House of Commons Hansard Debates for 2 Dec 1993

Column 1216

Budget that university tuition will remain free. That is as good an investment in people as could possibly be imagined.

My right hon. and learned Friend referred to students' living costs, and said that the mixture of grant and loan would continue, with a movement away from grant and towards loan. I do not quarrel with that. Indeed, the Select Committee on Education and Science, on which I served, advocated that in the early 1980s. I hope that people will not forget the existence of the access hardship fund for students in difficulty. It is a scheme that the Government should certainly retain.

I am sure that there was a surge of relief in higher education and throughout the whole education system when it was confirmed that VAT would not be applied to books. Now that we have escaped that, we should refocus attention on the net book agreement. I understand that it is being considered by the Office of Fair Trading. I am sure that I speak for many hon. Members in saying that the price of books in this country is rather high compared with, for example, America. The net book agreement is not in the public interest. Books are an important part of student life, and prices could be reduced. My right hon. Friend the Secretary of State for Employment mentioned the new apprenticeship scheme, which I welcomed in an intervention in his speech. It is extremely good news that, when young people have that qualification, it will be the vocational equivalent of an A-level. I support the principle of high-quality, work-based training. However, I reiterate my concern : once an agreement has been signed between trainee and employer, were the company to go bust or get into severe financial difficulties, there must be a system to enable the young person to resume his work-based training elsewhere. That will require a great deal of employer co-operation.

The truck manufacturing industry in Dunstable collapsed last year--imagine the damage that that has done. Industries do go bust, so if we are to increase the number of apprenticeships, there must be a safety net so that, should the worst happen, the apprentice can resume work with another employer without delay.

My right hon. and learned Friend the Chancellor mentioned many times the need to get unemployment down. Two things are most desperately needed to achieve that. The first is a deal on GATT, and certainly before 15 December. Every post-war surge in prosperity has followed a reduction in restrictions on world trade.

Secondly, we must make the EC single market work properly and fairly. It is of the utmost importance to this country that our EC partners come out of recession quickly, because we are so desperately dependent on them for our exports. It is of the utmost importance that they, like ourselves, pursue policies that lower the costs of providing employment and thereby create more jobs.

Ms Eagle : Does the hon. Gentleman agree with the Budget's basic assumption that even the modest rates of growth that it predicts will be sustainable? As the hon. Gentleman pointed out, that will depend on the European Community emerging from its current deep recession, because it is one of our main export markets.

Mr. Madel : It is terribly important that the Community emerges from recession. I believe that the hon. Lady's constituency is near Ellesmere Port, where Astras are

Column 1217

manufactured. The Cavalier is manufactured in Luton, and both plants desperately need increased opportunities to sell to the Community.

The conditions for industry expansion are extremely favourable. Paragraph 3.12 of the Red Book refers to oil prices, and assumes an average price of $17 a barrel during the forecast period. Paragraph 3.19 states :

"Low commodity prices and spare capacity in G7 countries should continue to exert downward pressure on inflation."

We have as good an opportunity for economic expansion now as since the end of the Korean war, after which there was a downward movement in world commodity prices.

We see the strains that high unemployment imposes on our EC partners, and must constantly look for new ways to boost manufacturing and business. I welcome the new venture capital trusts on which my hon. Friend the Financial Secretary will soon publish details and invite comments. It too will be a real job creator. My right hon. and learned Friend stressed that his is a long-term Budget to secure a much better economic future. He rightly promised no overnight miracles. We on this side of the House must remember Rab Butler's philosophy about the patience of politics. My party must show great patience and support for the Government in the next few years as we move into faster economic expansion, low unemployment and, above all, lower inflation.

6.41 pm

Dr. Jeremy Bray (Motherwell, South) : The Chancellor's skill in designing his Budget was well demonstrated by the hon. Member for Bedfordshire, South-West (Mr. Madel), who is a man of broad sympathies and of views that I find more acceptable than those of some Conservative Members. I hope that that remark will not do the hon. Gentleman too much damage in his constituency.

The hon. Gentleman's ability to commend the broad sweep of the Budget, which adds hugely to taxation and makes such heavy cuts in expenditure, and to find details that he can also commend--and which we on this side of the House support, such as plans for road building and the introduction of road pricing--nicely characterises the Budget's shape as a political instrument.

