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Column 170GDP--a 25 per cent. reduction. Manufacturing output is barely above what it was 20 years ago. So much for the President's
Manufacturing investment fell by 30 per cent. between the first half of 1990 and the first half of this year. Manufacturing investment was at an all-time low as a proportion of GDP in the first half of this year according to Professor Godley, one of the Chancellor's seven wise men. Even the most optimistic Tory Members must face reality some time--or, as their party vice-chairman, Mr. John Maples, would have it, "face the killer facts".
Mr. Gyles Brandreth (City of Chester) rose --
Mr. Brandreth: The hon. Gentleman is quite right: no party is complete without me. I am grateful to him for giving way. He spoke about reality. In my part of the world, the reality is yearly growth of 4 per cent., productivity up by 6 per cent. and exports up by 8 per cent. The hon. Gentleman obviously deplores the increases in taxation. Before he leaves that subject, will he explain to the House, if it were his Budget, which taxes and which elements of public expenditure he would cut or increase? Can he be specific about that?
Dr. Cunningham: The hon. Gentleman is so amusing that if I live long enough to celebrate my 25 years in the House next year perhaps I will invite him to do a star turn at that party, too. I assure him that I do not intend to leave the subject of taxation for a considerable time.
The hon. Gentleman must know that his constituents' living standards are falling. As for alternatives, and since he has asked me, my hon. Friend the Member for Dunfermline, East (Mr. Brown) has made it quite clear that we advocate a number of steps which would cover the cost of abandoning VAT. The money can come from tightening up the treatment of executive share options. Does the hon. Gentleman agree with that? It can come from part of the proceeds of a windfall levy on privatised utilities similar to that which Lady Thatcher charged the banks. The money can come from the proceeds of ending tax relief for private medical insurance. It can come from steps to end commercial avoidance of stamp duty.
In future years, the money can come from the decision to draw on some of the gains of retaining the stamp duty charge on share transactions, which the Red Book says will be dropped. Let us not forget about dropping the VAT increase, which would reduce slightly our contribution to the European Union. In this Budget, the Chancellor is reducing the duty on champagne. Why does he feel that that is so essential to the well-being of the British economy at the same time as he imposes VAT on the fuel bills of pensioners? Taxes are higher under the Tories. Total social security payments are higher, not because of greater generosity but because of the huge increase in the number of claimants. The public sector borrowing requirement is higher at £46 billion--7 per cent. of GDP. Government expenditure as a share of GDP is higher. All the Tory party's old
Column 171shibboleths and their claims about the effectiveness of their economic policies are as dust when set beside the "killer facts", as Mr. Maples would have it.
Sir Teddy Taylor: I am very confused today. Does the hon. Gentleman agree that the Chancellor made it quite clear that he cut the tax on champagne and sparkling wine only because he was obliged to do so under an international agreement-- and the hon. Gentleman knows where that agreement came from. In order to avoid all this nonsense, will he tell the people the score? If Labour is returned to power, will he give a commitment to cut VAT on fuel and power from 17.5 per cent. to the present level? Would that not clarify the situation?
Dr. Cunningham: The hon. Gentleman asks a fatuous question. He knows that we do not know what the Chancellor will have in his Budget next year, so why should we announce now what we will do in a Budget in two or three years' time? I am happy to have the hon. Gentleman's comforting support in assuming that there will be a Labour Government after the next general election. I am sorry to disappoint him, but I do not agree that the tax on champagne was cut because of the dreadful European Union. It occurred because of an international agreement which the Chancellor of the Exchequer accepted voluntarily, but it was not because of the European Union.
