[Lords] ( By Order) Order for consideration read.
To be considered on Thursday 9 February.
By Order ) Order for Second Reading read.
To be read a Second time on Thursday 9 February.
The Chancellor of the Exchequer (Mr. Kenneth Clarke): Identifiable Government expenditure per head in 1993-94 was £3,458 in England, £3, 913 in Wales, £4,185 in Scotland and £4,781 in Northern Ireland.
Mr. Viggers: Although we English are happy, in present circumstances, to support the Scots--indeed, I even married one--does my right hon. and learned Friend agree that the substantial subsidy for the Scots and others might be different if there were a tax-raising Parliament in Scotland? Does he agree that the Scots may face the double jeopardy of a Scottish tax from Edinburgh and reluctance from London to pay the present 20 per cent. subsidy to Scotland?
Mr. Clarke: As my hon. Friend says, Scotland receives a considerable subsidy from England, but that is based on the Government's judgment of needs in the various countries, and we judge that to be the correct level of spending. My hon. Friend is certainly right that it is proposed that the Scots should have a Parliament with the ability to raise 3p in the £1 on income tax. Why one should be taxed more heavily for working in Scotland than for working in England, I am not sure; nor am I sure what advantage it would bring to the Scots. The English
Column 1200taxpayer might ask why, if the Scots have 3p in the £1 to spare, he should continue to shift so much money north of the border.
Mr. Clarke: As the hon. Gentleman knows, that is identifiable Government expenditure, but the aspects of expenditure that he describes are all for the benefit of the United Kingdom. We are talking about identifiable Government expenditure on public services. The hon. Gentleman will have heard the warning from my hon. Friend the Member for Gosport (Mr. Viggers): that there is a risk that the Scots will have an extra 3p increase on their income tax, which would have a very damaging effect on living standards for the average inhabitant of Scotland.
Sir Wyn Roberts: Will my right hon. and learned Friend consider updating the Welsh and Scottish budgets that were published in the early 1970s, which gave attributable revenue as well as expenditure in Scotland and Wales and which showed clearly, irrespective of any additional taxation that might be imposed by a Scottish or Welsh assembly, an adverse balance in expenditure?
Mr. Clarke: I shall certainly consider the possibility of doing so. As my right hon. Friend says, there is an adverse balance. Scotland receives more by way of expenditure than it pays in taxation, but that is entirely right if a United Kingdom Government and a United Kingdom Parliament decide that it reflects the needs of the population in certain areas. I cannot understand why it is proposed by some that if one works in Scotland one should pay 3p in the £1 more in income tax than if one does the same job in England. I can only imagine that that is likely to be damaging to the Scottish economy.
Mr. Ieuan Wyn Jones: Will the Chancellor remind the right hon. Member for Conwy (Sir W. Roberts) that the big difference between 1971 and now is that we are members of the European Union and that there have been great changes? As someone who favours European integration, he will know that the small nations and regions of Europe that have developed in the past 20 years have been those such as Catalonia, which is now seen as one of the driving forces of changing performances in Europe. Why does he not recognise that the people of Wales and Scotland should be given the same opportunity for the same constitutional arrangements as every other small nation and region in Europe?
Mr. Clarke: When I attend the Council of Ministers in Europe, I do not sit down with representatives of Catalonia, Galicia and so on, whose people have an identifiable local nationality but are represented by the Spanish Government. The four countries that comprise the United Kingdom have a more powerful voice in Europe because they are members of the United Kingdom. It would be a mistake for any part of the United Kingdom to start equating itself with Catalonia and thinking that we would be able to play the same part in European politics as we do at the moment--or as we could at the moment.
Column 1201maintain the economic cohesion of the United Kingdom under the single currency of the United Kingdom, the pound sterling? Would not, equally, huge transfers be required to maintain a single currency across the European Union? Does not that vindicate the Government's scepticism about a single currency?
Mr. Clarke: We opted to have a straightforward choice on a single currency, which we shall exercise if and when the proposal is put to us. Meanwhile, it makes obvious sense to take part in the preparations for economic and monetary union so that we can make a better informed choice when we have a sensible debate on it. It is not inextricably linked to political union. I recall that political union between Scotland and England occurred many years before monetary union. Rather than relating it to Scotland, we should consider the case for and against economic and monetary union on its merits.