As to the Budget's likely impact on the economy and its broad strategy, I will concentrate on what must be done now and in the future, and not parcel out credit and blame for past events and for the deplorable state of the economy today--with its huge imbalances of public borrowing, balance of payments and, worst of all, appalling unemployment.

First, I want to give the Chancellor more credit than he probably deserves. He is right to seek to reduce the public sector borrowing requirement by one means or another, not at once but over a period of five years. He is right to announce in advance changes in taxation and in planned expenditure levels that will make clear that balance for which he is arguing-- realistically, as he sees it. However, I do not agree with the particular levels of taxation and expenditure that he chose.

Then there are matters on which I will reserve judgment. The Chancellor did not clearly explain his strategy for the balance of payments, the exchange rate and monetary policy. I do not suggest that he has no strategy or that his strategy is necessarily wrong--simply that he has

Column 1218

not explained what it is. The markets, to operate confidently, must have a clear indication of the Government's monetary strategy. Finally, the Chancellor is plainly wrong to cling to deregulation and benign neglect of industry as the panaceas that will restore the competitiveness and capacity of manufacturing and make possible the reduction in unemployment that we all seek. However, overall, and given the political constraints within which the Chancellor is working, the right hon. and learned Gentleman did what I would expect a competent Tory Chancellor to do.

The competence was to a degree thrust upon him, perhaps without the right hon. and learned Gentleman entirely appreciating it, by the discipline of having to launch a unified Budget. That made him examine economic issues as a whole. I gave a push in that direction with my amendment to the Industry Act 1975 requiring the Treasury to publish economic forecasts.

From internal evidence and the Budget, I suspect that the Treasury, in its advice to the Chancellor, may have gone further with the optimisation of policy, which was also covered by my original amendment to the 1975 Bill, which the House approved. If the Treasury has not done that further work-- there are many ways in which it can be done--it should have done so. I believe that the Economic Secretary knows what I am talking about.

Since before the 1987 stock exchange crash, I have been publishing the results of policy optimisation on the Treasury model, using the Treasury's own computer programmes. It is a simple concept. Having identified priorities on inflation, unemployment, taxation, public spending, public borrowing, the balance of payments and so on, a model embodying the available evidence on how the economy works will show the policy changes that should be made now and those that ought to be made in future.

Each year, I have undertaken post mortems on those exercises, which have shown that, if Chancellors had followed advice available within the Treasury at the time, they would have avoided the main mistakes made since 1987--most notably, the excessive reflation of 1987 and 1988.

Models and forecasts are certainly imperfect. That is as true of the Treasury model as of any other. This year, with the help of three good research assistants, I undertook that policy optimisation exercise on not only the Treasury but on the London Business School, National Institute of Economic and Social Research and Oxford Economic Forecasting models. I gave the results at a seminar at Warwick university in July. Alan Budd, chief economic adviser to the Treasury--who in the early 1980s was an adviser to the Treasury Select Committee when I was a member of it--commented extensively on that paper at the seminar.

The results of that comparative study of policy design and optimisation were published in the "Oxford Review of Economic Policy", a copy of which is in the Library.

A fortnight before the Budget, a new version of the Treasury model was produced, revised in respects that I and others showed had been wrong. I have not had time to study the policy recommendations to which that new version leads, but with the revisions to the model to which the Treasury has drawn attention, I expect it to indicate the sort of Budget and forecast that the Chancellor produced. For that reason, I do not question the likelihood that the figures produced by the Chancellor are based on the best

Column 1219

advice that he has received within the Department. I may be naive in that, but I am prepared to believe the attempt at objectivity in those forecasts.

That optimisation exercise, which has been or could easily be done in the Treasury, will show a consistent exchange rate and monetary policy strategy which the Chancellor did not announce in the Budget. As I have said, there is no monetary or exchange rate policy in the Budget.

All that does not mean that the results presented in the Budget could not have been achieved by other arguments or on the back of an envelope. The Treasury model is not a black box. The way it works is consistent with the economic common-sense terms in which the conclusions would, I am sure, have been presented to the Chancellor. A test of good methodology is that, after the event, everybody claims to have known the answer.

