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5.47 pm

The Chief Secretary to the Treasury (Mr. William Waldegrave): I do not think that I will be contradicted if I say that that was a vintage performance by the right hon. Member for Dunfermline, East (Mr. Brown). It was characteristically witty and full of bombast. There was only one problem: he found no time to mention the Budget. That may be because he has not made up his mind about it. A good example of that was the way in which he dealt with profit-related pay.

My right hon. and learned Friend the Chancellor of the Exchequer has set out plans for running down and removing the tax privilege for profit-related pay. The right hon. Member for Dunfermline, East made a tremendous to-do about how terrible that was, how people would lose and what it would cost employers, but he did not say what his attitude was. If he were in government, would he maintain that tax privilege? Would he ignore the advice of officials in the Department, and from wise advisers outside, that, having needed pump-priming to get PRP going, it is advancing so swiftly that it will knock a large hole in the Government's receipts unless action is taken?

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He did exactly what he and his hon. Friends always do, which is to address the lobby and say, "We're really on your side on this. These wicked Tories are taking away the tax relief on PRP." But he did not say, and will not say, whether he will reinstate it.

That, I suspect, is what the right hon. Gentleman will do on all the principal issues in the Budget, as he did last year. After much bombast throughout the week and a terrific number of pre-buttals and post-buttals, with the hon. Member for Hartlepool (Mr. Mandelson) being much engaged in the lobbies, and so on, Labour will bravely decide to abstain on all the principal issues.

Having had an entertaining time doing that for a bit in his usual way, the right hon. Member for Dunfermline, East then went back to what is even more natural for him: good old doom and gloom. The fundamental problem that the right hon. Gentleman faces is that he wants bad news, but he cannot find it. He knows very well that he cannot deny the strength of the British economy. Take inflation: he knows that the OECD was right when it said that our inflation performance during the past four years "has been remarkably good". In fact, Britain's inflation record is our best for 50 years.

With rather unseemly hope, the right hon. Gentleman grasped at the October inflation figure. At last, he hoped, there was some really bad news for him to celebrate. But even that crumbled in his hands, as commentators pointed out that the October inflation performance was the fourth best since the war, and the apparent rise derived from the fact that the year before had the best October performance since the war. There was no inflation increase in October over September.

Mr. Stephen Timms (Newham, North-East): Will the Chief Secretary confirm that the UK's inflation performance was the 11th worst in Europe?

Mr. Waldegrave: We have joined the main pack of low-inflation countries. The hon. Gentleman should remember that the best that a Labour Chancellor could do on inflation in a similar situation in the run-up to the 1979 election was to find one month's rate, annualise it and then claim that inflation was running at 8.4 per cent., when actually it was running at more than 20 per cent. So let us not have any lectures from Labour on inflation.

Mr. Alistair Darling (Edinburgh, Central): Will the Chief Secretary now answer that point? Are we not 11th out of 15 in terms of inflation in Europe, and why is that?

Mr. Waldegrave: We are now with the low-inflation group in Europe. That, as my hon. Friend the Exchequer Secretary to the Treasury helpfully points out, is quite different from what happened when Labour was in power, and quite different from what would happen if Labour was in power again, for reasons to which I shall come later.

Mr. D. N. Campbell-Savours (Workington): Will the right hon. Gentleman give way?

Mr. Waldegrave: No. I am sure that the hon. Gentleman will think up another intervention later. Perhaps he would like to intervene on the next subject.

On growth, the right hon. Member for Dunfermline, East cannot deny that we are now in our fifth year of non-inflationary growth and that the International

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Monetary Fund and the Organisation for Economic Co-operation and Development expect us to be the fastest growing major European economy in 1996 and 1997. Perhaps the hon. Member for Workington (Mr. Campbell-Savours) wants to intervene on that. He does not find anything to object to in that--quite rightly.

Mr. Campbell-Savours: I will intervene.

Mr. Waldegrave: I did not want to encourage the hon. Gentleman, but I am willing to give way.

Mr. Campbell-Savours: Perhaps the Chief Secretary will now give a clear answer to the question that he was asked two minutes ago. Are we the 11th highest inflation country in Europe--yes or no? Can we have a factual statement? We are or we are not.

Mr. Waldegrave: We are now among the group with low and permanently low inflation, and there is every reason to think that the inflation target of my right hon. and learned Friend the Chancellor will be hit. For Labour to think that it can compete in low inflation is rather childish.

Mr. Nicholas Budgen (Wolverhampton, South-West): Does my right hon. Friend intend to devote a passage in his speech to monetary policy?

Mr. Waldegrave: I can devote a passage to monetary policy if my hon. Friend would like me to, although that is more a matter for my right hon. and learned Friend the Chancellor than for the Chief Secretary. What I will say on monetary policy is this, and I hope that my right hon. and learned Friend will endorse it: I know what is worrying my hon. Friend, which is that some of the monetary indicators are at the top of their ranges--

Mr. Budgen: One of them is above.

Mr. Waldegrave: --and one of them is above. Those ranges are among the things that my right hon. and learned Friend looks at extremely closely when he comes to set up his monetary policy. There are some special reasons put forward by the technicians--

Mr. Budgen: There always are.

Mr. Waldegrave: --as my hon. Friend says, there always are--as to why we should be careful not to over-interpret those figures. But my right hon. and learned Friend will take the necessary action, in time, to hit his inflation target. That is the proper guarantee to give in relation to monetary policy.

On trade, the right hon. Member for Dunfermline, East knows that, as a result of British industry's hugely improved performance in the 1980s and 1990s, the sustained growth that we are getting is not running us into a balance of payments crisis, as so often before.

During the past three years, export volumes have risen by 30 per cent., and income from overseas investment is running at record levels. The results are seen not only in industries where we have always been strong, such as service industries, chemicals and aircraft, but in areas that are new for Britain, or new in modern times for Britain.

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We are now Europe's biggest exporter of computers, televisions and microchips, and car exports have risen by nearly a third in the last year alone. Our overall trading performance is the best for nearly a decade, with the current account improving to the point of being nearly in balance after five years of steady growth.

We have had further good news today. Figures released this morning provide further confirmation of the good trade performance. They show a trade deficit on a narrowing trend with continuing strong growth in exports in quarter three of 3 per cent. over quarter two, and 7.5 per cent. up over a year before.

Mr. Robert Sheldon (Ashton-under-Lyne): The danger is surely, though, that the increase in interest rates, which has come recently and is likely to come again, has increased the value of the pound to a level higher than it has been for the past two and a half years. Will that not have some serious effect on our exports, as well as on our imports?

Mr. Waldegrave: The right hon. Gentleman's intervention gives the debate a certain symmetry with last year's debate. At about this stage in my speech last year, a Labour Member--I do not think that it was the right hon. Gentleman--intervened to say what a disgrace it was that the pound at that time had gone down a little. I shall give the same answer to the right hon. Gentleman, who is learned in these matters: we do not have a target for the exchange rate and it would be wrong to do so. My right hon. and learned Friend will take that into account, along with other monetary indicators, when he comes to set his monetary target. I do not believe that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) would want us to set an exchange rate target. If he does, we would be unwilling to do so.

Mr. Budgen: But my right hon. Friend has not answered the point of the question. It was asserted that the pound had gone up as a result of higher interest rates. There is no necessary connection between the two, is there?

Mr. Waldegrave: My hon. Friend is entirely right. In so far as there is any connection between an expectation of rising interest rates and a rising pound, that is one reason why my right hon. and learned Friend has set a Budget that is fiscally tightening. That will give him more room for manoeuvre in the way that he sets his monetary policy.

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