[Lords] ( By Order ) Order for consideration, as amended, read.
To be considered on Thursday 18 May
Mr. Gapes: If the outlook is really favourable, why did we have a £10.5 billion deficit on trade in 1994, why has the pound devalued by 35 per cent. since the Prime Minister took us into the exchange rate mechanism at DM2.95 and why is the weakness of our economy being reflected by a weakening of our currency, day by day?
Mr. Clarke: First, our trade performance continues to improve. The hon. Gentleman will know that this morning's trade figures show exports up by 9 per cent. in volume compared with a year ago and he will also know that the current account last year was extremely favourable despite the strong recovery. We even showed a surplus in our dealings with Japan last year. The hon. Gentleman's sudden concern about the exchange rate is very reassuring. He will be glad to know that we are strengthening against the deutschmark today.
Mr. John Townend: Does my right hon. and learned Friend accept that the unemployed, small business, the construction industry, many of the service industries and much of the retail trade are relieved and grateful that he did not put up interest rates? Will he confirm that the grounds for that decision were purely economic and based on factors such as low wage inflation, the flat housing market and the quarterly survey by the Forum of Private Business showing that for the past four quarters the rate of growth had gone down? Will he confirm that if inflationary pressures rise he would have no hesitation in putting up interest rates?
Column 868and certainty in the Government's policy. We are pursuing steady recovery with low inflation and every policy action that I take is aimed at that conclusion.I congratulate my hon. Friend on expressing an opinion on the decision that I took on Friday. Nobody in the Labour party has yet seemed to have formed an opinion one way or the other as to whether the decision was welcome.
Mr. Sheldon: Is the Chancellor of the Exchequer aware that no Government can allow the Governor of the Bank of England to determine economic policy in this country? The Government, of whatever party, must determine such matters, and they are judged right or wrong by the events as they unfold.
Mr. Clarke: I do not know why the right hon. Gentleman should tell me that. His own shadow Chancellor needs to be told that. Everybody will discover in six weeks' time in the usual way the opinion of the Governor and myself at last week's meeting. Everyone can see from the Governor's speech this morning that the Governor of the Bank of England and I are entirely agreed on the object of policy and we believe that that policy has been delivered successfully. The hon. Member for Dunfermline, East (Mr. Brown), the shadow Chancellor, has now got the monthly monetary report and the Governor's own inflation report; he has seen the judgment of the markets; he has heard every financial commentator give an opinion and he has heard my hon. Friend the Member for Bridlington (Mr. Townend) give an opinion, yet he has no opinion at all on the subject one way or the other. The shadow Chancellor does not even cast a shadow one way or the other. He would just wait to see what the Governor told him to do.
"Three cheers for Clarke, the best post-Jenkins Chancellor"? Is he aware that Mr. Kaletsky, the author of the article, congratulates him on being his own man in standing up against the City and the Bank of England and their pressure for higher interest rates?
Is my right hon. and learned Friend also aware that many of his hon. Friends would disagree with Mr. Kaletsky's conclusion that he should become President of the European Commission, but expect him to remain as an extremely successful Chancellor for many years, leading and guiding the improvement in the economy of the country?
Mr. Clarke: I am unlikely to be put forward for that post by my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen). One thing with which all my critics have always agreed, as much as my supporters, is that I endeavour to be my own man. I take my own decisions. I am extremely candid
Column 869and clear about why I have taken those decisions. I am faced by an opponent who has no opinions and no decision- taking capacity on the subject.
Mr. Malcolm Bruce: Does the Chancellor agree with the Governor of the Bank of England and the chief economist of the Bank of England that interest rates will have to rise sooner rather than later? Is he still serious about keeping inflation under 2.5 per cent. by the end of this Parliament?
Mr. Clarke: I shall set interest rates, as I have always said I shall set them, after discussion with the Governor of the Bank of England, to pursue the objective upon which we are both agreed of keeping inflation between the 1 to 4 per cent. range and getting it under the lower half by the end of the Parliament.I shall continue to do that.
