House of Commons Hansard Debates for 6 Dec 1993

Mr. Don Foster (Bath) : I listened with considerable interest to the right hon. Members for Brent, North (Sir R. Boyson) and for Worthing (Sir T. Higgins). The Financial Secretary will doubtless reflect that, among today's many speeches, only that of the Secretary of State for Education seemed to support the Budget.

An increasing number of Conservative Members may share my view that the Budget was like over-indulging in cheap champagne. When it was presented, Tory Back Benchers hailed the Chancellor of the Exchequer's champagne performance, but we are beginning to see the after-effects and hangover caused by the right hon. and learned Gentleman's statement. In recent days, there has been revelation after revelation that the Budget will in no way tackle the real problems confronting this country, but that it has created a large number of hardships.

Most notably, the Budget fails to tackle the urgent need to return people to employment. We heard recently of the desperate concern of the Secretary of State for Social Security to reduce spending on social security benefits. He could achieve that not in the way done in the Budget--a shameful reduction in the availability of unemployment benefit--but by getting more people back to work through a Budget that invests in the economy.

It would be churlish not to acknowledge that the Budget contains some positive elements. I welcome the modest move towards establishing child care allowances. As the hon. Member for Glasgow, Garscadden (Mr. Dewar) said, that measure does not go far enough, but it makes a welcome start. I applaud also the proposals to support small businesses, and the belated recognition that work must be done on introducing measures that support small businesses that suffer as a result of the late payment of debt.

Mr. Nigel Forman (Carshalton and Wallington) : Does the hon. Gentleman realise that the two points that he just made are closely linked? He alleges that the Budget will not help employment prospects, but the package of measures for small businesses includes a 1 per cent. reduction in employers' national insurance contributions in respect of employees earning less than £200 a week--which is one of the best examples of the way in which the Budget will help to create future jobs.

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Mr. Foster : I made the point that some Budget measures make improvements. I acknowledge that those two proposals combined will make a small contribution to improving job opportunities. A third creates further job opportunities, in a small way. The increased investment, albeit modest, in the energy efficiency scheme will create some additional jobs.

However, although those measures are welcome, they are insufficient. Sadly, I must share the view expressed by the right hon. Member for Worthing--

Mr. Richard Ottaway (Croydon, South) : The hon. Gentleman speaks of modest measures, so why is it that every small business group in this country gave them an overwhelming welcome?

Mr. Foster : I welcome them, but I would like them to go further. The Government have not acknowledged that small businesses will be the engine room of recovery and the source of the vast number of new jobs that must be created. If the hon. Gentleman will join in my call for a real cut in the uniform business rate, which is desperately needed, and for the removal of one-way rent reviews, I would be delighted to have his support.

Mr. Ottaway : The hon. Gentleman will know that I introduced a ten- minute rule Bill calling for just such a measure on upward-only rent review clauses.

Mr. Foster : I was not aware that the hon. Member had done that. I give my full support to his proposal.

The right hon. Member for Worthing talked about the fears that had been raised before the Budget. I very much share his concern about the way in which the matter was handled, and about the lingering problem that raising those fears has created.

Hon. Members on both sides of the House probably now acknowledge that investment in education is crucial. The question, therefore, is the level of investment and how it should be used. Liberal Democrats have long argued for the need significantly to increase investment in education. At the last general election, we were honest enough to tell the electorate what that increased spending would be and where the money would come from.

We said that we would spend further money on starting to tackle the backlog of repair and maintenance work in our educational establishments. We were delighted that that view was supported by a recent report from the National Commission on Education. We continue to make that pledge, in a desire to ensure that there is increased investment in education.

Sadly, however, despite what the Secretary of State said about the importance of investment in human capital, the Budget does not propose the significant investment that is needed. Indeed, I am disappointed that much of the information provided about the Budget and the subsequent statements has tended to hide the lack of investment it proposes.