The boastfulness of the President's speech was reminiscent of the boastfulness of the Thatcher-Lawson-Major-Lamont years, which have been exposed as so much waste, so much unfairness and so much failure. What of Britain in the world? The President is fond of talking about the need for world-class performance. He is correct in that at least, but has that happened as the result of 17 Tory Budgets? No--indeed, the reverse is true. Britain is falling behind. Our country has been undermined by Tory incompetence, as comparisons make only too clear. While Britain's manufacturing base has shrunk, those of Germany, Japan and the United States of America have grown. Our country has gone down the league table of the seven largest economies in the world and has been overtaken by Italy. In output per capita, Britain has been overtaken by Hong Kong and Singapore. Britain had a £4 billion trade deficit with the European Union last year. We have trade deficits with 10 of the richest nations in the world and trade surpluses with 10 of the poorest.
The President boasts of export-led growth, but our performance, even now, is no better than that of the United States of America or than that of the European Union average. No matter how he presents the figures, the fact remains that Britain's share of world trade fell from 5.4 per cent. in 1979 to 5.1 per cent. in 1993.
Column 172Between 1979 and 1993, despite the benefits of North sea oil, Britain's average annual growth rate lagged behind that of every member of the G7 and every member of the European Union except Denmark and Greece. Inequalities have grown after the Tory Budgets. By 1990, 11.5 million people had an income less than half the national average. In the 1970s, the figure was half that. Similarly, the number--
Dr. Cunningham: No, I am not giving way for the moment. The number of children living in families with incomes below the poverty line has trebled from 1.4 million to 4.1 million. According to the Equal Opportunities Commission, as many as 4 million women--more than one third of the female work force in Britain--earn less than two thirds of the median of male weekly earnings. Those are some of the international comparisons, some of the indicators and some of the killer facts about the record on 17 Tory Budgets. The record is no better on training. The United Kingdom ranks 21st out of 22 countries in the OECD skills league tables-- second bottom. We have the second-lowest proportion of 18-year-olds in full -time education, yet Government investment in training is to be cut by 5.1 per cent. next year, following cuts of £400 million since 1990-91. After such an unprecedented period in office--16 Tory years and 17 Tory Budgets--the Prime Minister claims to want to create a nation at ease with itself, yet the rich get richer and the gap between top earners and the rest widen year by year. Do not take my word for that. Hon. Members should listen to Mr. John Maples, vice-chairman of the Conservative party, who said:
"The reality is now that the rich are getting richer on the backs of the rest who are getting poorer. The gap between the highest and the lowest paid worker is larger now than at any time since records began in 1886."
It is no good the Prime Minister, the President of the Board of Trade or the Chancellor protesting. As Mr. Maples said in his candid memorandum:
"What we are saying is at odds with their experience which leads them to conclude we are `out of touch', `lying', `don't care'." Of course, I could not possibly say that the President of the Board of Trade and the Government are lying, but Mr. Maples could-- [Interruption.] Oh yes he did. That is what he implied.
It is no wonder that people are angry when chairmen, chief executives and directors make free with company cash, bonuses, share options and incredible salary increases. There is no control, no accountability, no shame and no justification--except, apparently, from the President. None of his Cabinet colleagues have supported him in that. He talks of world-class companies, yet such abuse and greed are not seen or thought necessary in Germany or Japan--which, in truth, do have world-class
Column 173economies. Nor are domestic private sector monopolies comparable with truly international companies, which inevitably have to compete in global markets.
Mr. Clappison rose --
We all know that in water, electricity and gas companies, grotesque personal rewards--based not on merit or performance but on self-interest-- in shares, bonuses and salaries have been commonplace. Where are the Government's checks, where are the regulators? For example, the chairman of Midland Electricity was earning £68,000 a year before privatisation. He now earns more than £231,000. Of course, on top of that he is estimated to have had more than £900,000 total share option profits. Profits and salaries are just as lucrative for the chairmen of the other 11 regional electricity companies that the President was so keen to praise in his speech.
Inevitably, the chief executive of British Gas took his turn. Observing the free-for-all, he did not just say, "Me too", he said, "Me two hundred thousand." The President agreed, approved and supported the £4,000 a week rise. He did nothing to prevent it, just as he has done nothing in other cases.
