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Mr. Barry Sheerman (Huddersfield): I thank the right hon. Gentleman, who has been an adviser on the project, for giving way. Although he does not usually give advice free of charge, I am sure he did so in this case. He is a director of Hill Samuel, a food company and so on, and his expertise as an accountant is invaluable. Will he
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confirm whether the financial deal for the hospital has been signed? As I understand it, it was not signed even last Thursday following the Budget statement.
Mr. MacGregor: I must correct the hon. Gentleman: I am no longer a director of Hill Samuel and I was never an accountant. I provide an enormous amount of advice free of charge, as I did in this case.
The issues delaying the final signing of the contract have been resolved, the major part of the contract has been signed, and I am confident that it will go ahead. The crucial point is that, now that a benchmark has been established, future hospital contracts will now progress more easily. This project, like other PFI projects, is far removed from the "Prescott option" which the right hon. Gentleman and I used to debate when I was Secretary of State for Transport.
The following three points relate to Conservative Budgets in the next five years, when I hope we shall address other tax proposals as the opportunities arise. The first issue concerns long-term savings and capital. I know that my right hon. Friends intend to alter capital gains tax and inheritance tax--but I shall not dwell on that today. I think that we should examine the tax relief for savings as a whole. In view of our aging population, we must encourage people to save at a much earlier stage of life.
I believe that encouragement should be provided through the tax system, as occurs in America with the section 403 retirement provision, which has really taken off. Similar encouragement would assist those who may not have occupational schemes, those who may wish to top up such schemes, or those who may be without work for certain periods. We must think seriously about introducing a "provision for retirement" account that would encourage people to save for their retirement fairly early in their working lives. The tax system must be changed significantly in that regard.
Secondly, I have always been attracted by the Country Landowners Association proposal for rural business units. My right hon. Friend the Chief Secretary, as a former Minister of Agriculture, Fisheries and Food, will agree that agriculture has undergone massive change. Farmers are now diversifying into areas that are far removed from traditional farming. We could encourage that diversification, and hence improve rural employment prospects, through rural business units.
Finally, my right hon. and learned Friend will not be surprised to learn that my one criticism on the public expenditure front relates to the transport budget, particularly the road programme. The Government's roads budget--although much better than the Opposition's proposals--allows for only three or four significant new road schemes per year, including motorway widening. There is no doubt that, as the economy continues to recover and growth remains strong, the demands on our major motorway and trunk networks--and for new bypasses--will grow stronger. I believe that it will be necessary to return to a much bigger road-building programme. I realise that that cannot be achieved this year, but I hope that my right hon. and hon. Friends will ensure that it is given greater priority in future.
Mr. Robert Sheldon (Ashton-under-Lyne):
I looked forward to hearing a more critical survey of the Budget from the right hon. Member for South Norfolk (Mr. MacGregor), with whom I have had many dealings over the years. He mentioned the private finance initiative. The problem with the PFI is that it generates excessive expectations. I have no doubt that one can readily justify the use of that initiative in individual cases.
My right hon. Friend the Member for Kingston upon Hull, East (Mr. Prescott) always pressed upon me the advantages of the PFI, which I came to accept. It can be justified in individual cases because levels of skill and management in parts of British industry are superior to those employed by Government Departments on certain projects. That fact is clear. Therefore, an expenditure increase of 1 per cent. or 1.5 per cent.--or sometimes a little more--may be offset by the greater skills and effectiveness of the organisation involved.
The danger is that, as it does not count against borrowing, it is not a "free lunch"--as the Financial Times leader put it. The cost of the arrangement must be anticipated and the risks must be borne by the private companies concerned. We should not have so many projects. Alastair Morton met me to press the advantages of the private finance initiative--which I accept--but they will be rather more limited than the Government assume.
There is a distortion in the annual examination of finance and budgetary matters. In the autumn we have the Queen's Speech and the Budget, followed by the Finance Bill. It all comes together. Thereafter, there are few opportunities to debate these matters. Some hon. Members, for example the right hon. Member for Worthing (Sir T. Higgins), hope for changes in the parliamentary year, with the Queen's Speech in the spring. I accept that there are certain advantages in that, but since the days of James I and Guy Fawkes, the autumn has usually been an acceptable time for the state opening of Parliament. I would be quite happy to see that changed, but I am sceptical about seeing it come to pass. We need economic issues to come before the House rather more frequently, so that they may be subject to scrutiny similar to that which we have had in the past.