2. Mr. Hoyle: To ask the Chancellor of the Exchequer what assessment he has made of the impact that the restriction of benefit entitlement on home owners who become unemployed will have on the housing market.
The Financial Secretary to the Treasury (Sir George Young): The growth of private insurance should reduce repossessions and improve the stability of home ownership. At present, two thirds of home owners would not qualify for help if they lost their jobs and many of the remaining third would be disqualified by receiving redundancy pay or an early retirement package. Our proposals aim to encourage home owners to insure against those risks.
Mr. Hoyle: Does the Minister not realise that the folly of his Department in cutting support for home owners will lead to mortgage lenders seeking more repossessions and to more homeless people? Whatever happened to the Tory promise of creating a property-owning democracy?
Sir George Young: I do not accept the hon. Gentleman's premise. As he knows, repossessions have already fallen by some 36 per cent. and we hope that that trend will continue. It makes sense to try to remove an obligation of about £1 billion on the social security budget and reposition it through the insurance market on those who benefit--home owners. That will lead to a more stable system, which will cover more people than the current system.
Mrs. Peacock: Will my right hon. Friend confirm that about 40 per cent. of borrowers take out insurance and that, traditionally, it was always accepted that any borrower should? Will he please encourage the other 60 per cent. of borrowers to do the same?
Sir George Young: My hon. Friend makes a valid point. The 40 per cent. of new borrowers are paying not only for themselves, but, through the taxation system, for the other 60 per cent. It would be fairer if we moved from a taxpayers' subsidy to an insurance-based system.
Ms Primarolo: Why should someone who loses their job face losing their home too because of the Government's planned changes to the benefits system? Will not the £18 million saved by the Government in the first year increase the mortgage payments of every new
Column 1202home owner by £20 per month? Since mortgages are already rising, why do not the Government withdraw that proposal and help home owners, not undermine them?
Sir George Young: The figure of £20 per month, to which the hon. Lady referred, or the figure of £12 to which my right hon. Friend the Secretary of State for Social Security referred in last week's debate, must be put in the context of a reduction of £140 per month in the cost of an average mortgage since 1990. Against that background, the figure mentioned is not a high imposition.
Mr. David Martin: Does it not stick in my right hon. Friend's craw, as it does in mine, that Labour Members have been posing as the champions of home owners, when all their policies, in and out of government, have been not only discouraging but positively hostile to the interests of home owners?
Sir George Young: Capital expenditure incurred by businesses for providing access for disabled people may be eligible for tax relief under normal capital allowance rules. There are specific Government programmes to assist disabled people such as the access to work programme, which was introduced in June 1994. This provides a wide range of practical help to overcome barriers to employment faced by disabled people. For example, the programme can provide alterations to premises or a work environment and communicators for people who are deaf. By December 1994, more than 5,000 people had been assisted.
Mr. Barnes: The Minister should realise that civil rights for disabled people are good for business: they increase sales and the tax take and they reduce the need for benefits. Therefore, can further measures be taken to encourage some entrepreneurial zip among small businesses so that more disabled people can be taken on by them?
Sir George Young: The whole House has much sympathy with the objectives suggested by the hon. Gentleman. The Disability Discrimination Bill, which is now before the House, requires an employer to make a reasonable adjustment to the working conditions or premises where that could overcome a practical barrier to a disabled potential employee.
Sir Donald Thompson: Does my right hon. Friend agree that, to achieve that entrepreneurial zip, capital will need to be expended? If the Government are going to say exactly how that capital should be spent, they should carefully consider tax benefits for those who are willing to spend it.
Column 1203against tax. Depending on the nature of the capital expenditure, there may be allowances for that also. In addition, grants are available under the access to work scheme, through the disabled person, to pay for some of the adaptations.
Ms Armstrong: Are not the tax issues with which the Minister is dealing currently dealt with by Inland Revenue tax inspectors? It is estimated that more than £2 billion of tax is not being collected, so how does the Minister justify sacking 6,000 tax inspectors? Would it not be better to have tax collectors collecting tax and not the dole?
Sir George Young: No one is suggesting that 6,000 tax inspectors are going to be sacked. We have made it quite clear that we hope to achieve our proposed reductions without compulsory redundancies. In the past three years, the number of Inland Revenue staff has reduced by 10,000, with only 80 redundancies. That is the progress that we want to make.
