§ Mr. SpeakerBefore I call the Chancellor of the Exchequer to move the motion, I must announce to the House that I have selected the amendment in the name of the Leader of the Opposition. In view of the late start and the large number of right hon. and hon. Members who wish to participate in the debate, I propose to put a limit of 10 minutes on speeches between 6 o'clock and 8 o'clock. I hope that hon. Members who are called before or after that time will bear that limit in mind, so that every right hon. and hon. Member who wishes to participate may do SO.
§ 4 pm
§ The Chancellor of the Exchequer (Mr. Norman Lamont)I beg to move
That this House approves the Autumn Statement presented by Mr. Chancellor of the Exchequer on 6th November 1991; notes that the Government has continued to maintain firm control over public expenditure, while honouring its commitments in full and increasing spending in priority areas; and congratulates the Government on its sound and prudent economic policies, which have led to a substantial reduction in inflation and have laid the foundations for sustainable recovery.It is now a little over two months since I delivered my autumn statement to the House, and I welcome today's opportunity to debate the economic policies and prospects that I set out at that time. We also have the Treasury and Civil Service Select Committee's informative report on the autumn statement, and I should start by paying tribute once again to my right hon. Friend the Member for Worthing (Mr. Higgins) for his skilful chairmanship of that Committee.In the autumn statement, I announced a programme of public spending which channels money to areas of long-term priority within an overall total for public expenditure that the country can afford. The Labour party offers instead an economic strategy that would raise spending indiscriminately and give the British people a bleak combination of higher inflation, higher interest rates and higher taxes.
§ Mr. Harry Ewing (Falkirk, East)Will the right hon. Gentleman give way?
§ Mr. LamontI shall give way in a moment. Today's debate is about the choice between the prudent long-term economic policies that we have put in place—policies that will lead to sustained and sustainable recovery—and the tax and spending policies of the Labour party, which would stop that recovery in its tracks.
§ Mr. LamontI shall give way in a moment. I first want to make a statement to the House.
I set out in the autumn statement the Government's view of the immediate prospects for the economy. As I have already acknowledged on several occasions, output in the second half of 1991 has turned out weaker than I anticipated then. The signs of recovery, apparent in sales and production figures as well as in confidence indicators in the late summer, were not sustained. That, of course, is disappointing but there remain good grounds for believing that the recovery will become firmly established in the course of 1992.
323 It has been said before, but it is worth emphasising again, that monetary policy operates with a time lag. The full effects of the reduction in interest rates from 15 per cent. to 10.5 per cent. have still to work through to businesses and individuals. The further mortgage rate cuts announced last week will mean that the monthly repayments on a £60,000 mortgage have fallen by nearly £200 a month from their peak. The temporary removal of stamp duty for house purchases under £250,000, and other measures that I announced in December, will provide a further welcome stimulus to the housing market.
Inflation has fallen dramatically over the last year, to a level clearly below the European Community average. Producer price inflation, excluding food, drink and tobacco, which is a good predictor of future retail price inflation, fell in December to 3.8 per cent. In the fourth quarter, the annualised rate was only 2.3 per cent., the lowest rate since 1973. That is excellent news. Low inflation makes British goods more competitive, and provides the stability and certainty that businesses and individuals need to save and invest.
Because inflation has fallen rapidly, the real incomes of those in work in this country are rising, unlike the position in the United States. There is no shortage of potential demand: indeed, there is considerable pent-up demand in the economy. There are always uncertainties about timing, but what is certain is that this rise in incomes will, in time, feed through to a rise in spending.
Fourthly, world stock markets, especially in the United States, are clearly anticipating economic recovery.
Fifthly, even in difficult circumstances, tens of thousands of people are still setting up their own businesses. The fact that so many new businesses are being set up shows that the entrepreneurial spirit that we nurtured in the 1980s still thrives. This reflects continued long-term optimism about the prospects for the British economy.
Finally, and perhaps most important, many manufacturers and retailers are responding in exactly the right way to weak demand by cutting prices and costs. Far from that being bad news, lower prices in the stores mean higher output and lower inflation. That is good news for consumers and for recovery, but recovery comes not, as the Labour party believes, from Governments trying to kick-start the economy but from businesses being more competitive.
§ Mr. Harry EwingI am grateful to the Chancellor for giving way so early in his speech, because my intervention may help to set the context in which his speech is delivered. When he has shown how wrong he was in his forecasts, backed up by all the paraphernalia of the civil service and the forecasting material at his disposal, why should the people of this country believe a word he says about the Labour party's spending proposals? Is the right hon. Gentleman aware that he now sounds very much like the Gerald Ratner of British politics?
§ Mr. LamontI am grateful to the hon. Member for inviting me to comment on and show why I am suspicious of the Labour party's spending proposals. I shall not disappoint him. I shall answer his question when I come to that.
§ Mr. David Winnick (Walsall, North)Last year, we were told that recovery would come in the second part of 1991. On the Chancellor's own admission, that has not 324 occurred. Is he telling the House that a recovery will take place in 1992, and why should the country believe him? Is that why the Secretary of State for Education and Science and the Tory party chairman are so hesitant about holding an election on 9 April? Is it true that the Government are so terrified of facing the electorate that some Ministers want to wait as late as July?
§ Mr. LamontI have just spelt out —apparently, the hon. Gentleman was not listening—why I believe we shall see a recovery in 1992. That view accords with that of the Organisation for Economic Co-operation and Development, which predicts that, in 1992, the British economy will grow by 2 per cent.—faster than Germany and as fast as France and Italy. Not only the Government but other organisations take an optimistic view of Britain's prospects in 1992.
I know very well that many businesses are continuing to face difficult conditions, but while the recovery has not yet become firmly established, it is clear that the foundations are in place.
The narrow definition of money—M0—has moved into the top half of its target range. Manufacturing investment—about which the right hon. and learned Member for Monklands, East (Mr. Smith) is always talking—rose in the third quarter. Imports of raw materials are rising. The rate of increase of unemployment has fallen sharply. The increase in the last quarter of 1991 was little more than a third that of the first quarter.