If the hon. Gentleman wants to know the opinion of the Governor on that, he will know that he made a speech in Aberdeen this morning in which he said:
"Notwithstanding the current excitements, I am convinced we remain in better economic shape than we have been for a very long time. The Chancellor has made it clear that the macro economic policies that have brought us to this point remain in place--and it is important, from my perspective, that they should."
I agree with that. I do not know whether the hon. Gentleman agrees with that, and I have not a clue whether the hon. Member for Dunfermline, East agrees.
Mr. Gordon Brown: Will the Chancellor answer the question put to him just a minute ago? The Bank of England said this morning that under the present policies, the Government's last remaining target--an inflation target of 2.5 per cent. by the end of the Parliament--will not be met. [Interruption.] That is what the Bank of England said this morning. Will the Chancellor now reaffirm in clear words that the inflation target of 2.5 per cent. by the end of the Parliament will not be changed?
Mr. Clarke: I have just said that it will not be changed. There has been no change of policy. What the Bank of England's inflation report this morning says is that it has revised its forecast up slightly because of recent changes in the exchange rate. It stresses that the certainties about inflation are vague--it does not give a spot figure. We will continue to set interest rates to achieve the target that I have given. That is a clear policy.
If the hon. Gentleman believes that forecasts of inflation are cast in concrete, he is mistaken. If he wants a guide to policy, he should not just look at one forecast of inflation, but look at the commitment of the Government and the Governor to low inflation and the fact that, in the past 19 months, we have produced the best inflation record the country has seen since 1961.
Mr. Nicholas Winterton: May I congratulate my right hon. and learned Friend on his courage last week in not putting up interest rates? He knows my views about the importance to the country of the manufacturing and construction industries. Does he accept that a real guide to the true economic strength of the country is the strength of construction and manufacturing? If they are doing well, all the other indicators are, in my view, irrelevant. Would he comment on that?
Column 870the complexity of delivering sustained recovery with low inflation, which has eluded the country ever since the war. We now have the best prospects of achieving that. The present recovery is being led by manufacturing and our export performance with the outside world is particularly encouraging, because we are rebalancing the economy in a much healthier fashion.
I am glad that my hon. Friend considers my decision courageous, because it is exactly the same type of decision as those I have taken for the past two years. We are pursuing a consistent policy to give manufacturers and others the stability that they require and the certainty they need about the way in which the Government intend to take economic policy.
2. Mr. Fraser: To ask the Chancellor of the Exchequer if he will make it his policy that an unmarried couple owning a house and who have jointly borrowed £60,000 or more are not penalised in terms of MIRAS. 
The Financial Secretary to the Treasury (Sir George Young): Since 1 August 1988, mortgage interest relief has been restricted to a loan of £30,000 per residence, regardless of the number or marital status of the people buying together. That rule ensures that married and unmarried couples are treated in the same way. Unmarried people buying a house together before 1 August 1988 can keep any higher level of relief to which they were entitled, as long as their circumstances do not change. However, if they move, replace the loan, or marry, their limit for relief falls to £30,000 between them.
Mr. Fraser: Does that mean that, if an unmarried couple who bought their house before 1988 get married, the Government put a tax on marriage and legitimacy? Surely that is not Government policy. Is it not about time that the law was changed, so that those cohabitees who do marry do not suffer a tax penalty?
Sir George Young: The law was changed to remove exactly the injustice to which the hon. Gentleman refers, because, under the old rules, an unmarried couple could obtain as much as twice the amount of mortgage interest tax relief as a married couple. That was the injustice that we removed in 1988. We also gave transitional relief to those who had bought under the old rules, until such time as their circumstances changed.
If we were to do what I believe that the hon. Gentleman wants us to do, we would simply continue to entrench an injustice that Conservative Members, at least, find unacceptable.
Mr. Devlin: Surely it is right that married couples should be in no worse a position than unmarried couples, and therefore the restriction that took place in 1988 was perfectly just and well thought out. In fact, we should have done it earlier.