Mr. John Evans (St. Helens, North): Does my right hon. Friend agree that it is contemptible for the President to defend the chief executive of British Gas getting a £4,000 a week rise, while at the same time he denounces the proposition that a low-paid worker should have a wage of £150 a week? Is that not disgraceful and contemptible?
Dr. Cunningham: I absolutely agree with my hon. Friend. Why did the President proclaim his support for such extravagant and unmerited pay awards? Well, they are his friends, his appointees and supporters of the Tory party. We might say that they are all the President's men. Why does he believe that chief executives, part-time chairmen and directors need world- class salaries and perks to make them perform well, when he imposes third- class pay and conditions on the vast majority of men and women in Britain to encourage them to work well? He is denying the social chapter benefits to our people while allowing his friends and supporters carte blanche to rip off consumers and make themselves rich.
The Secretary of State for Social Services, at least, deserves one cheer. He, if no one else in Government, has recognised--here I quote from his speech in Belfast a few days ago--that there has been a "widening of earnings differentials" during the last 16 years in Britain. He acknowledged that inequalities had increased. He said: "This lies behind many of our social problems . . . It may play a major part in the break-up of families . . . and a growing welfare dependency . . . It may even play a part in explaining delinquency and crime."
The right hon. Gentleman said all that in his speech, but typically he claimed that none of it has anything to do with the Government and Government policies. He dismisses the minimum wage as a contribution to a solution and instead presses on with policies that increase dependency on social security and subsidise bad employers and poverty pay. He says that more
Column 174skills are the answer, yet the Budget slashes the training programme by several hundred million pounds. Is it any wonder, to quote again John Maples on the Tory party, that the electorate "think we are stupid"?
There is nothing in the Budget to promote and sustain significant long-term investment in the British economy. There is nothing to encourage and direct more profit away from dividends and into capital investment. The Heritage Secretary wanted change and, so we were told, did the Chancellor--but Lord Hanson did not. He leant on the Prime Minister who, predictably, caved in and the industrial finance initiative was dead.
The Budget has cut Government investment by 17.7 per cent. in real terms; it contains a 16.6 per cent. real cut in local authority investment and next year there will be a 10.8 per cent. cut in public investment. There is no long-term strategy--simply vague claims of private finance making up the difference, and we are entitled to doubt that given previous performances. My hon. Friend the Member for York (Mr. Bayley) pointed out that the Government said some time ago that they needed to prevent a hiatus in railway investment pending privatisation, yet the Budget contradicts Government statements and announces a cut in such investment. Nothing could be more bizarre than the Government contradicting their own objectives for their own privatisation--which is not necessary anyway--and damaging the future of the railways in the process.
The Chancellor of the Exchequer (Mr. Kenneth Clarke): The right hon. Gentleman is in danger of straying back to the subject of this year's Budget, to which he has made passing reference. In so far as the right hon. Gentleman touched on the Budget, he mentioned his desire to reduce taxation. He has also spoken, on a number of programmes, of his desire to increase expenditure. As no Labour Front-Bench spokesman has put a figure on those aspirations, will the right hon. Gentleman say by how much overall taxation would be reduced in a Labour shadow Budget, and by how much overall spending would be increased, and give his view of the correct level of public borrowing and the impact that that would have on the industrial recovery? Will the right hon. Gentleman move to the point instead of meandering through bits of the Red Book?
Dr. Cunningham: The right hon. and learned Gentleman is right, because the Red Book is full of very odd bits. I will not respond to that rambling intervention. I remind the Chancellor of something that he once said:
"Only the Conservatives believe in keeping taxation down, to give incentives to enterprise and investment. Only the Conservatives will keep the country's finances on a sound footing."
That, with a £46 billion borrowing requirement. The Chancellor said also:
"Public borrowing under the Conservatives has averaged 2 per cent. of GDP."
It is 7 per cent. now.