On the evidence that is published in the "Financial Statement and Budget Report", the exchange rate is vulnerable to the intractable deficit in the balance of payments. To have run a balance of payments deficit in the depths of a recession and not to offer any recovery to zero, even after the depreciation that we have had, and to stop short of the publication of the forward look into future years is at least to fail to produce the evidence that a monetary and exchange rate policy is sustainable and consistent with the fiscal balance. To put the balance of payments right, supply side measures are needed which are not treated in the Treasury model. It does not treat the further deregulation and benign neglect of industry which has been pursued by the Government and which is recommended for future years, nor the effects of similar policies which will now be incorporated in the model and which have been shown to be insufficient in the past.

Also, it does not treat the positive supply side measures of the Labour party on investment, training and research, to which my hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) referred, which Conservative Members are bored with us constantly reiterating, but which are important.

Why has not the Chancellor set out an exchange rate and monetary policy strategy if his advisers probably have a good one under the table? First, he or his advisers may feel that they want to see more of how the strategys no exception.

Also, nobody but the Treasury and the Federal Reserve Board in Washington is equipped to do the sort of policy optimisation work on the Treasury model that I believe the Treasury has been doing. Academic modellers, the Bank of England, City economists and even journalists could do it, but they are not doing so. The technical details are fiddly, but the methods are well within the competence of intelligent graduate students, who can learn them in three months, though not at any British university.

In monetary and exchange rate policy, we are dealing with influencing people's expectations. It is no use the Treasury using an argument if its listeners are not equipped to follow that argument and react to it. The game does not work if one is seeking to influence people's expectations and they are not doing the sums necessary to work out how to form their expectations. They have to learn to play the game. If that game does not work for the Government, how

Column 1220

much less will it work for the Opposition, given the barrage of misrepresentation to which the statements of Opposition Front-Bench spokesmen are subjected?

We are now past the stage where politicians and their advisers cannot understand the arguments that are needed on monetary and exchange rate policy. It is the public and the pundits who need to catch up. No Chancellor has adequately acknowledged the sheer technical competence and integrity of Treasury modellers and forecasters--a competence and integrity so inadequately portrayed in the anodyne caricature of analysis which successive Chancellors serve up in the "Financial Statement and Budget Report". Of course, forecasts are not accurate, so let the forecasters explain why, and what the implications of that inevitable uncertainty are for policy-making, as I have tried to do.

The body in this country that looks at the development of models and forecasting is the macro-economic modelling consortium on which the three bodies represented are the Economic and Social Research Council, the Treasury and the Bank of England. The consortium has proposed that modellers--those whom it supports, such as the London Business School, the national institute and so on--should participate in the sort of exercise that my research assistants and I carried out this summer. That recommendation has come from the panel on which the Economic and Social Research Council, economists, Treasury representatives and the Bank of England are all involved. The Treasury and Civil Service Committee--I do not see a member in the Chamber, but I am sure that it will take the point- -could play a useful role in commissioning the exercise in future years, thus getting people in Parliament, the City and the media used to the idea of how expectations could be formed more rationally.

The Treasury's panel of independent forecasters--I welcome its operation, and it is doing a useful job--is in a more difficult position than the Select Committee. Even by asking the panel to do the exercise, the Treasury and its Ministers would appear to be endorsing the results that would emerge before anyone knew what they looked like. There is a limit to how far the Chancellor and the Treasury can try to lead public and technical opinion.

There is a further difficulty that the Treasury would face in spelling out monetary and exchange rate policy, which is consistent with the fiscal stance that the Budget adopts. An exchange rate policy that would work could require major improvements in supply side performance in manufacturing, for which the Chancellor and Opposition Members hope but for which there is not yet any solid evidence.

The country needs the stark realisation of the necessity of securing that supply side performance improvement. The objective may be achieved by people in industry responding more effectively to the Government's conception of supply side incentives, or it may need Labour's much more active policies on investment, training and research. What I suspect will prove to be the case is that it will need both.

