part of Labour's vocabulary throughout the 1980s. The internationally competitive position of Great Britain has brought about a great deal of inward investment into the parts of the country that the Labour party used to characterise in terms of two nations, especially areas such as south Wales and the north-east. Those are areas that are represented predominantly by Opposition Members. The jobs and prosperity that that investment has brought under a Conservative Government have made a substantial difference to those areas. Talk of sweatshops does not bring any benefit to the electorate or to the residents of those areas.

There is one other thing that the Labour party should do : it should start to acknowledge the fact that growth is taking place. The right hon. and learned Member for Monklands, East chose to quote from a manufacturing journal about the state of manufacturing industry. He would have done better to listen to the real voice of employers--to what the Confederation of British Industry says. In its most recent survey, it found that there was increasing business confidence. The right hon. and learned Gentleman should have looked at the CBI's most recent forecast for growth, which it revised upwards this year from 1.4 per cent. to 1.6 per cent. That is a modest revision upwards, but it will translate into thousands of jobs and far greater prosperity for many families. The CBI sees even more robust growth taking place the following year, with an increase from 2.4 per cent. to 2.6 per cent. growth. Growth is taking place, which is the fundamental fact that Opposition Members cannot avoid. The real test for them has yet to come.

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As I have suggested in endorsing views expressed by my hon. Friends, growth must be the main engine for dealing with the public sector borrowing requirement. I, together with many of my hon. Friends, believe that the Government must devote the utmost attention to that. There is great controversy about how much of the deficit is cyclical and how much is structural. There is considerable uncertainty about that and there are differences of opinion.

It is certain, however, that every penny of that debt is mounting up and that interest has to be paid on it. In those circumstances, it is entirely right for a Conservative Government, who are committed to good housekeeping, to conduct a public expenditure review in the terms announced by my right hon. Friend the Chief Secretary to the Treasury. It is also entirely right for my right hon. Friend to give the undertaking accompanying that review that the interests of the most vulnerable and of those most in need will be given high priority. It is entirely right that such a review should take place. ng place--of priority being given to those most in need. It is an extremely necessary review, in the medium term and in the long term, and there are some fundamental issues concerning the proportion of the population in work and the proportion of the population who must be supported by those in work when there is an increasingly aging population. Those are all most important issues. It is right for the Government to address them now and it would be a dereliction of their duty if they did not do so.

During the review, my right hon. Friend the Chief Secretary must be given unstinting and unqualified support. There may be some decisions that we find difficult to accept--there always are. Hon. Members have interests and everybody considers each cause and each interest to be needy. However, at the end of the day, there must be support. My hon. Friend the Member for Bridlington mentioned overseas aid. He said that there might be 20 Conservative Members who would vote against any cuts in the overseas aid budget. He may have been thinking of me as one of those hon. Members, because last year I signed an open letter to the then Chancellor of the Exchequer urging him to protect overseas aid. Many of the others who signed the letter were Opposition Members. Twenty other Conservative Members signed the letter, and my hon. Friend the Member for Bridlington may have me in mind. I have always believed that overseas aid is an important priority. I have held the basic, instinctive view that, although we may have problems in this country, they are as nothing compared with the problems in the parts of the world that overseas aid assists. Be that as it may, the needs of our public spending review must take priority over such feelings and sentiments. If it comes to pass that there must be a reduction in overseas aid, I shall go through the Lobbies in support of the Government. I know that in doing so, I shall reflect the views of many of my constituents, including many who regard overseas aid as an important priority. The Government must be given a free hand and support within a framework of policies in which the interests of those most in need are given the highest priority.

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I endorse the comments made about the undesirability of increasing taxation, but it is a matter of judgment. My right hon. Friends must take into account economic circumstances and the likely effect on demand. They must bear very much in mind the long-term Conservative commitment to a low-tax society, with the low taxation of both individuals and the corporate sector. I invite them to consider that issue carefully when forming a judgment.

I was interested in the absence of any comments about revenue from Opposition Members, particularly the right hon. and learned Member for Monklands, East. He called for the debate on public spending and criticised the public sector borrowing requirement and one might have expected him to say something about Labour's proposals on the subject.