§ Mr. Bruce Grocott (The Wrekin)Always look on the bright side.
§ Mr. LamontThe hon. Gentleman says, "Always look on the bright side", but unlike the hon. Gentleman, who has made it clear again and again that he has a vested interest in making the gloomiest and most dismal—
Several Hon. Membersrose—
§ Mr. SpeakerOrder. I call the Chancellor.
§ Mr. LamontI give way to the hon. Member for The Wrekin.
§ Mr. GrocottI am grateful to the temporary Chancellor for giving way. We are interested not in looking on the bright side or on the gloomy side but in looking at the truth.
§ Mr. LamontSometimes that commodity is used more sparingly than on other occasions.—[Interruption.]
§ Mr. SpeakerOrder. I have already said that there is great pressure to participate in the debate, so let us now get on.
§ Mr. LamontThe car industry has faced especially difficult conditions, but has shown remarkable resilience in switching production to export markets. Production for export in 1991 was up nearly a half on the previous year, and car production overall rose 12 per cent. in December. Commercial vehicle production which has faced similar problems has been switching from domestic to export markets, and export production is at its highest level since 1980.
Nothing could say more about the underlying strength of the British economy and the skills of British workers than Nissan's decision last week to invest another £200 million in its plant in Sunderland. That will make the 325 Nissan plant the largest Japanese investment in Europe. It will bring another 600 jobs to the north-east with more to come through orders from suppliers. It is not only Japanese investors: yesterday's survey from the German Chamber of Industry and Commerce in the United Kingdom showed that Britain is the most favoured location for German investment in Europe.
All over the country, British exporters have continued to perform well. Our share of world trade in manufactured goods has risen for three years in a row, for the first time in decades. Our exports are at record levels. This achievement is all the more impressive given the weakness of economic growth throughout the industrialised world. The Opposition, we notice, have a deliberate policy of ignoring the rest of the world. They claim that recession here has nothing to do with what is happening in the United States or elsewhere. Of course that is nonsense. We have seen recession in many countries.
Last year, even Germany saw two quarters of falling gross domestic product—technically a recession. Growth has slowed in Japan and France. In the United States, the effects of the recession have lingered on despite the fall in interest rates to their lowest level in a quarter of a century. In addition to that in the United States, there have been recessions in Canada, New Zealand, Australia, Sweden and Switzerland.
I have always stressed that unemployment is likely to continue to rise for some time. I do not underestimate the hardship that that causes to individuals and families, but the right hon. Gentleman the leader of the Opposition seems to think that unemployment is an affliction peculiar to Britain. Unemployment is rising in most Community countries. Last month, unemployment rose by 30,000 in France and by 290,000 in the United States. In France, it is now over 2 million. In Australia, it is at the highest level since the war. Therefore, hon. Gentlemen cannot ignore the fact that these issues are common to many countries.
§ Mr. Giles Radice (Durham, North )At the Select Committee hearing on last year's Budget, the Chancellor told me in answer to a question that the main cause and origin of the recession was the Government's response to a too rapid rate of growth.
§ Mr. LamontThe hon. Gentleman is not quoting me precisely. The point that I am making is that the reason that the outlook—[Interruption.] I am about to come to domestic factors. My point is —any person would have to admit this—that the international climate has undoubtedly been deteriorating. For an exporting country such as ours, that has a major impact on the economy.
§ Mr. Neil Kinnock (Islwyn)While we are on the subject of admissions, will the right hon. Gentleman acknowledge that, out of every seven jobs lost in the European Community last year, five were lost in Britain, under his Government?
§ Mr. LamontAs the right hon. Gentleman knows, the figure that he has given is gross. I have pointed out to him that unemployment has risen in a number of other European countries. The latest three-month on three-month figures on rises in unemployment show that, in the past three months, it has risen more quickly in several other countries than it has here.
Several Hon. Membersrose—
§ Mr. LamontNo, I should like to press on.
I know very well that times are difficult for business, but industrial production in Britain has fallen by less in the past year than industrial production in Canada, Italy, Belgium, Sweden or Australia.
Although the December fall in retail sales was disappointing, in this country sales were still higher in the last quarter than they were a year ago. Retail sales in Canada are down 10 per cent. on a year ago, and they are down in Italy, too. In the United States, the retail sales figures were the worst for 20 years.
It is pure folly to imagine, if one were ever tempted to do so, that we in Britain can isolate ourselves from the world economy. Economic conditions in other countries affect us directly, through the level of demand for British products abroad, but also indirectly through the effects on confidence. That in turn further affects domestic demand and output.
Of course, as the hon. Member for Durham, North (Mr. Radice) has said, domestic factors have also been at work. The most important of those is the sharp rise in the savings ratio in the course of the recession. Many individuals, having incurred large debts in the late 1980s, have chosen to repay those debts and, indeed, to build up their savings rather than to spend money on consumer goods.
In the short run, manufacturers and retailers have suffered as a result of weaker consumer demand. But it is not the business of Government to tell individuals that they should be spending rather than saving. In this country there has for a long while—quite rightly—been concern that our level of national savings has not been high enough. For too long, we have relied on house price inflation to do our saving for us. In the long run, an increase in real, genuine savings will help to finance investment, to reduce real interest rates and to strengthen the economy. That means that the recovery will be stronger and more soundly based.
§ Mr. A. J. Beith (Berwick-upon-Tweed)Clearly, the Chancellor of the Exchequer genuinely believed that, by this time, consumers would be spending more money—that the pent-up demand of which he has spoken would have been released so as to start the economy moving again, and that that would lead the recovery. Why, does he think, have consumers not had the confidence to go into the shops and spend money? What does that reluctance say about Government policies?