The largest failure of investment in the Budget is the failure to invest in nursery education. The right hon. Member for Brent, North referred to the need for increased jobs. The Library estimates that the provision of nursery education for all three and four-year-olds whose parents wanted it would create an additional 40,000 jobs. Furthermore, as recent reports have shown, that would be not only a sound educational investment but a sound

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financial investment, because evidence shows that expenditure on nursery education produces a net financial benefit to the nation. It is important that both sides of the House agree on the number of children who would be involved. The Secretary of State told the House today that more than 50 per cent. of children were in nursery education. The Library has prepared a detailed briefing for me on those figures, which does not confirm what he said. It says that 26 per cent. of three and four-year-olds in England attend nursery schools or nursery classes in maintained primary schools. I understand where the Secretary of State obtained his figures. He has added the 20 odd per cent. of three and four-year-olds who attend infant classes in primary schools to that 26 per cent. That is different from true nursery provision. It is important that the House debates the true statistics.

Mr. Dorrell : Is the hon. Gentleman really saying that he is against infant education?

Mr. Foster : The Financial Secretary may find the briefings interesting. The evidence is now clear, and certainly growing, that nursery education for three and four-year-olds is far preferable to the early introduction of rising-fives into reception classes.

Ms Armstrong : The Financial Secretary might be assisted by reading the recent inspectors' report on problems in primary schools. One of the most serious difficulties it identified was the number of four-year-olds who are not gaining nursery experience, because of the lack of appropriate equipment, of the appropriate staff ratios or of appropriately trained staff to lead them into infant education. There is a difference between nursery education and reception classes, and the Government will have to address it.

Mr. Foster : I am grateful for that intervention.

I am sure that the Financial Secretary will now be willing to consider the issues in detail. Knowing his interest in finance as well as education, I hope that he will carefully consider the recent research, which shows that not only an educational benefit but a financial benefit can accrue to the nation from investment in nursery education.

It would be wrong to deny that some increased money has been made available to the Department for Education and Ofsted. Unfortunately, the vast majority of it will be swallowed up in ways that will not improve the quality of education. For example, quite a lot of it will go to further feather-bed grant-maintained schools.

I draw attention to the rather strange phrase that the Secretary of State has coined. He now calls grant-maintained schools "self-governing schools", despite the fact that his own legislation--the Education Reform Act 1988 and the Education Act 1993--specifically state that such schools shall be called grant-maintained schools. Windscale's name was changed to Sellafield because it had become so unpopular that a way had to be found around it. Many hon. Members are aware that grant-maintained schools are beginning to be a very unpopular part of the education service. Of the increased money, some--albeit a modest amount--will go to higher education. That is hardly surprising, given the rapid and large expansion in the number of students in higher education, about which the Secretary of State boasted yet again today. He said that that expansion

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was the equivalent of 12 new universities, yet when I asked him only eight or nine days ago to tell me whether the equivalent amount of capital investment that would be needed for 12 new universities had been made available, he did not respond. He failed to do so because of the Government's embarrassment at the growing backlog of repair and maintenance in our higher education institutions, the increased overcrowding of students and the many other problems in higher education which have resulted from their failure to invest in expanding education.

Despite the modest increase in expenditure on higher education, the growing drop-out problem remains. One in eight of our university students--the highest number ever--are dropping out of higher education, and the morale of staff is at an all-time low. As the right hon. Member for Brent, North said, students in higher education are now having difficulty even in getting the books that they require. Students have suffered in other ways from the Budget. The cut in grant, matched of course by the increase in loans, has betrayed the earlier agreements to phase in the change from grant to loan much more slowly. The Government said that the introduction of loans has in no way affected the number of students entering higher education and, to judge from the speeding up on that process, it certainly appears that they want to test that thesis to destruction. According to documents that are alleged to have been stolen, it now appears that we have on the agenda the possibility of students also being required to pay some of their fees. I hope that time will be found as soon as possible to debate these issues.

It was wrong to suggest that many students in higher and further education can take advantage of discretionary awards. As most hon. Members will know, the availability of discretionary awards has been significantly reduced across the country in recent years, as the squeeze on local government finances continues.