The absence of any comment was particularly surprising, because the hon. Member for Dunfermline, East (Mr. Brown) went on the radio this morning and shared with the "Today" programme his views on revenue ; the right hon. and learned Member for Monklands, East did not share those views with the House today. At the top of the hon. Gentleman's list of priorities for raising more revenue was a new tax, which he described as the public utility dividend.

I would welcome hearing about the so-called public utility dividend when the Opposition Front-Bench team wind up the debate. The subject seems to warrant close examination, not just because of any anomalies or injustices that it may create or because the so-called public utilities are already subject to the regulator and already pay tax through corporation tax--a factor that the hon. Member for Dunfermline, East did not seem to consider. The Opposition should consider not just those factors, but the effect of any such taxation on the ability of the utilities in private hands to invest.

Opposition Members soon lose sight of the vital thread between profit and investment and the effect on the ability of the utilities to invest and provide a better service to customers, about which we have heard and which, over the past 14 years, have been increasingly accepted by the public. Opposition Members have had to concede that fact, as they have opposed successive privatisations, only to relent of their opposition and abandon their pledges. Those privatisations are now accepted as a fact of life.

The right hon. and learned Member for Monklands, East betrayed his instinctive hostility towards privatisation when he addressed the House on railway privatisation. The credibility of Opposition Members does not rate highly when they talk about public finance and privatisation. They are hostile towards privatisation, but they should consider what their advice on privatisation has been and what the effect on public finances would have been had their advice been taken. That is a substantial issue for them to consider.

If the Opposition had had their way, there would have been no privatisation in the past 14 years and thus no receipts from privatisation. There would have been no receipts--cumulatively worth £30 billion with interest-- from the privatised utilities. If we had listened to the advice of Opposition Members and the right hon. and learned Member for Monklands, East, we would have paid a price of £30 billion. If we had listened to their advice and there had been no privatisation, we would have had £30 billion

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less to spend on public services, £30 billion more to find in taxation or a public sector borrowing requirement of £80 billion rather than £50 billion. Their advice would have come at a high price, and I invite them to explain to the House the impact of their proposal to introduce a public utility dividend.

I believe that contributors to today's debate have been carried away with the ritual and we have not heard an alternative strategy that any reasonable person would expect Opposition Members, particularly the right hon. and learned Member for Monklands, East, to set out. That is the real test for Opposition Members. The Opposition's credibility is no higher as a result of their endeavours in today's debate. They have made no contribution to the debate. 8.7 pm

Mr. Austin Mitchell (Great Grimsby) : Today's debate has had the feel of a debate on a no-confidence motion. The hon. Member for Hertsmere (Mr. Clappison) seemed to approach it as such when, in his sweetly sanctimonious way, he defended an imaginary Government. He said that all the problems were caused by the Labour party and that, after 14 years in opposition, the faults were all those of the Opposition. That is an amazing achievement for the Opposition. It feels as though we are discussing a sort of no-confidence motion. However, we are discussing a statement of obvious fact. The Government deceived the people at the last election. They concealed the mess, and now that they face the mess that they created they do not have the foggiest idea how to get out of it because they are suffering from a crisis of leadership. This shambling decrepit Government are going nowhere. To use an image from Scarborough, the Holbeck Hall Government are sliding slowly into the sea while the Chancellor plays his jazz piano in the bar room to alleviate the suffering of the hotel residents.

Today's debate has not been great, but it has been revealing. Particularly illuminating was the hurt, doubt, misery and pain on the face of the ex- Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont) at the way in which he was treated for following his Prime Minister's policies to the letter. I offer him an old adage, when it was said of Harold Macmillan in 1962 :

"Greater love hath no man than this, that he lay down his friends for his own life."

That is what happened to the former Chancellor.

Equally revealing was the Prime Minister's vapid performance--it was low level stuff and he showed no dignity. It reminded me of his speech at the last Tory party conference when he was expected to rise to the occasion and give the Tory party a lead. He sank to it and told his followers, "When a child's got to go, a child's got to go--we need more toilets on the motorway."

