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Lord Ezra: My Lords, indeed, no.

Lord Mackay of Ardbrecknish: My Lords, I am delighted to hear that.

The noble Lord, Lord Kingsdown, made an interesting speech. He answered the question, "Is it sustainable?", asked by the noble Lord, Lord Ezra. The noble Lord tends to ask me that question a great deal, so I am grateful to have an answer from the noble Lord, Lord Kingsdown, to which I shall refer the next time that the noble Lord, Lord Ezra, asks me.

The noble Lord, Lord Kingsdown, was interested in the independence of the Bank of England and my noble friend Lord Lawson and my noble and learned friend Lord Howe indicated that they approved of that. However, my noble and learned friend Lord Howe said that it is easier for former Chancellors to approve of the independence of the Bank of England than it is for still serving Chancellors. That is probably right.

My noble and learned friend Lord Howe talked about government spending and tax rates. He welcomed the fact that the Labour Party is saying that our spending plans for the next two years and the tax rates that were

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fixed are right. The noble Lord, Lord Borrie, did not appear to believe that the figures were right. He appeared to be asking for more government spending; a great deal more than his friend Mr. Gordon Brown believes he would be able to agree to if he were ever to move into Number 11.

The changes that we have made, which were explained by the noble Lord, Lord Lawson, and the noble and learned Lord, Lord Howe, who are distinguished former Chancellors, have been remarkable during the past 18 years. The private finance initiative, for example, is changing the way in which we look at public spending. I wonder whether the Labour Party would continue it if they were to win. One has only to sit in your Lordships' House to know that the party opposite does not like privatisation. Every single Question Time my noble friend Lord Goschen has to come to the Dispatch Box and remind it that in the halcyon days of nationalised railways trains did not always run on time; trains were not always clean; staff were not always polite; and the whole system did not always run brilliantly. To listen to Members opposite one would believe that it did.

The last speech that I wish to mention in particular before I make one or two points of my own is that of my noble friend Lord Blyth of Rowington, who is a distinguished businessman. He made many interesting comments, but one of the most interesting was a quotation from his German business friends. He said, "They admire our success and they envy our freedom of action". No one should doubt that our economy has been transformed over the past 18 years. Indeed, the noble Lord, Lord Barnett, said that the economy is doing well. He went on to say that no one can dispute that, but I am sorry to tell him that someone can; his noble friends Lords Eatwell and Lord Chandos. And they did, as usual.

I shall quote not only the noble Lord, Lord Barnett. The IMF stated in its latest report on the UK economy:

    "Recent economic performance has been enviable."


    "The strong overall performance is a product of sound economic policies."

The OECD is also an admirer of the UK's recent economic performance. It recently stated:

    "Prospects for achieving sustained output growth and low inflation are the best in 30 years".

My noble friend Lord Lawson quoted from the Economist. The noble Lord, Lord Harris of High Cross, quoted from what in my view was unlikely reading material for him; that produced by the European Commission on exactly the same lines about the success of the British economy.

As a number of your Lordships mentioned, during the past 18 years the Government have been determined to bring inflation down and to keep it down. My noble friend Lord Caithness made an interesting speech on how we might continue to do that. Returning to what was said by my noble friend Lord Prior in his opening speech, we saw only too clearly in 1979 that the high inflation of the 1970s, with prices rising at an average of

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13 per cent. a year, was bad for Britain. It was distorting economic decisions, it meant that Britain was always struggling to maintain its competitiveness, and it was robbing pensioners of their hard earned savings.

The Government have succeeded in their role in turning the UK into a low inflation economy. Since the previous election in 1992, underlying inflation has averaged just 2.5 per cent. That achievement has been no accident. Our recent success in keeping inflation down at the same time as the economy has been recovering has been due to the UK's new monetary framework in place since 1992. To quote the IMF:

    "The inflation targeting framework for monetary policy has delivered impressive results".

That is endorsement indeed.

Thanks to the sound anti-inflationary policies of this Government, the daily economic decisions of people and business all around the country can be made on the basis that low inflation is here to stay. Low inflation is now a way of life in Britain. The noble Lord, Lord Kingsdown, suggested that we might still have to persuade the people whom he called the vigilantes--the bond market--that that was the case. He made a valid point. We must all continue our determination to keep inflation low and never lower our guard against the danger that it can so easily creep up on us again unawares.

I turn to the public finances. We have consistently pursued sound public finances; smaller government, lower taxation. By combining low taxation, low public spending and low debt we are now in a position that is just as good as any in Europe--and better. We intend to maintain this enviable position and we can do that only if we continue to bear down on public spending.

