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Mr. Geraint Davies: Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: If the hon. Gentleman will forgive me, I will complete this point.

The other Chancellor is a stern monetarist. He is in favour of higher interest rates, a tightening of monetary policy and suppression of wage rises. However, that policy is not working, for the reasons so well outlined by my hon. Friend the Member for Louth and Horncastle (Sir P. Tapsell) in a notable speech. He showed that one cannot have a sensible economic policy that pulls in two directions. There is a mismatch between monetary and fiscal policy, which we pointed out last year and which is causing damage.

The mistakes were first made almost exactly a year ago in the Government's first Budget, in which they broke all their promises on tax, as has been amply demonstrated. The average family are now enduring an extra burden on their budget of £981 a year because of the tax and mortgage increases that they have suffered. However, not only have there been 17 tax increases, but the Chancellor deliberately took the opportunity to target savings. He carried out a £5 billion a year raid on pension funds, which is exactly what the economy did not need. The economic damage will be with us for many years.

Mr. Beard: The right hon. Gentleman made the charge, which has so often been repeated, that the abolition of advance corporation tax was a hit on pension funds. The aim was to give an incentive for profits to be put into investment and research and development rather than distributed, so that the economy would be put on a proper foundation. Nothing could demonstrate more the difference in economic policy between Conservative and Labour Members. We are concerned about the real economy, and Conservative Members' sole concern is manipulating money.

Mr. Heathcoat-Amory: The hon. Gentleman makes that remark from the comfort of a protected parliamentary pension scheme. That sophistry does not go down well with the millions of pensioners and contributors to pension funds, all of whom know perfectly well that there was a £5 billion a year hit on their savings by a Government whose rhetoric was all about the need to build up long-term savings and increase personal self-reliance. They will never again trust the Government on savings. My economic point is that that is exactly what the economy needed least.

One does not need to be an economist to know that if one taxes savings, there will be less savings. The Government figures support that. I hope that the hon. Member for Bexleyheath and Crayford (Mr. Beard) will at least heed the Chancellor's Budget statement. Page 91 clearly shows that the savings ratio is due to fall this year, next year and even further the following year. Instead of building up savings, the Chancellor is predicting that there will be a further drop in savings. He has made that worse

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with his botched attack on TESSAs and PEPs--the most successful savings vehicles of all time--which the Government are simply abolishing.

The Bank of England is now left with the job of salvaging something from the anti-inflation strategy. Its only response can be to put up interest rates, which it has had to do again and again. There have been six rises since the general election. The Bank is now required by statute law to give overriding priority to the Government's inflation target, which is being missed month after month. Policy will not work as long as there is a mismatch between the tax and spend policies of the Treasury and the monetary policy enforced by the Bank of England.

That tale of two economic policies gets worse.

Mr. Geraint Davies: Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: If the hon. Gentleman will forgive me, I will not give way, because I am conscious of the time.

A new chapter has been opened in that tale of mismatch. Two weeks ago, the Chancellor announced a dramatic further loosening of expenditure policy. Expenditure is now due to rise by at least 2.75 per cent. above inflation each and every year. The rise is greater if all the fiddles and changed definitions are added in--a point which my hon. Friend the Member for Witney (Mr. Woodward) made well in his speech.

What is particularly shocking is that the Bank of England, which is supposed to be in charge of counter-inflation policy, was not even told of that development. The Governor said rather lamely that he had been informed by the Treasury that nothing in the Chancellor's statement would affect the economy for two years. That is untrue--the Governor was misled. The brakes come off expenditure from 1 April next year. Either the Treasury representative on the Monetary Policy Committee was kept in the dark or he failed to inform the Bank of England about what the Chancellor had in mind.

Frankly, there is already enough confusion about interest rates, without this further failure to co-ordinate monetary and fiscal policy. We already know that, at its May meeting, the MPC voted 7:1 against raising interest rates, but in June it raised interest rates. Now, the Governor of the Bank of England has signalled a further increase. The Bank of England is not to blame. It has been given an impossible task--trying to make sense of the Government's economic policy, which is muddled and contradictory.

There have been two economic policies, one pursued by the Treasury and the other by the Bank. That has created two economies, one in boom and the other in bust. The Government's achievement is that they have done both at the same time. That is why the inflation target is being missed month after month. The Chancellor's only response is to blame firms for paying workers too much--and that from a Government who are trying to intervene in the labour market to get those same firms to pay other workers more.

In the non-boom parts of the economy, it is an entirely different story, as I am sure Labour Members truly know. Unemployment is rising, and there is a yawning and growing balance of payments deficit. Bankruptcies are up 10 per cent. in this quarter over the last quarter,

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and investment is down. Again, Labour Members only have to read their Chancellor's statements on investment. We have heard a great deal about the need for investment, but I refer hon. Members to page 94 of the Red Book, which shows that investment in the whole economy is falling this year compared to last, is due to fall again next year and is due to fall even further in the year after. With business investment, the fall is even steeper.

If Labour Members do not believe the Treasury's statistics, I refer them to Goldman Sachs, which said in its recent circular that


After all the huffing and puffing, future investment will be less than we achieved in the last Parliament.

It is not just the economy today that is going wrong; the Government are storing up problems for the rest of this Parliament. I believe that, in their hearts, Labour Members believe that. That is why, in the debate, they have talked about everything except the past year. Apart from the feeble attempts to justify their record in their constituencies, their bleepers have quite clearly told them, "Keep off the economy."

I am sure that both sides of the House know--certainly the country does--that the Government inherited the strongest economy in Europe, with steady growth, stable inflation and falling unemployment, all confirmed by the statistics. It took considerable determination by the Chancellor to mess up that legacy, but he has done it in less than a year. He has done it through a series of policy mistakes, all of them preventable and all of them pointed out to him at the time. All our warnings have turned out to be true.

Hon. Members who served on the Finance Bill Committee will remember one particular moment when it was shown, again by their constituents, that the abolition of retirement relief and its replacement by a highly complex and probably unworkable system of tapering capital gains tax was highly regressive. It is all very well if one is a partner in Goldman Sachs and enriched by, it is estimated, £16 million simply by one clause in the Finance Bill--but it is not quite so rosy for small entrepreneurs planning for retirement, especially as they would have had to pay no capital gains tax under the Conservative Government's provisions.

The reality is always different from the rhetoric. The reality is that the Finance Bill that we will be discussing tomorrow and the next day is in practice highly regressive. It was an interesting glimpse of new Labour priorities that the Government make the rich very rich and the smaller entrepreneurs--

Mr. Leslie: No, we did not.

Mr. Heathcoat-Amory: Yes, the Government did. The hon. Gentleman voted for this regressive provision and he will be getting letters from small businesses in his constituency. If he wants anything done about them, all he has to do is pass them over to us.

The golden economic legacy has turned into a boom-bust economic derailment. It is not surprising that the Chancellor has chosen to address a committee of the European Parliament rather than defend his policies in this House. That is a disgraceful affront to the privileges and

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rights of the House--but, in his absence, we judge him and, in our motion, we condemn him. I invite the House to vote for that motion.


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