I drove to Banbury this morning and thought that I saw the Prime Minister's monument as I approached Banbury because on the M40 I saw a huge sign in yellow and black stating, "Emergency WC". I thought that the Prime Minister's vision had been realised on the M40. That shows the height of the Prime Minister's thinking. He is the man who has to lead us out of the mess that we are in. Everyone can make his own judgment about the Prime Minister's stature and whether he is up to the job. The embarrassed faces of those behind the Prime Minister

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when he made his speech today showed that the prevailing consensus in the Conservative party is that he is not up to the job as the Holbeck Hall hotel slips into the sea.

I want to be open with the hon. Member for Hertsmere about the Labour party's faults. The problems are not all of the Prime Minister's making--he inherited a mess. He won the prize of power just as that power turned to dross and has had to cope with the disasters that arose from the misguided policies of the 1980s. As my hon. Friend the hon. Member for Cannock and Burntwood (Mr. Wright) said, the Government came in promising what they would do, and did it. The Government claimed to have performed a miracle through their policies. That claim was about as valid as the hyped up profits created by creative accountancy and lax accountancy standards in this country in the companies operating in the 1980s. Creative public relations laid claim to the Tory miracle. The 1980s were an enormous wasted opportunity--the benefits of North sea oil have been thrown away by the Government. The only benefit that we gained was the huge credit bubble of asset inflation. Asset prices rose and more credit was allowed--the one stoked the other in a sort of North sea bubble which began with an enormous depression produced by the Government's economic incompetence and ended in another severe depression. Those depressions decimated large swathes of manufacturing industry in this country. It is the industry that we live by, the manufacturing that pays our way in the world and which alone can generate growth and support our services and standards of living. Most of our trade is still in manufactured goods. Whatever the Minister may think about the financial sector, we depend essentially upon manufacturing. If we do not produce, we cannot consume or maintain our standards of living.

Manufacturing has been closed down more rapidly here than in any other advanced industrial country. In the 1980s we lost more jobs in manufacturing than any other manufacturing country, and a larger share of our own market--40 per cent. of our domestic market in manufactured goods is now taken by imports, double the proportion in France and Germany. All this is the product of Government policies throughout the 1980s.

Now, at the end of the period, the Prime Minister has to clear up the mess. It was concealed in the 1980s by North sea oil and by the £30 billion privatisation receipts. There was no need to increase taxes ; the tax base could be narrowed because of the revenue from privatisation. Now those revenues are drying up because we are reaching fell-off-the-back-of-the- Government end of privatisation. Now that North sea oil's contribution is set to attenuate, we have to clear up the mess--an horrendous trade deficit that will reach record levels when the figures are published in six months' time ; and a public sector deficit which is at crippling levels. The burden of debt grows apace on both counts.

Such growth as the Government are achieving--they are achieving some-- results from the competitive devaluation into which they were forced--to our shame--by the men in red braces, not the men in red ties, who I wish had forced them into it. But the Government are putting back on their straitjacket in the form of the Maastricht treaty, which effectively will compel them to go back to the exchange rate mechanism. So their pathetic recovery has a finite time to run, because they have no idea what to do next.

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The Government think that the market will provide. All the market does in this sort of extreme situation is compound decline : it compounds prevailing trends. Those trends are towards peripheral decline in this economy, and that will be highly damaging. I can offer the Government an agenda. First, they must let the pound fall further. Any country with a balance of payments deficit as large as ours must let its currency fall. There is no other way of closing the deficit. The pound has come down by 16 per cent. since devaluation, since when it has risen again by 7 per cent. The result, as an article by Edward Balls in the Financial Times last week showed, is that we are still less competitive than we were in 1987. The pound has further to go. It must come down if we are to boost exports and win back the markets that we have lost.

As part of this process, interest rates must come down too. They are still higher in our economy than in the American and Japanese economies. Industry will not invest at these rates ; we cannot stimulate the economy at these rates.