§ Mr. LamontI have already said that one would not normally expect monetary policy to have had it full effect—for instance, the considerable loosening of policy that occurred between February and July last year. I am sure that the hon. Member for Berwick-upon-Tweed (Mr. Beith) is not suggesting this, but it would be absurd to suggest that, because output does not follow a predicted path from one quarter to another, the thrust and direction of policy should be changed, or that policy is wrong.
Good management of the economy has nothing to do with changing policy in the futile pursuit of each month's passing statistic. Good management is about getting the policies right and sticking to them. That is what we have done, and that is what we will continue to do.
We must, of course, be realistic and open about this recession. It has caused much hardship. However, it is not 327 realistic to talk, as Opposition Members do, about a never-ending recession. It is positively irresponsible and shows that they will stoop to any depths to gain power and to try to frighten the British people. In the past few months, the Labour party has certainly succeeded in frightening the British people, but it is the Labour party of which the British people are frightened, because they know perfectly well that the one thing that could mean a never-ending free-fall recession is the advent of a Labour Government.
As this autumn statement has demonstrated once again, we are the only party that can keep public spending and taxation under control. Inevitably, the recession has added to the pressures both on public spending and on tax revenues. Weaker than expected activity in the second half of last year will mean that those pressures are even greater than anticipated in the autumn statement.
I shall present my Budget to this House on 10 March. The House would not expect me to anticipate my Budget, but I can tell the House that we will continue our prudent stewardship of public finances, in contrast to the reckless promises of the Labour party.
The right hon. and learned Member for Monklands, East likes to pretend that he has some alternative policy. For months, as we were lowering interest rates cautiously and carefully, he said they should be lower. Whatever the state of the economy, Labour's refrain has been the same—[Interruption.]
§ Mr. SpeakerOrder. I ask the House to settle down. This is a very important debate, and many right hon. and hon. Members wish to participate. Interruptions do not make it easier for them to do so.
§ Mr LamontWhatever the state of the economy, the right hon. and learned Gentleman's policy has always been the same. Whatever the level of interest rates, he has always argued that they should be lower. Even in 1987 and even in 1988, right at the top of the boom, the right hon. and learned Gentleman advocated that interest rates should be lower. We all know where we should be if we had followed his policy. Today, inflation would be higher and the recession would be deeper.
The right hon. and learned Gentleman has been rumbled. Now he is trying to give the impression that he would not devalue the pound. He has been forced to admit that he could not cut interest rates. He has lost his only policy, so what does he call for now? He calls for a change of course—a new direction. He parrots the phrase. But what is this change of course—[Interruption.)
§ Mr. SpeakerOrder. This gives a very bad impression—[HON. MEMBERS: "Oh."] I mean the reaction of the House.
§ Mr. LamontWe all know that the last thing the Labour party wants is for any attention to be focused on its policies. That is the one thing that it cannot bear.
The right hon. and learned Member for Monklands, East has repeatedly in debate called for a fresh approach, a new policy and a change of course, yet in speech after speech we have not had the slightest sign or demonstration of what that policy is meant to be.
In the previous debate on the autumn statement, I asked the right hon. and learned Gentleman this question: if he did not disagree with monetary policy, what did he think about fiscal policy, about spending and about 328 borrowing? I asked him then if he thought that public spending was too high, too low or just about right. I asked him whether he thought that borrowing was too high, too low or just about right, and he did not answer. What the right hon. and learned Gentleman lacks in frankness he makes up for in evasion.
§ Mr. Dennis Skinner (Bolsover)Will the Chancellor admit that, this time last year, he forecast that there would not be a budget deficit? We are now running into the possibility in 1992 of a deficit of the order of £19 billion. On top of that, when the Government came to power in 1979, personal debt on average was 45 per cent. The latest figure is 102 per cent. That figure will haunt the Government for ever.
Hon. MembersHear, hear.
§ Mr. LamontThe House will have noticed the cheers that the hon. Gentleman was getting from his Back-Bench colleagues. Perhaps that is because he is one of 25 hon. Members who signed an amendment to the motion, rejecting the market economy, calling for a fully socialist policy and disagreeing totally with the policy advocated by the Front Bench of his party.
§ Mr. SkinnerAnswer.
§ Mr. LamontI will answer. For all his austerity, the hon. Gentleman has quite a few contacts with the City, but he does not seem to be well informed. No such prediction was made in the Budget last year. The hon. Gentleman has got it totally wrong.
To return to the right hon. and learned Member for Monklands, East, he is caught between the massive spending plans of his shadow Ministers and his wish to appear to be in a position to deny that a Labour Government would put up taxes, but he does not seem to be having much success with his colleagues.
Let me turn now in detail to public spending, the subject of the debate. On the programme for each Department, we have set out our spending plans for the next three years. On each of those, Labour promises to spend more. I hope that today the right hon. and learned Gentleman will tell us which of Labour's promises we should believe and which are just empty words.
Let me start with social security. In the autumn statement, I announced that provision for social security in 1992–93 would rise by £4.25 billion, to over £70 billion. That is a massive sum and a massive increase. We have honoured our commitments to the old, the disabled and the jobless. We gave extra help to the poorest disabled pensioners and those over 80. Unlike the Labour party, we did not use an economic downturn as an excuse to break our promises to pensioners.
But all that is not enough for the Labour party. Indeed, on 30 September last year the right hon. and learned Gentleman said:
And of course that Labour Government will restore the link between retirement pensions and earnings and prices—whichever is the higher.I noticed the right hon. and learned Gentleman nodding to confirm that. So much for the pledge that Labour has got only two specific pledges in its spending plans. We can see that not just the party but the right hon. and learned Gentleman himself does not believe in his policy.The autumn statement demonstrated again that the national health service gets a better deal under this 329 Government than it ever did under Labour. I announced an increase of £1.5 billion in United Kingdom spending on the NHS; for the hospital and community health services, the real increase in spending planned between this year and next is 5 per cent.
In 1992–93, we will be spending a greater share of national income on the health service than ever before—more than half as much again in real terms as in 1979. That has given more doctors, more dentists, more nurses, more midwives and more patients being treated. In addition, we are investing for the future of the health service because capital spending is three quarters as high as it was under the Labour Government.
