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Mr. Julian Brazier (Canterbury) : I will not try to follow the hon. Member for Darlington (Mr. Milburn) down his route. I want to begin by declaring an interest. I placed a substantial bet last week, not on one of the horses of my hon. Friend the Member for Bury St. Edmunds (Mr. Spring), but with my bookmakers, the IG Index, on the sterling contract that short- term interest rates would not rise as fast as the market thinks that they will. I did that because I have such confidence in the Government's anti- inflationary abilities. Two years ago, I made a speech in which I took the then rather fashionable view that monetary conditions were too tight while the fiscal position was too loose. Since then, the Government have taken several sensible steps to control the fiscal position. However, I may be almost alone tonight in arguing that the monetary position is still too tight. How can that possibly be when short-term interest rates are at their lowest for a generation ?
In my speech two years ago, I quoted Professor Tim Congdon's model, but I suggested that he did not include a major factor--the massive one-off impact on the monetary figures that the changes in the housing market
Column 101were likely to have. Professor Congdon kindly sent me his latest document a couple of days ago, and I was intrigued to see that he devoted all the copy to that subject.
If Professor Congdon's approach is now correct--I argue that he has not gone quite far enough--we should be profoundly interested for three reasons. First, it will mean that our inflationary projections are, if anything, not optimistic enough. We really have beaten inflation in the medium term. Secondly, it will mean that in the medium term our outlook for a healthy economy is even better than impartial observers such as the Organisation for Economic Co-operation and Development are suggesting, but- -this is an important and significant "but"--we may have, in getting from here to there, a significant monetary glitch to cross.
The broad money supply today is growing at only 3.1 per cent. Coincidentally, that is almost exactly the rate at which it was growing two years ago. If the one-off surge in money lent to speculators of various sorts is removed, the actual growth in broad money is only about 1 per cent. In other words, for the first time in a generation at least, and as far back as we have a really good record for broad money, there is a sustained shrinkage in the real money supply.
That is backed up by several subsidiary factors. For example, the growth in wages is running at only 3.75 per cent. Given the rapid expansion in productivity at the moment, that is only just a real increase. Most significantly, I want to focus on the workings of the housing market.
The housing market is difficult to measure because there are so many indices. They include the Halifax and the Nationwide and can be seasonally adjusted or not. However, they all show that, as I suggested might be the case two years ago, the housing market has not recovered. I believe that it is right that it should not recover. Lower property prices are healthy.
Why has the housing market not recovered ? First, we must consider the inflationary factor. People believed that it was worth spending more money on a house if, because of the fall in the value of money, the debt that they borrowed would erode vis-a-vis the house price. Secondly, we must consider the fiscal factor, in that the real value of mortgage interest relief has declined. However, thirdly and crucially--I believe that all the economists who focus on housing have left this factor out of the picture-- we must consider the geographical impact of the collapse in the cost of travel to the continent which occurred at the same time as the introduction of the single market. The massive disproportion in house prices in northern France and southern England cannot be sustained indefinitely. Some of my constituents are moving across the channel to retire and people are selling second homes in my area, and I am sure in other areas in southern England, and purchasing properties from estate agents advertising their wares in English in northern France.
That factor could, in the 1990s, match in reverse the one-off inflationary impact of the liberalisation of credit in the 1980s, which gave us such problems with the monetary indicators then and which fed through into a most unexpected burst of inflation in spite of apparently high interest rates.
We might appear to have low interest rates now, but they are not as low as they seem. Long-term interest rates at 8 per cent.--that is, a real rate of 5.5 per cent.--are quite high. A short-term base rate of 5.25 per cent. is not as low
Column 102as it looks, because the banks have widened their margins. It is certainly nothing like as low as the 3 per cent. which the Americans, whose economic experience is much closer to ours than to our European partners, chose to sit at for some time. Even if those rates are as low as many people believe, the impact of that one-off, massive, painful adjustment in the housing market--I am convinced that it is a good thing in the long run, but it is monetarily painful in the short run--will cause a one-off shrinkage in the money supply, which could give us a bumpy ride over the next year or so.