My third piece of advice to the Government is : do not worry about the deficit, as the hon. Member for Southend, East (Sir T. Taylor) is always telling us. It exists for good Keynesian reasons. There is no point in trying to cut it back at this time. Nor should we attempt to fund all of it. Why go to the trouble, expense and burden of debt of funding the whole deficit ? We should require the banks to buy and hold Government debt. Why should they not ? They have the money to do it.

Moreover, although this might hurt the vested interests of the City and the fees and commissions earned there, we should ask whether we should fund the debt at all. Why not require the Bank of England to give the Government ways and means advances--without charging interest on them at market rates, as it does at the moment? The advances should be free of interest to the Government. That would have no inflationary consequence, because inflation is not a monetary phenomenon--it is caused by pressure on resources.

At the moment, resources are slack. The banks enormously expanded credit in the late 1980s, then suddenly contracted it at the end of the decade. That gap in credit has to be made good. Why should we not use public credit, with advances from the Bank of England on which we do not pay interest and so do not build up a burden of debt? These advances could be used to stimulate the economy and to do the work that must be done to achieve economic growth.

I am not an expert on these matters, but the idea must be looked at. The only things stopping us trying the approach are the vested interests of the City and its desire to manage Government debt and to keep on creating that debt.

Fourthly, we need a sensible industrial strategy--investment in training and infrastructure. Now is the time for that. I have to admit that Opposition Members have not understood that supply side measures do not generate their own demand. Clearly, there is no point in training unless we also stimulate demand so that there are jobs for the people whom we have trained. In that way, an expanding industrial sector will be ready to benefit from the competitive advantage that we give it.

At this early stage in the life of a Government I am afraid that we are at a turning point. We have been there before--politics and politicians treading water, and no clear direction for the nation and the parties to move in.

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We were in the same situation in 1961-62, when the Macmillan Government began to falter, just as this Government are faltering. Again, in 1978-79 the Labour Government whom I was elected to support and did support began to falter in the same way. At both junctures, a new impetus and dynamism emerged, in 1978-79 in the form of Thatcherism, with its easy answers which have now failed, and in 1962-63 in the form of the Labour party's planning for the white heat of technology.

The worrying thing about today is that we are treading water but no impetus has yet emerged. It will certainly not emerge from the Government, who have run out of options and policies. All that could possibly emerge from the Government is a new impetus from the new Chancellor, who is something of a wild card and who may have the makings of a Maudling. He is unpredictable. But it will be nothing more than a new tune played by the jazz pianist on a fairly decrepit piano.

There will be no new ideas from the Liberals either. They are essentially a collection of protests, a bucket to spit into, not a coherent party. I thought the leader of the party made a brilliant speech today. The problem with the Liberals is that they do not have debates within the party, only conflicts in the leader's head, which is a rag-bag of policies from which he plucks out and offers whatever happens to be fashionable. Then he puts it back again.

It is only a few months since the Liberals were telling us that the answer to all our problems was to move to the narrower band of the exchange rate mechanism at a rate that is now agreed to have been grossly overvalued. Nevertheless, the cry was, "Narrow bands now, narrow bands now." I can remember that cry coming dramatically from the lips of the Liberal's economic spokesman.

I am disappointed that no alternative has yet emerged from the Labour party. That could be a question of the party ; it could be a question of my temperament--an obtuse Yorkshireman used to bull-at-a-gate tactics, wanting to get on with it, to get the boot in now and to provide the sort of opposition that the leader of my union, the General and Municipal, wants us to provide. I must accept that the Scottish method is cannier, slower, more cautious, more intellectual. We are in a policy purdah at present. It is certainly sensible to develop new policies for new situations. That was what happened between 1959 and 1962, when the Opposition finally emerged with a powerful range of new policies. That is an understandable phenomenon. It is just that my natural Yorkshire bloody-mindedness wants us to do more now.

All three parties are obsessed with Europe, European approaches and methods and the problem of Maastricht, but those issues are remote from the considerations of most of our people who sense an overwhelming national failure. They sense that the nation is faltering, is not going anywhere, and that its industrial base is not strong enough or viable enough to provide jobs, generate growth and improve the lot of our people. It is not providing a platform for work and skills and the growth that is needed to improve people's lives.