Either way, the Treasury has the clearest evidence, and it should be spelled out. The longer the picture is obscured, the greater will be the delay in addressing the greatest economic challenge we face, which is to restore the competitiveness and capacity of manufacturing, the more difficult will be the task and the greater will be the challenge from overseas. No monetary or exchange rate

Column 1221

policy is likely to ease the fiscal stance : only effective supply-side policies will do that--and then only in the longer term. Let us consider what the political effect is likely to be of the balance that the Chancellor has chosen in the Budget between the tax increases and expenditure cuts that he has had to make. The Government will certainly face grave problems on the issue of public sector pay and in maintaining an adequate standard of public services in the next three years --that is putting it mildly.

Economic models take a neutral stance in the balance between raising taxes and cutting expenditure and they do not measure the quality of services. As Members of Parliament, however, we are acutely conscious of the importance of those services and of the vital question of their quality.

Ministers evidently believe that the Opposition are stuck with having to choose between losing the election by increasing taxes or by incompetence in the conduct of economic policy. The Government believe that elections are lost by increasing taxes or demonstrating incompetence ; that, they believe, is the problem facing the Opposition.

Despite my best efforts to defend the Chancellor's competence today, when the country judges the issues of raising tax or competence in the running of economic policy, it will condemn the Conservative party. That will not change before the next election. I have tried this afternoon to raise the competence stakes. The Chancellor of the Exchequer and the Treasury could do much more.

7.2 pm

Mr. David Evennett (Erith and Crayford) : I am delighted to be able to participate in the Budget debate. I congratulate my right hon. and learned Friend the Chancellor of the Exchequer on his excellent Budget speech and on presenting a package of measures that will not only find favour across and in all sections of the country but deal with the economic and financial needs of our nation. In addition, the Budget projects us forward out of recession and back into growth and prosperity. It is at the same time an innovative and practical Budget and it should inspire considerable confidence in financiers, industrialists and the man or woman in the street. [Interruption.] I am sorry that the hon. Member for Kingston upon Hull, East (Mr. Prescott) will not even listen to my speech. I listened quietly to his speech and I now want to develop my ideas. I shall come to his speech later.

For my constituents, the most important economic factors are low inflation, economic growth and jobs. The Budget will pass the test on all three fronts. My constituents, of course, also want the Government to reduce their budget deficit and they accept that tax increases and reduced public expenditure are necessary to ensure a sound economy.

The whole community in my constituency, whether they work on the factory floor, in a shop or in an office, share the common aims of increased prosperity, better value for taxpayers' money and stable prices. People on fixed incomes, particularly those on pensions, are extremely keen that there is low inflation and that stable prices are maintained. Those with families are concerned

Column 1222

about their jobs and job prospects. Those in work obviously want a secure future. All sections of the community, therefore, were looking forward to my right hon. and learned Friend's Budget with hope and expectation--hope that it would set the country on the right path for future growth and expectation that it would be fair. They looked also to my right hon. Friend the Chief Secretary to rein in and curtail public expenditure. They have not been disappointed on either front. I encountered much praise for the Budget and for my right hon. and learned Friend the Chancellor in my constituency yesterday. Considerable praise was expressed for his Budget speech on television because it was in simple language that the general public could understand. That was widely welcomed. His Budget was understood by more people because it was in simple language.

I do not wish to spend too much time on the Opposition because they appear to be quite bankrupt of new ideas about how to deal with our economic problems, but we all know that they would spend more and more money on just about everything. What they never say, of course, is how that would be paid and how the ordinary taxpayer would suffer accordingly.

We know that the Labour party is a party of high taxation. We heard that this afternoon from the hon. Member for Kingston upon Hull, East--have more taxes and use taxation for redistribution. That is what Labour Members are always after.

Mr. Prescott : Oh, yes.

Mr. Evennett : They admit it, and that is why they lose elections. The Opposition have no time for the wealth creators, the job creators or the entrepreneurs in our society. There is no chance of the Opposition supporting them. They offer no initiatives, no support and no commitment to those who make the real wealth.

Labour is afraid of business--it always has been and business will never trust it. We know that Labour believes in more expenditure, more borrowing and more taxation. We have heard this afternoon about the social chapter, the minimum wage and new union rights. We have heard it all before, but we heard it again today. That is one reason why Labour Members will stay on the Opposition Benches and we will stay on the Government Benches.