The reaction to that is easily coped with, and the clear water is on the other side--non-inflationary growth on a major scale, and with the extra bonus that, because money is no longer being channelled disproportionately into bricks and mortar, it will be available for the investment which Opposition Members have mentioned and which we would like to see boosted in industry. It is noticeable that those countries which have been most successful economically are often those in which home ownership levels are not especially high and house prices are not particularly high in terms of the economy. Switzerland is a good example of that.
We must be ready to take swift monetary action if the broad money figures become any lower. That can mean only one of two things--either keeping the base rate down or even lowering it further, in which case I shall make even more money at the bookies than the little bit by which I am ahead already, or being willing to tackle the other end of the interest rate curve, which would be my preferred solution, by reducing the amount to which we fund the deficit so that we get broad money moving again. That course is potentially rocky.
I shall devote the last couple of minutes of my speech to ways in which we can tighten the fiscal position a little further. Like most hon. Members, I believe that a gently expanding money supply and a tightening fiscal position will deliver the non-inflationary growth that we need. First, I firmly believe that we should go the whole hog on social security spending and introduce identity cards and a proper central register, which would be the single most effective way to tackle fraud.
Secondly, as I have proposed in previous debates, and as I have a university in my constituency, we should fund the remarkable growth that we have achieved in higher education by going even further toward student loans. In the long run, grants should be confined only to certain specialist groups such as mature students and those with other special positions.
Thirdly, we must reconsider the scope for legal aid. We have narrowed the group of people who are eligible, but we have not narrowed the type of cases that they can bring. For example, pensioners in my constituency can dispute a garden hedge, and, having spent £20,000 of their own savings, can ask the Treasury to fund the next stage of the dispute-- incidentally, the case was brought against a war hero who has lost a leg-- at the taxpayer's expense. I find that incredible.
Fourthly, we should look again at home improvement grants, which are frequently paid to people with substantial incomes and which result in a one-off capital gain for those people. Why should not grants be repaid on the sale of the house ?
Fifthly, like other hon. Members, I believe that we have to look again at housing benefit, but not by sharpening the taper still further and screwing down still more tightly on
Column 103those with modest savings. The way to tackle housing benefit is by recognising that we have a largely artificial property market in many areas because most people in rented accommodation in some areas are now on housing benefit. The answer is to limit the amount which councils are allowed to pay, thereby bringing down prevailing rents. I end where I started. I declared unnecessarily my interest because I thought that it was right to do so. I am betting that we have beaten inflation.
Mrs. Anne Campbell (Cambridge) : It is rather interesting that no Conservative Member has referred to this as a "feel good" recovery. I refer to it as a "feel no better" recovery, which is certainly an improvement on feeling worse, and probably very much preferred to the "feel good" recovery which ends in inflationary tears. That is not my phrase, it is the phrase of a well- known journalist who writes for The Guardian . As he rightly comments, the real question is whether the "feel no better" recovery will fizzle out or end in an inflationary boom.
The problem that we face is the lack of industrial strategy, which is the worrying aspect of the Government's approach. The Chancellor admitted this afternoon that investment in industry is not increasing as he would like. The recovery is being led by consumer spending, not by investment in industry. Too much of our consumption is of goods that are manufactured abroad, which is increasing our trade deficit and producing longer-term inflationary pressures.
Over the past 15 years, we have seen the decimation of our manufacturing industry. That in itself must have shown some of us at least that it is essential to have an industrial strategy that will help to rebuild the desperately needed manufacturing industry. We need a strategy that will help put our people back to work and help to use our skills and expertise to their best advantage.
People are often surprised when I tell them that unemployment in the Cambridge constituency is about the same as the national average. For some reason, people always think that Cambridge is one southern constituency with low unemployment. Some 3,400 people are registered as unemployed in my constituency. The rate is 9 per cent. overall. One reason why unemployment is not much higher than that is that we have good reason to be grateful for the strong growth of the small high-tech firms which have dominated the industrial scene in my area. That has developed despite the Government, rather than because of Government policies.
I should like to talk about the importance of high-tech firms. Although that is not the only small business sector that we should support, it is extremely important because it provides interesting and satisfying work. It is not part of the low-skill, low-tech economy that the Government are trying to promote, and it is an essential way of capitalising on our skills and expertise and enabling manufacturing industry to benefit. Through the promotion of high-tech industry, we can achieve economic growth and increased employment and, at the same time, ensure that our manufacturing industry improves its competitiveness.