There is a sense of national failure and it will not be solved by endless talk about Maastricht, about putting Europe at the heart of everything that we do or about putting Britain at the heart of Europe. It will be solved only by addressing the fundamental problem that our

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manufacturing base has shrunk too much to be viable. Unless we widen and deepen it, make it competitive and generate skills, Britain will not survive as a nation of which we can be proud.

8.21 pm

Mr. Tim Smith (Beaconsfield) : It is always a pleasure to follow the hon. Member for Great Grimsby (Mr. Mitchell). Before he spoke, I had intended to say that there was more consensus in the House on interest rate and exchange rate policy than for some time, but the hon. Gentleman rather shattered that when he said that we need to reduce interest rates and devalue further. He suggested a splendid scheme for borrowing all the money interest-free, but even if that were viable it would be highly inflationary.

We need a policy that will promote growth, create jobs and tackle unemployment. It must promote manufacturing and Britain's exports, increase productivity and reduce our unit labour costs. It should deregulate as far as possible and reduce the burdens on industry, thus making the United Kingdom attractive to investors.

By and large such a policy currently exists. Interest rates are lower than they have been for about 25 years, and inflation is lower than for 30 years. The exchange rate is much more competitive, and during the recession productivity has made tremendous strides. Britain's exports are more competitive than for many years, and there are tremendous opportunities for more.

The prospects for recovery are good, but there are two qualifications, one of which is domestic and the other international. The domestic one is that there is still less consumer confidence than we would like, largely because of the threat of unemployment and the fact that many people still suffer from negative equity. There is some way to go to overcome those problems.

Internationally, we are competing in markets that are rapidly contracting. I am not sure that people appreciate the dire state of the German economy, where industrial production fell by 12 per cent. in the past year. Although it is a difficult market for us, British exporters are having great success there, simply because high costs are pricing many German manufacturers out of the market.

The main threat to recovery is the size of the public sector borrowing requirement, which has been mentioned many times in the debate. I am sorry that the Leader of the Opposition refuses to address the issue and say how he would tackle it. He simply engages in scaremongering about reducing expenditure, although the Government have made it quite clear that above all else they will protect the most vulnerable in society.

I am also sorry that the leader of the Liberal Democrats refused to say how he would set about increasing taxation. He said that, in his opinion, £30 billion of the deficit was structural and should be tackled by increasing taxes. If he tried to deal with all that by way of income tax, it would require an increase of 15 per cent. in the standard rate. The right hon. Gentleman should say precisely what he has in mind for tax increases.

Prospects for the PSBR are hard to forecast. There are advantages in having forecasts in the Red Book from a panel of independent forecasters. Although the Government have forecast for next year a PSBR of £44 billion, the independent forecasts range from a low of £32

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billion to a high of £60 billion. That illustrates the difficulty of forecasting from a range of large figures. We should not get too hung up on £50 billion or £44 billion.

The deficit is clearly too high, and has risen rapidly. Only five years ago, the public sector debt repayment was £15 billion, and some optimistic Members spoke about repaying the national debt by the year 2000. The situation can be reversed with equal rapidity if we can secure the necessary economic growth, because there is no doubt that much of the deficit is cyclical and not structural.

However, we must tackle it in the meantime, because of the cost of servicing the debt. I accept the tax increases in the Budget of £6 billion next year and £10 billion the following year, but I should not like to see further tax increases. If the Government need to do more to tackle this large deficit, they will have to reduce public expenditure.

I disagree with my right hon. Friend the Member for Shropshire, North (Mr. Biffen), who said that we should increase income tax by 1p or 2p in the pound. I intervened in his speech to say that there were to be income tax increases of £8 billion. It is not quite that, but out of the £10 billion proposed for 1995-96, only £2 billion is accounted for by VAT on domestic fuel and power. The other 80 per cent. is accounted for by increases in other taxes. When the increases in income tax and national insurance contributions are added, they amount to more than half that, to almost £5 billion. Therefore, the Red Book already proposes substantial tax increases and I disagree with those who say that they are unfair. They are spread to cover all taxpayers, because the allowances and the basic rate limit will be frozen and various other restrictions will be introduced. In two years, that will increase the income tax bill of every taxpayer. That will be sufficient, and, as I have said, further inroads on the deficit should be made by tackling public spending, because much public expenditure could be reduced without affecting the most vulnerable in society.