The Government are also half-hearted about help for the long-term unemployed, even though each such person costs the country £9,000 per annum in income
Column 175support and lost revenue. A self-financing scheme was spelt out by hon. Friend the Member for Dunfermline, East.
Dr. Cunningham: The right hon. and learned Gentleman flatters himself if he thinks that I have lost my place. He knows as well as anyone in the House--no more so than other Ministers--that asking me to spell out the contents of a future Labour Budget two and a half years from now is a fatuous intervention. The Chancellor will not tell us the contents of his Budget for next year, so that is the best answer to his intervention.
The Chancellor has given us another Budget for the short-term benefit of the Tory party, but to the long-term disadvantage of Britain and the British people. Burdens are heaped on those least able to bear them. Value added tax is a classic example. On 28 January 1992, the Prime Minister said:
"We have no plans to increase value-added tax... There will be no VAT increase."--[ Official Report , 28 January 1992; Vol. 202, c. 308.]
On 27 March 1992, the Prime Minister said:
"I have made it clear, we have no plans and no need to extend the scope of VAT."
When the Prime Minister gives his word to the European Union, his word must be kept, even to the point of a vote of confidence--but when he gives his word to the House and to the British people, he is apparently not concerned about keeping it. It seems that that does not matter.
The President of the Board of Trade mentioned integrity. Where is the integrity in that behaviour? We are told that the Government must keep their word because they have an international obligation to do so--but that the Government do not have to keep their word when their obligation is to the British people. That sums up the hypocrisy resident on the Treasury Bench.
Mr. Clarke: The right hon. Gentleman quoted my election address commitment to healthy public finances. He fought the last election on a policy of increasing taxes and public spending. Of course the right hon. Gentleman cannot spell out a shadow Budget, but will he give a sign of his commitment to health public finances? Does he believe that we should be reducing taxes, increasing public spending and allowing borrowing to rise-- or does he, in the midst of all this blather, have no view of those critical issues?
Dr. Cunningham: The blather is all coming from the right hon. and learned Gentleman. This debate is about not a Budget in three years' time but his Budget now. It is also a debate about the Prime Minister's promises to the British people. The Government do not want to answer. They do not want to face the fact that they have ratted on their promises about VAT. That is the reality of the position in which the right hon. and learned Gentleman and his colleagues find themselves.
Column 176The public and Parliament were given clear, unambiguous promises, and those promises have been broken. Many Conservative Members made similar promises in speeches, interviews and personal election addresses during the 1992 campaign. A few of them, to their credit, have announced their intention to abstain or to vote with us tonight, to prevent the VAT abuse contained in the Budget. Those Conservative Members know that they made a commitment to their constituents and believe that they should keep their promises--unlike the Chancellor, the Prime Minister and the President of the Board of Trade.
Mr. Iain Duncan Smith (Chingford): I accept that the right hon. Gentleman may find it difficult to answer my right hon. and learned Friend the Chancellor, but perhaps I may ask him a simple question. Does he think that public expenditure now is too high or too low?
Dr. Cunningham: Public expenditure is too high and all in the wrong direction. A sum of £40 billion is being spent on social security and the hon. Gentleman asks for our views. Public expenditure is paying the price of the failure of 17 Tory Budgets. There is too little investment, too much social security, too much consumption and not enough for the long term.
Mr. Richard Ottaway (Croydon, South) rose --
Dr. Cunningham: I shall not give way again for the moment. In arguing about their responsibilities and commitments, Conservative Members have an unusual ally--none other than the President of the Board of Trade, who made his position clear in Bournemouth on 13 October. Reflecting on 16 years of Tory Government, he entitled his speech "Tomorrow's Yesterday". That was really forward looking. He clearly anticipated another Budget similar to the previous 16--unfair, long on the short term and short on the long term, and devoid of any coherent strategy. The Chancellor did not let him down.
Value added tax at 17.5 per cent. is to be imposed on pensioners, people with disabilities, the housebound, and people with low pay or no pay. It is to be imposed on all those for whom heating costs account for a much higher proportion of household expenditure than those who are better off. This winter, thanks to the Budget, many thousands of people in Britain will be cold, hungry and afraid to use their heating.