Mr. Jacques Arnold: Does my right hon. Friend agree that the entrepreneurial zip would be taken out of small businesses if local councils were again given the right to charge the business rate, as proposed by the hon. Member for Dunfermline, East (Mr. Brown)?
Sir George Young: My hon. Friend is quite right. The uniform business rate, set by Government with guarantees that it will not rise by more than the rate of inflation, is a real benefit to small businesses, particularly to those that were previously confronted with large rate increases by Labour-controlled local authorities.
Mr. Heppell: If housing costs are taken into consideration, the real income of the poorest 10 per cent. of the population has fallen 17 per cent. since 1979, whereas the income of the richest 10 per cent. has increased by 62 per cent. What does the Chancellor propose to do about the growing gap between rich and poor, which is the largest gap since records began?
Mr. Clarke: The figures that the hon. Gentleman quoted are the most misused figures in public debate. Close analysis of figures on the so- called lower 10 per cent. shows that they are not the poorest in society and that they include many people who declare no income but who are high spenders. The comparison that the hon. Gentleman makes is, with the greatest respect, practically valueless. Next year, as a result of strong and sustained growth and our powerful performance in export markets, we expect average personal disposable incomes per family to rise by about £5. Low-earning families will benefit in particular from what I announced on family credit, which is now being taken up. The welcome fall in unemployment, which is half a million below its peak already, will also benefit less well-off people. The figures
Column 1204quoted by the hon. Gentleman are misleading, and the present position is encouraging for people on all levels of income.
Mr. Patrick Thompson: Bearing in mind the fact that since 1979 living standards under this Conservative Government have risen right across the board, will my right hon. and learned Friend have talks with my right hon. Friend the Secretary of State for Social Security on the possibility of itemising the compensation for VAT on fuel on the pension book, so that pensioners may fully understand the help that the Government have given?
Mr. Clarke: My hon. Friend is quite right. Living standards generally are almost half as high again as they were when the Government first came to power. His suggestion about itemising the compensation received inside the pension book is interesting and worth while, and my right hon. Friend may consider it.
It is certain that the amounts added to the retirement pension, over and above the ordinary uprating, will more or less compensate the average pensioner for the extra VAT on fuel, which, at the rate at which we have left it, will now be paid only by those of working age who are not receiving means-tested benefits in full.
Mr. Gordon Brown: Does not today's interest rate rise represent a double blow to living standards, making an already insecure Britain even more insecure: first, because every time we expand--even out of recession-- we cannot sustain that growth, reflecting the underlying economic weaknesses which the Chancellor refuses to address; and, secondly, because with the cost for a typical home owner rising by £800 this year--a 25 per cent. rise--millions of people will see a fall in their living standards? Are not the Government guilty of a betrayal of their promises to every home owner in Britain, just as they are guilty of a betrayal of their promises to every taxpayer in Britain?
Mr. Clarke: Last year, we had 4 per cent. growth and the lowest inflation since the war, which had beneficial effects on the economy and greatly reduced unemployment by half a million. The key thing, delivery of which would be beyond the hon. Gentleman and his party, is to keep the recovery at a sustainable level, to keep inflation down and to keep our competitive position, which is enabling us to do so well in export markets. The hon. Gentleman shows that he has learnt nothing from the history of past Labour Governments, or indeed of any other Government. He would throw it all away, lose our present competitive position, take risks with inflation and put us back in difficulties again.
Mr. Thurnham: Does my right hon. and learned Friend welcome this week's survey by chambers of commerce throughout Europe, showing that Britain has the best job prospects of any country in Europe? Does not
Column 1205that prove the folly of the trade union- sponsored Opposition policies, which call for the implementation of the social charter in this country?
Mr. Clarke: I wholly agree. Last year, we achieved a big fall in unemployment, and the labour force survey showed a big increase in the number of jobs--particularly, I am glad to say, in full-time jobs--in the British economy. We have a far better record than has been achieved anywhere else in the EU. One reason for that is the firm monetary policy and strong fiscal policy of the Government, and a second reason is that we do not put unnecessary burdens and costs such as the social chapter on to employment, and we have no intention of doing so. That would damage our job -creating record.