Last weekend, Cambridgeshire county council published a survey of 1,000 companies in Cambridgeshire, which showed that there has been 7 per cent. growth in
Column 104high-tech jobs in the past two years. In the city, more than one in eight of all employees work in high-tech industry, and in the surrounding villages the proportion is one in five or higher. It is a crucial part of our local economy.
In the past two years, an additional 1,900 high-tech jobs have been created, bringing the total to more than 27,000 in the county, including an extra 500 jobs in research and development. Some of those jobs replace jobs that were lost in other sectors, and many of them are financed by European research and development money. Thirty-two per cent. of those jobs are in the city of Cambridge, the great majority of them in my constituency.
Without those jobs, the unemployment rate would treble, and I would be talking about not 9 per cent. but 27 per cent. unemployment. That is higher than the levels in Tottenham, Liverpool, Hackney and Monklands, East--my hon. Friend the Member for Monklands, East (Mrs. Liddell) referred to the latter in her maiden speech.
I hope that the Government will take due note of an excellent report that has just been published by the Advisory Committee on Science and Technology. The report, entitled "Innovation and the Tax System", makes several recommendations, some of which I hope that the Government will implement, which have been part of Labour party policy for a long time. It suggests, for instance, a detailed study of the relationship between the UK tax system and the innovative activity of UK-based businesses.
The momentum of innovation depends on access to financial and other resources. The tax system is important in determining post-tax profits from which businesses can finance such innovation. A technology-based firm in my constituency, Xaar, has developed an ink-jet printing system and a range of complementary inks. Several million pounds raised from venture-capital organisations in the UK and Europe have been invested in the development of that technology. Xaar has been successful in seeking licences for its technology, and has concluded agreements with major Japanese office manufacturers, IBM Sweden and, most recently, Zeneca Colours Ltd.
Under the terms of the agreement with Zeneca, together with the Xaar chemists, a programme of joint development to produce top-quality inks to service the market being created by Xaar's printhead manufacturing licensees is being embarked on. The key element of that agreement is the joint development programme, and the transfer of Xaar know-how and technical information.
Xaar was shocked and disappointed to find, when the first payment came in under the licence, that a deduction of 25 per cent. had been made to cover tax. The trouble is that Xaar will not be able to recover that amount until it is in a position to pay corporation tax--which, given the accumulated losses arising from the development, will not be for several years.
Xaar's chairman wrote to tell me of those developments, adding : "The strangest factor is that had Xaar concluded a deal with an overseas manufacturer then the income would not have been subject to 25 per cent. withholding tax. Even licence fees and royalties from Japan have only 10 per cent. withholding tax."
The chairman makes the following plea :
"We ask the question, why do the UK tax laws seek to penalise companies like Xaar who are engaged in keeping British technology at the forefront of product development."
I believe that our tax system could do a great deal to develop small high- tech firms. My hon. Friend the Member for Motherwell, South (Dr. Bray) referred to tax incentives
Column 105that would help not only high-tech industry but many of our manufacturing industries. We should recognise that not only investment in research and development, and in equipment and machinery, but investment in people is vital to the future of our industries. We need trained people to fill the jobs that will result from the development of high-tech firms, and we need people who are free to work. Many women in my constituency already have the skills, but cannot work because of child care and other care
We need a strategy that will enable such people to work, will help to develop the high-tech firms that will provide the jobs and will help to turn this "feel no better" recovery into a really "feel good" recovery.
Mr. Barry Legg (Milton Keynes, South-West) : I intend to concentrate on public finances. The Chancellor's summer economic forecast reveals much improvement in our general economy : the first 41 pages show a recovery over the past 18 months which is projected to continue in the medium term-- a recovery based on a low-inflation environment.
I agree with my hon. Friend the Member for Croydon, South (Mr. Ottoway), who welcomed the openness initiative in monetary policy to which the forecast refers. The publication of the minutes of the monthly meetings between the Chancellor and the Governor of the Bank of England are a significant development, in terms of both accountability and the quality of advice on monetary policy that is likely to be presented. More openness in government is likely to strengthen our institutions rather than weaken them.
