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9.20 pm
Mr. Andrew Smith (Oxford, East): The Chancellor is settling into a pattern with these debates. Each time, he blusters his way through a load of nonsense about Labour having no policies, hurls some harmless abuse at my right hon. Friend the Member for Dunfermline, East (Mr. Brown), refuses to answer my right hon. Friend's questions, ducks and weaves his way through selective statistics to avoid explaining why his own promises have come unstuck, then makes those same promises again, in the hope that the electorate will judge him on his prospectus, not his record. As my hon. Friend the Member for Rotherham (Mr. MacShane) said, it will not wash with the electorate.
The Chancellor painted a rosy picture of the economy tonight, but my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) put it well when he said that the Chancellor's optimism was
We argue for the policies necessary to get Britain pulling together for economic success, in the knowledge that economic strength and fairness go hand in hand, and that a Government cannot simply leave everything to the market if every individual is to make the most of their potential.
That is Labour's approach, in place of the complacency and failure of the Government--a Government whose summer forecast shows higher borrowing, lower investment and weaker growth than they promised, more than 2 million people still unemployed, a million households in negative equity, inflation above the Chancellor's target and long-term interest rates one quarter higher than those of our competitors. And the Chancellor tells us that all is well with the economy.
In last year's summer forecast debate, the Chancellor boasted of the performance on output, inflation, exports and unemployment. Let us consider what happened subsequently. The summer forecast tells us that output growth halved to 2 per cent. in 1995. Underlying inflation
increased from 2.3 per cent. in 1994 to 2.9 per cent. last year. Exports slowed, as did the fall in unemployment. The summer forecast admits:
As my hon. Friend the Member for Coventry, North-West (Mr. Robinson) said, these Tories are acquiescing in a disgraceful national decline. No wonder the kids in the Treasury now see Britain falling behind Brazil, Indonesia and Thailand.
Mr. Robert G. Hughes (Harrow, West):
The shadow Chancellor spent a lot of time on what have been called the kids in the Treasury. If he and his party are so against the idea of privatising, as he would put it, any of the welfare services--particularly pensions--can the hon. Gentleman explain his view of people who go to Singapore, which has a private pension scheme, and then return here and praise that scheme as one that has much to offer this country?
Mr. Smith:
The hon. Gentleman gives the game away. It is clear that the document is right, and that the Tories want to privatise the state pension and the welfare state.
Mr. Hughes:
The hon. Gentleman deliberately seeks to avoid answering the question. The state pension system in Singapore is private, as everyone knows. [Hon. Members: "Wrong."] It is publicly invested, but it is a private system run by private companies. The Leader of the Opposition and the shadow Social Security Secretary have praised that scheme and, to some extent, the Chilean scheme. Does the Labour party want to emulate it?
Mr. Smith:
The hon. Gentleman has not been here for most of the debate, and to judge by the ignorance displayed in what he has just said, that is a good thing. He clearly does not understand the difference between first tier pensions--we have all made it clear that the state pension remains the foundation for security in retirement--and second tier pensions. The hon. Gentleman has given the game away: the Tories are interested in privatising the whole welfare state and the pension system.
To return to investment: the Chancellor today said next to nothing about it--and I am not surprised. Total gross domestic fixed capital formation actually fell last year. As my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) pointed out, business investment rose by only 1.5 per cent., compared with the 10.75 per cent. forecast in the November 1994 Budget.
Such statistics would be worrying at any time, but at this stage of the economic cycle they are as alarming as they are unprecedented. At this stage of the 1970s cycle,
investment was 26 percentage points above its level in the depth of that recession. In the 1980s cycle, it was 30 percentage points up. Now, it is only 5.8 percentage points higher.
In the absence of sufficient productive and profitable investment, the danger remains, as the Government engineer their pre-election consumer boom, that weaknesses in capacity may result in unsustainable pressures on the balance of trade, on inflation, or on both.
Mr. David Congdon (Croydon, North-East)
rose--
Mr. Smith:
What is happening in particular sectors also contradicts the Chancellor's complacency. Manufacturing industry has moved into recession--a serious signal of economic weakness. As the Hongkong and Shanhai Banking Corporation put it in its economic prospects report last month:
A number of my hon. Friends, including my right hon. Friend the Member for Llanelli (Mr. Davies) and my hon. Friends the Members for Brent, East (Mr. Livingstone) and for Newham, North-East (Mr. Timms), pointed out that, on public borrowing, we have seen the Chancellor's most abject failure to hold to his Budget promises.