All that is not enough for the Labour party. The hon. Member for Livingston (Mr. Cook) was reported on one occasion as saying that he would pour money into the health service. On 23 September last year, he said:
We are going to restore the underfunding of the NHS.On 21 October, he said:in the first year we shall start to tackle underfunding".—[Official Report, 21 October 1991; Vol. 196, c. 673.]How much would he spend—£3 billion, £1 billion, or nothing? Is it a pledge—it sounds like a pledge—or is it just empty words?Despite the recession, we have maintained British Rail and London Regional Transport's massive investment programmes. I announced an increase of £1.4 billion in Government finance, enabling them to maintain an investment programme of more than £2½ billion in 1992–93—three times as much as in 1979. Over the next three years, they will be investing half as much again in real terms as in the past three years.
But again that is not enough for the hon. Member for Kingston upon Hull, East (Mr. Prescott). On 22 April 1991, he said:
the Government have the overriding responsibility to see that there is a high-speed rail link from the tunnel not only to London but to areas beyond—the midlands, the north, Wales and Scotland?"—[Official Report, 22 April 1991; Vol. 189, c. 760.]He said nothing about having only two pledges on child benefit and taxes and about everything being optional. Are we to take those words at face value or not? Are those words a pledge? They sound like a pledge. Are they a pledge, or are they just empty words designed to deceive the electorate?Opposition Members go on and on about education and training, but when will they look at the facts? Next year, we are providing for a real-terms increase of 15 per cent. in Government support for maintained schools. We have more students in higher education than ever before —one in four, compared with one in eight when the Labour party was in power. Again, it is not enough for the Labour party, and it is not enough for the Leader of the Opposition. In October 1991, he said:
If that level of expenditure"—he was talking about the proportion of GDP spent on education in 1979—had been maintained, an extra £2.6 billion every year would be going into education. We will continue with the scale of commitment at least at the levels of 1979.Again there was nothing about having only two pledges. Is that a pledge, is it a firm promise—it sounds like it; it is calculated to be like it—or is it just empty words?We announced that the overseas aid budget would increase by 2 per cent. in real terms. Again, that is not 330 enough for the right hon. Member for Manchester, Gorton (Mr. Kaufman). He was not worried about things being phased in over the next Parliament or over two Parliaments. On 3 October 1991, he said:
During our first Parliament we shall increase Britain's aid budget to the United Nations' target of 0.7 per cent. …That is a firm commitment, costed and clear, that I pledge our Labour Government will carry out.Again, that sounds like a pledge, but the Labour party says that it has only two pledges. Is it a pledge, or is it just empty words?Yesterday, my right hon. and learned Friend the Chief Secretary showed that the bill for Labour's spending plans has now risen to an astonishing £37 billion over and above the public—[Interruption.]
§ Madam Deputy Speaker (Miss Betty Boothroyd)Order. Barracking does not improve the quality of our debates.
§ Mr. LamontWe all know that the Labour party simply cannot take any examination of its policy—it simply cannot. The Labour party has made—I quoted them today and there has been no intervention by Opposition Front-Bench Members—what sound like specific promises. Those promises add up to £37 billion. We have repeatedly challenged Labour Members either to drop those spending pledges or to tell the country what taxes they would put up to pay for them, but they have not responded.
§ Mr. Tony Benn (Chesterfield)Is the Chancellor aware that, because of unemployment, each day 3 million working days are lost from production, and that the cost of benefit and lost production put together is probably about £50 billion a year?
Any proposal to expand production will be self-financing. [Interruption.] Of course it will. That is exactly how the rearmament programme before the war brought full employment back to Britain, after a slump under Neville Chamberlain as serious as the one that the Chancellor has engineered in this country.
§ Mr. LamontThe right hon. Member for Chesterfield (Mr. Benn) in recent debates has made some telling contributions, but I am afraid that that is not one of them. It is a sheer fallacy to think that any public expenditure measure can be justified simply because it would create jobs and be self-financing. We have heard that many times before, but I am afraid that it does not work like that.
Hon. Members opposite have refused repeatedly to respond; perhaps we shall hear from the right hon. and learned Member for Monklands, East something about this today.
These plans have huge implications for taxation as well, although the Labour party has been a little more forthcoming than at first about its tax plans. It promised to raise the marginal rate of tax for the better-off to 59 per cent. I am not sure what it thinks that will do to house prices in the south-east, about which we will no doubt hear so much from the right hon. and learned Gentleman in a minute.
Labour Members promised to hit everybody earning more than £390 a week with a full extra 9 per cent. on national insurance contributions. That will hit not just those earning more than £20,000 a year but anybody 331 whose earnings go over £390 in a week, perhaps because of overtime: they will be penalised by the tax proposed by the Labour party.
Despite their professed concern for investment, Labour Members promise to introduce a new 9 per cent. tax on savings income. They still call income from savings "unearned income", and they are determined to tax it as heavily as possible. The whole country knows, and we know, that the Labour party is the party of high taxation.
We saw in The Sunday Times—a quality newspaper that I read very carefully —an Access opinion poll which revealed that 57 per cent. of hon. Members on the Benches opposite want to put the basic rate of tax up by 2p. We also heard the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) admit in a broadcast the other day that he did not think that 83 per cent. was a penal rate of tax. Both those things reveal the attitudes of the party opposite.
We thought that we knew what Labour was promising on taxes, but now all seems to be in confusion after the Leader of the Opposition's famous dinner at Luigi's. I do not know if it was the effect of the frascati, but the right hon. Gentleman seems to have been in expansive mood. The dinner certainly cost a lot. It has cost Labour its last slender vestige of credibility on taxation. The truth is that Labour knows that it will have to increase tax and national insurance to pay for its extra spending. Even if it was able to phase in the increases, the phasing in would make no difference. In the end, the taxes would go up—and everyone knows it.