So much for the first 41 pages of the forecast. The remaining nine, which deal with our public finances, paint a much less sanguine picture. Opposition Members have called for more public spending today, although they have not quantified the increase for which they have asked. Contrary to some of what we have heard from them, however, both the Red Book and the summer economic forecast reveal that public spending is alive and well, and expanding in the British economy. Despite the best efforts of my right hon. Friend the Chief Secretary to the Treasury, the controlled total over the past three years has risen by some 10.9 per cent. in real terms.
Earlier today, my right hon. and learned Friend the Chancellor attributed that increase to the recession, but I suspect that economic historians will not regard all of it as having arisen in that way. They will probably conclude that it is also due to the Government's efforts to offset the over -tight monetary policy that resulted from our membership of the exchange rate mechanism with a more lax fiscal policy.
As a Conservative, I do not support increased state intervention in the form of higher public expenditure when Governments follow inappropriate monetary policies. Boosting public expenditure is very easy and apparently popular in the short term, but it is very difficult to bring it down again in a modern democracy. Lobbyists and interest groups will fight to ensure that spending levels remain the same or rise, whatever the national interest demands.
So what of the future ? Table 2.2 of the summer economic forecast, on page 43, shows that general Government expenditure over the next two years is set to increase from £278 billion to £310 billion--an increase of
Column 106some £30 billion ; a cash increase of 11 per cent., and a real-terms increase of some 6 per cent. in a low- inflation climate. The figures show other worrying trends. For instance, cyclical social security is planned to increase further in the coming years. That seems strange when we are experiencing above-trend economic growth : at such a time, cyclical social security would be expected to fall. As for the total social security budget, over the next two years it is due to rise to more than £90 billion. It is difficult to understand the magnitude of that figure ; perhaps it would be simpler if it were expressed as the amount of tax that would have to be raised from the average family to pay for it. The average amount of tax levied on the average family to meet that social security burden would be some £4,500 per annum .
I believe that reform of social security spending is now essential. The scope and size of that budget must be reined in. As long as we put off fundamental reform of social security, our reputation for firm control of public spending and our ability to create a low-tax environment will be in danger.
When Beveridge produced his White Paper on social security, he said that the great danger was that men might become comfortable and settle down to benefits. That is the position we are in--men have settled down to benefits. The social security system that has evolved for 50 years has not helped good neighbourliness, but has set neighbour against neighbour. So often, we hear of people complaining about neighours who exploit the benefit system while they pay the taxes.
Too generous a benefit system also stops people from going back to work. The most important ingredient in getting people back to work is net take- home pay after tax, which determines the supply of labour. If people find that they receive more on benefit than they would in net take-home pay, their determination to find work will obviously falter.
In recent months, there has been significant discussion and argument about whether the United Kingdom economy can combine European welfarism and American free-market efficiency. If one accepts such a proposition, it has some inconsistencies. Free-market efficiency requires a low-tax system, whereas welfarism pre-empts the nation's resources. Even in Britain today, the state is pre-empting more than 44p in every pound of private sector resources. Deregulated labour markets are not enough. Low tax is a necessary prerequisite for a successful free-enterprise economy. High welfare spending is not a part of that virtuous circle. High public spending usually leads to high public deficits and high long-term real interest rates, because the markets want a risk premium for the money they lend to spendthrift Governments.
We have an agenda that we must adhere to during the next two years, and we must ensure that low taxation is at its heart. To achieve such low taxation, firm control of public expenditure cannot be mere rhetoric : it has to be a commitment that we are determined to deliver. A social security budget of £90 billion must be reformed. Last week, we heard from my right hon. Friend the Chancellor of the Duchy of Lancaster that Government running costs are £20 billion a year, or £1,000 a year for every family in this country. We must focus on reducing these levels of public spending during the remainder of this Parliament, because a low-tax economy must be an obligation that we do not dishonour.
Column 1078.52 pm
Mr. Mike O'Brien (Warwickshire, North) : First, I congratulate my hon. Friend the Member for Monklands, East (Mrs. Liddell) on her impressive and forceful debut in this place. I know that my new hon. Friend will be a great credit to her predecessor.