As I said, some money has been made available for education, but it is rather like the magician's card trick--one can see the cards in his hand but one does not know what cards are up his sleeve. Since Budget day, more information about what was up the sleeve has been revealed, but on Budget day itself, and in the first few days after it, many people were misled.

Even The Daily Telegraph managed to miss the subtle irony of having the following two statements on its front page. The first said :

"Overall, Government spending on education in a very demanding public expenditure round will increase next year by 2.7 per cent in real terms."

However, on the same page, a second statement read :

"Local councils in England were told last night that they face cuts in services and job losses next year as a result of the Chancellor's decision to limit the growth in their cash spending to 2.3 per cent."

If we are going to discuss educational expenditure, we must consider the money given directly to the DFE and Ofsted, and that available to local government. It then becomes clear that the squeeze on local government funds will mean that local education authorities will have to make further cuts in expenditure in the next 12 months, and that very few will be able to improve the level or quality of their services.

The Secretary of State for Education proudly boasted that spending on individual pupils has increased significantly since 1979. I think that he quoted a figure in

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excess of 40 per cent. Such a claim has been made many times in the House, and I thought it important to have that figure checked. I have here a detailed brief prepared by the Library which examines the claim of increased expenditure. The brief shows clearly that, if one takes account of appropriate education price deflators and the changes in pupil numbers, the total increase in resources is not 40-odd per cent. but just 2 per cent. It also reveals that there has been a fall in real terms in spending on secondary education, and that spending on further education, about which the Secretary of State boasted so proudly only a couple of hours ago, has fallen by some 22 per cent.

From the total money made available to the DFE and Ofsted and the effective reductions in expenditure to local government, it is clear that the Budget does not provide the desperately needed investment for our education service. I can do no better than end by citing an editorial in the magazine Education :

"Sweet words do not soothe the acts of fiscal brutality contained in this week's announcement. True, the battered State service continues to survive. But let's not get too excited. More than ever, the contents of the Whitehall honey pot begin to taste increasingly bitter."

6.54 pm

Sir Peter Hordern (Horsham) : In the Financial Times on Saturday, there was an interesting review of Mr. Alfred Malabre's book entitled "Lost Prophets", which deals with the uselessness of economists. Mr. Malabre, who has been reporting for the Wall Street Journal for the past 35 years, said in his book that in 1958 the Wall Street Journal employed no economists ; nor did Salomon Brothers or any of the principal banks in the United States. At that time, the economy in the United States and Europe, including the United Kingdom, did very well.

With the use of computers and high-powered mathematics, the economics profession has created an aura of scientific competence and has produced various theories of which right hon. and hon. Members will be aware-- Keynesianism, monetarism and even supply-side economics, which is the daft way of cutting taxes so much that growth would occur and eventually create its own revenue. Mr. Malabre states that Keynes had no effect on the United States until Kennedy in the 1960s and that "demand management" came to mean inflation plus budget deficits. Very much the same has occurred in this country. The hon. Member for Motherwell, South (Dr. Bray) inserted a clause in the Industry (Amendment) Act 1976, which insisted on the Government making an economic forecast. That forecast has been included in the Red Book ever since. The seven so-called wise men, who are economists appointed to the Government, have their views printed in the Red Book, which gives them some sort of status as though they were official advisers to the Government and had some powers of economic forecast not available to ordinary men. I believe that it is ludicrous to place such weight on these forecasts. One begins with an absolute certainty, which is the amount of money one owes--£50 billion--and then, by sleight of hand, one arrives at the rate of growth necessary to fulfil that deficit. In two years' time, it turns out to be a rate of growth of 3 per cent. I very much hope that we shall get there, but I applaud the admirable determination of the

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Treasury to bring down the deficit. That is by far the best contribution that the Government could make to the economy. I said at the time of the Budget that the £50 billion deficit was in any case too large. It should have been reduced in the previous Budget to about £38 billion and we should have applied value added tax to fuel and power much earlier--in April--together with the various offsets and the social security relief which have now been announced. As it was, for some time we had all the pain of the most unpopular tax without any of revenue. That cannot have been a good thing. It shows that fine tuning is a greatly exaggerated art.