Prospects are now better than for some time. Business confidence is higher than for more than 10 years, and the prospects for manufacturers and exporters are good. Manufacturing performance has been impressive. Our motor components manufacturers are selling to Germany, to Mercedes. Rover now produces motor cars that can compete with BMW and Mercedes.

Industry needs a period of stability in exchange rates, interest rates and inflation. Given that, there will be gradual economic recovery, which we shall all welcome.

8.28 pm

Mr. Peter L. Pike (Burnley) : The debate is on important issues. The Prime Minister challenged my right hon. and learned Friend the Leader of the Opposition about our programme at the election, but he failed to recognise the key difference between the Opposition and the Government. The side that wins the election has one important advantage over the people who lose, which is that the winner has an opportunity, in theory, to deliver its election programme--or break its promises. The Opposition do not have that opportunity. The issues that we are now discussing reflect the simple fact that the Government have broken so many of the manifesto promises they made last April. They have not lived up to the statements that they made to the people in order to win the general election.

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I wish to challenge the Government on one or two important points. I have raised the first issue time and again, and Ministers, have failed to answer it. The Government's public expenditure plans in the past and for the future always include figures representing receipts from the sale of assets such as National Power, British Telecom or PowerGen. I shall not debate the folly or otherwise of the railway privatisation as it is not appropriate to the debate, but assuming that the Government continue with the policy, what will they do when they have no more assets to sell to supplement their programme? They have to tell us what they will do then.

It all comes back to the fundamental question that we are debating today. Everyone is saying that we have to do something to reduce the £50 billion public sector borrowing requirement. The options are to increase taxation or to reduce public expenditure or, in theory, a combination of the two. The other possibility, which we all want, is a growth in the wealth of the country.

As I represent a key manufacturing area, I feel that there has to be growth in the manufacturing sector and in employment in manufacturing industry to get our balance of payments into surplus and reduce the appalling deficit in manufactured goods. Whoever is in office, we will never get the economy right until we recognise, once again, that the nation's wealth, and indeed its bread and butter, depends on our manufacturing base. Until we tackle that and get it right, we shall continue to have difficulties.

The Government say that they do not want to increase taxation, but we saw numerous examples of increased taxation in the Budget. Time and again in the past 14 years, they have got away with conning the public. They have done it cleverly by reducing direct taxation and increasing indirect taxation.

The overwhelming majority of people in my constituency now pay a higher percentage of their earnings in tax than they did under the Labour Government. They pay less in direct taxation, but their indirect taxation has increased.

When the Tories won the election in 1979, they increased VAT from 8 per cent. to 15 per cent. They then increased it to 17.5 per cent. to reduce the impact of the poll tax. Everything that was zero-rated is gradually being brought into the scope of VAT, and it has now been extended to domestic fuel and power. We all know that that was only the first step. Everything that is zero-rated at present is also under threat.

I believe that domestic fuel and power should remain zero-rated. The case for their being zero-rated was good in the first place, as it was for children's clothes, food and transport. The public believe, as I do, that the Government will gradually bring those items within the scope of VAT, as well as books and newspapers.

The Government are obsessed with not increasing income tax, which is based purely on the ability to pay and is the fairest possible way of raising revenue.

The hon. Member for Beaconsfield (Mr. Smith) said that the Government will protect the most vulnerable people in our society. We have heard that phrase time and again ; we have also heard about better targeting. I know what has happened in Burnley after better targeting and the protection of the most vulnerable. The poorest and most deprived sectors of the community have lost and the wealthiest have gained. That is what better targeting

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means in Tory terms--making the poor pay and suffer more, and giving a little more to those who at least need it because they are already wealthy.

