Government Economic and Social Policy

§ Madam Speaker

I inform the House that I have selected the amendment standing in the name of the Prime Minister.

§ Mr. John Smith (Monklands, East)

I beg to move,

That this House condemns the Prime Minister's betrayal of election promises and commitments on economic and social policy; deplores the Government's intention to make the users of public services pay the price of Conservative economic and financial mismanagement; further deplores the failure to make changes in policies towards unemployment, industry and the skills revolution; and calls for new policies in these areas to strengthen British industry and the British economy, to end mass unemployment and to improve public services. Before we embark on our debate, right hon. and hon. Members will have in their minds the statement that has just been made by the ex-Chancellor of the Exchequer. I had the opportunity to cross swords with him many times when he held the illustrious office from which he has so recently departed, and I commend him for the dignity of his statement. It was, if I may say so, as effective a speech as any he made when he was in office.

The right hon. Gentleman was wise to be wary in his endorsement of the Government's policies. What will no doubt be remembered by most of those who listened to his statement today was the revealing insight into the style and purposes of the Government from which he has so recently departed.

I must confess that it flicked across my mind when I was listening to the right hon. Gentleman that there might have been the odd political influence affecting him at the time of the 1992 Budget, especially if it is compared with the 1993 Budget—but let that pass. He was no doubt, as he constantly reminded us, acting on orders. The orders no doubt came from the pollsters and other people who appear to have such great influence on the Conservative party's policies. People will remember for some time his reference to being in office, but not in power.

When we think about the general election, we remember vividly that the Prime Minister and his colleagues made clear and specific promises to the electorate. It is reasonable to suppose that they were returned to power because people believed their promises. We now know how very few would vote for the right hon. Gentleman and his colleagues if there was an election today. There are reasons why the right hon. Gentleman has the lowest rating of any Prime Minister since polls began. The first and most important is that the right hon. Gentleman and his colleagues have cynically betrayed their pledges to the British people.

We heard a great deal about tax from the Tories at the general election. 'The Prime Minister promised tax cuts year on year. There were frequent promises of lower taxes from the Prime Minister, from the ex-Chancellor and from the present Chief Secretary to the Treasury. I do not know whether they meant them or whether they were told by the 288 pollsters to say them, but they certainly said them. On 31 March, only 10 days before polling day, the right hon. Member for Kingston upon Thames (Mr. Lamont) said on Channel 4 news: We will not have to increase taxes. I cannot see any circumstances in which that will be necessary. There were pledges on specific taxes as well. At an election press conference on 27 March, just a few days before polling day, the Prime Minister said: We have no plans and no need to extend the scope of VAT. We know how sincere all that was. In this year's Budget, those promises were spectacularly overturned and those pledges were shamefully betrayed.

I need not remind a suffering public that, from next April, VAT will be imposed on household heating bills at 8 per cent. In the following year, it will be hiked to 17.5 per cent. Tax increases in that Budget amounted to a staggering £17.5 billion. So it is not tax cuts year on year; it is tax increases year on year.

What a shocking betrayal of the people. Millions of families will have to find those billions of pounds from their household budgets. I very much doubt whether those at the bottom of the scale—those on income support—will have their benefit properly increased to meet the full extra costs that they have to bear. I know even more clearly that there will be no relief for the millions of families and pensioners who are just above income support level. The stark truth is that every family in the land will have to foot the cost of this Government's perfidy.

§ Mr. Alan Howarth (Stratford-on-Avon)

The right hon. and learned Gentleman referred to cynicism, and talked about style and purpose. It would be helpful to the House if he could comment on this. He has made it clear that a Labour Government would not reduce public spending. Indeed, his party is committed to policies that would increase public spending. At the same time, the shadow Chancellor has said that a Labour Government would not increase taxes. Will the right hon. and learned Gentleman therefore explain to the House how the Labour party, if it were in government, would pay for its policies?

§ Mr. Smith

The hon. Gentleman brings to our attention the parlous state of our public finances. What we need to do above all is to deal with public finances, bring down unemployment and get back on course for economic growth—[Interruptioni.]