Mr. Clarke: To deliver my stated objective of sustained growth with low inflation. We still have a buoyant economy, and surveys show that price expectations are still there. There has been a big increase in commodity prices, and producer prices are rising a little. I judged it timely to make a further increase today to ensure that growth is sustained without the recurrence of inflation. I am not sure what the Labour party would do--it seems to say the same old stuff when it comments on the issue--but I strongly suspect that, at a crucial stage of the recovery, it would throw it all away by not taking the necessary steps to protect us against a recurrence of inflation.
Mr. Mark Robinson: My right hon. and learned Friend probably knows that I have not been the greatest fan of Treasury forecasting, but will he comment on the forecasts of the hon. Member for Dunfermline, East (Mr. Brown), who said in the debate on the autumn statement in 1992 that the balance of payments would worsen-- [Interruption.]
Mr. Robinson: During consideration of my right hon. and learned Friend's ministerial responsibilities, will he examine the forecasting of the hon. Member for Dunfermline, East, who said in the 1992 autumn statement debate that the balance of payments would worsen and unemployment would rise and that the economy was generally on a downhill trend?
Mr. Clarke: In carrying out my ministerial responsibilities it is important that I maintain a healthy scepticism for forecasts of all types. I readily acknowledge that the hon. Member for Dunfermline, East (Mr. Brown) has a history of disastrous forecasts. I forecast that if he were in my position, he would have voted against all my tax increases and public spending controls, he would not have raised interest rates and this country would still be an industrial disaster. He still carps about the remarkable performance that we achieved in 1994 by ignoring his advice and forecasts.
Mr. Malcolm Bruce: Does the Chancellor accept that raising interest rates every six weeks does not constitute an economic strategy? Does he further accept that Britain needs investment? In the light of last week's CBI survey
Column 1206showing that investment is at an all-time low, does he accept that interest rates are likely further to depress investment in the economy, which will undermine our growth prospects?
Mr. Clarke: I realise that a Liberal Democrat Government would never put up interest rates, but would put them down every now and again. In the real world, however, investment depends on people's confidence that the Government will deliver sustained growth with low inflation. The fact that people are in no doubt about our determination to deliver low inflation will make them confident that they can get the return that they require on investment if they make it now.
The Minister of State, Treasury (Mr. Anthony Nelson): My right hon. and learned Friend's most recent Budget included measures to double grants to help council tenants buy homes and Housing Corporation programmes, worth £208 million, to extend home ownership.
Mr. Winterton: I am grateful to my hon. Friend for that response and I recognise the basic strength of our economy, but does he accept, however, that for many decades it has been Conservative party policy to encourage home ownership? Does he accept that recent Budgets have provided a disincentive to home ownership and that the housebuilding sector of our economy is critical to our economic success, as so many other sectors of manufacturing depend on it? Does he also accept--I say this with some regret--that the latest interest rate rise is thoroughly undesirable and will thoroughly depress the building sector?
Mr. Nelson: Let me assure my hon. Friend that the Government remain firmly committed to home ownership, which, since we took office, has increased by 4.3 million to 15.6 million. On the interest rate increase, there can be no doubt that the health and prospects of the housing and construction markets rely on a period of sustained low inflationary growth. It is my right hon. and learned Friend's judgment that that is most likely to be achieved if we continue to bear down on inflation. We have no interest in setting interest rates higher than is necessary to achieve that objective.
Mr. Nelson: It is a wholly natural instinct and a desirable objective for many people to build up a financial interest in their home-- to be reliant on that asset, to enjoy it and to be responsible for ownership. That is what this party has always supported when in government and we shall continue to do so. The changes introduced in successive Budgets, to mortgage interest relief or other areas, should not damage the long-term prospects for home ownership. The figures demonstrate that that has increased and the prospects for it being maintained lie in a gentle revival of that market, which today's action on interest rates should sustain rather than undermine.
Mr. Clarke: I held one of my regular meetings with the Governor of the Bank of England to discuss monetary developments this morning. The factors that I take into account in decisions on monetary policy are set out in the medium-term financial strategy, and the minutes of my monthly meetings are now published.
