[Lords] ( By Order ) Order for Third Reading read.
To be read the Third time on Wednesday 19 July.
[Lords] ( By Order ) Order for consideration, as amended, read.
To be considered on Tuesday 18 July.
[Lords] ( By Order ) Order read for resuming adjourned debate on Question [26 June]. Debate to be resumed on Wednesday 19 July.
The Chancellor of the Exchequer (Mr. Kenneth Clarke): I expect inflation to increase a little towards the end of 1995, to 3 per cent. in the fourth quarter. That increase reflects the impact of higher import prices, and is expected to be temporary. I expect inflation to fall back during 1996, to 2 per cent. by the fourth quarter.
Mr. Riddick: Does my right hon. and learned Friend agree that low inflation is a crucial factor in the creation of more wealth, more investment and more jobs? Does not he find absurd the way in which the shadow Chancellor on one hand appears to be for ever calling for lower interest rates but on the other has started to criticise my right hon. and learned Friend for not agreeing with the Governor of the Bank of England, who wants interest rates to increase? Will he assure the House that his inflation policy will be based on sound economics and not soundbites, so beloved by the hon. Gentleman?
Column 1072deliver low inflation in order to guarantee those and deliver those. We have been more successful on the inflation front in the past two years than at any time in the past 30 years. That has been as a result of the conduct of monetary policy and the determination of the Governor and myself to take no risks with inflation. The Opposition always used to demand lower interest rates, come what may. Even in the late 1980s, they were demanding lower interest rates when they had to increase. The hon. Member for Dunfermline, East (Mr. Brown) always used to demand lower interest rates on every occasion, but he has stopped doing that for the past six months. As far as I can see, he has no opinion at all about interest rates or inflation that he will share with anyone at the moment.
Mr. Austin-Walker: Today's inflation rates show that the figures have already exceeded the figures that the Chancellor estimated in his Budget speech. The Chancellor of the Exchequer has given several different figures at different times. Would he say what he really anticipates the figure to be? Does the Governor of the Bank of England agree with his optimism about inflation rates and, more importantly, in his estimates has he consulted the First Secretary?
Mr. Clarke: The figures today entirely coincide with the summer forecast, which we debated yesterday, and the answer that I have just given about the likely pattern of inflation. There is absolutely no doubt about the inflation target among anyone who takes it seriously; it is 2 per cent. or less by the end of this Parliament and through the next Parliament. People try to reinterpret that, but I set the policy. They are my decisions and I repeatedly say plainly on what basis I am setting them all the time. I work with the Governor of the Bank of England, with whom I discussed those decisions, and he and I are determined to achieve the Government's stated inflation target.
Sir Peter Tapsell: May I congratulate my right hon. and learned Friend on the impeccable judgment on interest rates that he has shown so far, especially in resisting the considerable pressures for him to increase interest rates a few weeks ago, just before the American and Japanese rates were lowered, and set off a world bull market in bonds?
Mr. Clarke: I always have the greatest respect for my hon. Friend's advice. That is because he is always constructively but fairly critical when he feels critical and I am grateful for his agreement when he gives it. I believe that the economic evidence supports the decision that I took. I am grateful to know that it has his full support. I do wish that someone on the Opposition Benches had a serious opinion to offer on the subject.
Mr. Malcolm Bruce: Does the Chancellor accept that irresponsible tax cuts would worsen the outlook for inflation? Does he accept the discipline of his own words--that public borrowing is taxation deferred? Does he accept that, if he introduced tax cuts which could be funded only by increased borrowing, they would be bad for inflation and would have to be reversed soon afterwards, perhaps after a general election?
Column 1073we have done so far is to halve the public sector borrowing requirement over the past two years and we have set it on a firm downward course, aiming at our clearly stated intention of achieving balance over the medium term. Tax cuts will come, but only when we can afford them and when it is in the interests of the economy to have tax cuts.
