[Lords] ( By Order ) Order for consideration, as amended, read.
To be considered on Thursday 20 April.
By Order ) Order for Second Reading read.
To be read a Second time on Wednesday 19 April at Seven o'clock.
The Financial Secretary to the Treasury (Sir George Young): While I strongly believe in the institution of marriage, I see difficulties in introducing the concept of a loyalty bonus into the married couple's allowance.
Mr. Steen: The Government offer a disloyalty bonus to broken marriages by providing all sorts of state benefits. Although virtue has its own reward, in a highly materialistic society surely we should give some reward to those people who follow Government policies. Just as there are financial incentives to preserve the environment by using unleaded petrol, for example, could we not have some financial incentive for those who preserve the family, such as an anniversary award for those who stay married?
Sir George Young: A marriage that endures happily for 30 years is its own reward. I am not sure whether the Inland Revenue could significantly enhance that reward. We certainly use the tax system to influence economic behaviour, but I pause before accepting my hon. Friend's proposition that we should use the tax system to encourage people to like each other and continue to live with each other.
Column 1166he hand out a tin hat and a medal and arrange for a day such as VE day when we can celebrate the battles and wars that we have had and enjoy a proper anniversary?
Sir George Young: I hope that the hon. Gentleman and his wife have the ingenuity and the resources to celebrate each year of their infinitely happy marriage. I am sure that in the current framework of the Labour party he would not want to advocate any expenditure of public money on celebrating his marriage.
2. Mr. Duncan: To ask the Chancellor of the Exchequer what representations he has received which suggest that renewed house price inflation would divert resources from productive investment; and if he will make a statement. 
Mr. Duncan: I thank my hon. Friend for that reply. Does he accept that for years people have been urging that the British economy should be run along strict German lines, but now that that is happening people are suggesting that we put up house prices to make people feel better? Does he accept that democracy has a straightforward choice: it can either vote for long-term economic well-being, or it can fall for the tricks of the Labour party and be bought by cheap promises? Will he undertake to go up and down the country extolling the virtues of what we are doing now?
Mr. Nelson: My hon. Friend makes a very good point. Of course the Government want a sound and healthy housing market and a thriving construction industry, but at the end of the day the country cannot live on bricks and mortar. Productive investment requires assets to be devoted to that area. My hon. Friend makes the point very well and I hope that it will be heard.
Mr. Pike: While no one wants an uncontrolled rise in house prices, which causes problems, does the Minister accept there is a serious problem for the many people with negative equity who cannot sell their houses or move jobs and are in a cleft stick because of Government policy?
Mr. Nelson: The Government are concerned about cases of negative equity, but it is fair to point out to the hon. Gentleman, first, that the number of people with negative equity has declined by half. Secondly, the value of that negative equity has reduced by nearly two thirds. Thirdly, last year I announced a couple of measures on the transfer of security and the ability to borrow unsecured so as to enable people with negative equity to move. So the Government have done something about that to advantage.
Mr. Forman: That is welcome news. Does my right hon. and learned Friend accept that it is largely due to his determination and that of the Governor of the Bank of England to keep a tight lid on inflation, and to the Government as a whole pursuing policies which have improved the supply side of the economy, that people have been enabled to earn more in a productive way?
Mr. Clarke: I agree with my hon. Friend's analysis. Real disposable personal incomes, over and above the low inflation that we now enjoy, grew last year and they are forecast to grow this year. People can feel confident that this increase in prosperity is based on very sound and secure ground, precisely because we are pursuing the approach that my hon. Friend commends.
Mr. Gordon Brown: Does the Chancellor agree that millions of people are worse off under the Conservatives, first, because there have been 20 tax rises in the past two years, secondly, because of two mortgage rises in the past few months and, thirdly, because of the overcharging by water and electricity companies? Will he explain why no action has been taken on that overcharging until now? Does he agree that water companies--not just one, but all water
companies--should be reducing their prices and that there should be a refund for past excesses?