We should be aware of the substantial international flows of money, such as those that occurred during the exchange rate mechanism debacle. We must recognise the fact that not only can large sums of money be shifted around the world very quickly but the people who shift them look carefully at the public sector deficits of each country.

I was surprised to learn that in Germany the share of interest in total public spending is likely to rise from 11 per cent. in 1989 to 16 per cent. in 1994 and to 23 per cent. in 1997. No country in Europe can afford to neglect its public sector finances and every country has to seek to reduce its deficits. That is the practical truth of the matter. We cannot simply go it alone, either, in exchange rate policy without cost if we expect foreigners to finance our deficit.

Since 1985, the sterling index has fallen to 81 from 100 and that has meant that our long-term 10-year bonds, which have been issued, have to bear a penalty of about 1 per cent. compared with German bonds. In every respect, the best way is to reduce the amount that one has to borrow and thus to become less dependent on overseas markets.

The position now is very different from what it was years ago, when we could with some comfort declare what the Budget was going to be and look upon settling our own Budget quite comfortably within our resources. Every country now is susceptible to the winds of fortune ; to large sums of money being shifted from one country to another at the press of a button. It is not possible to engage in domestic economic policies without paying any care or attention to that phenomenon. It is a very important factor. We are, in that respect, all interdependent rather than being able to address ourselves, as we would no doubt like to do, to the importance of arriving at a correct national Budget.

With that in mind, I would also like to follow what my right hon. Friend the Member for Worthing (Sir T. Higgins) said about the funding. I mentioned that the last time that it was produced in the Budget. I notice that my right hon. Friend proposes to issue £7 billion-worth fewer gilts to the non-bank public. I am old-fashioned enough to think that that means issuing £7 billion to the banks, which will act as the base from which they can lend in future. That is no bad thing at the moment because we are well below our productive capacity and I see no strain on inflation at the moment, but the danger will arise in two years' time, when we achieve the 3 per cent. growth that we all wish to see. I notice that the Financial Secretary is paying close attention to that matter and I wish to put it on record that I think that printing money is a most dangerous development. It has served us no good in the past and it is a mistake.

Some very interesting things come out of the Budget statement, not least that in the Hansard of the same day the hon. Member for Hartlepool (Mr. Mandelson)--I am sorry

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that he is not in his place--tabled a most interesting question. It appears from the answer that the top 10 per cent. of the population now pay three times as much tax as the bottom 50 per cent., whereas 14 years ago they paid rather less than twice. I am grateful to the hon. Gentleman for asking that question because it shows, better than any Conservative Member could have done, the benefits of low rates of taxation on direct income. I hope that the hon. Gentleman asks many more.

As it happened, in the same volume of Hansard, there was a question about capital gains tax. I am glad that my hon. Friend the Financial Secretary is in his place because the yield of the capital gains tax in 1988-89 was about £2.3 billion ; in 1992-93 it was £980 million. That is substantially less than half. In 1988-89, 155,000 people paid capital gains tax ; 85,000 paid it last year. That is a serious case of declining revenue. The capital gains tax is taking on more of the character of the development land tax, which, as some of my right hon. and hon. Friends remember, was imposed by the last Labour Government and had to be dropped because it simply brought in no revenue.

I have to tell my right hon. and hon. Friends that the question of capital gains tax is now serious. It is producing less and less revenue and it is clear that the rate of tax is entirely inappropriate. It seems tragirevenue that it could get if it had a substantially lower rate of tax.

Suppose, for example, the rate of tax were 15 per cent. Assets would be exchanged freely and the Government would get substantially more revenue. I know what the argument is. It is the old Inland Revenue argument about people converting income into capital. We have to recognise the most important point about revenue, which is that one should get as much revenue out of taxation as one can and not impose dotty levels, which fail to get the revenue which is so badly required.