Mr. Darling: Inflation has edged up today. Can the Chancellor explain why it has now emerged that the Central Statistical Office wrongly calculated the rate of inflation over the past few months and understated the rate of inflation? Can he also explain why he insists on maintaining not just one but three different targets for inflation? He used the figure of 2 per cent. for the City and the figure of 3 per cent., which he said would be a triumph, for a newspaper interview.
In his own hand, the right hon. and learned Gentleman wrote to the Chairman of the Select Committee on the Treasury and Civil Service saying that his target was in the range of 1 per cent. to 4 per cent. most of the time--in other words, not all the time. Is it any wonder that people do not believe him when he says that he has a target? Is it any wonder that people believe that the Government will take risks with inflation if that is what it takes to win the next election?
Mr. Clarke: First, it is true that an error was made in calculating inflation for two months earlier this year. The Central Statistical Office has explained that it was a straightforward error. Someone made an error in the calculation which led to an under-recording by 0.1 percentage points in the months of March and May 1995. The new director insists, in his press release, on accepting personal responsibility for this, although he has been in post for only a fortnight. It was one of those human errors which we all make.
Secondly, I find this level of political debate absurd. One thing that I do in explaining Government policy is to state clearly what the objectives are. The inflation forecast is 2 per cent. or less. In the same way, the Prime Minister and I made perfectly clear our attitudes towards such things as inheritance tax and capital gains tax. The press is capable of taking any daft half-quotation to claim that what we say is not what we claim to say. These bad habits are extending even to the Chamber and are lowering the Opposition's performance. I could not have been clearer in every statement I have made that the inflation target is 2 per cent. or less from the end of this Parliament. I set the policy and I am telling the hon. Gentleman what the policy is on which I set other policies.
Mr. Ian Bruce: Will my right hon. and learned Friend resist the calls which come from some people who say that a bit of inflation would be good for negative equity and for house owners? Does he agree that there has never been a better time in the past decade or so for people to buy their first new home? We have low inflation rates which means low interest rates. That makes buying one's own home very affordable and that is the right way in which to get the house market moving again.
Mr. Clarke: I agree strongly with my hon. Friend. If the public feared that we were going back to what would begin as a bit of inflation, which would mean higher interest rates and the old double figure levels, it would be extremely damaging to the housing market. It is the fact that some people still fear that we may do that that is
Column 1074holding back purchasers from the excellent bargains at affordable prices in the market. I hope that the expert opinion of people such as our hon. Friend the Member for East Lindsey (Sir P. Tapsell), with his view about where interest rates are likely to go--at a time when they are well below half the peak that they hit at similar stages in the economic cycle in the past--will have some effect on those contemplating house purchases.
The Chief Secretary to the Treasury (Mr. William Waldegrave): Low pay and unemployment result from low productivity and inflexible labour markets. Government policies have successfully tackled these problems. Real take-home pay has risen at all levels since 1979 and unemployment has fallen by 661,000 since December 1992.
Mr. Ainsworth: Is it not a fact that low pay is now costing every taxpayer £100 a year? Is that subsidy for bad employers a good use of £2.4 billion of public money? Is it not a fact that without a minimum wage, the good employer is undermined by the bad employer, who is undermined by the worst employer, and that the taxpayer winds up picking up the tab?
Mr. Waldegrave: I am very surprised that the hon. Gentleman should lead with an argument for the minimum wage. One of the most robust Labour politicians I know, the deputy leader of the Labour party, said:
"I knew the consequences of a minimum wage were that there'd be some shake out, any silly fool knew that".
To bring the script up to date, Lord Healey--the only Labour politician I know who is more robust than the deputy leader--said: "Don't kid yourselves --the minimum wage is something on which unions will build differentials . . . Therefore the minimum wage becomes a floor on which you erect a new tower".
Those are the facts, and the people with courage in the Labour party know that they are the facts.
Mr. Dunn: Can my right hon. Friend inform the House how those on low pay or the unemployed would benefit from the introduction of a minimum wage, given that a minimum wage would destroy jobs and be a nightmare in the labour market?