§ Madam Speaker

Order. Hon. Members on both sides of the House must settle down—[Interruption.] let us have order below the Gangway. I call Mr. Smith.

§ Mr. Smith

The hon. Member for Stratford-on-Avon (Mr. Howarth) knows perfectly well that the main reason why we have such a high public sector borrowing requirement is the cost of unemployment, which is the result of Government policies. It does not matter whether it is the fault of the right hon. Member for Kingston upon Thames (Mr. Lamont) or the Prime Minister, as the right hon. Member implied: the fault lies with the Conservative party.

§ Mr. John Townend (Bridlington)

Does the right hon. and learned Gentleman really think that a deficit of £50 billion this year can be brought down by the reduction in unemployment that 2.5 or 3 per cent. growth would create? If he is opposed to public spending cuts, why does he not 289 admit that the only alternative would be massive increases in taxation? His arguments today have justified the Government's public spending policy.

§ Mr. Smith

If that is so obvious, why did the Prime Minister say during the election campaign—when he knew the exact state of our public finances—that there was no need for increases in taxation? He said that there would be tax cuts and no cuts in public expenditure, which would be maintained. Of course, there is an explanation for that, to which I shall return. We were not told the full truth about our public finances at the last general election.

I shall now return to the promises made by the Conservative party. Incidentally, I hear that the Chancellor—the new Chancellor of the Exchequer—has been entertaining the Press Gallery at a lunch today, saying that it does not matter what one says during an election campaign: what matters is what is contained in the manifesto. His theory seemed to be that one could say whatever one liked during the campaign—if it was not in the manifesto, it did not matter. I hope that that will be repudiated.

§ The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I did not say that.

§ Mr. Smith

I am glad that the right hon. and learned Gentleman says that. I think that there are plenty of people who attended the Press Gallery lunch who are now in a good position to report it.

I am glad that we have achieved some degree of agreement—that someone is responsible for what he says during an election campaign. On 28 January 1992, not long before the campaign, the Prime Minister told the House: I have no plans to raise the top rate of tax or the level of national insurance contributions."—[Official Report, 28 January 1992; Vol. 202, c. 808.] To be fair to the Prime Minister, he has kept one half of the promise—the half that applies to those at the top of the income scale.

How can the pledge that the Prime Minister made in the House possibly be squared with the increase of 1 per cent. in national insurance contributions that is to be imposed on every wage and salary earner in this country ? What is the difference between 1 per cent. extra national insurance and another 1p on income tax? There is a difference, but a difference that adversely affects the lower-paid. Both policies are clearly taxes on income, but national insurance hits the lower-paid harder as it starts lower down the income scale than income tax and there are no allowances to be set against its liability.

What did Mr. Chris Patten—now Governor of Hong Kong, then chairman of the Conservative party—tell us about national insurance on 23 March 1992, during the election campaign? He said at a press conference: Raising national insurance contributions would be a back-door stealth tax. We now know what the stealth was. It is the oldest trick in Tory politics to promise one thing and do another. That trick did not arrive with the pollsters during the past year or two; it has a much longer and more distinguished ancestry than that.

The Conservatives did not tell us in the election campaign that, in their first post-election Budget, they would freeze all personal allowances and bring 300,000 of 290 the lower-paid into the income tax net. There we have it: national insurance increases, soaring VAT and a freeze on personal allowances—not quite the double whammy that we kept hearing about from the Governor of Hong Kong. It turned out to be the Tories' triple whammy, perpetrated on the British taxpayer.

Now we see clearly what the Tory tax strategy is, as we can review the Tories' long period in office. During the 1980s, when they were flush with cash from North sea oil, the biggest and best handouts went to the rich. When the Government have come unstuck in the 1990s, it is the lower-paid and ordinary taxpayers who pay the price of their incompetence. It is like the old Victorian value: "It's the rich wot gets the pleasure, it's the poor wot gets the pain."