Sir George Young: I agree with my hon. Friend, and I find it perverse that a decision that we took in 1988, which I am not aware was criticised by Opposition Members at the time, has now come in for rather belated criticism from the hon. Member for Norwood (Mr. Fraser).
3. Mr. Clifton-Brown: To ask the Chancellor of the Exchequer what was the effect on the Exchequer in the last financial year of industries privatised since 1979; and what was their effect in 1979. 
Mr. Clifton-Brown: Does my right hon. and learned Friend agree that those figures demonstrate the outstanding success of our privatisation policy, which has been widely recognised throughout the world by such regimes as North Korea and Cuba? Does he not find it strange that the last bastion of socialism, the new Labour party, has yet to appreciate the effects of privatisation?
Mr. Clarke: I agree with my hon. Friend. The Labour party held a special conference to try to pretend that it no longer agreed with the North Korean communists, but only a week later, when the first privatisation proposition came before Parliament, it was opposing it again and backing the keeping of nuclear fuel in state-owned hands, in spite of the fact that privatisation will bring a dramatic fall in electricity prices in England, Scotland and, indeed, all parts of the United Kingdom.
Ms Armstrong: Does the Chancellor recognise that the Treasury will make about £5 billion from the two privatisations that the Government are pursuing--£5 billion for tax cuts before the general election, which will have to be paid for by the British people to the tune of £10 billion in the costs of decommissioning power stations and subsidies to British Rail? What sort of bargain is that for the taxpayer?
Mr. Clarke: The hon. Lady has at least worked out that the proposal to privatise the nuclear electricity industry has nothing to do with tax cuts. It has to do with putting in place commercial disciplines and private sector management, which those in the industry want, and reducing the costs of electricity to consumers throughout the country. That is the purpose of the privatisation. If it has become the policy of the Labour party to seek tax cuts--I have no knowledge of the direction in which it intends to go in that regard--tax cuts depend on tight control of public spending and the reduction of public borrowing. If the Labour party ever gets round to having an economic policy, perhaps Labour Members will give us the benefit of some of their opinions about some of those elements--tax, spending and borrowing.
Mr. Alan Howarth: Does my right hon. and learned Friend agree that the capacity of the privatised and other industries to invest and deliver wealth to the nation, jobs to our people and revenue to the Exchequer depends critically upon the level of interest rates? Does he agree that choking off investment every time we fear a tremor of inflation is a formula for the progressive debilitation of our economy?
Mr. Clarke: That is right, but I am sure that my hon. Friend also agrees that inflation has killed off fast recovery and poses the biggest threat to the confidence that people must feel before they will invest in increasing industrial capacity. That is why we make the judgments
Column 872we do on the basis of a clear inflation target. That is why we look at the real economy, as well as the monetary aggregates and the exchange rate, when we make those decisions. I believe-- judging from his speech today, the Governor believes it also--that we have been remarkably successful in getting the right balance over the past two or three years.
4. Mr. Dalyell: To ask the Chancellor of the Exchequer what currently available figures he has for the quantities and value of drugs seized at United Kingdom airports over any conveniently available recent 12 -month period. 
The Paymaster General (Mr. David Heathcoat-Amory): During 1994 Customs and Excise seized 47 tonnes of cannabis and four tonnes of cocaine, heroin and synthetic drugs, with a total street value of some £551 million. Some 10 per cent. by value of these drugs were seized at airports.
Mr. Dalyell: May I ask a question of which I have given Treasury officials notice? Could they put in the Library an account of what a senior Customs official, Mr. Philip Connolly--whom I do not criticise in any way-- said to senior Pan American airways security officers Michael Jones and Jim Berwick about controlled drugs delivery? Will the Minister consider asking a senior Treasury official to watch carefully the two-hour film about Lockerbie which is to be screened tonight on Channel 4? The significance or otherwise of my question will then become apparent.