In Erith and Crayford, people looked for action in four key areas, to which I shall confine my remarks : first, local businesses ; secondly, reform of benefits, particularly the disability living allowance ; thirdly, help for pensioners to meet the imposition of VAT on fuel and power ; and, fourthly, tax increases that were perceived as fair.

Ms Eagle : I am grateful to the hon. Gentleman for giving way on the point of fair tax increases. Does he agree that under the Conservative Government one third of the huge tax giveaways of the 1980s went to the top 1 per cent. and that the current tax increases are hitting the lower-paid and those who are least able to afford them? Is that his definition of fair?

Mr. Evennett : That is not only not fair but not true. I shall develop my argument on fairness subsequently. In the past 14 years, prosperity across all sections of society has increased. That has been very important.

Ms Glenda Jackson : Will the hon. Gentleman give way on that point?

Column 1223

Mr. Evennett : May I carry on a little? When I reach the part of my speech on fairness, I will give way to the hon. Lady.

In Erith and Crayford, there is a large number of small firms and businesses. In the past few years, they have suffered a two-pronged attack- -an increase in bureaucracy and red tape and the worldwide economic recession. They have urged my right hon. and hon. Friends at the Treasury to understand their problems and plight and to take action.

Firms on my industrial estates of Thamesmead, Belvedere, Erith and Crayford, who employ many thousands of my constituents, wanted the Budget to deal with their real needs and issues. I know from conversations that I had yesterday with representatives of some of those firms that they are delighted with the outcome of the Budget. In particular, they welcomed the help for small businesses, with the raising of the VAT threshold, the abolition of compulsory audits for firms with a turnover of less than £90,000 and tax measures directed to help small businesses to get started and raise the necessary capital. Those are good news stories for businesses and small firms in Erith and Crayford.

Together with those measures, the deregulation legislation proposed in the Queen's Speech and the Chancellor's determination to tackle the problems of late payment of bills will go down well with my business men.

Cash flow is vital to smaller firms. Irrespective of how good a product is, if a firm does not get paid promptly on delivery, it can run into serious or perhaps terminal trouble through no fault of its own. Smaller firms therefore welcome my right hon. and learned Friend's comment in his Budget that he would reconsider this issue and try to deal with it for them. This year's Budget has been a Budget for business, a Budget for jobs and a Budget for training. I welcome the speech that was made by my right hon. Friend the Secretary of State for Employment this afternoon and applaud his new apprenticeship scheme for young people, which is innovative and will be good for young people. I also warmly support his three new initiatives for small firms to encourage training in the engine room of our economy, which is the small business.

The second subject which I wish to mention is the determination of my right hon. Friend the Secretary of State for Social Secuirty to reform the social security system and the urgent need to reform the disability allowance. I know from my constituency casework that the number of people who draw that benefit has increased dramatically in my area. I also know that by no stretch of the imagination are all those claimants severely disabled.

All Conservative Members believe in helping people who are in genuine need. We believe that there should be a benefit to look after those people who are genuinely disabled to ensure that they are supported. However, quite a number of constituents have complained, at my surgery at Erith town hall on a Friday evening, that the present system is unfair and that disability allowance is given to too many people. We all know stories of people who can claim disability allowance who are not genuinely disabled. That was not what was intended when the benefit was introduced.

The new incapacity benefit which will take effect in April 1995--with a new objective medical test, which I believe has been long overdue--will allow the benefit to reach the people who are in genuine need. People who are genuinely disabled will not have a problem because we shall ensure that they obtain the benefit. It is those people

Column 1224

who do not deserve or need it who need to be worried. The new benefit will remove arbitrariness and will be seen to be fair. The hon. Member for Hampstead and Highgate (Ms Jackson) asked about fairness. Many people in my constituency believe that the disability allowance is unfair.

Ms Glenda Jackson : I am the hon. Member for Hampstead and Highgate ; my hon. Friend the Member for Wallasey (Ms Eagle) asked questions regarding fairness. The question that I wished to ask the hon. Gentleman was, if the past 14 years have been so fair, why do a quarter of the poorest people in the European Community live in these islands?