I referred to the increase in VAT. I received from the Library a table of the increases in the price of leaded petrol. I shall not debate the rights and wrongs of duty on fuel for cars, but it was 48.8 per cent. in January 1979 and it is now 71.1 per cent. of the price we pay on a gallon of fuel, assuming that one is still using four-star leaded petrol, which I do not. That is only another example of how the Government have shifted taxation on t a result of higher income tax.

Last year, the Government got away with telling people who pay no tax that they would pay more if Labour were elected, when they would have been further from paying tax. I do not know how people believe some of the ways that the Government manage to con people. I shall now turn to low pay, which I mentioned in a question to the Prime Minister last April. I also received a letter from him last week. The Prime Minister and the Government fail to recognise the scandal of low pay. In the 1990s, it is tragic to erode the protection of workers and working conditions that were fought for for so many years.

Why should we say that workers are not entitled to fair pay and conditions for a fair day's work? Why can we not have the social chapter and why is Britain second-class? It is because we have had a Tory Government since 1979. Why are we abolishing the wages councils, and why can we not have a national minimum wage? It will not lose jobs, as Conservative Members claim. That is a fallacy.

In my constituency, people work for scandalously low pay. I see that my hon. Friend the Member for Pendle (Mr. Prentice), who represents the constituency adjacent to mine, is in his place. Some people in our constituencies work for £60 a week before deductions. The Minister says that they get family credit, but it is appalling that in 1993 some people have to work for poverty wages. They have been unemployed, and are so desperate to be in work that they are prepared to accept low pay rather than to be on benefit. All credit to them, but it is a disgrace and a scandal.

Lancashire county council had a report published by the Low Pay Unit. My constituency has a high percentage of people on very low pay. The report shows that Blackpool had a percentage that was not quite as bad as that for my constituency, that pay was slightly higher there. That was clearly because a high percentage of people in Blackpool are still protected by wages councils in catering, hotels and tourism. Once those wage councils are abolished, the people of Blackpool will see wages at the bottom end drop to the same level as in Burnley and north-east Lancashire.

As to the use of housing capital receipts, I have never in peacetime known so many housing problems. Homelessness has become a national rather than a big city problem, and councils are unable to meet their obligations to provide home improvement grants in the private sector, build their own houses, or improve their existing housing stock.

Housing associations, which the Government favour and which Labour does not oppose, say that they cannot

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build affordable housing and that a ghetto is being created, because only those at the top end of salary scales and those on full benefit can obtain a housing association property.

But for Government dogma, the capital receipts that already exist could be used. A concession has been granted for the current year, but we do not know whether it will be extended. Historical capital receipts, to which I shall refer later, cannot be used.

As to the current year's receipts, I was in the Chamber when the former Chancellor of the Exchequer, who is now in his place again, made his statement about their use--but that is more of a con trick than a reality. Local authorities such as my own have lost their urban programme money. The Prime Minister said, "You should be glad that some authorities have city challenge." It is little use telling an authority that, although it did not receive city challenge money, it should be happy that others did and to pay for it.

In Burnley, receipts taken into account have been increased in the Government's calculations, and capital allocations have been reduced in the specific capital grant, from 75 per cent. to 60 per cent. That not only takes account of Burnley's theoretical capital receipts--so it will not even break even--but overstates the situation, so that Burnley will lose. Capital receipts will not help, and Burnley will be able to do less about its housing as a result of the change. If the Government allow historical capital receipts to be used over a sensible, phased period, and directed at areas of need--I accept that some benefiting areas do not need them--we could tackle the housing crisis and get back into employment building and construction workers and those who make items such as baths, taps and window frames. That would give them consumer spending power, and they would pay tax and national insurance instead of claiming benefits. As people moved house, they would buy curtains and carpets.

I could develop that theme, but I hope that the Chancellor of the Exchequer accepts that capital receipts should start to be used. That would not only help to tackle the housing problem, but would start, in a sensible, phased manner, to get the economy moving in the direction we want, reduce unemployment and lower the public sector borrowing requirement. I hope that the Government will face reality and acknowledge that they can take certain initiatives, if only they would be willing to change their policies and direction.

8.44 pm

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