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House of Commons

Thursday 27 October 1994

The House met at half-past Two o'clock


[ Madam Speaker-- in the Chair ]


Private Bills

[Lords] (Suspension)--


That so much of the Lords Message [25th October] as relates to the London Local Authorities (No 2) Bill [Lords] and the Bodmin Moor Commons Bill [Lords] be now considered.


That this House doth concur with the Lords in their Resolution.-- [The Chairman of Ways and Means.]

British Waterways Bill



That the Promoters of the British Waterways Bill [Lords] shall have leave to suspend proceedings thereon in order to proceed with the Bill, if they think fit, in the next Session of Parliament, provided that the Agents for the Bill give notice to the Clerks in the Private Bill Office of their intention to suspend further proceedings not later than the day before the close of the present Session and that all Fees due on the Bill up to that date be paid; Ordered,

That, if the Bill is brought from the Lords in the next Session, the Agents for the Bill shall deposit in the Private Bill Office a declaration signed by them, stating that the Bill is the same, in every respect, as the Bill which was brought from the Lords in the present Session;


That, as soon as a certificate by one of the Clerks in the Private Bill Office, that such a declaration has been so deposited, has been laid upon the Table of the House, the Bill shall be read the first and second time and committed (and shall be recorded in the Journal of this House as having been so read and committed) and shall be committed to the Chairman of Ways and Means, who shall make such Amendments thereto as have been made by the Committee in the present Session, and shall report the Bill as amended to the House forthwith, and the Bill, so amended, shall be ordered to lie upon the Table; Ordered,

That no further Fees shall be charged in respect of any proceedings on the Bill in respect of which Fees have already been incurred during the present Session;


That these Orders be Standing Orders of the House.-- [The Chairman of Ways and Means.]

Humber Bridge Bill


Motion made, and Question proposed,

That the Promoters of the Humber Bridge Bill [Lords] shall have leave to suspend proceedings thereon in order to proceed with the Bill, if they think fit, in the next Session of Parliament, provided that the Agents for the Bill give notice to the Clerks in the Private

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Bill Office of their intention to suspend further proceedings not later than the day before the close of the present Session and that all Fees due on the Bill up to that date be paid;

That, if the Bill is brought from the Lords in the next Session, the Agents for the Bill shall deposit in the Private Bill Office a declaration signed by them stating that the Bill is the same, in every respect, as the Bill which was brought from the Lords in the present Session;

That, as soon as a certificate by one of the Clerks in the Private Bill Office, that such a declaration has been so deposited, has been laid upon the Table of the House, the Bill shall be deemed to have been read the first and shall be ordered to be read a second time;

That the Petitions against the Bill presented in the present Session which stand referred to the Committee on the Bill shall stand referred to the Committee on the Bill in the next Session;

That no petitioners shall be heard before the committee on the Bill, unless their Petition has been presented within the time limited within the present Session or deposited pursuant to paragraph (b) of Standing Order 126 relating to Private Business;

That, in relation to the Bill, Standing Order 127 relating to Private Business shall have effect as if the words "under Standing Order 126 (Reference to committee of petitions against Bill)" were omitted;

That no further Fees shall be charged in respect of any proceedings on the Bill in respect of which Fees have already been incurred during the present Session;

That these Orders be Standing Orders of the House.-- [The Chairman of Ways and Means.]

Hon. Members: Object.

To be considered a Second time on Tuesday 1 November.

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Oral Answers to Questions


Manufacturing Output

1. Mr. Spring: To ask the Chancellor of the Exchequer what conclusions he draws from the trend in manufacturing output.

The Chancellor of the Exchequer (Mr. Kenneth Clarke): Manufacturing output continues to grow strongly, which shows the strong competitive position that has been achieved by British industry.