Mr. Evennett : The hon. Lady wanted to intervene on the fairness issue and I said that I would allow her to intervene on the fairness issue later, so she is not correct even about that. I was referring to her, not to the hon. Member for Wallasey (Ms Eagle). It is important that measures are perceived as fair by the majority of people. During the past 14 years, there has been an increase in affluence in all sections of the community.

The third subject which I wish to mention is VAT. In spite of all the pundits, especially those on the Opposition Benches, there was no extension to the VAT fold in the Budget. We all welcome that. Opposition Members have not even been able to acknowledge it. Pensioners and people in low-income groups were genuinely worried about what would happen when VAT was applied to fuel and power. In early October, I went to the local meeting of the British Pensioners and Trade Unions Action Association. Apart from the usual party political nonsense that one hears at some of those meetings, many people expressed genuine worry about how they would be able to afford the increased fuel bill. I received many letters and had many telephone calls and meetings with other individual pensioners about the problem that they perceived that they would have. Many of those people who had small private pensions did not want to find that they would be excluded from help that would obviously go to those on benefit or very low incomes. They wanted the tax situation to be perceived as fair to them, too.

The fact that my right hon. and learned Friend the Chancellor of the Exchequer has given an across-the-board benefit to all pensioners should reassure individual pensioners and pensioners' organisations that the Government have been fair to all pensioners in the Budget. Many pensioners in my constituency have told me that, although they welcome the reductions in interest rates for people who have mortgages and for all people who are borrowing money, they have noticed that their own private investment incomes have been reduced accordingly and they have been concerned. They might have another 10 or 20 years to live off their capital and they are concerned about the diminishing return for them. I am sure that they will be delighted with the new pensioners' guaranteed income bond, which they will greet with considerable enthusiasm.

I believe that the extension of the home energy efficiency scheme, which was mentioned in the Budget, and the extension of eligibility to all pensioners and disabled people, will also be welcomed by pensioners' groups.

Mr. Alex Carlile : It is very expensive.

Column 1225

Mr. Evennett : I think that all the measures will be expensive, but they will be perceived as fair to all pensioners, not just those on very low incomes. A large number of pensioners work for many years to enter retirement with a small occupational pension or savings. The pensioners to whom I spoke were naturally concerned about the future. The Budget has helped them and will continue to do so.

I shall now discuss general perceptions of fairness. Whether the Budget is greeted favourably or unfavourably in our area depends on whether people perceive it to be fair to all sections of society and fair in dealing with everyone. I believe that the tax increases that my right hon. and learned Friend the Chancellor has proposed are fair--there is to be no increase in income tax, a limited increase in excise duty on drink, but more substantial increases in the price of tobacco and petrol. Those are welcome measures. I passionately believe in increasing the price of tobacco. I should have liked my right hon. and learned Friend to put more tax on tobacco, because smoking is a health risk. I welcome, however, the tax increase that has taken place this year.

I believe that the benefit reforms will be regarded as fair by the vast majority of people in the country. Business people think that it is a fair Budget and will have great support.

This year's Budget has been a no-nonsense Budget from a no-nonsense Chancellor of the Exchequer. It has been crafted and constructed to deal with the problems that confront the country and to help those in real need. Obviously, tax increases are never popular, but I believe that the vast majority of people will recognise that they are essential at this time and that cuts in public expenditure are also important.

However, the fact that my right hon. and learned Friend the Chancellor has managed to continue to increase expenditure in the vital sectors of health, education and law and order highlights the Government's priorities. Yes, we have to curtail expenditure in certain sectors, but we believe passionately in developing policies in other sectors and we are prepared to spend extra money in those sectors.

I believe that, in time, this year's Budget will be regarded as a great Budget from a great Chancellor of the Exchequer. I also feel that people appreciate his common-sense approach and plain speaking. This year, the people understand what he has to say and they like it.

