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8.47 pm
Mr. David Shaw (Dover): There is no doubt that the "Summer Economic Forecast" is a remarkable document, because almost every page contains a considerable amount of good news. The only marginally less than good news is that the deficit is not coming down as fast as we would like, but it is coming down, so the document has a considerable amount of improving trends and good news--the sort of news of which any Government can be justly proud.
We are starting our fifth year of economic growth. Even my constituents, especially those in the building trade, who had a particularly tough recession, are now acknowledging the improvements in the economy and the fact that trade for them is better than for some time. In my constituency, employment figures are much better than for some years. When I fought the general election in Dover in 1992, unemployment was some 15 per cent. more than it is today. We have a significantly improving trend, and I certainly hope that that will continue and that my constituents continue to benefit from a Conservative Government for many years to come.
I was enormously disappointed by the speech of the Opposition spokesman. The right hon. Member for Dunfermline, East (Mr. Brown) sometimes manages to get
a laugh or two in the House. He sometimes manages to entertain us and comes out with some interesting arguments. The speech today was the most appalling that I have heard from the Opposition. There was little mention of the economy. It was all on some civil servant's desktop exercise in the lower basement section of the Treasury--probably one of the sections that is prone to flooding and has a number of rats that eat away at the paperwork. I do not think that the Treasury desktop exercise was of much value and it certainly should not have taken up the amount of debate that it did.
What had the shadow Chancellor learned from that desktop exercise? It was something about Thailand, which he alleged would overtake the United Kingdom. He should watch his affair with Thailand carefully, or he will earn the nickname of Bangkok Brown in this Chamber. It is laughable to suggest that Thailand has a better economy than the United Kingdom, or is likely to have one for many years, if ever. It is also laughable to imply that the current growth rate in Thailand is to do with socialism in any way, shape or form. Far eastern countries such as Thailand, Japan and Malaysia, which are experiencing strong growth rates, are doing so without socialism. They do not achieve high economic growth rates through a minimum wage or a social chapter. They steer clear of those disadvantages, which the Labour party wants to impose on us. They do not use socialist policies in Malaysia; they use strong, free market policies with an entrepreneurial background to them.
The weakness in Labour's argument is that they are not only weak on policies, but weak on attacking our policies. They try to attack us on borrowing. When Labour was in office, it borrowed at twice today's levels. The Opposition try to attack us on the national debt now, but it was much higher as a proportion of gross domestic product when Labour was in office than it is today.
One of the great successes of the 1980s was that we used oil revenues to keep our debt down. The United Kingdom has much less borrowing as a proportion of GDP compared with many counties in the European Union and the rest of the world. Indeed, we also ran our economy sensibly in relation to unfunded pension liabilities. Those are a major problem in many European countries, including Germany, France and Italy, but they are not a major problem in the United Kingdom. We have managed our social security and unfunded pension liabilities much better than any of the other European countries--those major countries that now have considerable difficulties to which they must face up. The cost of those difficulties may be as high as £10 trillion in the next 50 years. I hope that we never have those problems, and we have to ensure that we never have a socialist Government that would give us them.
Mr. Bayley:
At constant prices in 1974, the Labour Government inherited from the Heath Government a public sector borrowing requirement of £43 billion in today's prices. By the time we left office, it was down to £27.4 billion. Last year, it was up to £34.6 billion and it is projected to be £30.7 billion next year. Surely we had a better record on getting the PSBR down than the Conservative party, which has put it up.
Mr. Shaw:
The hon. Gentleman is trying to inflate the PSBR by a retail prices index figure. He is not considering the gross domestic product. He should consider how much
Also, we do not have the unfunded pension liability problems of Europe, so we are more likely to meet the Maastricht criteria than Germany, France and Italy. Those countries will meet them only if they are fiddled criteria. This country's position is very strong indeed.
The Labour party has been distorting other figures. The Opposition tried to refer to the proportion of taxes taken by GDP today, but they did not say that one has to add taxes and borrowing together to get a true measure of what the Government are taking out of the economy. I am pleased to say that, this year, the Government have got the proportion of the economy taken out by taxes and borrowing down below what it was when Labour was in office in 1979. More important, we have got it down below what it was under Labour, with lower interest rates because the City is confident that this Government are worth lending to. It charged a Labour Government a higher rate of interest.
Mr. Shaw:
I would like to give way again, but cannot do so because of the time.
In the remaining part of my speech, I want to question Labour policies. The main policy which I heard was of taxing the utilities and squeezing resources out of them. Who is going to pay? Do the British public think that, if Labour squeezes the utilities, the money comes from nowhere? Of course it does not. It is real money that the utilities would have to find, and there are only two sources: ultimately, they would have to find it from the shareholders or from the customers. Who are the shareholders? They are the 16 million ordinary men and women who are savers in pension funds, private pension funds and life insurance. So, the Opposition have said today that their tax on the utilities will squeeze shareholders who are savers in pension funds, private pensions and life insurance. Ordinary men and women will have their savings squeezed by Labour, if there is a windfall profit tax on the utilities.
Ultimately, customers will also have to pay the tax. That means that electricity, water and gas bills will rise. It means that we will have to have a wattage tax, a water tax and a therm tax. Three new Labour taxes that will hit the utilities and their customers. The Opposition have not even explained what they will do in Scotland with the windfall tax on Scottish water, which is in the public sector. Who will pay the extra windfall tax in Scotland, or will it be an extra surcharge on English people? Will we have to pay on English water the extra money for Scotland? The reality is that Labour will tax the consumer and it will charge the consumer.