It is not only on tax that the Government have broken their word. let us look at their pledges on public spending. Time and again, we were told during the election campaign that the Red Book set out the detailed plans of the Government's expenditure programme, and that it was based on sound public finances. The Government vehemently and continually denied that there would be any post-election cuts in public expenditure, a subject drawn to the public's attention occasionally by some of my percipient colleagues. The Prime Minister told us on 30 March, only 10 days before polling day, at a major election press conference: If we were going to cut public expenditure, we would have done it before and I don't believe it is economically right. I have said that in the past, and there is no need to do it whatsoever. So you can rule out any prospect of that.

§ Those words could not be much clearer

any prospect of public expenditure cuts emphatically ruled out—before the election.

We now know what a false prospectus that was, and I hope that everyone, especially those conned into voting Tory last year, will keep that clearly in mind as cuts in public service unfold in the months ahead. We also know that the Prime Minister and his colleagues, especially the former Chancellor, massaged the public borrowing figures downwards in the 1992 Red Book.

The Financial Times of 12 October 1992 told us that the former Chancellor had, in an internal Treasury note, instructed officials to recalculate projections for the public sector borrowing requirement in the five years to 1996–97, to pull them down if possible to zero by the end of the period. Despite—probably—valiant efforts inside the Treasury, its officials did not quite make it to zero, but they got the figure down to £6 billion at the end of the period. This was the projection for the PSBR before the election.

After the election, the £6 billion mysteriously jumped to £35 billion in the 1993 PSBR projection. The Government were correctly condemned by the Treasury and Civil Service Select Committee for what it called the former Chancellor's cavalier approach to massaging or falsifying statistics for political reasons. Even the deputy editor of The Spectator—I do not think that he can be accused of left-wing scaremongering, which is the major objection to the Labour party at the moment—felt obliged to comment on the 1992 Budget in his issue of 20 March this year, as follows: The Budget executed a great deceit on the electorate. Since the election campaign of a year ago, honest dealing by the Tories has been rare. The first 1993 Budget provided evidence of the cynicism behind the smirks and mock sincerity on the faces of the First and Second lords of the Treasury. 291 What is the consequence for the nation of all this? It has been signalled clearly enough, especially by the Chief Secretary to the Treasury. Public expenditure cuts are now being secretly planned; not only will they totally overturn all the solemn assurances given by the Prime Minister before the election, but they will gravely undermine the crucial public services which are vital to the security and well-being of millions of our fellow citizens.

Will the axe fall on pensioners entitled to exemptions from prescription charges, which are now at a record £4.25 an item? [Interruption.] That may be amusing for Conservative Members, but it is not for millions of people who are gravely worried that it might occur.

Will it be hotel charges of £30 a night for overnight stays in hospital? Will it be a payment for visits to GPs or, as predicted in The Guardian of 5 June, will there be savage cuts—[Interruption.]I do not always support The Guardian or agree with everything it says—it would be surprising if I did, given what it sometimes says—but it was right to refer to the internal memorandum from the Department of Social Security, which talked precisely about cuts in invalidity benefits. There will possibly he cuts in housing benefit and in invalidity and sickness benefits.

§ Mr. Tim Smith (Beaconsfield)

rose—

§ Mr. John Smith

Perhaps the hon. Gentleman can clear up the matter.

§ Mr. Tim Smith

The leader of the Opposition is indulging in the most disgraceful and irresponsible speech, and he knows it. He is frightening the most vulnerable people in our society. Is he aware that, as long as he fails to answer the questions that were put to him about the public sector borrowing requirement, the people of this country will conclude that he does not have the guts to tackle the most difficult economic question facing this country and that he is not fit to be leader of the Opposition. let alone Prime Minister?

§ Mr. John Smith

Every time we refer to the Government's likely cuts, we are told that we are scaremongering. That allegation appears in the amendment to the Opposition motion. No doubt it has been drawn to the hon. Gentleman's attention that he might make that point during the debate. He has done it.

