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Mr. Hood rose--

Mr. Devlin: Before the hon. Gentleman intervenes again--perhaps to tell me about my majority--let me remind him that, in the previous Parliament, he wrote me off. He said goodbye to me, and told me that I would lose. I returned with a majority that was five times bigger and represented the largest swing in the country. That was done in the north of England, but I believe that it can be done again in all the constituencies in the south.

Several hon. Members rose--

Mr. Deputy Speaker: Order. I remind the House that Madam Speaker has placed a 10-minute limit on speeches between 7 pm and 9 pm.

7.9 pm

Mr. Ian Pearson (Dudley, West): It is apposite that I should follow the hon. Member for Stockton, South (Mr. Devlin), who talked about election swings, because less than 12 months ago at my by-election Labour received the biggest swing in post-war history, producing a majority of more than 21,000.

Economists tell us that, technically, we are three and a half years into a recovery. That is news to many people in my constituency. The Government should try telling it to Baggeridge Brick, a leading building materials

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manufacturer that is now warning of meltdown if nothing is done to support the housing industry. They should try telling that to the people who are unemployed in Brierley Hill, and in Brockmoor and Pensnett, who are still suffering desperately from the decline in traditional manufacturing industries in the black country, and the complete failure to create sufficient jobs and wealth. They should try telling it, too, to the many people who are suffering from job insecurity, which far from being a state of mind, is an evident fact for the people who talk to me at my advice surgeries.

I shall confine my remarks to four areas--economic growth, public sector accounting, the role of company profitability and inflation--and touch briefly on each in turn. First, anyone who is seriously committed to establishing high and sustainable levels of employment must recognise that the Government should set growth targets as well as inflation targets.

There is an urgent need to raise the economy's long-term sustainable rate of economic growth by increasing investment not only in plant, equipment, buildings and other works, but in human capital. Only in that way will we reduce unemployment, by increasing the employability of the work force, and thus the underlying productivity growth of the economy.

Secondly, the Government should use not the public sector borrowing requirement but the general government financial deficit--the GGFD--as the main indicator of fiscal stance. They should recast the public accounts in line with commercial practice. As the Minister will be aware, the GGFD is the criterion used in the Maastricht treaty as the European Union definition of Government debt for the purposes of measuring the degree of convergence between member states in advance of the single currency. So far as I am aware, in the other countries of the EU, it is accepted as the major indicator of fiscal stance.

The Government need to speed up their review of public sector accounting, and move towards more of a private sector approach. I should like to see a Government balance sheet, profit and loss account, and a statement of source and application of funds. The distinctions between current and capital spending are still far too vague and need tightening.

In particular, I should also like to see regionalised accounting of expenditure and assets, so that for the first time we would know how much money was being spent in each individual region. We could use that information as a starting point for establishing regional economic development strategies.

I see no rationality in our current public expenditure system, which treats NHS trusts as public corporations but GPs as private sector unincorporated businesses. Most schools are treated as part of central Government, but grant-maintained schools are treated as part of the private sector. Like universities, they are described as private non-profit-making bodies serving persons. And I see no justification for classifying, as the public accounts do, the Bank of England banking department as a private sector financial institution.

Thirdly, company profitability is important to economic growth. Profits and profit growth are good for the economy. Sometimes I feel that the Opposition do not

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emphasise that fact sufficiently, and do not say enough about the role of profits in a social market economy--the role of profits as a signalling mechanism.

Mr. Devlin: A signalling mechanism?

Mr. Pearson: Yes. Standard economics says that industries making higher profits than normal tend to attract companies into those industries. Where profits are below normal, the reverse tends to apply.

Mr. Hood: He does not understand; he is only a lawyer.

Mr. Pearson: Do not believe it.

Retained earnings provide the bulk of investment in small and medium-sized companies. They are also a major source of investment for many large companies. However, as the Opposition fully recognise, retained earnings do not automatically lead to a strong surge in industrial and commercial company investment. Certainly the rise in corporate profitability in 1994 did not translate into any increase in meaningful investment in the United Kingdom economy.

Profits are also important because they fund pensions for an increasing proportion of people in the United Kingdom. I do not want to enter what is called the Dorrell debate about the level of dividend pay-outs by companies. I say only that I am not persuaded that current dividend growth is excessive; there are strong arguments why dividend growth must be maintained for the sake of long-term investment vehicles, which will be required to pay for the pensions of the future.

My fourth topic is inflation. At present, there is a great misunderstanding about how inflation is created in the economy and about who should take the credit for reductions in inflation. A major reason why inflation has declined in the United Kingdom, as in almost every other western European country, has to do with the effects of global market competition.

The old economics lecturers used to talk about cost push inflation and companies raising their margins when there was strong demand in an economy, thereby increasing company profitability, but today we have price-based costing, not cost-based pricing. It happens in large swathes of manufacturing industry. Ford, for example, is imposing price reductions of 5 per cent. a year on its supply chain. Companies are taking that on board, taking the price as given, re-engineering their processes and driving costs out of their products. That is a completely different rationale for business, and it means that fears about inflation over the medium term are largely misplaced.

I await next week's Budget with interest. I expect to hear about measures to stimulate the housing market and to encourage investment and training. I should like to expect, too, that the Budget will encourage job creation and bring back job security. The people in my constituency have a right to expect that, but my deep suspicion is that we shall not see it.