Mr. Clarke: If the hon. Gentleman is trying to imply that people are worse off under the Conservatives since we came to power, that is an absurd claim, as he well knows. Average incomes are up by about 40 per cent. in real terms since we came in, whereas they crawled up, barely increased at all, when the Labour party was in power. As for what is going on at the moment, it is true that the last few tax increases in the pipeline will cost the average family about £1.10 a week when they come into effect in April. Nevertheless, over and above that, people's disposable incomes will rise. Somebody on average earnings and with an average mortgage has seen their disposable income, after their mortgage, go up by almost a quarter since 1990. So living standards are rising and will continue to rise under the Conservatives.
On water companies, as the hon. Gentleman knows, it is a balance between the investment, which is at last coming in through privatisation. Investment was neglected when they were state owned, but it is now raising our water quality, improving our drainage and services, and the prices have been reduced by competition. The old state-owned water industry did not serve this country well, and it is absurd to single that out to try to damage the impressive evidence that I have given the hon. Gentleman of rising living standards in this country.
Mr. Yeo: My right hon. and learned Friend refers to the abysmal performance of the Labour party in failing to increase real personal disposable income in 1974-79. Can he think of a single policy advocated by the Labour party which would make it do any better next time?
Column 1168against all our attempts to raise revenue and against all our attempts to cut public expenditure. It has given no clue that it has given any thought to the level of public borrowing, and it would plainly disregard inflation. This country would be in deep recession and people would face reduced living standards if we had taken the slightest notice of such hints of interest as have come from Members on the Opposition Front Bench.
Mr. Skinner: Is the Chancellor aware that when the Tories came to power in 1979, out of disposable income the amount that the average family owed in debts of one kind or another was 45 per cent? After 15 years of a Tory Government, that has now risen to well over 100 per cent. That is why people realise that there is no feel-good factor because, like the country, most of them are up to their necks in debt. They are living on tick.
Mr. Clarke: That is a quite ingenious but wholly selective use of figures. The real incomes of people, every section of society in this country, are substantially higher now than they were in 1979. When the Labour party was in power, we were an industrial laughing stock. The country was suffering from stagflation, and the real living standards of people rose by barely 1 per cent. per year. Since that time, they have taken off and real disposable incomes are about 40 per cent. higher than they were then.
Mr. Nicholas Winterton: While I very much appreciate the sound way in which my right hon. and learned Friend the Chancellor is seeking to manage our economy and to keep inflation under control, is he not aware that the construction and housing sectors of our economy--which are of immense importance to the economy of this country as they purchase from practically every manufacturing sector--are in deep decline? There is a crisis and we need a regeneration of confidence in that area, not to increase house prices as rapidly as happened in the late 1980s, but to get some confidence back into that sector of the economy. What can my right hon. and learned Friend do to achieve that?
Mr. Clarke: I do not agree that there is a crisis or that those sectors are in decline. However, my hon. Friend makes a serious point: the housing and construction market is completely flat, which makes economic judgments very delicate. We must sustain the strong recovery, particularly in manufacturing, we must ensure that unemployment continues to fall, and for that we must have low inflation. The recovery is unbalanced, with manufacturing and exports doing well and housing and construction very flat. I believe that growing consumer confidence--people's growing feeling of security in the future of their jobs and the fact that mortgage rates are so much lower than they were in 1990--will create enough pent-up demand to make the housing market move. I should be wary of any artificial stimulation, which would have the effect that my hon. Friend the Member for Rutland and Melton (Mr. Duncan) warned us against and return housing prices to unrealistic levels.
Mr. Wigley: Does the Chancellor accept that there is a massive disparity between personal incomes in different areas? In Gwynedd--my own county--Dyfed and Mid-Glamorgan, gross domestic product per capita is now
Column 1169lower than the average in the Irish Republic. What will the Chancellor do to try to ensure that areas which have fallen behind can catch up?
Mr. Clarke: There have always been discrepancies in earnings and living standards in different parts of the country, but comparisons between living standards--which are what matter--must be made very carefully, especially when borders are involved, because exchange rates and so forth must be taken into account. In most parts of the United Kingdom, actual disposable incomes in terms of purchasing power compare very well with those in most of Europe, and we have a high level of consumption. The old regional disparities have changed greatly in many ways, as we see when we examine actual economic activity. Another healthy feature of the current recovery is the fact that there is no longer a performance gap between the north, Scotland, large parts of Wales and south-east England.