I shall say one last word about public spending. It has long been my view that the state should not indulge in unnecessary activity. Therefore, the Department of Employment should be scrapped altogether and its functions divided between Education and Training, and Social Security for the unemployment benefit.

I do not know whether my right hon. and learned Friend has seen the figures --my right hon. Friend the Member for Worthing and I have seen them-- showing that the reform of local government will cost £1 billion when all the dispositions have been made.

Sir Terence Higgins : Much more.

Sir Peter Hordern : My right hon. Friend says much more. I never disagree with my right hon. Friend and in this case I certainly do not.

We cannot afford £1 billion and in the case of West Sussex the reform is unasked for, quite unnecessary and an absurd waste of time. Of course, I realise that it is necessary to do away with Humberside and Avon and all those ridiculous authorities, but in West Sussex we require no change and it is a total waste of money. We should stop it.

Mr. Straw : The hon. Gentleman can correct me if I am wrong, but I believe that he was in the House between 1970 and 1974 and voted, with the current Secretary of State for

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the Environment, for the local government changes that created Avon and Humberside. Did he vote against them and speak out against them at the time?

Sir Peter Hordern : I am grateful to the hon. Gentleman. I was voting for West Sussex, which I thought was excellent. I do not really know about those other parts of the country, which I seldom visit. I naturally thought that those were the names that they wished to have.

Sir Terence Higgins : People in the Treasury at the time were desperately worried about the cost.

Sir Peter Hordern : In my experience, any reform of local government or of the health service always ends in disaster in terms of extra expense and more administrators and we do better to leave well alone.

I commend my right hon. and learned Friend's approach. It seems to me that his approach to good house-keeping is essential. He comes with no economic or econometric baggage. It is a good, practical Budget, which deserves the support that it is getting.

Mr. Deputy Speaker (Mr. Michael Morris) : Order. Madam Speaker has ruled that speeches from now until 9 o'clock shall be no longer than 10 minutes.

7.7 pm

Mr. Mike Watson (Glasgow, Central) : It is now six days since the Chancellor delivered what he described as a "no nonsense Budget". In the intervening period and over the weekend, it was often difficult to reconcile reports by the various pundits on the Chancellor's speech with the comments that I heard from people in my constituency, most of whom were greatly concerned at the effects of the Budget. I read with interest the words of Ms. Bronwyn Curtis, chief economist with the Deutsche Bank, who commented :

"the cuts in spending make it as painless as possible for the voters"

as if "the voters" were a heterogeneous group who all feel the same amount of pain right across the board. That is nonsense.

Tell that to any of the three million people who are without a job at the moment--and their families--who will see their unemployment benefit replaced by the profoundly, I think, insultingly titled job seeker's allowance. It is not the name change that will concern them most, however ; it is the fact that the payment is to be cut in half and restricted to a mere six months. I come into contact all too often with people who have been denied work and none of them--not one--wants to claim unemployment benefit for any more than six days, far less six months. Implicit in the new allowance is the suggestion that many people do--that is assuming that they can get round the already oppressive "actively seeking work" conditions that are applied under the present regime.

The proposal is also dishonest, because people in work, as we all do, pay taxes, a proportion of which is to sustain them, should they be unfortunate enough to find themselves unemployed. Now, from 1996, someone who loses his or her job will be denied half the benefits for which he or she has been paying for, perhaps, 20 years or more. If an insurance company tried the same thing on us, we would describe it as a con trick and immediately phone our solicitors. I do not believe that the Government should be allowed to get away with the same thing : it is legalised robbery. A no-nonsense Budget? I think not.

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Another gung-ho pundit who seemed to like the Budget was Professor David Currie of the London Business School, who described it as "politically highly astute", and said that the Chancellor had "skilfully defused" the household VAT row. These people seem to be wholly divorced from reality. I do not know what Professor Currie's domestic heating bills amount to, but we can be sure that an additional 8 per cent. or 17.5 per cent. will not cause him to lose much sleep--or much heat. If he and Ministers believe that the issue has been skilfully defused just because Tory Back Benchers--cheaply as ever--have been bought off, they should think again. Many of us see this as a campaign that must and will continue.