Mr. Spring: Does my right hon. and learned Friend agree that, with the most welcome rising trend in manufacturing output and the further rise in third quarter gross national product, Britain remains on course for a sustainable economic recovery? Does he agree that that is due to the sensible policies that have been pursued by a Conservative Government and, in view of those economic successes, will he assure the House that he will continue to stick to his guns?

Mr. Clarke: I agree with my hon. Friend. We are poised for strong recovery that can be sustained and combined with low inflation, and I am particularly glad that British manufacturing is playing such a key part in that. I further agree that this situation would not have occurred had the Government not been prepared to take difficult decisions to get the public finances healthy again, to follow monetary policies designed to maintain low inflation and to put in place the stable framework of which British manufacturing industry is now obviously beginning to take advantage.

Mr. Gordon Brown: What effect will the interest rate rise and the seven further tax rises that the Chancellor is planning have on output and on the growth of the economy? Does the Chancellor recall the promise that the Prime Minister made when he fought the last election that there would be no extension of VAT in particular? Will he use this opportunity to rule out any extension of VAT to food, to children's clothes, to books or newspapers or to train fares as a result of any Budget that he might introduce?

Mr. Clarke: I thought that new Labour was in favour of the interest rate rise that I announced and that the new, responsible Labour party followed my lead in saying that we take no risks with inflation. The hon. Gentleman has advised me to reduce interest rates on each and every occasion for the past 18 months. If his former advice had been followed, it would have caused high inflation and brought this recovery to an end. Until the hon. Gentleman states what spending he would cut, as opposed to raise, he cannot really address Conservative Members on inflation. As for budgets, he must wait for the Budget and he knows perfectly well that there are only a few weeks to go.

Mr. Budgen: Does my right hon. and learned Friend agree that a floating exchange rate must also be said to have played some part in the present happy state of affairs?

Mr. Clarke: The exchange rate has been extremely stable over the past 18 months--as long as I have been

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in this post--as a result of the extremely responsible policies that we have pursued in getting on top of our fiscal deficit and showing that we are prepared to follow responsible monetary policies. If my hon. Friend is trying to lead me back to his theory that the present recovery is a sole result of certain changes in the exchange rate that occurred about 18 months ago, he knows that I regard that as nonsense. In fact, the current policies of the Government have very much more to do with the strong manufacturing recovery in Britain.

Mr. Sheldon: If the manufacturing recovery is to be strongly based, will it not be necessary to do something about investment allowances and the absurd notion that 25 per cent. is the maximum that the Chancellor can afford to give for manufacturing investment? If we are to achieve the capacity increase that we require, he must do something about that.

Mr. Clarke: Investment, I am glad to say, is strengthening considerably at the moment, including manufacturing investment. The present recovery looks set to be a healthy recovery, led by exports, with investment strengthening rapidly and consumer growth continuing in a sustainable way. I do not accept that indiscriminate investment allowances automatically produce the kind of investment that boosts growth. It is the quality of investment that matters. The old eastern European countries, the Soviet bloc, used to produce marvellous figures for investment, but the quality of the investment was so bad that they were among the worst performing economies in the world.

Mr. Jenkin: May I congratulate my right hon. and learned Friend the Chancellor and the Government on the stable framework to which he alluded, which brought about this upturn in manufacturing output? Does he agree that it is now time to make it clear that we will not flirt with the idea of a single currency in Europe? Will he endorse the words of my right hon. Friend the Prime Minister who, as Chancellor of the Exchequer, said in November 1990 that the single currency in Europe is about the politics in Europe and federalism by the back door?

Mr. Clarke: In my experience, flirtation requires more than one person. The single currency is not being actively pursued anywhere within the European Union. If the question of economic and monetary union arises in future, I look forward to debating it with my hon. Friend. However, the judgment that we should both seek to make about it is whether it is in British interests at the time to participate. That is the position that my right hon. Friend the Prime Minister reserved for this country when he negotiated the Maastricht treaty.