Mrs. Winterton: In his discussions with the Governor of the Bank of England earlier today, did my right hon. and learned Friend say that moves towards a single currency in Europe are anathema, not least because of our bitter experience of the exchange rate mechanism, when bank rates were at an unsustainable and intolerably high level, afflicting both business and home owners alike?
Mr. Clarke: I will not argue history with my hon. Friend, because inflation and interest rate increases began well before we joined the ERM. While we were in the ERM, we began the steady and sensible process of reducing both interest rates and inflation. I commend to my hon. Friend the speech by the Governor of the Bank of England recently on the subject of economic and monetary union. I have been urging for some time that we have a more sensible debate in this country on whether economic and monetary union might be of advantage to this country. I was delighted that the Governor of the Bank of England decided to participate in that debate. He was good enough to show me a copy of his speech before delivering it. It is excellent and I commend it to all those with a serious interest in the subject.
Mr. Foulkes: Does the Chancellor realise that his cosy te te-a-te tes over the past five months with the Governor of the Bank of England have resulted in an increase of £45 a month in the average mortgage? How does he expect the ordinary wage earner--not Sir Iain Vallance or Cedric Brown but the people whom they employ--to pay the extra that he has imposed?
Mr. Clarke: I am sometimes accused of having cosy te te-a-te tes with the Governor of the Bank of England and, at other times, unavailing struggles against him in our titanic clashes. [Interruption.] This country is simply not ready for open government. The minutes of the meetings that we publish show that we are both firmly agreed on delivering sustained growth with low inflation. As a leader in The Times recently acknowledged, by doing that last year we succeeded in producing the strongest economy in Europe and arguably the healthiest economy in the developed world. Mortgage costs are now far higher--lower-- [Interruption.] Mortgage costs are far lower than they were in 1990 when they last reached their peak. If I took the advice of Opposition Members and lost control of inflation, mortgage costs would rise to great heights.
Column 1208When inflation and taxation are taken into account, the average person's living standards are expected to rise in 1995.
Mr. Yeo: Will my right hon. and learned Friend ignore the mindless chants from Opposition Members, whose thinking on interest rates has not advanced from the point of saying that they should be 1 per cent. below whatever level they happen to be? Does he agree that it is in the long-term interest of all borrowers, both corporate and personal, that interest rates increase from time to time, as that helps to achieve the long-term inflation objectives that he has set out?
Mr. Clarke: I am grateful to my hon. Friend. I am afraid that he accurately describes the level of discussion with the Opposition that we usually have on interest rates. The key judgment that must be made is how to sustain this recovery. That involves taking the necessary decisions to ensure that inflation does not get back into the system. Small business men, house purchasers, and people in the real industrial economy, whose interests are at the forefront of my mind, would suffer most if I lost control of inflation at a time when our recovery is doing so well. This recovery will last. We shall not return to boom and bust, and that involves ignoring the flippant advice of the Labour and Liberal parties on how to set interest rates.
Mr. Clarke: I have already given one description of the usual political debate on interest rates. I have deliberately made monetary policy more transparent to try to stop interest rates being treated as such a knock-about political subject. People will stop regarding interest rates as a knock-about issue and allowing political considerations to intrude when they see us continuing to deliver the sort of growth rate, falling unemployment, new job creation, high standards of productivity and high export volumes that we have so far delivered. If we keep on delivering those to an election, the views of any of the Opposition parties on interest rates will be regarded as totally irrelevant.
Mr. Elletson: What effect would there be on interest rates if we removed spending controls on local authorities and created a new tier of local bureaucracy with regional councils? Is that not another example of Labour policy that would cost billions of pounds and destroy jobs?
Mr. Clarke: It certainly would. But as my hon. Friend acknowledged in passing, it is only one of many policies to come from the Labour party which would undermine our control of public spending and would lead either to increased taxation--as the Liberals claim--or to increased borrowing, which would have a destructive effect on monetary policy. It is the very combination of sensible control of public spending, tight fiscal policy and a sensible and consistent monetary policy that has created the financial conditions that currently make us one of the wealthiest economies in the industrial world.
Mr. Darling: Can the Chancellor confirm that a typical householder will pay £800 a year more as a result of today's interest rate rises? Is not it true that, because of that, before too long, the Chancellor's political instincts will start to dominate consideration of changes in interest
Column 1209rates and override the advice from the Governor of the Bank of England in order to placate Conservative Back Benchers?