The hon. Gentleman used to be connected with a Conservative party organisation and, on the issue of scaremongering, I should like to draw his attention to a document with which he may be familiar—the Conservative campaign guide for 1992. I have been able to obtain one of the few remaining copies that has escaped the central office shredder. I am glad to have it, and I can make it available to hon. Members who want to consult it.

No doubt that guide was used by Conservative Members during the campaign. Page 12 states that there will be no increases in VAT. The material part states: Following a series of unfounded and irresponsible scares from the Labour Party, the Prime Minister"— the words "Prime Minister" are in bold letters, so at least he is given status in the campaign guide— has confirmed that the Government has no intention of raising VAT further."— The document also refers to a statement in the House, and says: There will be no VAT increase. Unlike the Labour Party, we have published our spending plans and there is no need to raise VAT to meet them. 292 For good measure, the document quotes the right hon. and learned Member for Putney (Mr. Mellor), who, as Chief Secretary to the Treasury, said that the Government had no intention of widening the scope of VAT. Was it fair comment that the Labour party was scaremongering at the time of the last election?

§ Mr. David Shaw (Dover)

Will the right hon. and learned Gentleman give way?

§ Mr. Smith

No. I am dealing with the last intervention.

I thought that Conservative Members might think that this was scaremongering. That nasty Labour party was once again maliciously misinterpreting the honest and decent intentions of these credible and straightforward Ministers. The public know exactly what happened when the Conservatives were returned to office, and they will not be fooled so easily again. VAT went up by 8 per cent., to 17.5 per cent., affecting every family in the land. Gosh, weren't we irresponsible to allege that? Weren't we wicked to make such scurrilous accusations against such honest and decent people?

Let me tell the Prime Minister that what scares the country is not what Labour predicts, because we are quite accurate in our predictions, but what the Government are capable of doing. The Government are prepared to promise anything to get elected and then to betray each and every promise afterwards.

Although the betrayal of election pledges is bitterly resented throughout the country, it is only one of the reasons for the contempt in which the Government are held. Since the general election, we have seen one catastrophe piled on another. Not even the most inventive or ruthless scaremongering among my hon. Friends would have had the audacity to allege that any Government could be so consistently incompetent, so hopelessly accident-prone and so foolishly inept.

I select but a few of the Prime Minister's recent triumphs: the billions of pounds lost in the panic and fiasco of black Wednesday; the grievous damage to our energy resources which the disastrous pit closure programme has inflected upon the country; the shady double dealing in the Matrix Churchill affair; the hopelessly bungled scandal of the education tests; and the disaster waiting to happen in the privatisation of our railways.

In response to the plummeting popularity of the Administration itself, revealed at Newbury and in the shire county elections, we have the Prime Minister's botched reshuffle. If we were to offer that tale of events to the BBC light entertainment department as a script for a programme, I think that the producers of "Yes, Minister" would have turned it down as hopelessly over the top. It might have even been too much for "Some Mothers Do 'Ave Them".

The tragedy for us all is that it is really happening—it is fact, not fiction. The man with the non-Midas touch is in charge. It is no wonder that we live in a country where the grand national does not start and hotels fall into the sea.

§ Mr. David Shaw

Will the right hon. and learned Gentleman give way?

§ Mr. Smith

No.

To be fair to the ex-Chancellor from whom we have heard today, he reminded us in his last public speech 293 before today that his biggest problems, one might say his major problem, had been inherited. It was a cruel twist of fate to have to succeed the right hon. Gentleman the Prime Minister. No doubt he is now reflecting that he is well out of it all.

There is proof abundant that this is a Government who are untrustworthy and incompetent—deeply untrustworthy, hopelessly incompetent. Perhaps their most defining characteristic is an aggressive, bullying and dogmatic obstinacy which assumes that they are entitled to control our affairs without the slightest recognition of the expertise of others or any opposing opinion.

The tragic farce of the education tests is a case in point. The Government are now a laughing stock as boxes of unopened test papers accumulate in schools all over the land. Of more than 4,000 secondary schools, only a handful took part. It is not that the Government were not warned; parents, teachers and head teachers unitedly told them they were wrong, but the expertise of the teaching profession is of no interest to the arrogant Secretary of State for Education.