7.18 pm

Mr. Alex Carlile (Montgomery) : We have heard some interesting arguments during the debate and before I discuss broader issues I shall mention two. During the course of his contribution, with some of which I agreed, the hon. Member for Bedfordshire, South-West (Mr. Madel) referred to the venture capital trust and, I think, the enterprise investment scheme. Any scheme that encourages investment in industry, especially manufacturing and productive industry, is to be welcomed. I have read the detail, such as it is, that has been supplied so far about those schemes. I would urge on the Treasury the view that any such scheme is unlikely to succeed if it does not include front-loading of tax relief.

The business expansion scheme has been much condemned because of the way in which it was used to attract money into property-related investment. Some of that investment must have been beneficial for the building

Column 1226

industry, which desperately needs help, and I make the specific point that the scheme attracted investment because those who invested could obtain tax relief as they put their money in. I urge the Government not to abandon that principle and to confirm that front -loaded tax relief will remain available, especially in the venture capital trusts, which should give a boost to the rather ailing venture capital industry in this country.

My second specific point is about something that the hon. Member for Erith and Crayford (Mr. Evennett) said concerning pensioners and their savings. He gave a broad welcome to the pensioners guaranteed income bond. I have read the press release describing what detail there is about the bond so far, which was issued by National Savings as the Chancellor sat down having delivered his Budget speech. I hope that the Government can avoid the accusation that seems justifiable thus far--that the bond is something of a confidence trick by the Chancellor.

We have been told that the bond will be introduced after the new year and, according to National Savings, its interest rates will reflect the market at the time of its introduction. We know that the Chancellor is likely to reduce interest rates between now and the new year, so it looks as if the bond will be introduced at an historically low interest rate. The Economic Secretary to the Treasury should tell us when he replies to the debate whether the bond will be linked in some way so that its interest rate rises if and when general interest rates rise. He shakes his head. That will be a great disappointment to pensioners all over the country, many of whom have small savings--£10,000 or £20,000, perhaps--which make a considerable difference to their standard of living. They have seen the return on their investments drop dramatically, and they too suspect, as we all do, that interest rates will rise.

Unless something is done to secure pensioners against losing because of future increases in interest rates, the bonds will prove unattractive, and financial advisers will rightly urge caution before investments are made in them. I ask the Economic Secretary to reflect on the effect of introducing the bond at an historically low interest rate.

The Chancellor delivered the Budget with his usual--and, to many hon. Members, enviable--self-confidence, but as a piece of economic thinking it was breathtaking, not so much because of what it told us but because of what it did not tell us. Like many right hon. and hon. Members, I have been examining the Red Book to see where the money will come from to fill the gap of £3 billion to £4 billion that was unexplained in the Budget speech. That is easily discovered on page 117 of the Red Book : it comes from the contingency reserves. The table on that page shows that the reserves are to contribute £3.5 billion in 1994-95, £7 billion in 1995-96 and £10.5 billion in 1996-97. The Chancellor did not tell us in his speech the effect that using the contingency reserves to that breathtaking extent will have on the economy and its future growth. It is about time that we were given an explanation, and I hope that we shall hear it later. I shall now deal with employment policy, and unemployed people's view of the Budget. Five groups of people will have listened to the Chancellor's speech with bated breath. The first group is the young people who hope to be employed in future, and the second is people who are already on the employment market but who are unemployed. Then there are those who have worked but are now long-term unemployed, and those who have worked and want to work again but who are sick and

Column 1227

therefore unemployed. The fifth group consists of those who are in work but who, because their jobs are so badly paid, are very poor and need help : they are entitled to help from the Government because they are doing exactly what the Government urge, and are working even though their wages are very low.

All those groups will have looked for the prescription that the Government gave them in the Budget to deal with the ills that they experience. But some found the milk of human kindness prescribed only in the special form dispensed by the Secretary of State for Social Security. He is the dalek of the unemployed, uttering the word, "exterminate"--meaning, exterminate people from the statistics. One of the results of the Budget will be that for about the 29th time since 1979--I may be one out ; it may be only the 28th time--the Government will be able to massage the unemployment statistics because of changes in policy. In the months to come we can expect a possible reduction of 200,000 in the official number of people unemployed, but that will not be a genuine reduction. I shall return later to the Secretary of State for Social Security and his plan for the sick and unemployed.