Mr. Clarke: First, I do not believe that a half per cent. rise could produce an £800 a year difference, as the hon. Gentleman said. Secondly, as far as I am aware, no building society has announced that it is putting up its rates, although it might--I have no control over that. As I have already said, next year, taking account of inflation and taxation, the average family can expect an increase in its personal disposal income and average earnings should rise by about £5 a week. The overall living standards of this country are best protected by sensible economic policies. We can look forward to increasing prosperity and more secure employment for our people as long as we keep on the successful track that we mapped out last year.
8. Mr. Duncan: To ask the Chancellor of the Exchequer whether the United Kingdom economy meets the EC convergence criteria; and what is the corresponding position with the performance of other EC partners.
Mr. Duncan: I am grateful to my hon. Friend for that answer. Does he accept that there may well be a moment when various national economies are roughly in balance, but that later, they might not be? Does my hon. Friend accept that if, in the meantime, a single currency had been imposed, business risk and differing conditions would merely have shifted to areas other than the exchange rate? What, then, are the Government's divergence criteria?
Mr. Heathcoat-Amory: My hon. Friend makes the good point that the temporary convergence of the economies of Europe would not provide good conditions for a single currency because subsequent divergence of economic performances by the national economies of Europe would create intolerable strains within that single currency area. That is one of the reasons why the Government believe that the timetable for monetary union laid down in the Maastricht treaty is unrealistic. That is also why my right hon. Friend the Prime Minister ensured that the protocol to the treaty requires a subsequent Act of Parliament and the consent of the House before the United Kingdom moves in that direction.
Mr. Andrew Smith: In the light of the answer just given, and now that the Secretary of State for Employment speaks for the Government in Davos and elsewhere on such matters and the civil war in the Conservative party is so damaging to this country that the Chancellor chose to come to the Dispatch Box earlier and refer, not to the role that this country is playing in Europe, but to the role that this country "could" play in Europe --the Chancellor's word--have the Government ruled out the United Kingdom participating in economic and monetary union by the 1999 deadline in the Maastricht treaty--yes or no?
Column 1210we are required to sign up to a single currency now, as the Opposition parties would. We are quite content to leave that final decision to a future Parliament. I cannot help but observe that the Opposition parties which are most keen on a single currency are the most unlikely ever to deliver the economic criteria which would make that possible.
The Chief Secretary to the Treasury (Mr. Jonathan Aitken): My right hon. and learned Friend the Chancellor regularly meets the Governor of the Bank of England to discuss the prospects for inflation and the current state of the economy, including developments in manufacturing investment.
Mr. Bellingham: Is the Chief Secretary aware that business investment is forecast to grow by a staggering 11 per cent. this year? Is not that a complete vindication of the Government's economic policies? Is he further aware that throughout the past year the Labour party have consistently attacked the Government about the lack of investment in manufacturing industry? In light of those figures, should not the shadow Chancellor eat his words, admit that he was wrong and congratulate the Government?
Mr. Aitken: I would certainly share my hon. Friend's relish in seeing the shadow Chancellor eat his words, but the meal would be so gargantuan that I do not think that it is a very likely outcome. My hon. Friend is correct to refer to the fact that the Confederation of British Industry has forecast that manufacturing investment will rise by 11 per cent in 1995. The manufacturing sector in this country is buoyant and in a strong competitive position. In the three months to November, output was up by 5 per cent., productivity was up by more than 6 per cent. and unit wage costs were down by more than 1 per cent. That is a record of success of which the Government and the country can be proud.
Mr. Sheerman: If the manufacturing sector is to be truly successful in this country and win back home markets as opposed to export markets, is not it about time that the Chancellor and the Bank of England encouraged our financial institutions to think about long-term investment in British manufacturing capacity, rather than engaging in short-termism?
Mr. Aitken: I am sorry that, judging from the tone of the hon. Gentleman's question, he does not acknowledge the tremendous success story of British manufacturing industry in export markets. It has been faring extraordinarily well. His charge of "short-termism" is unfair. Anyone who has ever run a business will know that at this point in the economic cycle it is normal for companies to restructure their balance sheets and build up their profits. Investment is expected to improve at the turn of the cycle, and that is why the CBI is forecasting an 11 per cent. increase in manufacturing investment.