Even the right hon. Gentleman's own advisers could not stay on the obviously sinking ship. The noble lord Skidelsky attacked what he called "the Byzantine complexity" of the proposals: I was amazed, he said, at how insensitive they were to spending large sums of money on things that were no good. He should not have been so surprised; they have a long record of doing just that. At a time when educational spending is under threat, perhaps it is worth remembering that the Government's own advisers tell us that this year's tests alone will cost £35 million.

It is of course interesting that the Government propose tests only for schools in the public sector. If they are such good news, why are the private schools to which most Conservative Ministers send their children not covered by the tests at all? Ministers know perfectly well that private schools do not want them, and they will not have to accept them—one role for schools that the Government favour and another for the rest. That is hypocritical as well as dogmatic.

Fresh from those triumphs, the Secretary of State for Education is on a collision course again with parents, teachers and head teachers, with his threats to end graduate status for primary school teachers—ideas much more associated with the last century than with the next. When will the Government learn that the teaching profession is the fundamental profession? It should be strengthened, supported and encouraged—not threatened, undermined and abused.

§ Dr. Robert Spink (Castle Point)

What is the right hon. and learned Gentleman's view on testing? Would he abandon the three children in 10 who leave school still unable to read and write properly? How does he intend to drive up education standards? What is his education policy?

§ Mr. Smith

There is a perfectly good case for sensible tests agreed with the teaching profession and with parents —as is occurring in another part of this country which is not England or Wales, but which happens to be governed by the same Government. That is how the issue is being 294 approached there, and there is no reason why the same cannot be done in England and Wales. It is not the principle of testing that is in question but the ham-handed, arrogant and foolish way in which this incompetent Government have handled it.

What possible justification can there be for the absurdities being proposed in the name of rail privatisation? What on earth makes the Government so determined to scorn the opinions of transport experts and of nearly every member of the travelling public? Hardly a day goes by without more evidence of the cost, folly and dangers of the Government's privatisation plans.

The latest assessment by Steer Davies Gleave, a transport consultancy that the Government themselves use, shows that the operating costs of a privatised rail network are likely to be £500 million more than the existing system. A Government in the grip of the privatisation virus appear immune to such compelling evidence.

§ Mr. David Tredinnick (Bosworth)

Were not the same arguments deployed against bus privatisation, which has been an overwhelming success?

§ Mr. Smith

I do wonder about the Conservative party. One does not have carefully to prepare traps for it—it invents its own. Is the hon. Gentleman aware of what the people of this country think about bus privatisation? I dare say that he has not been on a bus for some time.

Even worse, this week ABB Transportation, better known as British Rail Engineering ltd., announced 900 redundancies because of a shortage of new orders amid the uncertainties of rail privatisation. That company is the only British rolling stock manufacturer that makes all its components here in Britain. Thus is delivered a further blow to British manufacturing capacity and to the skills that are needed to sustain it.

We know from other privatisation examples that the principal victims of the process are British suppliers—whether it is coal equipment, buses or trains. If we lose manufacturing capacity at York, Crewe and Derby, the inevitable result is that future rolling stock, whether for the national railway system or for london Underground, will have to be purchased abroad, adding a further dangerous twist to our already serious balance of payments deficit.

We hear platitudes from the Prime Minister about his concern for manufacturing industry, but his policies do it the most deadly damage. Evidence of that is vividly shown not just in public finances, serous though they are, but in two other crucial aspects of economic performance—high and continuingly high unemployment, and a dangerous balance of payments deficit.

Britain has the worst deficit of the Group of Seven leading industrial countries. Most alarming of all, even after the last Tory record-breaking recession, there was a balance of payments surplus of £6.7 billion at the end of the cycle. This year, as we struggle for recovery, we face an enormous £17.5 billion deficit—which, according to the Budget, is forecast to be even worse in 1994, at £18.5 billion.