Is the Tory party proud of that? Are Conservative Members proud of offering a pensioner 25p and a pensioner couple 30p above the statutory uprating to cope with VAT on their energy bills? Are they content to support that squalid unfairness at a time when Cabinet Ministers give their approval to rises of £4,000 per week to executives?
In "Tomorrow's Yesterday", the President of the Board of Trade told us, prophetically:
"There is more to Conservative thought than just free markets. Laissez- faire economies expose a risk of cruelty and social extremes that no Tory could countenance. So once again for tomorrow's journey we look back to traditional Tory faith in duty and obligation. It is at the heart of Tory tradition. Back to Shaftesbury and Disraeli, to share a concern for those less fortunate than ourselves . . . The success and dynamism of a confident society will be led and determined by those who are
Column 177strong and self reliant. But we have never lost sight of those in society to whom such opportunities are for whatever reason denied." Well he certainly seems to have gone blind between 13 October and Budget day. Or is he is suffering from convenient amnesia? Did he mean what he said in Bournemouth? Does he stand by what he said then? We shall see. Today, he will be put to the test. If he stands by his views and commitments, he will vote with us. If he does not-- [Interruption.] Of course he will not stand by what he said in Bournemouth, just as the Conservatives are not prepared to stand by what they said in the general election campaign. We know, of course, that he will not stand by what he said and therefore he will very well merit the description of that other Disraeli quotation: "A Tory Government is an organised hypocrisy."
Mr. Mike Hall (Warrington, South): What the President of the Board of Trade said at the Tory party conference in October and what he does today demonstrates quite clearly the gap between the rhetoric and practice of Tory Cabinet Ministers.
In his Budget speech, the Chancellor said that the present conditions have to be sustained if they are to deliver higher living standards and secure jobs. But as the record shows, Tory Governments have never sustained those conditions. They have never been consistent. They have never looked to the long term in 16 years and 17 Budgets. Last night, the Governor of the Bank of England is reported to have said in Frankfurt:
"The economy is growing faster than can be sustained." Stripped of all their grandiose claims, the fabrications about their record and intentions, the Government's policy for Britain is clear: cut taxes before elections and put them up again much more afterwards. Reward the strong, the highly paid, the powerful, at the expense of those least able to help themselves.
That is why Conservatives will never be trusted on tax again. That is why the House should vote for the amendment tonight. It gives us an opportunity to reject this unjust proposal and to oblige the Chancellor to think again.
Mr. John MacGregor (Norfolk, South): As one who for 15 years sat on the Front Bench listening to speeches from hon. Members on the Back Benches, I know how selective one must be in the issues that one raises and the points that one makes. I shall therefore not repeat the many points made in the debate and outside.
I begin by stating my total support for the general strategy in the Budget and the measures contained in it, and especially the concentration on controlling public expenditure and getting public sector borrowing down. Those of us who are connoisseurs of Budget speeches know that the key point of the Budget is always there in the peroration, and I thought that it was right for my right hon. and learned Friend the Chancellor to put the emphasis this year on those two points in his peroration, and how important they are. I should just say in parentheses, and perhaps rather quietly and modestly, that the Budget brief which has been circulated to all of us
Column 178contains a table showing public borrowing since 1971-72 as a percentage of money gross domestic product. I note that one of the lowest levels of public borrowing as a proportion of money GDP was in the two years during which I had the great privilege of being Chief Secretary to the Treasury, and the plans that I hope that we laid then came through even more in the years afterwards.
That also means that I know how difficult it is to control public expenditure, and I pay a warm tribute to my right hon. Friend the current Chief Secretary for the way in which he has carried out his responsibilities through the year--in stark contrast with the Opposition, who are now attacking us for the level of taxation generally. They claim that they are not now a party of high public expenditure, but their amendment to today's public expenditure motion, particularly the last six lines, is absolutely riddled with new commitments to public expenditure as it condemns the current levels in so many important areas of Government expenditure.