The Chancellor forecast a golden vista of his creation--rising investment, low inflation, reduced public borrowing and lower taxes. To the public, he says, "All this and more can be yours, if only you vote Tory next time." If he thinks that the public will be so easily conned, he is wrong. They know that such forecasts come from the same crew who failed to predict the Lawson boom, ruled out the possibility of a recession, did not foresee sterling's exit from the exchange rate mechanism, and denied the need for tax increases before the last general election. Their record for forecasts is abysmal, and their record on economic management is worse.
It is true that we are climbing out of recession, but that is part of the economic cycle. It would have happened sooner if the Government had got their policies right. We stayed in recession longer than most other countries. The economic cycle meant that we were bound to come out of recession eventually, as we came out of the 1981 recession, but the Government's stewardship has left the economy in a bad state to take advantage of recovery, just as it did after the 1981 recession.
The Government cannot even claim that the recovery is a result of the success of their policies, because it is clearly the result of the failure of the policy that they set out at the last general election. The present Prime Minister was Chancellor when he took us into the ERM at an unsustainable exchange rate. It was an appalling judgment. We entered the ERM at the wrong time, the wrong rate, and for all the wrong reasons.
Massive damage was done to our manufacturing base, and a million jobs were lost as the then Chancellor, now the Prime Minister, sought to sustain what was unsustainable. Even those people such as myself, who believed that the principle of the ERM was right, knew that that exchange rate was not sustainable. Once forced to abandon their preferred policy, the Government found that a slow recovery began. Their false judgments created the recession, the damage to manufacturing and now, paradoxically, the recovery.
The budget deficit, which produced value added tax on fuel and car and home insurance, and a new airport tax, was created by the fiscal irresponsibilities of the 1980s and 1990s--primarily, by tax cuts at the wrong time, and again for the wrong reasons. I well remember the forecast that the Lawson boom would lead to prosperity. The reality was boom, bust and job losses, and it will be again, because this Chancellor does not get his judgments right, either.
Value added tax on fuel was introduced because we supposedly had a £50 billion deficit. That was his forecast and his judgment, but he was wrong. The deficit was £46 billion. He did not need to introduce VAT on fuel ; pensioners and the poor did not have to be hit in that way.
The Chancellor made the wrong judgment in imposing an unnecessary burden on people, so will he remove it ? He would not agree even to fail to impose the second stage of VAT on fuel when he came before the Treasury Select Committee. I suggested to him that there was no more need for the tax. He said, "Well, we're going to do it anyway."
Column 108Like his leader, who took us into the ERM at the wrong rate, this Chancellor decides when confronted with realities that the best thing to do is to ignore the pain they cause, and carry on regardless. It is the same sort of attitude that he displays towards the fundamental problems of the economy--he ignores them. The result is that the recovery is not sound.
Yesterday, David Hardisty of the Finance and Leasing Association said :
"Confidence is still fragile, because there is no feel good factor at the moment. The tax rises, low wage settlements, static house prices and fear of unemployment mean people do not feel their economic situation is improving."
Sixty-three per cent. of the association's members were no more confident about their prospects this month than they were in February.
The housing market is a particular problem. In paragraph 3.28 of the Red Book, the Chancellor predicted :
"Increasing confidence should lead to higher activity and prices in 1994."
He got that wrong, too, as he admitted to the Treasury and Civil Service Select Committee.
The failure of the housing market is probably due to three factors : first, confidence in recovery is weak ; secondly, the Governor of the Bank of England has predicted that interest rates will rise later this month, which deters borrowers ; and, thirdly, taking out a 25-year mortgage is based on the principle of being able to pay for it, and uninterrupted employment.
The new insecurity and uncertainty in the job market caused by the removal of many employment rights means that people are less likely to enter into large loans, because they are not sure that they will be able to pay them. The housing market may not be the same ever again while current Government policies continue. That will affect the need for a mood of confidence which the Chancellor predicted but which, again, has not materialised.
There is also no real evidence that the Chancellor has created one extra full-time job. That was the consensus view not only of the distinguished panel of economists who advise the Select Committee, but of his panel of independent advisers, who said in paragraph 13 of their report on the summer economic forecast :
"Full-time employment has continued to fall."
It is true that people are coming off benefits, but that is for three reasons : first, changes in the benefit rules, especially on invalidity benefit ; secondly, more young people are going into education ; and, thirdly, the creation of more part-time jobs. However, the statistics show that full-time jobs are still not being created, and, as the Chancellor's advisers said, full-time employment has continued to fall. There are also concerns about the sort of jobs that are being created and the sort of full -time jobs that might be created, hopefully, in due course.