We were told by the right hon. and learned Member for Monklands, East that all this was going to happen, and happen immediately. Now we are told that the right hon. and learned Gentleman is furious with his leader—again according to that reliable paper, The Sunday Times. I am not surprised about the right hon. and learned Gentleman, because his credibility has rested on creating the impression that they had only two spending plans and that those plans could be financed simply out of the increases in national insurance and the higher rates of tax.
The priority package of the right hon. and learned Member for Monklands, East is in ribbons, and not just because the Leader of the Opposition wants to delay the tax increases to pay for it. The right hon. and learned Gentleman himself has also bungled it, because, on top of the two specific pledges which he keeps saying are their only ones, he has added £1 billion for training as an immediate package for industry. So the right hon. and learned Gentleman simply cannot say that they can finance their child benefit and pension increases and the industry package out the tax measures that they are proposing and at the same time postpone the introduction of those tax increases.
§ Mr. John Smith (Monklands, East)Perhaps the Chancellor will refresh my memory. I do not know whether it was in The Sunday Times, but he claims that his credibility is much greater than mine. Why is that not reflected in the opinion polls that appear in newspapers?
§ Mr. LamontPowerful and persuasive though the right hon. and learned Gentleman is, he does not seem to have been very successful, because polls show that eight out 10 people think that a Labour Government would put up taxes.
§ Mr. SmithIf the Chancellor has such an outstanding economic record, and if I am so incredible, can he explain why he is so badly regarded by the public in every opinion poll?
§ Mr. LamontI am sure that the right hon. and learned Gentleman puts that question to his right hon. Friend the Leader of the Opposition all the time. The right hon. and learned Gentleman used the phrase "credibility gap". The Labour party does not have a credibility gap: it has a credibility chasm.
I hope that the right hon. and learned Member for Monklands, East will answer some questions today. Where is the money coming from? What is the order of priorities? How does Labour plan to build up the supply side? How would Labour cope with a flood of public sector wage claims? How serious is Labour on inflation? Those questions, which some hon. Members may recognise, are very good questions, not because they come from me; they were raised by the hon. Member for Islington, South and Finsbury (Mr. Smith) in a slim volume that was wistfully entitled, "Awkward Questions: Random Thoughts."
The hon. Member wrote that two years ago, but the Labour party has still provided no answers. Labour does not have an alternative policy; it simply has alternative presentation. Behind the lawyer's patter of the right hon. and learned Member for Monklands, East, he knows that he is defending a guilty party that is misleading the country. We know it, Labour knows it and, increasingly, the whole country knows it as well.
In the autumn statement, I announced a programme of public spending which the country can afford, designed to meet the needs of those areas that we see as the highest priority. I set out the economic policies that we have put in place that will provide the ground for a sustained, non-inflationary recovery—a real recovery, not the kind of sham recovery that we saw in the 1960s.
Some people say that there is not much difference between the policies of the two parties. However, some people are wrong. There is a vast divide between us and the Labour party on economic questions, in particular on taxation and public spending. We await the answers from the right hon. and learned Member for Monklands, East today. There is no doubt that he would increase spending rashly, indiscriminately and unaffordably, inevitably leading to the higher taxes that Labour Governments always introduce—higher taxes, higher interest rates and higher borrowing. All that would stop the recovery in its tracks.
We commend our spending proposals to the House with the confidence that they are realistic, affordable and clear. No such description can be applied to the spending explosion foolishly promised by the Labour party. That is why the House should endorse our plans and reject the amendment.
§ Mr. John Smith (Monklands, East)I beg to move, to leave out from "House" to the end of the Question, and to add instead thereof:
declines to approve the Autumn Statement; deplores the continued mismanagement of the economy, which has plunged all parts of the nation into a deep and damaging recession, causing unprecedented and avoidable levels of business failures and rapidly rising unemployment; regrets the errors that are already apparent in the Government's 333 forecasts for the economy made in the Autumn Statement; condemns the failure of the Government to invest in the economic infrastructure and vital public services; and calls upon the Government to promote an investment-led recovery including financial incentives for investment in manufacturing, tax credits for the enhancement of technology, assistance for regional economic development and a major programme of education and training to tackle Britain's continuing skills crisis.'.As today's debate proceeds, it might be necessary to remind ourselves continually that it is about the autumn statement which was produced by the Government last November. That statement did two things: it provided the Government's assessment of the economic prospects for 1992, and it outlined the Government's spending plans for the forthcoming year. We have already heard the Chancellor attempt to divert attention from the Government's economic record and their totally inaccurate forecasts. No doubt that tactic will be pursued relentlessly today and in the period ahead.Conservatives want political debate in this country to feature on almost everything except their economic record. One can of course understand their motivation for that, particularly with regard to the autumn statement.
Let me remind the House of the forecasts that the Chancellor made in his autumn statement in November. He told the House that he expected GDP to rise by 0.75 per cent. in the second half of 1991. He said that growth in 1992 would rise by 2.25 per cent. He said:
The increase in output from the second half of this yearthat is to say, 1991—to the second half of the next is expected to be 2¾ per cent." —[Official Report, 6 November 1991; Vol. 198, c. 453.] He claimed that growth from July 1991 to the end of June 1992 would be approaching 3 per cent. [Horn. MEMBERS: "No."] He did. There can be no question about it. The Chancellor said that very clearly on 6 November and I have quoted his exact words from Hansard. It is absurd to claim that growth would be nearly 3 per cent. between July 1991 and June 1992. It is right that that should be exposed today.We are now in January 1992, more than halfway through that projected year. Where is the 3 per cent. growth? We are still declining and not expanding. It is now abundantly clear that all those forecasts, particularly the last one to which I referred, were rubbish.In the light of the undisputed facts about the British economy, in particular the absense of growth in an economy which, in 1991 shrank by 2 per cent., it is astonishing that the Chancellor claimed on 6 November, when the forecasts were produced, that he was "realistic and cautious".