Mr. Waldegrave: The irony must be that either one sets the minimum wage so low that it does not affect anything, or one moves differentials-- unless the trade union movement has completely abandoned virtually everything that it stands for. Common sense tells us that the minimum wage will destroy jobs and that it will not benefit the unemployed one whit.
Mr. Skinner: Is the Minister aware that some of us have a figure for the minimum wage? We have done a comparison of those Tory Members of Parliament who receive £10,000 a year from consultancies that they do not declare in the Register. Some £10,000 a year is £5 an hour and the people in my constituency would settle for that. Unlike the moonlighting Tory Members of Parliament, my constituents want only one job.
Column 1075put a figure of £5 an hour on the minimum wage. Let us have a figure from the Labour Front Bench. If Labour Members below the Gangway have the courage to give a figure, why will those on the Front Bench not do the same?
Mr. Harry Greenway: Has my right hon. Friend estimated the number of jobs that would be lost if the minimum wage were pitched at the level suggested by the Transport and General Workers Union? Does he not think-- [Interruption.] The hon. Member for Worsley (Mr. Lewis) should wake up--and so should the hon. Member for Bolsover (Mr. Skinner). Does my right hon. Friend not think that people are most motivated and happiest when they are in work, even if they are not paid £1 million a year for doing the job?
Mr. Waldegrave: The estimates vary, but I have seen an estimate of anything around three quarters of a million jobs. On the basis of the figure advanced from below the Gangway opposite, it would probably be a little higher than that.
Mr. Waldegrave: Recent growth has been export led. In the year to the first quarter of 1995, exports were 9 per cent., while imports rose by only 0.5 per cent. That means that more than half of the United Kingdom's gross domestic product growth of nearly 4 per cent. is accounted for by net exports.
Mrs. Jackson: Does the Minister not see that our very weak trade position--a £1.4 billion deficit in April--reflects the Government's failure to invest in the economy? Does he not understand that the people in the special steel sector in south Yorkshire want to see a doubling of investment in jobs, skills and technology? How can the Minister justify possibly wasting £4 billion by reducing capital gains tax and inheritance tax rather than investing in our manufacturing base?
Mr. Waldegrave: The country's trade performance is extremely good. It is very much better than most forecasters predicted--including the forecasts that came from the Labour Front Bench in the days when Labour Front Benchers used to give forecasts. The hon. Lady referred to the steel industry. British Steel is one of the best steel companies in the world and it is exporting very strongly. That was not the case when it was nationalised. Any tax changes that may be introduced--when we can afford them--which will help capital markets and the economy will only strengthen that position.
Mr. Spring: Does my right hon. Friend recall that economic recoveries since the war have been blighted time and again by balance of payments crises? Does he agree that the present economic recovery is precisely the opposite, in as much as we are seeing an astonishingly good export performance?
Mr. Waldegrave: It is the first recovery since the war that has been led by exports. It used to be the holy grail that we all sought, and the country can be proud of achieving it. Above all, manufacturing industry, and the
Column 1076invisibles sector too, can be proud of it. If a few years back we had been told that the United Kingdom would, for example, export more televisions and microchips than either France or Germany, as we did last year, people would have thought that we were in cloud cuckoo land. Yet that is what we are now achieving.
Mr. Milburn: Can the Chief Secretary confirm that our weak balance of trade position is a reflection of the Government's failure to secure adequate investment in the economy? Which areas of investment does he propose to cut to finance the abolition of capital gains tax and inheritance tax?
Mr. Waldegrave: The premise of the hon. Gentleman's question is absurd. The trade position is extremely strong. I would like to know why he thinks that, under the Labour party's proposals, which are the same old proposals for directed investment, he would not produce more advanced gas- cooled reactors, more Concordes and more of those pretty catastrophic investment proposals which were produced in the past by that very system.
The Economic Secretary to the Treasury (Mrs. Angela Knight): Our objectives of low inflation and sound public finances are designed to ensure a stable macroeconomic environment, within which businesses can plan ahead with confidence. Industry is now responding. Manufacturing investment rose by more than 6 per cent. last year.