That simply reflects 14 years of neglect of Britain's manufacturing sector. In sector after sector, there really is no adequate British industrial capability. Our economy is too small to be able to create the wealth on which we need 295 to rely. As Goldman Sachs commented in its latest economic review—it put it quite well—the British economy has suffered from an apparently permanent shift in the structure of the economy towards excess consumption and away from manufacturing, investment, exports and employment"— all the things that really matter to a successful economy.

That is the key problem with the British economy. All the other depressing symptoms that we have to consider flow from that central cause. That is why we need a wholly new start in economic policies, not just a shuffle of personalities. It was deeply depressing that the need for a new approach was totally ignored by the Chancellor of the Exchequer when he breezily appeared on Radio 4 this morning.

What we need is what the Opposition have long argued for—an industrial policy that recognises that Britain's fundamental wealth creator is our manufacturing industry, and that supports it by the encouragement of sustained investment in new technology, research and development, regional policy and, above all the skills of our work force.

§ Dr. Spink

Will the right hon. and learned Gentleman give way?

§ Mr. Smith

I have given way already.

It is depressing that, as today's Financial Times reports, a Department of Trade and Industry study shows that United Kingdom companies spend significantly less than our competitors on research and development, and it is extremely worrying that the United Kingdom share of United States patents has fallen from 10 per cent. in 1980 to 6 per cent. in 1991.

No wonder that, when Management Today, in its latest issue, asked leading industrialists whether they felt that the Government had a clearly defined industrial policy, 90 per cent. said no. When they were asked whether they believed that the present Government's policy was the most effective for United Kingdom industry, again 90 per cent. said no. They understand that the purpose of an industrial policy is to co-ordinate to maximum effect investment, regional development, technological improvement and export performance. We believe that to be vital; it is, after all, what other successful countries do.

We need a new approach to tackle Britain's intolerable level of unemployment. Do not the Government yet realise that the biggest drain on our public finances is the cost of the unemployment that they have created—£9,000 a year for every person unemployed? It is the greatest misery in modern Britain—for individuals, families and whole communities—and, perhaps worst of all, a massive waste of invaluable human resources. We need action on unemployment, and we need it now.

I again ask the Government to act to help our beleaguered construction industry. Why do not the Government do what we and so many others have urged and allow local authorities to spend their own capital receipts on house building and house improvement programmes, helping both the homeless and the hundreds of thousands of unemployed construction workers? Once re-employed, those workers will start to pay taxes instead of drawing benefits, and companies will make profits on which they will pay taxes, rather than declaring losses on which they pay no tax at all.

296 This policy is backed by the construction industries, local authorities, the Institute of Housing and many City commentators. Midland Montagu has urged the Government to leap at the opportunity of adopting a policy full of common sense and compassion that efficiently targets the homeless, the housing market, the construction industry, and the South East. All we have heard from the Government is the usual dogmatic and obstinate refusal.

It is no wonder that the Government have slumped in popularity. According to the front page of today's Daily Telegraph—on which I rely for my information about the Conservative party—senior Tories on the 1922 Committee executive are to hold an inquest on the failure of the ex-Chancellor's sacking to halt the biggest slump in morale since the Profumo affair 30 years ago. No doubt the Prime Minister will dismiss this too as scaremongering, but as a principal participant in the Profumo affair might have said, "He would say that, wouldn't he?"

But he knows, does he not, the menace of these men in grey suits? After all, he was the beneficiary of their deadly manoeuvres against his predecessor—although he no doubt reflects that, while it took 10 years to move against her, after only 12 months they have him in their sights. If I were he, I would worry most if they sought to reassure me. Most of all, I would worry if they sought to show their solidarity with a man in a spot of bother by giving him a present—perhaps a watch inscribed, "Don't let the buggers get you down." After all, it appears to be a coded message that it is time for an early and a swift departure.

The Prime Minister cannot complain about the giving of a watch. He himself says that it is not a hanging offence. What we know, from the botched reshuffle and the abrupt dismissal of the former Chancellor, is that a hanging offence in this curious Government is loyally to carry out the Prime Minister's own policies, especially to the accompaniment of effusive declarations of his support.