If recovery is to be sustained in the long term, we need an export-led recovery ; we need a recovery primarily in manufacturing. The damage to our manufacturing base in the recent recession has been enormous, but as Professor Christopher Johnson pointed out, the damage to manufacturing investment under the Tories has been long-term, rather than only during the current recession. During the period 1982 to 1992, while capital stock in finance and business rose by 107 per cent., in trade and tourism by 57 per cent. and in other services by an average of 38 per cent., capital stock growth in manufacturing industry was only 14 per cent. That has left manufacturing weak over the past decade.
Column 109As the Chancellor's economic forecast acknowledges, that has led the Confederation of British Industry, in its measure of capital utilisation, to say that the manufacturing sector is already close to its normal level of utilisation. There is little spare capacity left in manufacturing ; spare capacity is in other sectors. That means that, even if we are able to bring ourselves slowly out of recession and into recovery, the manufacturing demand is unlikely to be able to met domestically, and we will have to import products.
If we are not careful, and if there are no changes in policy, we are then looking at a balance of payments problem, certainly in the next year. Manufacturing is fundamentally weak, after years of neglect. That is why my hon. Friend the Member for Dunfermline, East (Mr. Brown) has called for policies to encourage investment in manufacturing, and to tackle the skills deficit in Britain. Any modern western economy should have managed a sustained growth rate of 2.2 per cent. over the past decade or more. We did that before 1979 ; we should have been able to do it after 1979. As Professor Johnson has shown, an output gap has grown since 1979. Under the Conservatives, the economy has gone from boom to bust, but throughout that period it has under-performed.
Professor Johnson predicts that the current massive output gap will take five years or more to close, even at the current rate of growth. It will take five years of the current growth rate to take us to where we should have been if there had been prudent stewardship of our economy. It is a miserable record. In the 1990s, the growth rate is likely to be an average of only 1.6 per cent.
We also have the highest taxes on record. The Conservatives like to say that they are the party of low taxation, and argue that the present tax rises are a temporary hiccup. However, that is not true. Recently, my hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) gave the Treasury and Civil Service Select Committee statistics from the Library of the House. Their effect was devastating.
In 1978-79, the ratio of tax to gross domestic product was 34.3 per cent. In every year up to 1993-94, it was a higher proportion of gross domestic product than in 1978-79. This year, it is 34 per cent., but it is set to rise to 37 per cent. in 1994-95 and 1995-96. That is not a temporary phenomenon or a hiccup.
If hon. Members think that the statistics for 1978-79 are somehow or other an aberration as far as the Labour Government were concerned, it is the case that the figures for 1975-76, 1976-77 and 1977-78 were also lower than for almost every year under the Conservatives. The data show that it is simply a myth that the Conservatives tax less than Labour. It is true that the Conservatives tax the rich less than Labour, but, for the working class and for middle-income families, Labour's tax policies not only cost less but are more progressive and fair.
A married couple on average earnings with two children in 1978-1979 paid 34.2 per cent. of their earnings in direct and indirect taxation. In only one year from then until 1992-1993 does the proportion fall below that, and that was 1979-1980, following a Labour tax cut. In every single year since 1980, a typical family has been taxed higher under the Conservatives.
That leaves the debatable point about whether Labour would or would not have taxed higher than the Conservatives in the 1980s. But it is not debatable that,
Column 110since 1979, under Mrs. Thatcher and the present Prime Minister, the Tories have taxed more than Labour Governments.
The Chancellor cannot be relied upon to get it right. His judgment is unsound, and he and his predecessors have made too many bad judgments in the past. He has no clear view of where he is going, he has not addressed the fundamental problems of the economy, and he does not have solutions for those problems. The Conservatives seem to see their only hope in trying to extend the policies of the 1980s--the "me decade"--into the latter half of the 1990s, no matter that tax cutting and trickle-down economics were supposed to lift all the boats, but have instead lifted only the yachts and damaged the harbour in the process.
Labour rejects that. We want to move from the "me decade" policies and to make the 1990s the "we decade". We say that, unless the many prosper, none will. It is for that reason that I say that the electorate will not be conned again by the Chancellor's predictions of prosperity. The Government have got it wrong far too often, and they have got it wrong again. The electorate know that, and they will reject them.