Mr. Betts: Given that, between 1979 and 1994, Britain had the worst investment record of any of the G7 or European Union countries, and given that manufacturing investment fell in the first quarter of this year and that total investment is still 10 per cent. below its level prior to the recession, will the Economic Secretary answer the question which the Chief Secretary has failed to answer on two occasions? When resources become available, will the Government use them to assist investment in this country or will they waste them by spending £4 billion of public money on cutting inheritance tax and capital gains tax, which will benefit only a few relatively affluent people and do nothing to improve the underlying capacity of our economy? Will she answer that question?
Mrs. Knight: I find it very difficult to take seriously anything that the hon. Gentleman says about investment, as when he had opportunities and was in charge of Sheffield city council, he wasted £150 million building palaces of leisure for the world student games. That financial millstone has hung around the neck of everybody in that city for a generation. However, he will be pleased to learn that the latest investment figures show a strong pick-up in manufacturing, especially in the north of England.
Sir Timothy Sainsbury: May I first congratulate my hon. Friend on her very well deserved promotion to the Treasury Bench? I am sure that I speak for all Conservative Members in so doing. Does she agree that
Column 1077most investment, particularly in industrial companies, is funded from retained profits and therefore we should all welcome the increased profitability of British companies?
Mrs. Knight: I thank my right hon. Friend for his kind remarks. I entirely agree with his point. Since company profits are high, companies are managing to retain far more money which they can use for investment, to the benefit of companies and the country.
Mr. Beggs: Does the Minister agree that the availability of a highly skilled, well-qualified work force is always attractive to inward investors? Does she also agree that each right hon. and hon. Member has a duty to encourage teachers, students and those presently unemployed to obtain qualifications and skills in order to attract inward investment and generate wealth-creating jobs from which the whole economy will benefit?
Mrs. Knight: I agree with the hon. Gentleman. Education and training are very important indeed, which is why the Government have given them such a high priority. Since we are attracting so much investment into the United Kingdom, we are obviously doing a very good job in that respect.
Mr. Allason: Does my hon. Friend agree that the best way to improve the level of investment is to reduce bureaucracy, red tape and interference not only by local government and national Government, but by the European Union?
Ms Armstrong: While I welcome the Minister to her first Question Time, can she tell us why manufacturing investment fell in the first quarter of this year? Is she confident that she will be able to sort out the fact that total investment is 10 per cent. lower than it was in 1989 before the recession? With all that going on, how does she justify the priority given to getting rid of capital gains tax and inheritance tax?
Mrs. Knight: The hon. Lady has been mixing her figures. I am sure that she will be delighted to learn that there is a strong pick-up in manufacturing investment, which increased by 8 per cent. in the first quarter of this year over the same period in 1994. That is an increase, not a reduction. One factor that aids investment in British industry is a strong economic climate. We have one now and will continue to have one.
Mr. Kenneth Clarke: I regret to say that I have received no reply from the hon. Member for Dunfermline, East (Mr. Brown) to my letters to him of 12 May and 14 June. I assume that he is still unable to decide on an inflation target and whether or not he agrees with my decisions on interest rates.
Column 1078questions because it does not have a serious economic policy--only classical exogenous waffle to camouflage the job-destroying minimum wage and social chapter?
Mr. Clarke: I agree that members of the Opposition Front Bench find themselves in a sad position. There cannot be a Member of the House of Commons who has not at some stage expressed an opinion on the movement in interest rates. The markets have since moved, there has been a wide range of financial comment and all the data--including the Bank of England's advice to the Government--are before us. The hon. Member for Dunfermline, East cannot even answer a letter because he cannot make up his mind whether or not he has an opinion.
Mr. Andrew Smith: As the Chancellor is so upset about replies to letters, will he now answer my letter to the Treasury of 23 June, which refuted fraudulent Conservative spending claims? While the right hon. and learned Gentleman is at it, will he account for his evident loss of control over the Prime Minister and his new spending commitment, now amounting to more than £11 billion? Answer that.