Mr. Heathcoat-Amory: The hon. Gentleman did me the courtesy of giving me notice of his intention to raise the Lockerbie case. A British Customs officer did give information to an American court about the Lockerbie bombing, and confirmed that bag-switching is a technique used by drug smuggling organisations. However, there is no evidence that that was the way in which the bomb was put on the flight in question; nor were British Customs involved in any controlled delivery of drugs on that ill- fated flight. I shall ask my officials to watch the programme to be screened this evening, and I will supply any additional information to the hon. Gentleman.
Mr. Allason: Will my hon. Friend agree to look at the Treasury's policy relating to foreign rewards paid to British police forces for drugs seizures overseas? Is he aware that the Drug Enforcement Administration is prepared to pay very large sums in return for information that leads to drug seizures abroad? Under Treasury rules, all of that money must go directly to the Exchequer whereas, under DEA rules, the money must go directly to the drug squads involved. Therefore, Britain is denying itself large sums of money that would be available from the United States in the fight against drugs.
Mr. Heathcoat-Amory: I am not sure whether my hon. Friend is quite correct in what he says. The proceeds of international drugs seizures can be recycled to drug enforcement agencies, including those in this country.I will obtain the details and write to my hon. Friend about the matter.
Mr. Kenneth Clarke: Banking and financial supervision is a large subject. Therefore, with respect, this is a rather wide question. At any one time a variety of issues will be under consideration. For example, my hon. Friend the Minister of State announced at the beginning of the year the outcome of our review of the Building Societies Act 1986 and, more recently, the Treasury released a consultation paper on open-ended investment companies with proposals for legislation to allow their formation in the United Kingdom.
Mr. Corbett: I thank the Chancellor for that answer. Does he accept that, following the rip-off of people on modest incomes who were persuaded to buy private pensions and mortgage-linked endowment policies, there is a need for more effective regulation of banking and financial services; or will those people simply become more casualties of the Government's indifference?
Mr. Clarke: The response to the problems that have arisen with personal pensions shows how successful we are in having the right regulatory regime in place, and how responsive the authorities have been in making sure that individuals who might have suffered loss as a result of mis-selling are considered. We are going through a huge process of identifying any persons who may have experienced mis-selling of personal pensions and of making sure that those responsible put such people in the position in which they should be. Similarly, we already cover endowment- based mortgages under the Financial Services Act 1986.
Strong arrangements are in place to provide consumer protection. It is not the right response to demand yet another quango and more Acts of Parliament --particularly when the present arrangements in this country work so much better than anything almost anywhere in the world.
Mr. Budgen: As banking is affected by monetary policy, I congratulate my right hon. and learned Friend on not having increased interest rates, for two reasons. At long last, he understands the advantages of floating exchange rates, and he demonstrates that, under our constitution, the Chancellor of the Exchequer must be responsible for monetary policy and that it cannot be delegated to an independent Bank of England or, worst of all, to an independent central European bank.
Mr. Clarke: My hon. Friend and I have always agreed on rather more of economic policy than he ever cares to concede. I do know that one has either a floating exchange rate or a fixed exchange rate, and that one should not have a target exchange rate when it is floating. The exchange rate is something that one takes into account when setting monetary policy. My hon. Friend gave an impeccable statement of the constitutional position when he said that the Chancellor is responsible for monetary policy in this country but acts on the advice of the Governor of the Bank of England. I have made matters more open than ever before, by allowing the Bank of England to publish an unedited inflation report and by publishing the minutes
Column 874of meetings after six weeks, to give it more credibility with people, such as my hon. Friend and myself, who want to see such decisions taken on economic grounds.
I congratulate my hon. Friend on yet again giving an opinion one way or the other about last week's decision. The hon. Member for Dunfermline, East (Mr. Brown) had one chance to do so, but he went on about something that I have already forgotten. The hon. Gentleman failed absolutely to be the first member of the Labour party to say whether he would have increased interest rates, taken them down or done anything at all last Friday.
Rev. Martin Smyth: While I welcome the Chancellor's statement that he does not want any more quangos, does he agree that it is time that the Treasury relaxed some restrictions on friendly societies, to allow them to give more benefits to their members, whom they have been looking after well for years?