In the 1980s across the rest of Europe the state remorselessly took an ever greater share of the nation's output. The average level of public spending in the European Union rose from 44 per cent. of GDP in 1979 to around 50 per cent. today. Only we in Britain held the line. We privatised loss making nationalised industries. I must say that the noble Viscount, Lord Chandos, amused me when he suggested that his party had co-operated. It resisted every single one of the moves such as privatisation. We cut back on government subsidies and it resisted every single move. We curbed the growth in social security spending. I know that I receive no support from either of the parties opposite when I suggest that we might contain government spending on social security. We bore down on the waste in public services. The proportion of GDP spent by the state in this country is now 8 per cent. lower than the average in the rest of the European Union. If our spending had risen to their levels--in other words, if we had not maintained our vigilance on this front--we would now be having to raise nearly £2,300 a year more in tax from every British household--

Lord Eatwell: My Lords, would the noble Lord agree that the proportion of public spending in GDP today is higher than the level inherited from the last Labour Government?

Lord Mackay of Ardbrecknish: My Lords, is that the best that the noble Lord, Lord Eatwell, can do for an intervention? I rather hoped that he would tell us what the Labour Party is proposing to do.

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When we took over from the last Labour Government, thanks to the major efforts of the noble Lord, Lord Barnett, they had managed to do that. But they left us with very considerable borrowing and a great many wage rises in the pipeline which we then had to honour. My noble and learned friend had to find the money for that. However, the important fact is that other countries in Europe are way ahead of us in what they spend as a percentage of their GDP in the public sector. I welcome any conversion from the party opposite to keeping that down. But when I come to your Lordships' House with proposals to keep social security under control, I do not receive much support from any noble Lords on the Benches Opposite. Perhaps if the noble Lord, Lord Eatwell, were a spokesman for social security matters, I should find it a good deal easier to take our proposals through your Lordships' House. Perhaps I may suggest that as a useful transfer after the next election.

We have said that it is our goal to reduce the share of national income which goes on public spending to 40 per cent. and below. This year, we shall meet our immediate target and reduce it to 40 per cent. In the next parliament, we intend to reduce it a great deal further.

I believe that in the area of public finance, there is a considerable difference between the Government and the party opposite. It is our belief that the state should withdraw from activities which are best left to the private sector. Everything that is said by noble Lords opposite about, for example, the railways leads me to believe that they do not share my view. They instinctively distrust the private sector. If noble Lords opposite do not believe me, I invite them to spend a weekend in Scotland to see the real Labour Party on the ground, at local level. Not just in Scotland but up and down the country Labour local authorities want to spend more money. Without exception, that is what they want to do.

In addition to reducing the state's involvement in the nation's affairs, we are also set apart from many of our European competitors by our vision that we should make this country uniquely competitive and make it an enterprise economy right at the heart of Europe. That vision is rapidly becoming a reality. Over the last complete international cycle, from 1982 to 1993, Japan was the only G7 country to enjoy faster growth of GDP per head than Britain. Since 1993, we have had faster growth of GDP per head than any other G7 country.

Britain is the number one destination for inward investment into Europe. As my noble friend Lord Prior said at the beginning of the debate, inward investment is responsible for more than 850,000 jobs since 1979. According to OECD figures, the UK has attracted as much inward investment as have Germany, France and Italy put together since 1990.

Some doubt was expressed about that. Instead of quoting statistics, I shall give a few examples. Hyundai in Scotland has created 2,000 jobs--investment worth £2.4 billion. These are real projects. LG in Wales has created 6,100 jobs--investment worth £1.7 billion. There is Toyota in the East Midlands and Samsung in the West Midlands. I could go on. There are many

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examples in Scotland which I can see with my own eyes. Factories are being built and new jobs are being created. Indeed, at Mossend in North Lanarkshire, close to what was the Ravenscraig steel works, manufacturing plants are being built which will bring more jobs to that areas than were lost when the steel works closed. That is the reality. As my noble friend Lord Brabazon of Tara said, not only is it inward investment from the rest of the world but it is inward investment from other parts of the Union; for example, we are the number one destination for German overseas investment. My noble friend mentioned Siemens coming to the north east of England with £1.8 billion and 1,800 jobs.

It is not just inward investment. It is also home-grown firms which have been successful. My noble friend Lord Prior exhibits that in the work that he does. In 1996, GEC reported another record year. My noble friend Lord Blyth of Rowington, from where he sits, can see also that his company presented very good results recently.