Mr. Clarke: At least the hon. Gentleman wrote only on 23 June. I shall certainly let him have a prompt reply based on the experience of having taken £45 billion out of my colleagues' spending plans already, so I must rebuff the hon. Gentleman's claims about spending. As to the repeated theme concerning my right hon. Friend the Prime Minister, I was present when he made his excellent speech confirming his leadership of the party. I was not startled by his remarks, and I checked the text to remind myself why.
My right hon. Friend said of capital gains tax and inheritance tax:
"My aim is to see these taxes reduced and if possible abolished altogether. I make no promises about when we can do it . . . no certainty that we can do it in the near future. But it should be set down now as a clear objective of any Government that I lead that I wish to see an end to inheritance tax and capital gains tax." That is, if anything, slightly more cautious in tone than my agreement with the remarks made by my right hon. Friend the Prime Minister yesterday. We have set that long-term objective because we believe in the benefits of low taxation and that one generation should be able to hand on the wealth that it has earned to the next generation.
We believe also that capital gains tax should be re-examined because it can impose damaging effects on investment, particularly in unquoted companies. The Opposition, because they have no policy on anything and cannot answer straight questions on any economic policy, keep inventing fraudulent misquotations to try to make an issue of something else.
Mr. David Shaw: My right hon. and learned Friend surely is aware that a considerable amount of taxpayers' money goes to the Opposition in Short money, so that they can reply to letters from him asking about the Opposition's policies. Should we not examine the value that taxpayers receive for that money? Should we not be getting answers from the Opposition about their policies, so that taxpayers can see and understand them?
Column 1079Member for Hartlepool (Mr. Mandelson) and the many public relations assistants that he must employ. As we all know, the hon. Member for Hartlepool plays the role in the Opposition that they mythically believe my right hon. Friend the First Secretary will be playing in the Government.
Mr. Gordon Brown: Will the Chancellor now answer the question that he did not answer yesterday? Does he support the principle of abolishing inheritance tax and capital gains tax? Will he confirm that that would cost at least £3 billion? Will he further confirm that the main beneficiaries would be 5,000 people, who would get half the gains from abolishing the two taxes? Will he now tell us who is in charge of the Treasury and of tax policy? Where is the Budget being written--in No. 11 Downing street, No. 10 Downing street or No. 10a Downing street?
Mr. Clarke: If the hon. Gentleman is having difficulty with his correspondence, he could have given me a reply just now when he was on his feet. Let me read again what the Prime Minister said: "My aim is to see those taxes reduced and if possible abolished altogether. I make no promises about when we can do it."
"The Prime Minister set out these objectives as a long-term aim for the Conservative party".
I do not see the faintest difference. I remain in charge of economic and taxation policy, with the full support of the Prime Minister. The Government's aim is to achieve low taxation, as and when we can afford it and when it is in the interests of the economy.
The hon. Gentleman seems to think that we have a lot of people in charge of economic policy, but it is clear that absolutely no one in his party is in charge of it.
Mr. Salmond: Is the Chancellor aware of just how desultory and pathetic many of us find the exchanges between him and his shadow? Why cannot we have an economic debate conducted on real economic aggregates, such as employment, productivity and output? Surely that would be better than debates that seem to turn on whether the hon. Member for Dunfermline, East (Mr. Brown) is aware that there needs to be a half-point correction in interest rates so as to meet one of the Chancellor's many inflation targets.
Mr. Clarke: We had a debate on the economy in the House yesterday. Unfortunately the hon. Gentleman seemed to have a prior and pressing engagement elsewhere and was not able to join us. Hardly any nationalists from Scotland or Wales were present from beginning to end, as far as I can recall.
I prefer to talk about the 3 per cent. growth that we are going to achieve this year; about keeping inflation to 2.5 per cent. or less at the end of this Parliament; about the 660,000 people who have come of the unemployment register; about the need to get unemployment down further; and about the need to give this country a modern, industrial economy that will sustain growth throughout the rest of this decade. It is the pathetic nature of the official Opposition and the absence, when we debate the economy, of the Scottish nationalists, that reduce us to the kind of drivel that we have just heard.