We all know what he was doing when he spoke to the House last November. He was doing one simple political task: he was creating a mythical economic scenario for a November election. That is what he was up to when he gave the House those figures.
Unfortunately for the Chancellor's reputation as an economic forecaster, the Prime Minister let him down by not having a November election because he ran away from the prospect of facing the electorate. We are now in January 1992, more than halfway through the economic year in which 3 per cent. growth was predicted. As we know, the economy is stagnant. At the very best, we are bumping along the bottom.
§ Mr. Tony Marlow (Northampton, North)I am an admirer of the right hon. and learned Gentleman. We share certain objectives. He would like to see manufacturing industry expand and succeed to promote growth in the economy. How would the right hon. and learned Gentleman achieve that if, at the same time, he seeks to introduce swinging tax increases on managers and entrepreneurs and also introduce a tax on savings? How will he achieve investment in manufacturing industry on that basis?
§ Mr. SmithMay I ask the hon. Gentleman for a small favour? I should like him to keep his professed admiration for me to himself for some time. In the forthcoming election I could do without it.
The hon. Gentleman said that if I were Chancellor I would introduce swinging tax increases. Let him reflect that under Labour the top rate of tax—even adding tax and national insurance together—would be lower than the rate that was in force until March 1988 under a Conservative Government.
§ Mr. Marlowrose—
§ Mr. SmithI am tempted to give way again, but if I were to do so I might encourage the admiration that I wish to stop.
§ Mr. Robert Adley (Christchurch)The right hon. and learned Gentleman has referred to the rate of direct taxes that applied in 1988. Presumably he is familiar with the Laffer curve. Is not it true that since the direct tax reductions of 1988 there has been a substantial increase in the tax take? In contrast, when his party was in government higher direct taxes produced a lower tax take. What on earth can he say to the British people to make them believe that what happened under the last Labour Government and what has happened under the present Government during the last two or three years would miraculously be reversed?
§ Mr. SmithLet me make it quite clear that I have never accepted any economic propositions to the effect that if one constantly reduces tax rates one will constantly increase tax revenue. That seems to me to be an inherently absurd proposition. [Interruption.] Hon. Members must allow me to reply to the question. The reason for the higher-tax band figures is that well-paid people have received huge salary increases. We know perfectly well that the Government invited the late Professor Charles Brown to investigate the connection between tax and incentives. Professor Brown, whose investigation was financed by the Treasury, came to the conclusion that there was no reliable connection between the two things. With respect to the hon. Gentleman, I say that the professor probably knew a little more about this than he does.
§ Mr. Peter Thurnham (Bolton, North-East)Can the right hon. and learned Gentleman say exactly how he would fund the increases in pensions and child benefit that he has promised— not to mention the rest of the £37 billion—if he were to phase in his tax bombshell?
§ Mr. SmithI shall come to that matter. The hon. Gentleman knows perfectly well that we have proposed tax changes that would more than cover our promises in respect of pensions and child benefit.
I must get back to the autumn statement. I am quite happy to answer hon. Members' questions—
§ Madam Deputy SpeakerOrder.
§ Mr. NichollsIf right hon. and learned Gentleman were to be so generous on future occasions I should hail him more often.
The right hon. and learned Gentleman denied that his party would introduce swingeing tax increases. Is not he aware that Labour's stated intention to tax savings income in excess of £3,000 would hit 750,000 people who are basic-rate taxpayers? In those circumstances, how on earth can the leader of his party say that his tax proposals will not affect people earning less than £20,000 a year?
§ Mr. SmithThe hon. Gentleman does not seem to realise that the purpose of our changes is to treat unearned income and earned income in exactly the same way. That is a first-class principle that should apply to all tax systems.
I really must get back to the autumn statement. The Chancellor, in introducing that statement, sought to justify his claims, which I believe were ridiculous. He sought to rebut my challenge that his forecasts were incredible by saying:
What the right hon. and learned Gentleman ignored was the fact that our forecasts are in line with those of independent organisations".—[Official Report, 6 November 1991; Vol. 198, c. 456.]Let us look at what independent forecasters are saying. In Consensus Forecasts of 1992, which usefully brings together the data from 34 different independent British forecasting organisations, growth for the whole of 1992 is predicted to be 1.4 per cent. So let there be no doubt that the autumn statement's assessment of the British economy is so absurd that it should be withdrawn and fed into the Treasury shredder—an over-worked machine that is well used to pulping reams of bogus forecasts made by the present incompetent Government.Anticipating the inevitable downgrading of his estimates, which he had to make today and will have to make in his Budget statement on 10 March, the Chancellor took the opportunity of an early-morning slot on TV-am to begin the process of his tortuous recantation. The risk, of course, was that he would appear to be a dismal Johnnie —"dismal Johnnie" being a phrase which appeared in the press release of the Prime Minister's recent speech to Newcastle business men but which, on delivery, was changed to "moaning Jimmy". The Chancellor had little choice but to accept what the nation knew only too well and to admit to David Frost
The forecast I made at the time of the autumn statement will prove to have been somewhat over-optimistic.Hard on the heels of the Chancellor, the Prime Minister himself appeared on TV-am last Sunday and conceded that the recovery that he said he had previously imagined had been delayed. Note the revealing choice of words: "imagined" and "delayed". The Prime Minister appeared to forget his own admonition against moaning Jimmys when, as a dismal Johnnie, he sought to downgrade the economic prospects for the world as a whole using the well-tried Conservative technique of blaming others. But we now know that the point at which a moaning Jimmy becomes a dismal Johnnie is when the Prime Minister appears on TV-am and admits that the recession will not be over before the general election.336 Despite the necessary backtracking in which both the Chancellor and the Prime Minister have been engaged, they have still not given up the addiction to producing bogus predictions about the British economy. Let us take the Prime Minister's most audacious effort to date. It occurred in that TV-am interview and was repeated yesterday in the House. In the interview he claimed:
We are at a different stage in the cycle from many of our competitor countries, and I think we will come out of our difficulties earlier than them.So that there may be no misunderstanding, let me quote the words that he used in the House yesterday at Prime Minister's Question Time:a number of European economies have either been in recession or are moving towards recession at precisely the moment when the United Kingdom economy is poised to come out of recession.—[Official Report, 21 January 1992; Vol. 202, c. 177.]The Prime Minister's latest dodge is clearly to imply that as Britain was first into the recession it will be first out. But let us look at the latest available independent forecasts prepared by Consensus Forecasts, using 180 international forecasting institutions. These show that in 1992 Britain remains at the bottom of the G7 growth league. They even show that in 1993 we shall be at the bottom. The forecasts also confirm that the only other G7 countries to suffer a downturn in 1991 were Canada and the United States of America, which experienced declines of 1 per cent. and 0.5 per cent. respectively. This compares with Britain's decline of over 2 per cent.—more than twice as severe. Both of these countries are forecast to recover faster and earlier than the United Kingdom.Let us look at the European Community, to which the Prime Minister referred yesterday. No single EC member, other than Britain, suffered a decline in gross domestic product in 1991, and the conclusion of the 180 forecasters is that in both 1992 and 1993 the only EC country with a worse projected growth rate than Britain is Greece. There never was, and there does not exist, any basis whatsoever for the Prime Minister's absurd proposition. The truth, as the objective facts reveal, is that Britain, first into recession under the Conservatives, would, under the Conservatives, be last out.