During the exchanges on the statement by my right hon. Friend the Secretary of State for Scotland, just about every Opposition Member who spoke violently attacked the statement for not announcing enough public expenditure--every one of them, right across the board, in all the different areas. It really is not good enough for the hon. Member for Copeland (Dr. Cunningham)--
It is not good enough for the right hon. Gentleman to say that we must wait two years to know his party's position on these matters; he can state it today. All that we have to go by is the statement that he makes in the amendment and the statements that we hear so often from Opposition Members, including the hon. Member for Hamilton (Mr. Robertson), the Opposition spokesman for Scotland, whom we heard today. We must therefore conclude that they would substantially increase expenditure in many areas.
Nor is it good enough for the right hon. Gentleman to say that he will make savings on the social security budget. He attacked it and said that it was the one area in which the Labour party might make compensating savings. He knows perfectly well that it contains substantial increases for the disabled--something of which I am particularly proud--and a whole range of worthy groups who have nothing to do with the levels of unemployment. He also knows perfectly well that under his policies unemployment would rise, so it is totally false for him to suggest that savings can be made there, unless he intends to cut some of the areas of social service expenditure. If that is the case, we should be interested to know where those areas are. On public expenditure, therefore, the right hon. Gentleman and his party have demonstrated once again that theirs is a high-spending party, although it claims not to be.
I listened carefully to the right hon. Gentleman's proposals to save taxes. I notice that he has not quantified them. I have a great deal of doubt about a number of those proposals. I will take the example that he started with--the one so often mentioned by the Labour party--about share option schemes. I am puzzled as to just what he expects to do about them and where he expects to get a revenue saving, as he must be well aware that the gain on those schemes is already taxed at 40 per cent. in virtually
Column 179every case, or at least in very many cases. I believe that there is a great yawning gap in the policy position of Labour Members in relation to the Budget: they would spend a great deal more, but they cannot find tax savings to compensate for the tax proposals to which they object.
I do not want to repeat all the points that were made about the underlying strength of the economy, which were so well put by my right hon. Friend the President of the Board of Trade, although I totally agree with them. In particular, the many illustrations that he gave and the impressive figures about the benefits brought about by privatisation really demonstrated the strength of that case. They were met, however, by incomprehension and lack of interest on the faces of Members on the Opposition Front Bench. I well understand now why the Labour party has not yet committed itself to reversing any of the privatisations, because at heart it recognises the benefits. I do not think that it is yet fully aware of the real benefits that have come through. I particularly welcome the fact that we now have low inflation, which I believe can be sustained, as well as export-led and now investment-led recovery.
Mr. Fabricant: Before privatisation, were not those industries costing the Exchequer £50 million a week? Since privatisation, the Exchequer--and that means hospitals and schools, for instance--has benefited, through corporation tax, by £60 million a week.
Mr. MacGregor: Indeed, the Exchequer is now benefiting considerably from the revenue generated by corporation tax. I will go a step further The right hon. Member for Copeland said that some privatisations had "ripped off" consumers, but he must know very well that that has not happened. Prices have fallen in real terms--a great benefit that has resulted from privatisation.
Mr. Enright: I am grateful to the right hon. Gentleman. If the benefits of privatisation are as massive as the hon. Member for Mid- Staffordshire (Mr. Fabricant) suggested, why do we have to raise taxes so much?
Mr. MacGregor: That has nothing to do with privatisation as such. Privatisation has resulted in a great improvement in the performance of businesses, which is very much to the advantage of the economy generally.
If there is indeed an underlying strength in the economy, why is the feelgood factor not yet in evidence? I shall make two points about the feelgood factor, but in so doing I want to move away from immediate issues.