In his Budget speech, he said:
The Government's borrowing is set to exceed the borrowing they promised at the last general election by no less than £65 billion cumulatively. Last year's borrowing has been revised up by £10 billion; this year's borrowing has been revised up by £4 billion; and next year's has been revised up by £8 billion.
We now learn that the ratio of public spending to national income will stay above 40 per cent. next year. Whereas in 1993 the Chancellor promised to eliminate the current public sector deficit by 1997-98, he now foresees a deficit of no less than £15 billion. The ratio of debts to GDP will have risen from 36 per cent. in 1991 to 56 per cent. by 1998.
It is alarming that, even as the Government continually revise their borrowing upwards, they cut their capital investment. Net public capital investment at the time of the Budget was thought to be 14 per cent. lower than at the last general election. That is bad enough, but the figures in the "Summer Economic Forecast" now show that that has been revised to a 25 per cent. cut. Moreover, the forecast now projects net capital investment for the three years 1995-98 at 11 per cent., or £3.5 billion less in real terms than in the Budget.
As the CBI warned yesterday, the PFI will not compensate for the scale of reduction in conventional capital spending. The "Summer Economic Forecast" shows that, at today's prices, public net capital spending in the three years since the PFI was launched was £4.9 billion less than in the previous three years, and the most recent estimate shows that private capital made up only £1.2 billion of the gap.
Under this Government, borrowing will increasingly meet the current expenditure deficit. The Conservatives have not only broken the golden rule of public finances throughout the cycle, but they have replaced it with Clarke's leaden rule, that investment must be cut to enable borrowing to cover day-to-day running costs.
The Chancellor keeps promising fiscal balance, but when will it come? He says that it will come in the medium term. He says that public expenditure as a share of national income will go down to below 40 per cent. in the medium term. He says that he will cut income tax to 20p in the medium term. The trouble with the Chancellor is that the medium term never comes.
The Tories are borrowing like there is no tomorrow, perhaps in recognition of the fact that, for their Government, there will be no tomorrow. But the British people pick up the tab for their borrowing. It already costs £1,000 per household to service the national debt--nearly double the amount in the second half of the 1990s that it cost in the first half. What order of priorities is it for the Government to spend, as they do, more on servicing the national debt than on the whole of further and higher education put together? That shows the real cost that the people of this country pay for the grotesque financial mismanagement by the Chancellor.
Whom does the Chancellor blame? He says it is not his fault: the boffins in the Treasury are to blame. On "Breakfast with Frost", he said:
"wholly out of line with . . . previous experience".
Labour Members reject the Chancellor's complacency about the condition of the British economy. We argue for the policies that we have set out--for macro-economic stability, for promoting long-term productive and profitable investment, for raising education standards and skills, for energising public-private partnership, for getting people off welfare and into work, for sticking to the golden rule on borrowing, and for sensible and constructive involvement in Europe.
"rising employment accounts for very little of the fall in unemployment".
Across the 17 years of this Tory Government, output growth has averaged 1.9 per cent., even with the oil, compared with 2.4 per cent. for the G7. Inflation has averaged 5.8 per cent., compared with 4.3 per cent. for the G7 countries. Export growth here has averaged 3.5 per cent., compared with 5 per cent. for the G7. Unemployment has averaged 8.5. per cent., compared with 6.6 per cent. for the G7. Britain has the worst record of job generation of the major European economies, and the worst record of investment. We have fallen from 13th to 18th in the world prosperity league.
"The speed with which the industrial outlook has deteriorated over the past few months is frightening. Only an implausibly rapid rebound in the United Kingdom's key markets in continental Europe can now prevent 1996 becoming a year of stagnant output, struggling exports and lost jobs."
The picture is no brighter in the construction industry, which has seen real output fall in four of the past five quarters. Large and small construction firms are being hit by the weakness in public and private capital investment, and by the fact that the PFI has failed to match the Government' rhetoric.
"We have . . . got the public finances under control.
Although those were the Chancellor's words just eight months ago, they are contradicted by the "Summer Economic Forecast" before us tonight. Public finances are not under control and, as my hon. Friend the Member for Motherwell, South (Dr. Bray) pointed out, not only are the forecasts wrong--that might be understandable--but they are all wrong in the same direction.
I have therefore been cautious and prudent . . . in setting out the latest projections from the PSBR . . .
The ratio of public spending to national income will be below 40 per cent. from 1997-98 onwards."--[Official Report, 28 November 1995; Vol. 267, c. 1057, 1063.]
"My boffins got their estimates wrong."
[Interruption.] Those were his words, and that is far worse than admitting that the Government's fiscal strategy is off course. He shamefully abdicated the responsibilities of his office, because it is contemptible for Ministers to blame civil servants, who cannot answer back, for the Government's failures.
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