Tax Collection

2. Dr. Godman: To ask the Chancellor of the Exchequer what was the amount the Inland Revenue failed to collect in taxes for the last year for which figures were available; and what proportion this represents of the amount raised in 1994 from VAT on fuel bills.

The Financial Secretary to the Treasury (Sir George Young): Value added tax on fuel bills, excluding compensation payments, is expected to raise

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£1,120 million in 1994-95, which represents 75 per cent. of the £1, 580 million written off by the Inland Revenue for 1992-93.

Dr. Godman: Could not the money raised by imposing VAT on domestic fuel have been collected by ending the tax relief on executive share options and by closing, once and for all, the tax loopholes that make the United Kingdom such a wonderful tax haven for many rich and greedy people?

Sir George Young: No, there is no way in which the measures outlined by the hon. Gentleman would meet the shortfall that he has identified. If the Labour party is seriously suggesting that the second stage should be revoked, it owes it to the House to say what other taxes Labour would increase or what public expenditure it would cut.

Dr. Spink: Will my right hon. Friend confirm that since privatisation in 1986, domestic gas prices have fallen in real terms, taking account of the extension of VAT, by 16.5 per cent.? Will he contrast that with the position in the late 1970s under the Labour Government, when the prices of all utilities rose tremendously under very high inflation and interest rates?

Sir George Young: My hon. Friend is absolutely right. There has been not only the favourable movement in fuel prices, to which he rightly drew attention, but a generous compensation package, costing £2.5 billion over three years, to help those on low incomes pay VAT on fuel.

Ms Armstrong: Will the Minister now take the opportunity to honour the Government's election pledge to rule out any further extension of VAT to items such as children's clothing or food? Will he please answer the question?

Sir George Young: I welcome the hon. Lady to her new position in the Treasury-- [Interruption.] I meant the shadow Treasury team. I have nothing to add to the answer that has already been given.

Economic Strategy

3. Mr. Clapham: To ask the Chancellor of the Exchequer if he will make a statement on the relationship between the Government's long-term economic strategy and the level of unemployment.

13. Mrs. Clwyd: To ask the Chancellor of the Exchequer if he will make a statement on the relationship between the Government's long-term economic strategy and the level of unemployment.

The Chief Secretary to the Treasury (Mr. Jonathan Aitken): The Government's economic strategy is to achieve sustained

non-inflationary growth and higher living standards. There is a direct relationship between the success of this strategy and a steady fall in unemployment.

Mr. Clapham: I am grateful to the Minister for that reply, but when one compares it to reality, it does not stack up. Are not the Minister and the Government using the large pool of unemployment as the only

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weapon to tackle inflation? If the Government are really confident about sustained economic growth, why did they increase interest rates?

Mr. Aitken: The hon. Gentleman asks a question about unemployment in somewhat churlish terms. He does not seem to have noticed that unemployment has fallen in the past 20 months by 406,000, and that it came down by 28,000 in September or nearly 1,000 a day. In the hon. Gentleman's constituency, there has been a 7.3 per cent. fall in unemployment since last year.

My right hon. and learned Friend the Chancellor of the Exchequer made a small rise in interest rates, for very good reasons of prudence, to ensure that inflationary pressures do not arise in future. There is no evidence that that has had an adverse impact on the continuing fall in unemployment.

Mr. Anthony Coombs: Does my right hon. Friend agree that a significant feature of the recent large reduction in unemployment, apart from the fact that it is in direct contradiction with the forecast that was made by the hon. Member for Dunfermline, East (Mr. Brown), is that it has been accompanied by a significant increase in investment and exports? To maintain that increased investment in the long term, will my right hon. Friend consider capital gains tax reforms, which would more adequately reflect the value of long-term investment?

Mr. Aitken: My hon. Friend mentions the brilliant forecasting skills of the hon. Member for Dunfermline, East (Mr. Brown), who predicted some 20 months ago that "unemployment will rise" month after month. Since that great prediction, unemployment has fallen month after month. The hon. Gentleman deserves a good kick up his endogenous zone for that wrong prediction.