Mr. Spellar: I am not surprised that the Chief Secretary did not want to elaborate on that answer. This is one of a long series of deficits: under the current Prime Minister, the national debt has almost doubled, from £155 billion to £285 billion. Are not the Government living on tick?
Mr. Aitken: My reply to the hon. Gentleman is that people and parties living in glass houses should not throw stones-- [Hon. Members:- - "Oh!"] Let me remind him that under the last Labour Government the PSBR averaged 6.8 per cent. of GDP, reaching 9.4 per cent. at one stage. That was the moment at which the bailiffs had to be called in, in the shape of the International Monetary Fund. Under the present Government, the PSBR has averaged 2.75 per cent., and we are on track to eliminate it completely before the end of the decade. Our Government are a Government of good housekeeping, and they are doing well in reducing public borrowing.
Mr. John Townend: As a believer in a balanced budget, my right hon. Friend will appreciate my pleasure in congratulating him on the speed with which the PSBR is falling. Does he agree, however, that the best way to bring it down in the future is to cut spending rather than increasing taxation? Will he launch a crusade against waste, overmanning and extravagance in the public sector at both local and national level?
Mr. Aitken: I am certainly willing to join my hon. Friend in his admirable crusade. Indeed, we have already made progress. I remind my hon. Friend that in the last Budget my right hon. and learned Friend the Chancellor announced cuts in public spending which have reduced our spending plans for the next three years by £29.5 billion. That included a great deal of rooting out waste and cutting unnecessary bureaucracy: for example, Government running costs over the next three years have been reduced by 10 per cent. in real terms, and we now
Column 1170have the smallest civil service since 1939. We are progressing in the direction that my hon. Friend recommends.
Mr. Harvey: If the Government's determination to reduce excessive borrowing is the reason why they are going ahead next week with tax rises equivalent to 1p on the basic rate, and if it is responsible and necessary to put taxes up next week, could it possibly be responsible to bring them down again in November?
Mr. Aitken: The PSBR reduction has been a difficult process involving tax rises as well as spending cuts. The PSBR is now on a virtuous downward path. The Government would very much like to return to their core belief of reducing taxes and we shall do so as soon as it is prudent and right to do so.
Mr. Congdon: May I congratulate my right hon. Friend on his success in reducing the PSBR and urge him to continue his efforts to reduce public spending, which is still too high? Does he agree that people--and not the state--know best how to spend their money?
Mr. Aitken: I could not agree more with my hon. Friend. The crusade that has been announced by one Back Bencher this afternoon is gaining recruits fast. It is essential that we reduce public spending to allow more money to be kept in the pockets of our citizens and taxpayers.
Mr. Aitken: Yes, I do, and I believe so because the facts are clear. I welcome this opportunity to reiterate them, since the hon. Gentleman has challenged me. Let me make it crystal clear that at no board meeting of the company that I was on the board of seven years ago, and in no board paper of that company, was I ever given the slightest indication or information which could suggest that the company's wholly legitimate contract with Singapore might subsequently result in components being shipped to Iran. My view of these matters has now been publicly supported by four former directors of the company, including General Isles, who was responsible for the contract, and the managing director, so the deposed and bitter chairman is now isolated on his own in making irresponsible comments. What we are seeing is an unholy alliance of a failed chairman and a failing newspaper: it is no reason to challenge my integrity or my position in the Government.
Column 1171of excise goods. There is no separation of their duties between alcohol and tobacco goods. They take vigorous action against those engaged in cross-border smuggling, and in the 12 months to 31 January 1995 they made 910 detections related to alcohol with a revenue value of £1,871,000.
Investigation staff and those employed on VAT and other customs controls also contribute to the prevention of smuggling.