§ Mr. Norman LamontThe right hon. and learned Gentleman is commenting on a forecast. It is astonishing that, even though he has it in front of him, he cannot read it accurately. When he looks at what he said, he may well find that it was a great deal of nonsense.
§ Mr. LamontWhat the right hon. and learned Gentleman alleged the forecast to be. Leaving that on one side, the figure that he forecast to June was not, in fact, to June but to December. He got it wrong; he never knows the details.
As I said earlier, what the right hon. and learned Gentleman said does not accord with the forecasts of the OECD, and neither does it accord with the views of the European Commission. In its latest European economy report, published in December, it states:
The United Kingdom is the only country where signals of sustained economic recovery are discernible. By contrast, the tendency for a gradual slackening of growth continued in six countries—Germany, Spain, France, Italy, the Netherlands and Portugal.That accords fully with what my right hon. Friend the Prime Minister said.
§ Mr. SmithI could make the obvious point that, as all of the hon. Gentleman's previous forecasts were wrong, there is no need to believe this one. I assure the right hon. Gentleman that he said that, from the middle of one year to the middle of the next, the figure would be 2¾ per cent. If he did not say that, what was his prediction from the middle of that year to the middle of the next?
§ Mr. Norman LamontThe right hon. and learned Gentleman is quoting the figure for the second half of this year on the second half of last year.
§ Mr. SmithI shall give way again to the right hon. Gentleman if he will tell me what was his prediction from July 1991 to July 1992.
§ Mr. Lamontindicated dissent.
Hon. MembersAnswer.
§ Mr. LamontIt is all very well for hon. Members to shout, but they do not have the slightest understanding of these matters. The simple fact is that the forecast was expressed in terms of the second half of this year on the second half of last year. The right hon. and learned Gentleman has misquoted it, which must cast considerable doubt on almost everything else that he says.
§ Mr. SmithWe will look at the record and establish the facts. However, the right hon. Gentleman still has not told me what his forecast was from July 1991 to July 1992. I will give way again if he will tell me that. In the absence of a frank reply from the right hon. Gentleman, I shall move on —[Interruption.] I was not quoting what the right hon. Gentleman said in his statement, but what he said in the House.
It is not just in economic forecasts that we find the truth that belies Conservative propaganda, it is in the reality of our present economic experience; what is experienced every day by people in business. Unemployment in December rose yet again by 31,000, bringing total unemployment—on the Government's reckoning—to 2.54 million, a rise of more than 800,000 in the last year alone. Output is down once again, and home repossessions are occurring at the rate of 300 for every working day. In the last quarter of 1991, 995 business failures were occurring every week.
In case the Conservative party says that all that will come to an end, Mr. Philip Mellor of Dun and Bradstreet gave us the chilling news, in the Financial Times on 30 December, that
The really worrying message … is that…well established companies as well as new ones are going to the wall.He said that the position was getting worse. It is little wonder, therefore, that business confidence has slumped again, as reported by the Institute of Directors, the CBI, Dun and Bradstreet and The Engineer magazine, which reported on the serious problems of Britain's engineering companies.One of the major reasons why there is so little confidence is that no one can have confidence in a Government who, year in and year out—and even from month to month—get it so badly wrong. The Chancellor has what might be called the opposite of the Midas touch. Every area of the economy in which he predicts a recovery goes in the opposite direction.
In the middle of last year, yet again on his favourite appearance venue of TV-am, he detected the now 338 notorious vague stirrings of recovery in the housing market. As millions of home owners and the construction industry know only too well, that sector of the economy remains severely depressed. Indeed, as the industry's leaders tell us, it is in its worst condition for decades. According to the chairman of the Building Employers Federation— a gentleman who happens to be called Mr. John Smith, who is no relation but is clearly a reliable source—said in the Financial Times on 4 January:
Construction output last year fell by between 8 and 10 per cent. and a further fall of at least 4 to 5 per cent. is likely this year.So much for the vague stirrings of recovery in the economy.Moving on from construction, the Chancellor applied his non-golden touch to the high street when he detected green shoots of recovery in time for the Tory conference. He then told his Guildhall audience that things were on the mend because retail sales were on an upward trend. The right hon. Gentleman will recall that there were exchanges between us in the House about that assertion. He is as aware as I am of the latest information that retail sales volume in December fell by a seasonally adjusted 1 per cent. compared with the previous month, giving a 0.4 per cent. year-on-year decline—
§ Mr. Tony Favell (Stockport)rose
§ Mr. SmithI want to finish this passage. I am explaining how the Chancellor has a non-Midas touch.