On my hon. Friend's second point, he is quite right to say that the growth in exports is most encouraging; it is rising at 10 per cent. a year, which is a remarkable figure. On his points about capital gains tax, I am sure that he will understand that I cannot anticipate my right hon. and learned Friend's Budget.

Mr. Gordon Brown: Given the importance of his responsibilities for economic strategy, will the Chief Secretary now take the opportunity to tell us that at no time was any part of his bill last year in the Ritz hotel in Paris paid for by a Mr. Ayas? Will he answer the question? [Interruption.]

Madam Speaker: Order. I cannot allow that line of questioning on a question to which it does not relate. The hon. Gentleman may wish to pursue the matter through me to the Privileges Committee. Alternatively, of course, he has the opportunity to-- [Interruption.] Please hear me out. The hon. Gentleman has the opportunity to table a substantive motion if he wishes to make a criticism and to seek a statement or a debate through the Leader of the House at business questions.

Mr. Aitken: With great respect to you, Madam Speaker, I would very much welcome a chance to answer that question, not least because it is my first chance to clear myself of the scurrilous accusations that have been made. With your indulgence, I simply say to the hon. Gentleman that, first, I completely deny the

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allegation that he has made. Secondly, I think that he should be aware that the Cabinet Secretary has today sent a letter to the editor of The Guardian , Mr. Peter Preston, repudiating and denying the scurrilous allegation that Mr. Preston made this morning, to the effect that I had lied to the Cabinet Secretary. The relevant sentence from Sir Robin Butler's letter reads:

"For the record, I confirm that I do not regard Jonathan Aitken as having lied to me or misled me."

I hope that the House, which is a very fair-minded place, will accept both my assurance and the Cabinet Secretary's assurance and put an end to the hysterical atmosphere of sleaze journalism by The Guardian .

Interest Rates

4. Mr. Booth: To ask the Chancellor of the Exchequer what effect interest rate reductions since October 1990 have had on the economy.

Mr. Kenneth Clarke: Low interest rates have contributed to the broad -based recovery that we are now experiencing. Monetary policy will continue to be aimed at low inflation to ensure that growth can be sustained over the years ahead.

Mr. Booth: As long-term investment, stability and the low interest rates to which my right hon. and learned Friend referred are vital ingredients in the success of our economy--success that is evident in my constituency of Finchley at successful firms such as Pentland, Witherspoon's and Gerson--will he assure us that he will continue to reinvigorate and reinforce those successful policies?

Mr. Clarke: I can certainly give my hon. Friend that assurance. He will know that interest rates, although raised to 5 per cent. from their previous level, are still at their lowest level since 1972. I believe that we will be able to keep interest rates down and consistent with our monetary policy if we act in good time, if our fiscal policy is sound and if we keep on the course that we have set. I agree with my hon. Friend that companies such as those that he named are now well placed to take advantage of that, and I am glad to say that they are beginning to deliver the prosperity and jobs that the country needs.

Mr. John Evans: The Chancellor of the Exchequer constantly boasts about the successful economy and falling unemployment. Is he aware that no one with any intelligence takes any notice of the Government's unemployment statistics? Will the Chancellor confirm that more than 1 million people are unemployed and are economically active but do not appear in any unemployment statistics? Will he confirm that the latest scam, the job seeker's allowance, will save the Treasury millions of pounds and take another 90,000 out of the unemployment statistics?

Mr. Clarke: The hon. Gentleman questioned me in the past when I was an Employment Minister. He knows that I have never taken too seriously the figures for benefit recipients as a measure of unemployment in this country; they are used as the basis of fairly lightweight political exchanges inside the House and outside. I take seriously the labour force survey, which I always used to protest was a much better measure of unemployment. I am glad to say that that is currently

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showing real falls in unemployment in line with the headline count and an increase in employment of about 750,000 new jobs. The hon. Gentleman cannot deny that the present real recovery in manufacturing and the British economy is generating new jobs--it is the only way that we can generate new jobs--and that we are on course in the medium term to get unemployment down to an acceptable level.