Mr. Nigel Forman (Carshalton and Wallington) : I am grateful for the opportunity to contribute briefly to this interesting debate. I have sat through virtually all the speeches and I have listened to them with considerable attention.
Speaking at this time of the evening, and looking at the open green Benches, reminds me of the old saying, "If you want to keep a secret, make a Back-Bench speech." There is no doubt that it is somewhat difficult to speak at this time of night.
I was going to make three main points, but I shall confine myself to one, for reasons of brevity. I wanted say some nice things about the growth of the economy, but those points have already been made adequately by my right hon. and hon. Friends. I shall content myself with making one practical suggestion by way of an early Budget representation to my right hon. and learned Friend the Chancellor and to his colleagues on the Treasury Bench.
One of the besetting difficulties in our economy since the war--perhaps for longer--has been the relatively low level, and sometimes also the poor quality, of the investment made in the economy. There has also been rather too low a level of aggregate savings which have been put aside by all sectors of the economy towards that investment. The time has come for the Government, and Parliament as a whole, to try to make a constructive contribution to rectifying that situation, or at any rate to lean against the national malaise of inadequate aggregate savings.
I shall quote one or two figures which relate to the time that the Government have been in office, from 1979 to the most recent available date. Total savings as a percentage of GDP moved from 23.1 per cent. in 1979 to 13.5 per cent. in 1993--a rather depressing decline.
If one looks, for example, at the international figures and compares our record with those of Japan and Germany, one finds that in roughly the same period--in this case, the figures relate to 1979 to 1992--Japan's gross national savings as a percentage of its GDP stayed roughly constant at 31.5 per cent. in 1979 and 33.9 per cent. in 1992. In
Column 111Germany, the figures were 22.8 per cent. in the first year and 22.7 per cent. in the second year. The United Kingdom's figures were 19 per cent. in the first year and 12.8 per cent. in the second year. I therefore want some measures to be taken not just in the forthcoming Budget but in succeeding ones to help to rectify that situation. On the personal side, it is very important not to attack the tax regime for institutional savings, because we shall all need the efficiency and positive contribution made by such savings to thrive and grow in order to achieve the other objectives of Government policy in the sphere of occupational pensions. Rather, my right hon. and learned Friend would do well to consider introducing an overall tax incentive for any form of personal savings up to a maximum of, for example, £10,000 in a given tax year, which would be completely neutral as between one savings product and another. In the context of the move towards self-assessment, it could be self-certified by the taxpayer, subject to rigorous spot checks and fierce penalties from the Inland Revenue.
That should increase the aggregate level of personal savings in the economy, reduce the need for savings churning between different novelty products and encourage the old habit of direct equity or bond investments by individuals. If properly channelled by institutions and properly used by companies--obviously it is not just the quantity of investment, but the quality and the direction of it which matters--it should produce a higher level of overall investment in our economy.
If my colleagues on the Front Bench want to learn more about this idea--if they are not already up to speed on it--I commend to them a recent publication by the Institute for Fiscal Studies, which put forward an idea similar to the one that I have outlined. I believe that it would be in the national interest to pursue this idea. 9.10 pm
Ms Harriet Harman (Peckham) : The argument in the debate centres on a fundamental difference of analysis of the state of the economy and a fundamental difference of view about the role of Government in the economy. The Opposition believe that the economy remains fundamentally weak and that the power of Government must be used to address that weakness. The Government tell us that the economy is doing just fine and that all they have to do is carry on as they are.
Rarely during an economic debate can such a contrast have been drawn between the picture that the Chancellor painted of the economic background and the daily reality that faces the people of Britain. Listening to Ministers today is like eavesdropping on the inhabitants of a different world.
The terms of the Government's motion celebrates their victory in the battle against unemployment, but in the real world, and according to the Government's own reckoning, the number of people in employment is actually falling, and still 2.6 million people remain unemployed. The Chancellor tells us that we have an economic recovery that is the envy of Europe. Britain, of course, went earliest into recession and has, therefore, emerged before our competitors, but the effects of the recession have been far more severe here than those experienced elsewhere. That is why the OECD's forecast predicts that,