The right hon. Gentleman said on 6 November, during our debate on the autumn statement:
The last few monthsand we must remember that he was speaking in Novemberhave seen a surge in business optimism in nearly every sector, nearly every region, in businesses large and small…This gives powerful support to our view of the recovery."— [Official Report, 6 November 1991; Vol. 198, c. 453.]Of course, that was the line to be used in a November general election—an election that did not happen.As we now know, even the Institute of Directors—not a source known to be unremittingly hostile to the Conservative party—has found a sharp fall in the proportion of directors feeling optimistic about the economy. It reported a downturn in investment and said that the outlook for jobs was bleak. Construction, retail sales and business optimism all turned down as soon as the Chancellor fixed his eye on them. It is no wonder that businesses cringe at the prospect of becoming the Chancellor's latest projected vehicle for recovery. They know that he is, in that respect, the personification of voodoo economics.
§ Mr. Nicholas Budgen (Wolverhampton, South-West)Will the right hon. and learned Gentleman explain how it is possible for any future Labour Government to improve the position? Are not all the three factors that he mentioned the result of very high real interest rates within the exchange rage mechanism? As the new respectable Labour party has said that it wishes to remain within the ERM, and as it is likely—at least initially, and perhaps unfairly—to be badly viewed by the market, is it not likely that, far from being able to reduce interest rates, an incoming Labour Government would have to increase them, so making all those factors even worse?
§ Mr. SmithI do not doubt that high interest rates have had a very bad effect on the British economy. However, I 339 must warn the hon. Gentleman about one matter—the line is not, "the new respectable Labour party"; the right hon. Member for Bath (Mr. Patten) gives a quite different line. [HON. MEMBERS: "Answer the question."] I shall deal with the hon. Gentleman's points because, on the whole, he asks more intelligent questions than most of his colleagues.
The hon. Gentleman was right to say that high interest rates have had a considerable effect, but that is only half an analysis of the problem. The deplorable weaknesses in investment, training and education on the supply side have also weakened the British economy. That is why the Labour party's plans are so relevant.
§ Mr. Favellrose
§ Mr. SmithI will not give way—[Interruption.] I have given way as often as the Chancellor gave way.
What the British economy needs and this directly answers the question of the hon. Member for Wolverhampton, South-West (Mr. Budgen)—instead of bogus forecasts and stultifying complacency, is action to move out of recession towards an investment-led recovery.
The Chancellor has received strongly worded representations from British industry. He has them on his desk. They have come from the CBI, the engineering employers and others. They have argued for the introduction of measures to promote investment, including the enhancement of capital allowances for investment in new plant and machinery—[Interruption.] Actually, for the benefit of Conservative Members, that is a tax reduction—although I do not know whether they would know one if they saw one.
Given that manufacturing investment is below the level for 1979, the need to promote manufacturing investment is overwhelming. The Government's usual response is to claim that, under their management, business investment —which is, of course, different from manufacturing investment —has been highly satisfactory. I hear day in and day out that it is highly satisfactory. The Chancellor nods, so at least we agree on that. As hon. Members know, that is a familiar argument.
I ask those who might be in doubt about the truth to consider the CBI's Budget submission. Page 10 shows that in the United Kingdom fixed investment per employee over the last decade was well below the level that was achieved by our main competitors. Manufacturing investment per employee in the United Kingdom was £1,980; in the United States it was £2,850; in Germany it was £2,850; in France it was £3,300; and in Japan it was £5,360. The figures for business investment as a whole are roughly similar—
§ Mr. SmithLet me make the point.
If we have had such splendid investment under this Chancellor, why are our figures so bad in relation to those of our principal competitors?
§ Mr. Norman LamontCan the right hon. Gentleman name any year in the 1970s in which investment in plant and machinery as a proportion of GDP was as high as it is this year?
§ Mr. SmithI shall certainly look into the details of the 1970s and 1980s because I want to be absolutely accurate. I shall tell the right hon. Gentleman what I do know because I do not make chance remarks across the Floor of 340 the House without knowing what I am talking about. The right hon. Gentleman might bear that in mind when he considers forecasting. I can tell him that investment is plummeting this year. It was ridiculous of the right hon. Gentleman to claim earlier that we should be gratified because manufacturing investment has increased in the third quarter. Why on earth should we be gratified when manufacturing investment has fallen by 20 per cent. this year? What does it matter whether we are up or down slightly on the quarter when we are 20 per cent. down for the year as a whole? [Interruption.] That is a fact that the Chancellor cannot deny. If he wants to deny it, he should get to his feet. [Interruption.] He cannot deny that manufacturing investment fell—[Interruption.] Can he tell me a year in the 1970s when manufacturing investment fell by 20 per cent.?
§ Mr. SkinnerGet up.
§ Mr. OppenheimWill the right hon. and learned Gentleman give way?
§ Mr. Oppenheimrose—
§ Madam Deputy SpeakerOrder. The right hon. and learned Gentleman has made it clear to me and the House that at the moment he is not prepared to give way. Hon. Members should not persist in seeking to intervene.
§ Mr. MellorThe right hon. and learned Gentleman has issued an invitation about business investment and I shall now take him up on it. Investment in plant and machinery at constant prices—
§ Mr. SkinnerHere comes "Swank".
§ Mr. MellorIt is no good the hon. Gentleman intervening. This is a serious matter, as his right hon. and learned Friend knows.
At constant prices, in investment in plant and machinery in 1979 was £19.7 billion. If the right hon. and learned Gentleman prefers, the average for the Labour years was £17.5 billion. In 1990, at constant prices [Interruption.] This is investment in plant and machinery —that is what the right hon. and learned Gentleman was concerned about. The figure was £32.6 billion in 1990, with a forecast for 1991—
§ Mr. Brian Sedgemore (Hackney, South and Shoreditch)Oh, forecasts.
§ Mr. Mellor—of £29.5 billion, which is 50 per cent. up in real terms on the figures for 1979—even in a recession.
§ Mr. Mellorrose—