Sir Thomas Arnold: Does my right hon. and learned Friend agree that we are living in a deflationary world and that there is still plenty of spare capacity in the British economy?

Mr. Clarke: I am interested to hear that. I gaze at surveys and all sorts of data, and I have many conversations with people in British business to judge whether capacity constraints are likely to affect our performance. No one can measure it; it is a matter of judgment. So far, we are all satisfied that there is spare capacity in the economy; it has been rising above the trend for some time. I shall make judgments as I go along on the best evidence that I have to keep the recovery as strong as possible and consistent with our monetary targets and the maintenance of low inflation.

VAT (Fuel)

5. Mr. William O'Brien: To ask the Chancellor of the Exchequer what income has accrued from value added tax on domestic fuel bills from April to October 1994.

The Paymaster General (Mr. David Heathcoat-Amory): The Central Statistical Office's estimates of consumer expenditure show that the projected total of VAT accruing on domestic fuel bills in the six months to 1 October 1994 will be £410 million, and for the year to 31 March 1995 the projected total accruing will be £1,120 million.

Mr. O'Brien: Does the Minister agree that 10 million pensioners and 6.5 million people, including unemployed people, have contributed substantially to those figures? Only fools would accept that the 50p allowance introduced by the Department of Social Security to help to pay bills meets the cost. As pensioners, unemployed people and those on income support face difficult winters and difficulty in meeting their energy bills, will the Minister prevail on his colleague, the Chancellor, to withdraw the next issue of the implementation of 17.5 per cent. VAT on fuel bills?

Mr. Heathcoat-Amory: The House decided to implement VAT on fuel bills in two stages. It did so in the knowledge that a generous compensation package gives extra help to all pensioners and widows, disabled people and those on income-related benefits, adding up to some £2.5 billion over three years. The background is that fuel prices generally are falling. Indeed, even allowing for the introduction of VAT earlier this year, electricity prices have remained stable over the past two years and gas prices are now lower by 2.5 per cent. in real terms than two years ago.

Mr. Biffen: Will my hon. Friend use this occasion to assert the sovereign role of this House in determining fiscal matters and, in that context, acknowledge that there is an economic and social argument for keeping

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our rates of value added tax below those of our European Union partners, even though that may have consequences for direct taxation?

Mr. Heathcoat-Amory: I can confirm that the decision on fuel taxation was taken by the House and was not forced on us by the European Community. Our existing zero ratings are protected fully by EC legislation, and we have an effective veto on any changes that are against the wishes of this House.

Mr. MacShane: The Minister will be aware of today's important article in The Times pointing out that personnel directors have awarded themselves wage increases significantly above those given to their employees. He will also be aware that suppliers are now increasing prices across industry because of the recovery, that large wage claims are in the pipeline and that the latest Union bank of Switzerland prediction on inflation in the United Kingdom next year is 5 per cent. Will the Minister make a bet with me on what the inflation rate will be in 12 months' time? [Interruption.]

Madam Speaker: Order. The hon. Gentleman is on the wrong question: we are talking about VAT on domestic fuel bills. I will allow the Minister to answer, however; I am sure that he can.

Mr. Heathcoat-Amory: I can answer in relation to privatised industries in the fuel and power sector. I can confirm that privatisation has led to lower prices. That has been good for customers, as well as for all who work for the industries concerned. There has been an unalloyed benefit from the privatisation programme introduced by the Government in the teeth of opposition from hon. Members on the Opposition Benches.