Mr. French: I am grateful to my hon. Friend for that answer. Is she aware of the extent to which stock held on central gilts office accounts is exposed to the risk of misregistration and misallocation, whether intentional or otherwise? As the Pensions Bill contains no provisions relating to gilts custody, will she have discussions with the Bank of England to ensure that this real risk is covered?
Mrs. Knight: My hon. Friend asks a specific and detailed question. I assure him that the Pensions Bill regulates fund managers. As my hon. Friend rightly points out, they are involved in the central gilts office; but thousands of gilts are traded each week in that office and so far not even one alleged case of a breach of security has been reported.
Mr. Stevenson: In view of the Chancellor's recent announcement that he intends to limit the scope of taxation on gilts, will the Minister assure us that the Government have no intention of extending, and will not extend, the rate of VAT in a similar spirit? Or does the Minister agree with the Chancellor that far too many goods are still exempt from VAT?
Mr. Clifton-Brown: I congratulate my hon. Friend on her well deserved promotion. She is one of the 1992 intake and, on behalf of that intake, I may say that we are delighted to see her. Small, prudent savers will certainly welcome the written parliamentary answer on the taxation of gilts given to my hon. Friend the hon. Member for Southport (Mr. Banks), stating that 99 per cent. of small savers will be exempt and that they will have until April 1996 to get their investments in order. That is extremely welcome news to small savers.
The Financial Secretary to the Treasury (Mr. Michael Jack): The Government continue to look for opportunities to transfer public sector businesses to the private sector. For example, we are proceeding with plans
Column 1081to transfer the operation of British Rail to the private sector and to privatise the major part of the nuclear power generating industry.
Mr. Jack: I am rather surprised that the hon. Gentleman, who normally deals with these matters in considerable detail, poses a question in that way, because he will know that, since the process of privatisation was begun, what used to cost this country £50 million a week now is now generating income to the Treasury of £55 million a week in terms of receipts from taxes on profits. That is the benefit of privatisation that we support.
Mr. Tim Smith: I congratulate my hon. Friend on his appointment and welcome him to his first Question Time. Does he agree that privatisation has been hugely successful both for taxpayers and for customers, that we should continue to privatise Government services wherever we can, and that we should export the successes of privatisation wherever we can?
Mr. Jack: I am most grateful to my hon. Friend for his kind words. We debated this matter yesterday and have already had an exchange on it. He is right to draw attention to the tremendous opportunity and contribution that the private sector has given to the Government--£455 million of savings have been posted so far. He is also right to attest to this country's great expertise in privatisation. It is good to see that Britain leads the world in that area.
Ms Primarolo: If the Chancellor is still in charge of economic policy, and not the resident of No. 10a or No. 10 Downing street, will the Financial Secretary tell us whether, in principle, he supports the taxing of income from executive share options and whether he will deal with the scandal of taxpayers who are being ripped off under these privatisation processes?
Mr. Jack: Rewards in this area are extremely important. The hon. Lady touches on a subject which as she knows full well, will be dealt with when Sir Richard Greenbury reports. [Interruption.] It is not a question of Sir Richard Greenbury or anybody else being in charge. My right hon. Friend the Prime Minister gave a clear indication that he wanted that area to be investigated. He was entirely supported by my right hon. and learned Friend the Chancellor, who has given a robust defence of who is in charge of economic policy. He is and the Government are: the Opposition are not.
Mr. Stephen: Further to my hon. Friend's reply to the hon. Member for Sunderland, South (Mr. Mullin), does my hon. Friend agree that all political parties are in the business of bribing the electorate? The difference is that Opposition Members do it by promising more and more public expenditure, whereas we do it by promising to leave more and more money in the pockets of the people. It will be for the people to make their choice at the next general election.
Mr. Jack: My hon. Friend touches on an interesting area. The only problem with his analysis, if I may take a point of difference with him, is that our economic policies, which are appealing to people, are based on