As both my right hon. Friend the Member for Old Bexley and Sidcup (Sir E. Heath) and my right hon. Friend the Chief Secretary to the Treasury have recently said in the House, the impact of technological change on employment--when combined with increasing international competition--is undoubtedly an issue that will face all Governments for some time. When I was Secretary of State for Education, at the prize-givings at which I had to speak I constantly used as a theme the
Column 180need for pupils to realise that from now on they would have to change not just jobs three or four times in their lifetime, but careers--hence the importance of securing a strong education and skills base before setting out in the job market.
We are seeing that clearly now in many industries. The privatised utilities, for example, have undoubtedly been able to make themselves much more efficient--egged on by the spur of being in the private sector--as a result of technological advance. They have taken the opportunity to gain from it. The same is evident in the financial sector--in banks and building societies, for instance. Technological change must be undertaken, or businesses will become uncompetitive; but the impact on jobs, including what used to be regarded as traditionally secure jobs, is often considerable.
We are seeing the same effect in central Government. One of the figures in the Red Book relates to the Department of Transport's running costs. I am having to pay a good deal of attention to those running costs; they are to fall from £423 million this year to £374 million by 1996-97. Taken across the board, that means substantial savings in central Government which can then be applied at the "front end".
Those savings will be achieved partly because we can now take advantage of the effects of technological change, but partly because Government and Ministers must be driven by the same impulse as those in the private sector to ensure that they are as efficient as possible, and that both the activities and the people involved add value. I think it reasonable for those in the private sector who have been through the process of becoming much more efficient and competitive in the past few years to expect Government to do the same. I also think that there is a message for large local authorities: if we can demonstrate that we have recently been through that process, they can be expected to do the same, and to review their administration and other activities.
In both the public and private sectors, that will introduce an underlying element of uncertainty about what used to be regarded as totally secure jobs. All political parties must now recognise such uncertainty as a permanent feature of our economic life, driven by technical change and international competition. The question for the electorate is which party is most likely to gain the benefits of technological change for the country and to meet the demands of the international competition. Nothing in Labour's policy and approach--the minimum wage, the social chapter and a raft of other measures--suggests that they understand that.
I am thinking not least of the right hon. Member for Kingston upon Hull, East (Mr. Prescott), who suggested recently that one way of dealing with employment was to keep jobs in the public sector which are not really required and not efficient, simply to avoid unemployment. That is not a sensible suggestion and it is no way of continuing to achieve a competitive economy. Nothing in Labour's approach indicates that it can offer a better alternative. The second point about the feelgood factor is the need to become accustomed again to inflation between 2 per cent. and 3 per cent. As I go around the country, I note that when inflation is at between 2 per cent. and 2.5 per cent. but salary increases are at 3 per cent.--in some instances, interest rates are lower because interest rate payments are falling--people do not understand that they are in a better position in real terms with a 3 per cent. pay
Column 181increase and 2 per cent. inflation, or interest rate payments at 5 per cent. and 2.5 per cent. inflation. The cash figure looked bigger before. It is vital for us to overcome that problem and ensure that the low-inflation culture is properly established.
During the 1980s, we made considerable progress in that respect--massive progress compared with the general level of inflation under the last Labour Government, when the average was about 15 per cent. and the level went as high as 27 per cent. In the 1980s we came a long way, but not far enough. I remember engaging in debates in 1986-87 and trying to get across the point that, given the tax reductions that average earners were receiving and the current low inflation, it was better to have a 3 per cent. salary increase and keep costs down. That meant a real gain, but the message still had not got through. During the period when house prices rose substantially-- [Interruption.] I am trying to make a serious point. During that period, many people felt that they were better off although in fact it was a paper gain.
It is important for us to establish that. I believe that as a result of a strategy which has been pursued for a long time, but particularly now, we are achieving those "mind set" adjustments to inflation. It is vital that we maintain the downward pressure and persuade people--people at work, pensioners, home owners and employers--of the "feelgood" benefits of a low- inflation era. If we persist, I believe that we can do that and that it will greatly benefit our competitiveness.