Mr. Alexander: I thank my hon. Friend for that reply. He will be aware of the adverse tax implications of that activity. I assure him that there are adverse implications for the brewing industry due to severe inroads into its turnover. Will he assure the House that, to deal with that activity, the number of front-line staff will be increased rather than reduced--as some people think may happen--and that there will still be enough of them?
Mr. Heathcoat-Amory: Yes, I can give my hon. Friend that assurance. The fundamental expenditure review that we have completed shows that in some regions Customs and Excise can maintain or increase its output with fewer staff, but in the coming year there will be an increase in excise verification officers engaged in anti-smuggling activity. The matter will be kept under review to ensure that it is controlled.
Mr. Atkinson: Will my hon. Friend confirm that he and his European Union colleagues remain committed to the introduction of the harmonisation of duties, as well as of VAT, throughout the single market, which is the only long-term solution to the problem?
Mr. Heathcoat-Amory: I would go halfway with what my hon. Friend says. We would certainly wish to retain our veto over unwelcome tax proposals, so we would resist compulsory harmonisation. Within that constraint, however, we are working to lift the minimum rates of duty, especially for wine and beer, in order to iron out the current distortions between member states in the single market.
Mr. Roy Hughes: There is a large modern brewery in my constituency and the company which owns it complains bitterly about this illicit trade. Does the Minister accept that it could eventually affect employment, and is he examining the problem from that angle?
Mr. Heathcoat-Amory: Yes, we monitor closely the performance of the brewing industry and we are mindful of the employment consequences. I can therefore give the hon. Gentleman the welcome news that excise receipts from alcoholic drinks as a whole have kept up and are buoyant as against 12 months ago.
Mr. Mudie: In view of the Minister's complacent answers, may I ask whether he is aware of the pressure being put on thousands of small businesses--the difficulties were initially in the south but have now spread to the north--which are having great problems holding themselves together because of smuggling? Is he satisfied with the number of customs officers? In view of the pressure on small businesses, will he announce moves to increase the number in an attempt to prevent smuggling
Column 1172and give a more forceful answer in respect of the equalisation of duty, which is the real long-term solution to the problem?
Mr. Heathcoat-Amory: I have already dealt with harmonisation. We wish to see a measure of harmonisation, but it must be compatible with our ability to veto other unwelcome taxation measures. I assure the hon. Gentleman that we are not in the slightest bit complacent about smuggling. We keep the matter under review, and I am glad to say that the courts are taking an increasingly severe view of those caught smuggling. The law already allows for unlimited fines and up to seven years' imprisonment for those who are caught.
7. Mr. Key: To ask the Chancellor of the Exchequer what representations he has received from Ministers and business men in the far east regarding the prospects for Britain's future economic success. 
Mr. Key: In little more than a decade, China will be the world's biggest economy. Is not the dramatic rise in Britain's exports to China in the past couple of years proof of the effectiveness, efficiency and competitiveness of our economy in the world?
Mr. Clarke: I agree with my hon. Friend. I am extremely glad to say that exports to China rose by 70 per cent. in the last year for which we have full figures alone. China is now one of the most dynamic economies in the world. It is a sign of how much Britain has changed over the past 16 years that British business and industry is now competitive and so effective in taking part in the affairs of that part of the world which has the most dynamic economies.
Mr. Stevenson: Is the Chancellor aware of the flood of investment from this country to the far east? For example, Royal Doulton in my constituency has just announced its intention to build a factory and create 600 jobs in Indonesia. Is he concerned about this so-called out-sourcing? How is it in Britain's interests? Is it not just another example of the export of jobs?
Mr. Clarke: The abolition of exchange controls and the opening up of investment from this country overseas and into this country by overseas investors is one of the most dramatic and beneficial changes that the British economy experienced in the 1980s. The hon. Gentleman epitomises just how old-fashioned the Labour party is in its approach to these matters. This country benefits from investment by Japanese, Korean, American and European companies. It also benefits from the flowing back into this country of what is earned from investment by British companies overseas. Indeed, we have now restored the old level of investment that Britain used to have before its past portfolio went during the wars, and the flows into this country are extremely valuable--as valuable as visible trade to the well-being of this country.
