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Mr. Malcolm Bruce (Gordon) rose--
Mr. Clarke: The only people who could doubt the health, strength and breadth of the recovery are either mad, dead or sitting on the Opposition Benches. On that note, I give way to the hon. Member for Gordon (Mr. Bruce).
Mr. Bruce: The Chancellor will remember that the Liberal Democrats warned him when he cut the rate on 6 June that he was wrong and that he would have to reverse the cut. Does he acknowledge that he was wrong, and does he accept that, if the Bank of England inflation report to be published next week says that it still believes that he will not hit his inflation target, he may have to increase interest rates again?
Mr. Clarke: I shall come back to interest rates in a moment. I remain confident about our inflation forecast and I have set policy to achieve it. I have said and done that consistently, and I have delivered low inflation.
We have been hearing about U-turns and changes of policy, but the hon. Member for Gordon has changed his position even today: early this morning on the "Today" programme, he gave a confident prediction to the world that I would not raise interest rates; that was his expert
forecast. He said that I ought to raise them, but by lunchtime he was on the air criticising me for doing so. Half an hour later, the right hon. Member for Dunfermline, East was on the air, giving the Labour party's first solid promise to reduce VAT on domestic fuel. That has lasted until half-past 4, and now he says only that he will "try to".
The Financial Secretary to the Treasury (Mr. Michael Jack):
It will be gone by 10 o'clock.
Mr. Clarke:
Indeed, it will be gone by 10 o'clock and the windfall tax will be back. Economic policy does not require that approach; it requires decisions. The Labour party does not take decisions; it would be incapable of taking decisions on any of the great economic issues of the day--inflation, tax, public borrowing or public spending.
Mr. Salmond:
On interest rate policy, in the past 15 months, since the current Secretary of State for Scotland took office, Scottish unemployment has had the worst trend in the United Kingdom. Does the Chancellor believe that the Scottish economy is overheating; if not, why is he tightening monetary policy in Scotland?
Mr. Clarke:
Figures about the trend in unemployment in Scotland over the past 15 months are so blatantly selective as to be utterly meaningless. I am glad to say that the Scottish economy has done extremely well in the course of the recovery. Scotland is one of the strongest regions in the United Kingdom in terms of expansion, and the steps that I have taken will ensure continuing growth for Scotland for many years to come, and that is the sole aim of policy.
I want to move on to a little policy and to bring us back to the real world of a successful economy that will strengthen for many years to come. So far, we are into the fifth year of recovery. As I have said, I have taken and will continue to take every step that is necessary to avoid all those economic pitfalls that, as all hon. Members will remember only too well, have brought to an end every previous recovery for 30 years.
What I said in 1986 was cited at me; it was right. In 1986, we were performing better than we had for a generation and better than the rest of western Europe; we were on course for a healthy recovery, but monetary policy went wrong and we went into a recession that was deeper than elsewhere. I take the decisions that I do to ensure that that does not happen again. We are back with all the benefits of our supply-side changes, and this time they will last--as long as we have a Conservative Government.
I shall sustain the brightest economic prospects for a generation by keeping inflation down to levels that will allow us to compete and to grow for years to come. So far, I have delivered the best inflation record for nearly 50 years, but I am determined to go on seeking to establish new records.
We are on course to deliver our inflation target of 2½ per cent. or less next year, but I am not simply aiming to deliver the target next year: decisions that I take today are aimed at the position of a Conservative Government in 18 months' or two years' time. We have to go on delivering year after year. That is why I decided to put up interest rates by a quarter per cent. this morning.
Let us cut through the waffle that we hear from the right hon. Member for Dunfermline, East and decide why it was right to move rates now--because, as far as I can see, most people agree that it was. The economy is extremely healthy. It is growing as I predicted it would and that growth is strengthening as the year goes on. The immediate inflationary pressures remain subdued. Producer price inflation remains very low--producer input price inflation is still negative--and earnings growth remains modest. The economy is clearly set to grow by more than 3 per cent. next year, as I think everyone will agree, and it will go on growing rapidly.
My decisions have to be based on judgments on how we keep growth going for 18 months or two years ahead, when we will still have a Conservative Government in power. At that time, I want growth to be motoring steadily, more new jobs to have been created and Britain still to be competing, and that is why I have decided to make a small increase in interest rates now--neither of my major critics has the nerve to offer a squeak of disagreement--to ensure that we continue to deliver healthy, sustainable growth and to meet our inflation target.
I have done what I have always done when I have changed interest rates and made monetary decisions. I intend to look ahead and to stay ahead of the game. If I had waited for the recovery to show signs of inflationary pressures, it would have been too late to act. We would have missed the opportunity, and that is what we have done in the past. Because I move in advance, I am able to change interest rates by only a quarter of 1 per cent. and that is why we can be confident that rollercoaster interest rates are a relic of the past unless we return to a Government where the right hon. Member for Dunfermline, East takes the approach to monetary policy and the state of the economy that, to my total alarm, he described only a few moments ago.
Mr. Denis MacShane (Rotherham):
Is not one rollercoaster that has gone up and up the national debt, which has doubled since 1990, so much so that British citizens are paying £25 billion a year to the Chancellor for his economic incompetence? That is a tax of £1,000 on every taxpayer, which we are paying for his flippant, clownish mismanagement of the economy.
Mr. Clarke:
We have one of the lowest levels of debt in relation to gross domestic product in western Europe. I shall come later to the tight fiscal policy that I am running to ensure that we control that level of debt and get back towards a balanced budget. Moreover, the level of debt in relation to our gross domestic product now is far lower than it was at any time when we had a Labour Government in the 1970s. It is nonsense to produce those preposterous figures, as the hon. Gentleman did in an earlier debate a few days ago. Proper fiscal policy and control over debt, combined with monetary policy, are the key to the sustained recovery of our economy.
Mr. Gordon Brown:
First, the reduction of VAT on fuel will be in our manifesto. Will it be in the Chancellor's? Will he do that in the Budget? Secondly, can he explain why he predicted 3 per cent. growth this year? Now that growth is not even 2.5 per cent., but perhaps less, he has an inflationary problem which has
Mr. Clarke:
The promise on VAT on fuel is back again by 4.47 pm. Until today, the right hon. Gentleman has said that he cannot say anything specific about tax, because he wants to look at the books. At last he has got around to reading the books. If he wants to tell us about tax, can he tell us who will pay the 50 per cent. higher rate and at what level they will start paying it? How will he introduce his 10p standard rate of income tax? Who will pay the windfall tax, be it £3 billion or £10 billion, and what effect will that have on electricity, gas, telephone and water bills? If he is in a mood between now and, say, 10 o'clock this evening to produce some policies on tax, let him start answering some serious questions. He is trying to change the subject from the real economy and inflation.
Mr. Brown:
No. Our manifesto will contain proposals for the windfall tax and proposals to cut VAT on fuel. Will he tell us whether he still agrees, as he said he did in 1993, with the extension of VAT to books and newspapers, travel and children's clothes--yes or no?
Mr. Clarke:
I produce Budgets so everybody can see my tax proposals, but we have only an inkling of the right hon. Gentleman's proposals. He might have made those points in his speech, but I am delighted that he is volunteering them now. Will he say to which industries the windfall tax will apply? Will it apply to gas, electricity and water in Scotland and England? Will it apply to telecommunications? How much does he intend to raise--£3 billion or £10 billion?
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