The first category of people whom I mentioned--young people who hope to be employed--cannot have greeted the Budget with anything other than the deepest gloom and depression. All over the country we have a vast stock of brilliant and able young people who can learn skills, technology and knowledge, who have the capacity to soak up the skills needed to enable the economy to grow--many Members of Parliament can no longer do that, because we have passed that absorbent age for learning.

Yet what prospect do those young people face? Those who come from affluent homes will be all right, because their mums and dads will see them through university, will give them the money to live on and will probably encourage them to take out student loans because they represent a cheap form of credit, but will pay off the loans on their children's behalf. Those young people will come out at the end of their higher education with a reasonable prospect of employment, because they will not be worried, at least at the beginning of their graduate life, about taking jobs with relatively low pay, if the prospects are good.

Then there are the others--those who come from poorer homes whose parents will not be able to help them out, except at the cost of extreme sacrifice in some cases. If they go to university, they will be saddled with loans that now represent about one third of the cost of being at university. When they come out, they will face what is effectively a form of substantial additional taxation--the repayment of the loan.

Let me give an example. The Government seem to think that £14,000 a year is a sufficient salary from which to start paying back the loan. I hope that many young people who come out of university will feel that school teaching is an attractive profession. In the early years of teaching they may earn little more than £14,000 a year. Are they really to be regarded as sufficiently affluent to start paying the price of their loans immediately at the beginning of their working lives?

Salaries of people starting work in another category, in manufacturing industry, do not on the whole compare with the salaries paid by firms in the City. Are able young people to be driven out of manufacturing industry because they feel that they will be able to repay their student loan more successfully if they work for a firm of accountants or become lawyers? That does not seem to be a way to

Column 1228

potentiate young people and to enable the country's economy to grow. It is a depressing picture that will drive many even into the choice of not going to university.

There is also the question whether people can get jobs when they graduate. I know of many examples of young graduates who have no chance of jobs related to the skills that they have acquired. I was told by a constituent a few weeks ago of his son and daughter-in-law. The son is a brilliant first class honours graduate in a scientific subject and the daughter-in- law is a brilliant first class honours in history. Both had been promised research funding, which was removed before they could begin research ; so they set about looking for work and obtained jobs selling hamburgers in the constituency of the hon. Member for City of Chester (Mr. Brandreth), who is in his place. There is nothing wrong with selling hamburgers ; it is an honourable occupation. Regrettably, there are rather more hamburger outlets in Chester than there used to be when I lived there as a young man and the fine, old shops were in greater abundance. People should not have to sell hamburgers if they have been trained in biotechnology or in microcomputer electronics or other subjects that are needed to enable the country to develop and grow.

The Secretary of State for Social Security has produced a test for those who are sick and unemployed that is more like a parlour game than a medical test. The consultation paper that was produced yesterday on the medical assessment for incapacity benefit contains items such as the following--a severity score of 17 points for those who cannot carry out simple mental arithmetic--that means that there will have to be a reshuffle in the Treasury. There will be 23.5 severity points awarded to those who are frequently muddled or confused--that will virtually wipe out the Government. There will be 4.5 severity points for those who cannot lift and push an unladen wheelbarrow--one of the tests that will be used to contradict the opinions of doctors as to whether people are able to work. Will doctors be expected to have an unladen wheelbarrow in their consulting roomsons.

That is the regime that the Government are seeking to impose to decide whether people are fit for work. Until now, doctors--perhaps some do need to be more careful, for there is always room to remind the professions to apply high standards--have been respected for being able to decide whether people are fit for work. By those absurd tests, the Secretary of State for Social Security is to introduce a standard whereby civil servants rather than doctors will decide whether people are fit for work. Yet again the Government are set on conflict with the medical profession.

What about the poor and employed? The wages councils have been abolished. The Government have pulled from under the poor and employed those very structures that at least fought for them, and on a statutory basis, to ensure that there was some kind of fairness even in poorly paid employment. There is nothing in the Budget that encourages people to take the jobs that the noble Lady Thatcher used to urge upon them ; and that the present Secretary of State for Social Security, and others who have been given illegitimate titles at various times by the Prime Minister, encourage them to take to justify the feeling that they are doing something worthwhile in obtaining poorly paid employment. Why should people work as packers,

Next Section

Home Page