Indeed, that reminded me, thinking about the pharmaceutical industry, that the pharmaceutical and chemical industries have helped the UK to have a trade surplus in 1995 of £2.3 billion and £3.9 billion in their products. We are Europe's biggest exporters of computers, televisions and microchips. Our share of European exports in those products is 24.6 per cent., 22.4 per cent. and 27.7 per cent. respectively. The noble Lord, Lord Monkswell, was concerned about car production. Car production in this country is at its highest level since 1973. As my noble friend Lord Prior said, only today there has been an announcement from a privatised rail company for an order for 44 trains worth £200 million to be placed in Derby.

All those successes show that in our country, inward investors and home-grown companies are doing well. They are doing well because of the policies that we have outlined and fought for. First, there is the UK's flexible labour market. The OECD said in its most recent survey of the UK economy that the UK is one of the least-regulated labour markets of any industrialised country; and, secondly, the UK has one of the most competitive business tax regimes in the G7. Taxes on business in the UK are lower than those in any other major European country. We have the lowest main rate of corporation tax in G7, a point underlined by my noble friend Lord Stewartby. Thirdly, we have the lowest non-wage labour costs in the UK. Seldom has the climate been better than it is now for inward investment, for growth in this country and for a rise in employment.

I wish to look at the employment statistics across Europe. I have made these comparisons before and I should say that I make them using the Eurostat figures based on the ILO measurements, before the noble Lord, Lord Bruce of Donington, jumps to his feet. The figure that I have for this country is 7.5 per cent. while it is 9.3 per cent. in Germany, 12.5 per cent. in France, 12.2 per cent. in Italy and 22.3 per cent. in Spain.

The noble Lord, Lord Taverne, discussed youth unemployment. In that respect, the Germans do better than us and we need to learn from them. The figure for Germany is 9.8 per cent. while we are at 13.1 per cent.

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But we are dwarfed by the French figure of 29 per cent., the Italian figure of 33.6 per cent. and the Spanish figure of 42.9 per cent.

My noble friend Lord Astor of Hever and other noble Lords mentioned non-wage labour costs. I believe that they are relevant. I remind your Lordships what they are. For every £100 of wages in the United Kingdom, it costs an employer another £15 to employ somebody. That figure is £31 for Germany, £33 for Spain, £41 for France and £44 for Italy. I suggest that there is some connection between those high non-wage labour costs and the high and rising unemployment of our Continental friends.

Needless to say, I could go on for some considerable time extolling the virtues of the British economy because I believe that it is right and proper that you should stand up for your country and explain to noble Lords opposite exactly what is going right. However, I wish to leave with your Lordships one further quotation about deregulated labour markets. I do that in order not to miss out the noble Lord, Lord Currie, from my summing up speech. I read with huge interest in a report from the Economist Intelligence Unit recently an article that he wrote about EMU. He said:

    "EMU could hinder business: for instance, by encouraging Europe-wide comparisons in wage negotiations, or by promoting further social legislation as part of a broader trend towards federalism. These dangers need to be guarded against".

We intend to guard against them.

What has been achieved, my Lords? Since the current international economic cycle began in 1993, we have enjoyed the fastest growth in GDP per head than any country of G7. Unemployment has fallen continuously over the past four years and now stands at 1.2 million below its peak. New jobs have been created; indeed, 900,000 extra ones since the recovery began. Moreover, we are experiencing the longest run of low inflation for almost half a century. In recent years, we have seen some of the lowest numbers of working days lost due to strikes since records began in 1881, and government borrowing has been restored to a clear downward path, thus allowing us to cut the basic rate of income tax to its lowest level for 60 years. Healthy growth; low inflation; falling unemployment; current account in broad balance; public borrowing shrinking; and living standards rising. That is some record: why change it?

7.50 p.m.

Lord Prior: My Lords, I think we might say that we have had a pretty good debate this afternoon. I should like to thank all noble Lords who took part. I do not suppose that the press or the media will care two hoots about it, but I believe that it has been an important debate. Indeed, many useful comments were made. If I may say so, I particularly liked the speeches made by the noble Lords, Lord Barnett and Lord Desai. I felt that they exposed the need for their side to reconcile their urge to spend more with their master's view that there can be no increase in taxation or spending. I believe that they have a real dilemma in that respect.

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However, the dilemma for us is that we have a strong economy and, when we say so, we are regarded as being smug. Well, we also have a lot to do and I hope that we will get on and do it. But, generally speaking, I hope that the press will pay some attention to today's debate. Again, I should like to thank all those who took part in it. I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.

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