The derisory 50p or 70p for pensioner couples will meet half the anticipated increase in heating costs. That is of course woefully inadequate ; but what about low-income families who will not qualify for any help at all? For them, the issue has certainly not been defused. It is all too real.

The stark fact arising from the cruel imposition of VAT on domestic fuel is that people will die as a result. I am not being dramatic. The Government may contest the figures, but they cannot dispute the fact that VAT on fuel is a killer tax. Statistics show that over the past eight years there have been 35,000 so-called "excess winter deaths" throughout the United Kingdom. That refers to deaths between January and March as compared with the period from July to September. Between 1975 and 1985 about 40,000 such deaths occurred, so a decline in the numbers had begun and the suffering had begun to be alleviated.

VAT on fuel, it has been estimated by a wide variety of agencies, will reverse this trend and send the figures sharply upwards again. This is no startling revelation, but the fact is that cold kills. The Government, however, seem prepared to brush aside that fact in their desperation to cut their massive budget deficit. Their motto seems to be that they will impose cuts where they can be least resisted and to hell with the consequences.

I do not raise this issue lightly or use the term "killer tax" lightly, but the evidence is clear and unequivocal. An organisation known as the campaign for cold weather credits is based in my constituency and campaigns throughout Scotland on behalf of the old and the poor. It has carried out research throughout Britain and its revelations are startling :

"People on a low income have difficulty keeping adequately warm on their present incomes. If there is an increase in the cost of keeping warm, for instance, because the weather is colder than usual, these households cannot increase their expenditure to compensate. They get colder, their health is put at risk and more will die. The imposition of VAT on domestic energy will have the same effect. An 8 per cent. increase in VAT will cause an extra 5,000 deaths per annum. A 17.5 per cent. increase in VAT will cause an extra 10,000 deaths pere annum. In both cases, the imposition of VAT will cause more deaths than occur on the roads each year (approximately 5,000)." Even if we reduce these horrifying statistics by 40 per cent. to take account of the offsetting 50p or 70p payments, the imposition of VAT on fuel will result in thousands of excess deaths each year. I challenge the Chief Secretary or the Financial Secretary to deny this. Perhaps they have simply accepted the fact that those deaths will represent a reduced burden on the state and further savings to be set against the £50

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billion deficit. I should like to hear how they and their colleagues justify the move. In any case, they should not imagine that the fight against this callous tax is over.

Moreover, we should not forget the effects on low income families of the taxing of the vastly reduced new form of invalidity benefit, the increasing of the state retirement age for women to 65, and the adding of 3 per cent. to insurance premiums--this last is a punitive tax for many of the poorer neighbourhoods in Scotland such as Glasgow, Central, where only about 40 per cent. of homes are insured already. The change will hardly be an inducement to increase insurance. There are to be grant reductions to local authorities, with consequent damage to--already inadequate--house building and house repairing programmes.

Leaving aside the question whether taxing and spending have been balanced in the Budget, the bottom line is that the average family will be £10 a week worse off next April and £16 a week worse off from April 1995. These people, the victims of the Government's economic incompetence, have been pressed into service in an attempt to bail them out.

I want to take up an aspect of the Budget referred to today by the Education Secretary. It will have a serious effect on many of my constituents, about 17,000 of whom study at Strathclyde or Glasgow Caledonian university. Already, the student grant, plus a loan, amounts to less than they would get on income support and of course they are no longer entitled to benefit. The announcement of a 10 per cent. cut in student grant in each of the next three years came as a body blow to many of them, as they told me last weekend. The fact that the size of the loans available will be sharply increased in no way compensates. Most students do not want to end their studies thousands of pounds in debt. Why should they be expected to do so? By 1997, on Government plans, the amount owed by a student who has completed his or her course, taking out loans throughout it, will be almost £5,000--plus another £1,000 in Scotland, where a typical honours degree takes four years.