Column 1173of a major Japanese investment bank, Nikko Europe, in which she says that she suspects that Japanese investors would be happier if Britain stayed outside the single European currency? Is that a fit subject for discussion with his hon. Friends and, if so, is his door open?
Mr. Clarke: I am sure that there is a range of opinion on these matters in Japan as there is in this country. I would be happier if the Japanese lady would wait until the single currency has been designed-- [Interruption.] --until we have seen whether Britain is likely to join it and when we have an altogether better basis on which to make a decision on that event if and when it ever occurs. At the moment, I think that Japanese opinions are mixed. Certainly, our involvements with Europe and in south-east Asia are both essential to the continued success of this country in the world economy.
Mr. Corbyn: In his discussions with business men in the far east, does the Chancellor of the Exchequer ever raise the subject of the use of prison labour and child labour and of human rights abuses in the economic zones of China that he is so quick to praise? Will he link Britain's trade relations with China with the urgent need for a review and improvement of that country's abominable human rights record in those areas?
Mr. Clarke: I have never been to the People's Republic of China, so I have never had an opportunity to raise the matters to which the hon. Gentleman refers. Every hon. Member is of course against slave labour, child labour, prison labour for export and the other things that the hon. Gentleman described. Our trade with China is extremely beneficial to this country--straightforward trade and investment, which is of great benefit to the people of this country. We look forward to China becoming a successful, free-market economy and a more liberal and democratic society, which increased prosperity there will tend to produce. Britain should be a close trading and investing partner with that country.
Sir Fergus Montgomery: Does my right hon. Friend agree that higher income tax rates reduce incentives to work hard and that they limit economic growth? Will he perhaps refresh my memory as I have forgotten what the top rates of income tax were when the Conservatives rescued this country from socialism in 1979?
Sir George Young: I am happy to refresh my hon. Friend's memory. Some people were paying tax at 98p in the pound under the Labour Government. [Interruption.] I hear cries of "Not enough" from Opposition Members. We have reduced the top rate to 40 per cent. and we have increased incentives. The higher paid are now paying a higher percentage of the total income tax, so the lower paid have benefited from the reforms.
Column 1174additional tax under this Government will be the equivalent of 7p in the pound on the basic rate of income tax?
Sir George Young: The average family is about £80 a week better off in real terms since the Conservative Government came into office in 1979, which is a dramatic contrast with the virtually stagnating rate of growth under the last Labour Government.
Mr. Jessel: Far from suggesting an increase in the top rate or any other rate of income tax, will my right hon. Friend bear in mind that income tax produces only about a quarter of all Government revenue? The Chancellor of the Exchequer in the early 1950s, Mr. Butler, made it a Conservative target to double the standard of living in 25 years, which was achieved. Should we not make it our target, over 25 years, to abolish income tax lock, stock and barrel?
Sir George Young: My hon. Friend invites me to subscribe to an ambitious target. He will understand that it would be wrong for me to prejudge my right hon. and learned Friend the Chancellor's Budget later this year.
9. Mr. Livingstone: To ask the Chancellor of the Exchequer if he will made a statement about the impact of the decline in the bond market and third-world stock markets on prospects for the United Kingdom economy. 
Mr. Nelson: The United Kingdom economy remains fundamentally healthy, with sound prospects. The decline in world bond markets last year and recent falls in some third-world countries' stock markets are unlikely to have a material effect on the United Kingdom economy.
Mr. Livingstone: Have the Government considered the fact that one of the reasons preventing the decline in third world stock markets from feeding through into the British economy, and ours from following them down, is that it is still easy to borrow cheaply in Japan to invest in the stock market here, which is sustaining stock market levels? As the money supply in Japan increases, inflation takes off and interest rates rise, that restraint will be cut out and our stock market will decline and precipitate another recession.