Mr. Brazier: Surely the most important purpose of banking supervision is to keep an eye on the overall level of lending and the money supply. Will my right hon. and learned Friend take it from me that many on this side of the House believe that when broad money is in the lower half of our range, 80 per cent. of bank lending to small businesses is secured on domestic property and there is still strong anecdotal evidence of tightness of credit in the economy, my right hon. and learned Friend is absolutely right to resist pressure to raise interest rates?
Mr. Clarke: My hon. Friend is right. Broad money as well as narrow money, which has remained above its target range for some time, are two of the items that one considers. I repeat my congratulations to my hon. Friend. He gave an opinion that may provoke a response, but the entire Labour party is sitting there like a stuffed duck because Labour Members do not know whether they are meant to get up and say that they agree or do not agree with last Friday, because the man in front of them has not yet made up his mind. He is incapable of making up his mind on any aspect of economic policy.
Mr. Darling: I ask the Chancellor to return to the original question. Does he accept that pensions being mis-sold or people being given inappropriate advice about endowment mortgages is due in no small part to the fact that we live under a regime of self-regulation, where the public interest takes second place to the trade interest? Does he accept that public confidence in the industry will not be restored until the nonsense of self-regulation is brought to an end?
Mr. Clarke: With the greatest respect, I do not agree that that case is made out at all. The statutory framework that we have is set under the Financial Service Act 1986. There is no evidence that making the whole regime statutory would improve a system in which the self-regulatory bodies contain a large number of people with detailed experience of how the industry works.
Of course, we have to look at the serious problems that lie behind the mis- selling of so many personal pensions. I am confident that the new Personal Investment Authority will improve matters and exercise tighter
Column 875supervision. I am delighted that more than 5,000 firms have applied to join that authority, and I am sure they will strive to obtain higher standards in future.
Mr. Kenneth Clarke: The public sector borrowing requirement for 1994 -95, was £10 billion lower than in the year before. Government borrowing is falling faster, here in the United Kingdom, than in any other major European economy.
With permission Madam Speaker, I will publish the detailed information requested on other countries in the Official Report .
Dr. Spink: Does my right hon. Friend agree that paying taxes is fundamental to keeping down the public sector borrowing requirement and to the financial well-being of everyone in the country? Will he therefore join me in deploring the fact that some of the newly elected Labour councillors on Castle Point borough council are facing committal proceedings--
Madam Speaker: Order. That is hardly the responsibility of the Chancellor of the Exchequer. Much as I am devoted to Castle Point, I doubt whether the Chancellor has any responsibility for activities there.
Dr. Spink: What would happen to the public sector borrowing requirement if, like the Labour councillors in Castle Point, the rest of us refused to pay our local taxes, as has Jim David of Canvey Island on Castle Point?
Mr. Clarke: I believe that all citizens should pay the taxes to which they are legally liable, properly and on time. I also believe that taxation should be kept down to the lowest possible level consistent with the public spending required to provide good high-quality services.
Mr. Clarke: It is a perfectly fair point, and it is done as part of monitoring the convergence criteria under present arrangements within the European Union. Attempts are made to compare like with like across the European Union. We follow international definitions. The conventions that we follow are recognised to be in line with the best of international practice, and the PSBR figures that we produce are trustworthy and reliable, and show what remarkably good progress we are making in getting our public sector borrowing under control, in contrast to the total failure of the last Labour Government to deal with the public sector borrowing problems following recession when the International Monetary Fund eventually had to sort them out.
Mr. Tim Smith: Does my right hon. and learned Friend agree with the European Monetary Institute that continuous efforts towards reducing-- [Hon. Members:-- "Reading."] I am quoting. [Interruption.] I am paraphrasing. Does my right hon. and learned Friend agree that continuous efforts towards public sector borrowing are needed if we are to have a growing
Column 876economy and improve the supply side? Is it not the case that most European Governments are overspent and over-borrowed and that only the British Government have a clear programme for reducing spending and borrowing as a percentage of national income?