Economic Growth

6. Mr. Thurnham: To ask the Chancellor of the Exchequer what is his latest estimate of the growth of the economy.

Mr. Kenneth Clarke: Figures released last week show that GDP grew by more than 3.5 per cent. in the year to the third quarter of 1994. Let me add that the country's economic prospects are so good that my Treasury team is prepared to answer supplementary questions on any aspect of the economy, in response to any question.

Mr. Thurnham: Does my right hon. and learned Friend agree that rising output, low inflation and falling unemployment make our economy the envy of our competitors? Is it not time that the Opposition realised that the one thing that would stop our economy would be the adoption of their policies, with minimum wages, social charters and, inevitably, rising taxes?

Mr. Clarke: I quite agree. I believe that my hon. Friend has drawn his conclusions in part from the forecast of the International Monetary Fund, which expects ours to be the fastest growing economy in Europe, both this year and next. As my hon. Friend implied, last year we had to make some difficult fiscal decisions, and the Opposition voted against all the public spending savings measures that we had to take

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through the House. Their approach to the economy would pull down our growth rate and prospects and damage what we are currently poised to achieve.

Mr. Shore: In the interests of continuing the growth of the economy, and taking account of the enormous help that the Chancellor gave us through the 17 per cent. devaluation that took place when we left the exchange rate mechanism, will the right hon. and learned Gentleman now assure us that, in the latest movement of interest rates and in any future movement, he is not simply trying to shadow the deutschmark as his last predecessor but one did so disastrously two or three years ago?

Mr. Clarke: I am tempted to take issue with the right hon. Gentleman's premise. The recovery had started before we left the ERM; interest rates started to fall before we left the ERM; and inflation started to come down before we left the ERM. The fact that good Government policies since we left the ERM have allowed us to retain the competitive advantage of that devaluation without subsequent inflation is to the Government's credit.

I can assure the right hon. Gentleman that I am not shadowing the deutschmark. I accept that exchange rates either float or are fixed; we are currently floating, and we are maintaining stability through the responsibility of our policies.

Income Tax

7. Mr. Matthew Banks: To ask the Chancellor of the Exchequer by how much the basic rate of income tax would have to rise to fund a £35 billion increase in public spending; and if he will make a statement.

Mr. Aitken: To raise £35 billion from income tax, the basic rate would almost have to double.

Mr. Banks: Does my right hon. Friend agree with me about the importance of continuing to control public expenditure? Does he agree that, by contrast, the Labour party continues to want to spend more and more, which must mean more taxation and--without a shadow of a doubt--taxing not just the mythical undeserving rich but, by implication, all middle-income earners?

Mr. Aitken: I certainly agree with my hon. Friend's first point-- that tight control of public expenditure is vital to a healthy economy. The Labour party's policies are still in a somewhat amorphous and unveiled state, but it is clear from its conference pledges alone on such matters as the minimum wage that it has still not shed, or come anywhere near shedding, its well-deserved reputation as the high-spend, high-tax party.

Mr. Malcolm Bruce: On the subject of tax increases, will the Minister confirm to the House that the tax increases which will come into effect this month, coupled with those which will come into effect between now and April, add up to the equivalent of just under 3p in the pound? Are not the Government presiding over tax increases while talking about tax cuts?

Mr. Aitken: Income tax rates have not gone up by 3p in the pound, and we have reduced income tax rates time and again. We inherited an income tax rate as high as 83 per cent. at the top rate, which we brought down to 40

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per cent. We also inherited from the Labour party a standard rate of some 30 per cent., which we brought down to 25 per cent., and we now have a standard band of 20p which 5 million people enjoy. We are a low-tax, tax-cutting Government, and we will get back to our core belief of cutting taxes as soon as it is prudent to do so.

Mr. John Townend: I congratulate my right hon. Friend on the recent announcement that the Treasury will be setting an example in reducing the Government's overheads. Does he appreciate that there is enormous support on the Conservative Benches and in the party for his efforts to cut the public expenditure total this year, so that we can change from being a tax- increasing Government and resume our natural position as the party of low taxes?

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