The assumptions in the Budget are such that we should wish to examine them more frequently than we are able to do in a normal parliamentary spring and summer. However, next year we expect to see the Budget of my right hon. Friend the Member for Dunfermline, East (Mr. Brown) and the reshaping of our economy, which I look forward to welcoming.
In nearly 18 years of power, the Conservative Government have achieved the management of decline. The United Kingdom has continued to be overtaken by countries that have been behind us since the middle of the 18th century. Unfortunately, investment and the performance of manufacturing industry have fallen disastrously, particularly over the past 18 years, and are still below those of our main competitors. We see the results of that in the Red Book, which shows that the
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The trouble is that we have still not taken seriously investment in manufacturing.
Mr. Nigel Forman (Carshalton and Wallington):
Does the right hon. Gentleman not believe that he is--perhaps uncharacteristically--being too gloomy? If he looks at the simple position of this country relative to the global economy, he will discover, in simple figures, that we represent about 1 per cent. of the world's population, about 3 per cent. of world gross domestic product and a little under 5 per cent. of world trade. Does that not show that this country is doing rather well?
Mr. Sheldon:
We must remember that our balance of payments is the indicator that we have to deal with, and it shows that we have not been paying our way. In comparison with the rest of the European Community, our manufacturing has suffered: it has declined.
My constituency--I repeat this regularly--used to be an important manufacturing constituency. We had high levels of skill, pay was above the national--let alone the regional--average, unemployment was low, and we were highly skilled in engineering. The years 1979 to 1981 dealt a deathly blow to our prospects. I lost one-third of the companies in my constituency, many of which were highly skilled, and I shall never forgive the Government for that. We lost one third of our companies because of the $2.40 pound and the DM5 pound, which did so much damage to us.
That there should be a relationship between the investment and the life of the asset is true, but it should be a skewed relationship based on the fact that there should be some incentive to investment, and that particularly applies to manufacturing. One or two hon. Members, the Confederation of British Industry and I have long argued for a real investment incentive for manufacturing. The CBI called for 100 per cent. depreciation with a ceiling of £200,000. That is a sensible proposal. The present capital allowances are not an incentive. As I have regularly argued, 25 per cent. is a disincentive. It is less--not more--than the true depreciation of the asset in its first year. Such an incentive should be the major goal of our industrial expansion.
One forecast that I find doubtful is that there is an output gap, which the Chancellor considered was about 3 per cent. That is the basis for his expectation of a 3.5 per cent. rate of growth. The Chancellor relies on this to bring down the public sector borrowing requirement to £19 billion. If capital allowances of the kind that I have mentioned had been given, there would have been greater investment, greater capacity and a greater opportunity to increase output beyond the expected 3 per cent. We could have had a much better chance of achieving the growth that the Chancellor predicted.
The Chancellor rightly draws the connection between the output gap and the prospects for growth. It is a pity that he does not go further and continue the connection to investment and investment incentives. It is indeed a
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One further problem for manufacturing industry is the strength of the pound. The trade-weighted index is now 14 per cent. higher than it was a year ago. That means that our exporters find it increasingly hard to sell abroad and imports compete more effectively with our producers here at home. There are two main consequences of that, the first being that our balance of payment equilibrium will be much harder to achieve, and the second follows from cheaper imports. Cheaper imports do, however, have one big advantage for the Chancellor, because there is a relationship between the value of the pound and the level of inflation. Making imports cheaper will effectively reduce the retail prices index.
Some have been puzzled by the Chancellor's optimistic view of the prospects for inflation next year, but the trade-off between an over-valued pound and the level of inflation is one that a Chancellor should manipulate with care. That relationship is well put in Goldman Sachs's UK weekly analysis of 8 November, which says:
"the rise in sterling, if sustained in the next few months, (as we expect), will have a pronounced effect on inflation next year. On our estimates the rise in the exchange rate during 1996 will knock about 1% off the underlying rate of inflation between mid-1996 and mid-1997."
It goes on to say:
"the loss of competitiveness will hit exports, helping to slow economic activity during the course of next year. Slower growth from this source will also help to curb inflationary pressure in 1998."
To a Chancellor who has difficulty in meeting the inflation forecast, the prospect of an over-valued pound--despite its problems for industry--coming to the rescue is appealing. This has been done before and the great sufferer has been our manufacturing industry. An over-valued pound acts as an inducement to importers, some of whom remain players in the field long after the cheap imports have been ended by more sensible policies.
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