Too many students, it would seem, are gaining entry to our universities. In other countries, they welcome that and provide resources commensurate with it. This Government, however, are attempting to halt the expansion of higher education by making it financially unattractive to go to university. What a way to run an education system. The changes will effectively reduce the number of students entering higher education and will unfortunately mean turning the clock back, with the effect that students from social classes 1 and 2 will dominate at the expense of those from poorer families. That is not what the Government claim to want, but it will be the effect. On top of all this, the widely leaked announcement that student fees are to be charged from next year represented more nonsense from a "no nonsense" Budget.

I would like to close with a brief statement on a subject that I have not heard raised so far--the bad news for the aid budget for developing countries. The freeze announced last year has been confirmed and it will mean real cuts over the next three years of about 10 per cent. At the same time, aid to eastern and central Europe has increased by about 23 per cent. this year and will increase by 19 per cent. in each of the next two years.

The importance of aid to developing economies is not in doubt, but it obscures the fact that there is a continuing transfer of our aid away from long-term development assistance to the poorest countries and towards the

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promotion of Thatcherite values and market economics in the former Soviet Union and its neighbours. There is a depressing parallel here with benefit reductions for this country in the Budget, a sinister sort of consistency : the Government are prepared to hit the world's poor just as hard as they hit the poor in Britain.

This has been a bad week and a bad Budget for the poor, not only at home but around the world. The Government's spending and taxing plans only hold out the promise that there is worse to come.

7.17 pm

Mr. Nicholas Winterton (Macclesfield) : It was with mixed emotions that I listened to the Budget delivered by my right hon. and learned Friend and, despite the surge in the City, it is with very mixed feelings that the Budget has been received by the construction industry and the manufacturing sector of our economy.

As chairman of the Manufacturing and Construction Industries Alliance, launched in the House earlier this year with the support of colleagues of all parties and with welcomes from the Prime Minister and leaders of Opposition parties, I am sensitive to the needs of construction and manufacturing, and it is clear to me from my extensive contacts with industry that where the Chancellor failed in his Budget was in dealing with the fact that UK Ltd. needs a clear economic strategy for growth--and we do not have one.

The Budget provided some elements for such a strategy, but no really coherent explanation of just how we would achieve even the depressingly low 2.5 per cent. growth a year. The problem that we face is not merely one of controlling public finances and balancing the books. That, at the very most, is a by-product ; it cannot be considered a substitute for a real economic and industrial strategy. Similarly, tax increases and cuts in public expenditure, especially on roads, housing and other badly needed infrastructure projects, do not amount to a strategy. Our underlying problems of high unemployment, budget deficit and weak growth can be tackled only by a much more positive and constructive approach, by a positive programme of measures that focuses upon and maximises the opportunities that are currently open to the United Kingdom.

There is a world recession, and the United Kingdom cannot expect to achieve high growth when Japan, the United States and Germany are at various stages in a long recession. But it is possible to identify some bright spots and to make some reasonable assumptions about where opportunities will and will not be found over the next five years. That is precisely what President Clinton did two weeks ago at his summit with leaders of the economies of the far east. He identified the current economic power and the future economic potential of Japan, China, Taiwan, Korea and Malaysia which, together with the United States, make the Pacific the key focus for the 21st century. The North American free trade agreement will undoubtedly in due course extend to much more of Latin America beyond Mexico, and a new fulcrum of world trade is emerging. The main economic players are sizing each other up and shifting their footing for the best possible position to take advantage of world markets. Unless we are careful, the United Kingdom will not even be in the ring with them.

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In stark contrast, I shall now turn to the dull, gloomy and sorry spectacle of Europe to which our political and economic strategies seek to wed us. I welcome the Chancellor's strictures on Europe and his commitment to the conclusion of the GATT round, on which he has my support, but he did not tell us how he intends to deregulate Europe. The price of reunification, on top of Germany's burgeoning and inefficient bureaucracy, feather-bedded labour force and high social and production costs, has meant that Germany is no longer the economic heartbeat of Europe. It is approaching the economic equivalent of a cardiac arrest.