Mr. Nelson: The hon. Gentleman seems to have omitted the subject of exchange rates, which certainly have some bearing on borrowing in one country and investing in another. I dare say that the proposal that he has just made would not have been profitable for anyone who had taken his advice. There is plenty of investment in this country from abroad. We take the lion's share of investment in Europe, and that is regenerating growth in our manufacturing industry and capability. Our prospects are sound. In decrying the prospects for this country, the hon. Gentleman fails to mention that in the last quarter of last year we had a current account surplus, for the first time in eight years, of £800 million. Surely he would do better to welcome statistics of that sort.
Mr. John Greenway: Following what my hon. Friend has said, does he agree that deregulation and the ability to invest internationally across the world has enabled this country's economy to grow significantly over the past 15 or 16 years? Are not the excellent trade figures published
Column 1175last Friday, which my hon. Friend has just mentioned, the result of much of the international overseas investment by British institutions and companies? Will he ensure that Government policy is to permit that to continue, and to have no truck with the Labour party, which would favour more regulation that would close down those investment opportunities?
Mr. Nelson: My hon. Friend is spot on. Our healthy current account figures derive in large part from the investment return on substantial foreign investments made. One reason for that is the fact that the Government got rid of exchange controls early on. The consequences of what is proposed by the hon. Member for Brent, East (Mr. Livingstone), who speaks for old Labour, would be the reimposition of exchange controls, capital controls and, presumably, penal rates of taxation on investment income.
Mr. Kenneth Clarke: As I have said before, we are playing a constructive part in the technical preparations, but that does not prejudge our decision on whether to participate, which is protected by the United Kingdom opt-out.
Mr. Milburn: But which Minister speaks for the United Kingdom Government in the discussions? Is it the right hon. and learned Gentleman, the Euro-supporting Chancellor of the Exchequer, or is it his comrade in arms, the Euro-sceptical Chief Secretary to the Treasury? How can Britain's national interest be properly represented when members of the Cabinet are in such open disagreement over European policy?
Mr. Clarke: I advise the hon. Gentleman to keep a straight face, even when asking frivolous questions. The last time that we debated the subject the Prime Minister made our position clear. We have negotiated an opt-out which means that the British are quite free from treaty obligations when deciding whether to join in economic and monetary union if the other member states ever decide to go ahead with it. Meanwhile we play a constructive part in the technical preparations, so that when we make our choice, if ever we have to, we have had some hand in designing what we are being asked to confront.
Mr. Legg: Will my right hon. and learned Friend accept my congratulations on the excellent improvement in our trade figures, and will he further accept that that improvement is largely due to his policy of maintaining a floating currency? Does he agree that such a marked improvement in our trade policy would not have been possible if we had remained in the exchange rate mechanism at DM2.90 to the pound, and that it certainly would not have been feasible under a single currency?
Mr. Clarke: I agree with my hon. Friend in his praise of our trade performance--in 1994 we performed spectacularly well--but I disagree with him if he believes that devaluation of the currency is the only way in which this country's competitiveness has been restored. That happened because of the success of British industry and
Column 1176commerce in making itself competitive in world markets, and the Government's success in keeping down inflation at home and our business-friendly policies that support exports overseas. If my hon. Friend analyses the trade figures he will find that the myth that it all happened only because we left the ERM is no longer sustainable.
Mr. Budgen: May I refer the Chancellor to his remarks of 10 days ago, in which he said that the Euro-sceptics formerly in his party were undermining the value of the pound? If that is true, will he explain why it is important, or does he have some secret exchange rate target so as to bring us back into the ERM which he so much favoured?
Mr. Clarke: My hon. Friend produces about the fifth or sixth version of what I said in a press conference in Brussels when I was asked why the pound at the time was declining when I was confident that the economic fundamentals in this country were going very well. One of the remarks that I made was that I accepted that the divisions in the governing party about Europe were not exactly helpful to market confidence. That has been turned into my personally blaming Lord Tebbit for the decline in the pound, which was not what I was saying. The political uncertainty gives rise to some weakness occasionally in the exchange markets because people fear the return of a Labour Government. The more the Conservative party looks like a strong and determined governing party, which I believe will last the course of this Parliament, and maintains the present improving economic climate, the stronger sterling and the stronger confidence overseas in this country's economy will be.