Mr. Clarke: My hon. Friend is right. There is a growing international consensus that in current circumstances a low level of fiscal deficits, low inflation and low debt to gross domestic product ratios are essential to keep an economy on course. That is wholly consistent with the policy of the Conservative party over the years. All the members of the European Union are committed to achieving those goals. As I have just said, Britain is reaching them rather faster than any of the major economies on the continent.
Following is the table:
Changes in general government financial deficit ( GGFD) (as a percentage of GDP) |<1>Year-on-year |change ------------------------------------------------------ Austria |+0.3 Belgium |-1.1 Denmark |-0.1 Finland |-2.5 France |-0.2 Germany |-0.4 Greece |+0.8 Ireland |-0.1 Italy |+0.1 Luxembourg |-0.2 Netherlands |+0.5 Portugal |-1.0 Spain |-0.5 Sweden |-1.6 United Kingdom |-1.9 <1> 1994-95 compared with 1993-94 for United Kingdom 1994 compared with 1993 for other EU. Sources: United Kingdom, 1 March 1995 excessive deficits return; other EU, European Commission forecasts, European Economy November 1994.
Mr. Connarty: Given that the Bank of England is now calling into doubt the Chancellor's inflation forecast, and that the PSBR outturn was £1.3 billion more in 1994-95 than predicted, how can the British people be asked to have confidence in the Chancellor's predictions for the economy when he is turning into the Michael Fish of Budget forecasting?
Column 877"in better economic shape than we have been for a very long time."
I hope that the hon. Gentleman will at least acknowledge that the public sector borrowing requirement has been on a good downward trend for some time. It fell by £10 billion last year and is forecast to fall by £14 billion this year.
Mr. Griffiths: Does the Minister accept that the PSBR is being reduced only by imposing more Tory taxes? The latest--the transport tax, which is to take effect from 1 January next year and will add £10 each to some 12 million holidays--is the 21st Tory tax. Why does the Minister not listen to businesses and ensure that those proposals are withdrawn?
Mr. Aitken: The hon. Gentleman ignores the fact that one of the main reasons why the PSBR is falling at a satisfactory rate is that my right hon. and learned Friend and I managed to reduce public spending over the survey period by no less than £29 billion. That is a major contribution to bringing down the PSBR.
expenditure--bearing in mind that their claim to be elected is now based on the fact that they can be safely elected because they are Tories as well?
Mr. Aitken: My right hon. and learned Friend the Chancellor referred a few moments ago to Opposition Front Benchers as a lot of silent stuffed ducks. That strange characteristic is repeated exactly in the case of my hon. Friend's point about public spending. The Opposition will not tell us whether they want lower public borrowing or what they intend to do about public spending. Away from the Dispatch Box, however, they are still the big-spending party: currently promising to spend more money on income support for 16 and 17-year-olds, on regional assemblies and development agencies, on an emergency employment programme, and on a defence conversion agency, more money from capital receipts, and more money on a growth strategy for Europe. All that adds up to much more borrowing and higher spending. It is about time that they stopped being stuffed ducks and admitted it.
Mr. Batiste: Does my right hon. Friend agree that reductions in public borrowing create resources which can be made available for other purposes? As the Opposition have called repeatedly for increased spending on education and hospitals, can my right hon. Friend think of any recent occasion when they have offered support for creating the economic circumstances that will make that possible?
Mr. Aitken: I can think of no such example. I have listened to wave after wave of sound bite waffle emanating from the Opposition, and I am longing to hear a single constructive fact or proposal from them. They have indeed been well named the stuffed duck Front Bench by my right hon. and learned Friend the Chancellor.
Column 878Mr. Mike O'Brien: Will the Minister confirm that, in 1994, public borrowing as a percentage of gross domestic product was higher in the United Kingdom than in any other European Union country, with the exception of Italy, Greece and Spain? Will he further confirm that that imprudent situation was dealt with only by the Government imposing on the typical British family extra taxes of £800, in breach of the Government's election promises?