Through its foolish attachment to the franc fort and its pretence that the ERM is still alive, France is condemning itself to the same coronary care unit as Germany for some years to come. By its continued policies of forcing through monetary and economic union, social and other legislation-- despite the determined efforts of my right hon. Friend the Prime Minister to persuade it otherwise--the European Community will price itself out of world markets and become an inward-looking and ultimately second-rate trading area. Europe is over-regulated. It has high costs and it is uncompetitive, recession ridden and economically short sighted. However, there is still hope, because our membership of the European Community does not preclude us from competing for our share of those world markets which either are still growing or which may be expected rapidly to do so in the next five years. Thus, our economic strategy must be to provide the United Kingdom with an alternative to being able to trade only within the European Community so that we are able to seize an increasing share of world markets. Sadly, that strategy was lacking in my right hon. and learned Friend's Budget.

Europhiles who constantly pretend that there is no alternative to Europe should look at the real world and acknowledge the collapse of their fantasy. They should look at what the United States Administration clearly see, which is that alternatives are difficult to miss, not hard to find. The alternative strategy that the Chancellor should adopt for United Kingdom Ltd. has two key features, one of which has been started but not adequately explained by Ministers. It is deregulation, and I welcome the measures on national insurance and PAYE that the Chancellor announced. The second feature, interest rate reductions, has started by default, but has not yet gone far enough.

Deregulation recognises that drastic action to reduce the costs of British industry is essential to make us competitive. In the 1980s, reform of the trade unions and our labour relations legislation put in place new levels of cost efficiency. We must now proceed to reduce the cost of over- regulation and bureaucracy, which are a colossal millstone of overheads for every company, especially small businesses. The Prime Minister has announced initiatives to do that and a Bill will be introduced to repeal redundant regulations. That is welcome, but the exercise must be carried out rigorously and without delay, and all new United Kingdom and EC legislation must be subject to extensive new scrutiny to establish accurately not only compliance costs but whether legislation is in proportion to the problem that it claims to address.

If Britain is to become an internationally competitive nation selling to countries on the Pacific rim and to the United States and India and others, we must keep our unit costs down and resist expensive and unnecessary legislative burdens that will merely lengthen dole queues.

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The second requirement for recovery is a competitive currency. Although the Government have been forced to reduce interest rates and let sterling fall, they have not gone far enough. Lower interest rates are urgently needed to reduce domestic costs, stimulate investment and underpin growth, force down the value of the pound and give our exporters an advantage in growth markets. That will produce higher United Kingdom growth than we currently enjoy, perhaps 3 to 3.5 per cent. after 12 to 18 months rather than the dismal 1.75 to 2.5 per cent. predicted by the Chancellor. That is the correct way to deal with the PSBR. It should not be dealt with by cuts in necessary public investment or by tax increases that will depress our economy. Britain has a hell of a problem to face after 1 April next year. Some people in the Treasury and the Bank of England claim that my proposal is inflationary. They are totally wrong, and their obsession with inflation, which is rooted in outdated social and market conditions that no longer apply, threatens our economic recovery. I am sorry to note that Mr. Eddie George will apparently have too much say in future about the timing of interest rate changes. He is so far gone in his obsession with inflation that no longer exists that he is himself one of the largest single obstacles to the development of a coherent economic strategy and economic growth.

The Chancellor must personally accept full responsibility for a positive strategy for growth that will enable Britain to become a world trading nation, and he must make the necessary decisions on both actions and timing. In a matter of weeks, not months, interest rates should come down to between 3 and 4 per cent. Such a reduction was the centrepiece that the Budget lacked.

A Government who reduce our cost base and keep our currency competitive may truly hope to win the approval of industry and the support of our people at the next general election. The Government may also expect British industry to rise with relish to the new opportunities that will be presented by such a strategy for growth and prosperity.

Mr. Deputy Speaker (Mr. Michael Morris) : Order. The hon. Gentleman is out of time. I call Ms Armstrong.

7.27 pm

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