7.18 pm

Mr. John Greenway (Ryedale): It is a great pleasure to be back in the House after my recent illness. If we did

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not have a 10-minute limit on speeches, I would sing the praises of the NHS and particularly the doctors at York district hospital.

I want to talk about the rural economy and rural affairs. That is timely, because the Government published their excellent rural White Paper last month. People in rural areas have their own views about what should be in the Budget next Tuesday, and--if it is not too late--I shall suggest a few of these to my right hon. and hon. Friends in the Treasury.

No doubt we shall have further opportunities to debate the White Paper in detail, but it contains an important section about jobs. The White Paper asks how we can create new non-farming jobs in rural areas, and I would suggest that we add non-tourism jobs--in other words, jobs in the manufacturing sector--to that. The White Paper proposes a new "business use" class within the planning system. At best, that may be highly deregulatory, allowing no-fuss moves from farming into other enterprises. However, one envisages that it will not be quite that simple.

There will be pressure from conservationists, local planners and some local residents, which will mean that, in reality, the process will be much more difficult. Several constraints on the number of vehicle movements and the hours of operation may be imposed on firms, and that is a real worry. We need some early action on planning guidance, followed by action on structure plans and local plans.

My constituency is fortunate to have a number of go-ahead, enterprising manufacturing firms. Slingsby Aviation and Micro Metalsmiths are based in Kirbymoorside, while McKechnie vehicle components-- which is making enormous strides, and is at present supplying Vauxhall--is based in Pickering. We also have the successful Ward business, and anybody who goes to Scarborough cannot fail to see the Ward building systems factory in Sherburn, some 10 miles west of Scarborough. We have the Malton bacon factory in, interestingly enough, Malton.

All those firms provide an enormous contribution to local employment, but many of them were started a generation or so ago and have premises for which it is doubtful that they would get planning permission now. One has only to look round the market towns to find that land that planners had allocated for industrial use was quickly filled up by workshops and warehouses. No one is suggesting that we want to put factories all over rural areas, but the factories to which I referred and which were started a generation ago have meant a great deal to the success of the Ryedale economy. If we want a vibrant and prosperous rural economy in the future, we must not just find similar sites, but encourage similar entrepreneurs to set up.

I shall give hon. Members another idea of the planning problems in a part of my constituency. In Scarborough borough, we have the very important and beautiful seaside town of Filey. Some hon. Members may remember that there used to be a Butlin's holiday camp at Filey, called Amtree park. On a good day in June, July or August, there might have been as many as 15,000 people on the site.

The site is now known locally as "little Beirut" and it is totally devastated. But Scarborough borough council refused to give outline planning consent for 600 houses on the site. One might argue about the number of houses,

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but by refusing the application, the council lost out on development providing up to 200 jobs. Why? Because the scheme does not fit with the local planning process. All the local people want the development, while the fact that it is covered with asbestos dust ought to fill everybody with utter horror and concern. Planning constraints mean that we are having a real struggle to sort out such a problem, of brown site that has been deeply contaminated. Clearly, something must be done.

I wish to mention rural shops and service industries. The rural White Paper suggests that there might be a rate relief scheme for village shops. But what about market towns? Far too many small businesses and services in the retail sector are in financial difficulty because they are having to pay rent and rates based not on what they can afford, but on what the building societies and national chains think they can afford. Action is needed on that. If we mean what we say in the White Paper about ensuring that market towns have a future, the cost of rent and rates needs our attention.

The White Paper also refers to the sparsity factor in rural areas in allocating support grant to local authorities. That is the most crucial problem affecting my constituency at present. We shall be one of the first areas to undergo local government reorganisation in April next year, when the new York district council comes on stream. Disaggregating the budgets between York and the residual Ryedale and North Yorkshire areas is proving to be a huge problem. I want to raise the matter on the Floor of House on behalf of many constituents who have written to me about it. We must have a fair distribution of the money, and we must do what we can to uphold our promise that reorganisation would not lead to a cut in local services to residents. Both Ryedale and North Yorkshire have serious problems, the latter especially.

The first priority in the Budget next Tuesday must be a better settlement for schools. We have again had excellent examination results, according to the league tables published for North Yorkshire schools, but we cannot dig for ever into the reserves, which are depleted. Schools have used up their balances, and we need a better allocation this year. The Government must heed the warning that, if we do not honour our obligations and responsibilities to education but still cut taxes, many of our supporters will be deeply resentful.

That said, I believe that we still must find some money to reduce taxes in the Budget next week, although not for the kind of party political advantage that the Labour party talks about. It must be obvious to anybody who looks at what is going on in their area that, while factories such as those I have talked about in my constituency are doing very well in an export-led economy, local services and the local economy are not doing so well. That economy is flat, and people need more money in their pocket. In my judgment, that can come only from a low-inflation economy, lower taxes and lower interest rates.

If we are trying to find the money for tax reductions, we should also increase personal allowances to take a lot of low-paid people in the rural economy out of tax altogether. Our failure to uprate allowances in line with inflation over the past two or three years has brought those people into the tax system, and we ought to take them out again.

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Finally, those who say that abolishing capital taxes-- capital transfer tax and capital gains tax--is simply a way of giving money back to the rich are wholly and utterly wrong. This month's edition of Country Landowner, the journal of the Country Landowners Association, contains an article that describes how capital taxation is wrecking enterprise. It stops businesses--particularly farm enterprises and other enterprises in rural areas--from doing the kind of thing that they want to do. The capital taxation structure is too complex, and the best way to deal with it is to get rid of it completely.


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