Mr. Deputy Speaker (Sir Geoffrey Lofthouse):
Order. Time is up.
Mr. Deputy Speaker:
Order. If the hon. Members who are hoping to catch my eye are brief, they will be able to speak.
Mr. Stephen Timms (Newham, North-East):
During Nelson Mandela's visit to London last week, the joy and celebration surrounding the President were palpable. We can be proud of the welcome that our communities gave to a man who restored many people's faith in politics.
The welcome for President Mandela in Brixton was warmer than ever, but he saw there a side of modern Britain that I suspect the Government would rather he had not seen. For despite the tremendous spirit of people who live in Brixton and in my constituency, such places give the lie to the Chancellor's portrayal of a country in the full bloom of economic recovery.
Mr. Mandela saw a community where, for many, the idea of a secure job is nothing but a pipedream; where an increasing number, particularly of young men, but also of young women, have never had a job; and where too many young people face the prospect of permanent exclusion from economic life--of moving from being unemployed to being unemployable. The community that the President of South Africa saw should, for all its spirit and resilience, make the Chancellor very uncomfortable indeed. The Government have failed the hardest pressed, and all of us are paying the price. That is the context for the debate.
The most telling comment on the President's visit was made in a television interview with one of the community leaders in Brixton, who has lived there for a long time. He said that things are getting gradually worse in the community because of the large and growing number of young people, especially young men, who do not have a job, who have never had a job and who have no prospect of a job in the foreseeable future. That is a dreadful state of affairs for them, but not only for them, and that is what the Government have disastrously overlooked. The price is being paid not only by young unemployed people, but by the whole community--in benefit payments, in wasted energy and ability, in crime and in a next generation brought up from birth in a hopeless situation.
I am pleased that my right hon. Friend the Member for Dunfermline, East (Mr. Brown) has put that problem at the heart of his economic programme for the next Government, with a pledge to get 250,000 under-25s off benefit and into work. We neglect those people at our peril, and we cannot afford to do so for much longer.
The Chancellor may not have many friends in Brixton, but he does not seem to have all that many friends elsewhere--he certainly does not have many in the press. When he published the "Summer Economic Forecast" last week, the Financial Times said that it showed that Britain's fiscal position
One might assume that the Chancellor has one or two friends on the Conservative Back Benches--presumably he does, although they have not been evident in the debate. The hon. Member for Beaconsfield (Mr. Smith) paid tribute to the Chancellor, but on the whole we have heard Conservative Members' usual attacks about his spending too much. We heard an interesting speech from the right hon. Member for Wokingham (Mr. Redwood), who seemed to believe that some accounting devices to do with contingencies could be used to achieve substantial spending reductions.
Presumably the Chancellor still has one or two friends on his Back Benches: according to one Conservative Member quoted in Sunday Business he has not just one or two, but five. We are told that that is the number of Conservative Members who believe in what he is doing.
There are real problems in the economy, and they have been laid out once again in the Treasury's "Summer Economic Forecast". In particular, the level of public borrowing is giving great cause for concern. After yesterday's announcement of a £3.7 billion deficit just last month, expectations are clearly rising that this latest revision will have to be revised in the wrong direction again.
There are some serious problems about the shortfall in revenues, which has led to this PSBR overshoot. Some parts of the shortfall can be attributed to the weakness of the economy. The low income tax receipts are perhaps unsurprising given the increase in part-time work and the stubbornly low wages that are a trademark of the post-recession period. The poor corporation tax returns are indicative of weaknesses in the corporate sector--another sign of the painfully slow recovery. The real mystery is what has happened to VAT. Why were last year's VAT returns 2 per cent. lower than projected, creating a significant and worrying £900 million hole in the finances which the Government are unable to explain? I urge the Chief Secretary to ensure that more is done to find out what has happened to that tax revenue.
Customs and Excise should be asked to carry out a sector-by-sector--firm-by-firm if necessary--survey of companies, comparing last year with the year before to establish just what has happened to VAT, which had been expected but has not materialised, and which of the many possible explanations are correct. We need to know what has gone wrong. The Government do not know, and they need to find out.
Lower VAT receipts contributed to the higher than expected PSBR, but one aspect of the borrowing forecast which puzzled me was the relationship between the PSBR and the general Government financial deficit--the alternative measure of the same thing--the significance of which is that it is the measure on which we shall be judged for the Maastricht criteria next year, the target being that the GGFD should be below 3 per cent. in the next calendar year.
The Chancellor has told the Treasury Committee that it is touch and go whether we shall be within the Maastricht limit. I hope that we shall be, so that if we choose to join the single currency at the outset we shall be in a position to do so, but it requires an optimistic reading of the "Summer Economic Forecast" to believe that it will still be possible to do so.
What is puzzling is that the forecast shows the GGFD to be £4 billion more than the PSBR last year and almost £4 billion more this year, but next year, suddenly, the
GGFD is forecast to fall below the PSBR and so, miraculously, to scrape just within the Maastricht ceiling. I find that just a little implausible.
8.58 pm
"could be toppling into a hole".
Far from having room for tax cuts, as his party has required of him, the Financial Times says:
"On plausible assumptions about economic growth, fiscal buoyancy and spending, tax increases may be required."
Yesterday in the Treasury Committee, the Governor of the Bank of England told us that the poor state of the public finances worried him. He said:
"It leaves me uncomfortable that there has been this kind of slippage",
and he referred to the unsustainability of the 4¼ per cent. growth in consumer expenditure that the Chancellor forecasts for next year. The Chancellor's continued bland denial of the problems in the economy must be disconcerting indeed.
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