The British people deserve a better Government, for they dislike intensely the concoction of betrayal, incompetence and dogmatism which are the characteristics of the present occupants of the Treasury Bench. What people are beginning to dislike just as much is the low ambition that these people have for our country.

The people of Britain do not want the low-skill, sweatshop economy which is the miserable Tory response to the challenge of competiton from Europe and the wider world. What they want is for us to become a high-skill, high-tech, high-wage economy, able to compete with the best and to succeed on the basis of our ability and the quality of our products in the markets of the world.

§ Mr. David Shaw

What are you frightened about? Why will you not answer a question on the nepotism and corruption on Monklands district council? [Interruption.]

§ Madam Speaker

Order. Unless the hon. Gentleman resumes his seat and stays there, I shall take disciplinary action against him.

§ Mr. Smith

The people of Britain do not want any more years of high and debilitating unemployment, which destroys opportunity, squanders talent and wastes our resources. They want economic policies which support steady growth and rising employment, and which give our young people a chance to succeed.

The people of Britain do not want to see competition and dogma in the classroom. They want the best possible 297 education for their children in properly resourced schools from teachers whose vital contribution is valued, not scorned.

They do not want the ever-increasing commercialisation of their health service. They want once again to feel secure in the knowledge that, when it is needed, they will be able to obtain the care that they and their families need at the time that it is required.

The people of Britain do not want a Government who twist and turn, who betray their promises and dishonour their pledges. Above all, they want a Government that they can trust. No amount of reshuffling, repackaging or re-presentation can now disguise from the British people the stark reality of a discredited Government, presided over by a discredited Prime Minister.

§ The Prime Minister (Mr. John Major)

I beg to move, to leave out from 'House' to the end of the Question and to add instead thereof 'welcomes the widespread indications of economic recovery in the United Kingdom at a time when many other major economies are in deepening recession; recognises that the interests of industry are at the heart of the Government's policy and acknowledges the comprehensive programme of training and employment opportunities for unemployed people that the Government has put in place; welcomes the Government's commitment to its Manifesto pledges including its commitment to improving the efficiency and effectiveness of public services through the Citizen's Charter; deplores the scare-mongering stories about public spending peddled by the Opposition; and applauds the Government for its determination to maintain low inflation, sound public finances and firm control over total public expenditure upon which a sustainable economic recovery depends.'. As the right hon. and learned Member for Monklands, East (Mr. Smith) sits down, I have little doubt what is in his mind: "That'll keep John Edmonds quiet for a week or so."

Before I turn to the substance of the debate, I wish to say a word or two to my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) regarding his remarks at the commencement of today's debate. In his speech, my right hon. Friend spoke of a number of matters of very great importance, including the case that we have discussed on many occasions over the past two years for an independent central bank.

I share my right hon. Friend's loathing of inflation. That is an issue that we discussed frequently. We both saw the case for an independent central bank, able to take decisions on the implementation of monetary policy. There is a genuine case for that. I do not dissent from my right hon. Friend's remarks about it.

The very real concern that I have always faced is one that I believe is spread widely across the House: the need for accountability to Parliament for decisions on monetary policy matters. Were a way to be found to get the benefits of an independent central bank without the loss of parliamentary accountability, my views would be very close to those of my right hon. Friend, but I have to say to my right hon. Friend—I believe, from our many discussions, that it is a view he shares—that what is more important than the institutional arrangements is the underlying policy that is actually being followed. On that, I do not believe that an independent central bank would have brought down inflation any more rapidly than we 298 have been able to achieve. [Interruption.] That is something for which I am happy to pay tribute to my right hon. Friend.

Also, I entirely share my right hon. Friend's vision of the economic goals of this Government— [Interruption.] —and of the difficult path that we have had to follow to achieve and maintain low inflation and restore sustainable growth—[Interruption.]—and employment. My right hon. Friend and I—[Interruption.]

§ Madam Speaker

Order. The House must settle down. Hon. Members do not have to listen, but whoever is speaking has to be heard. There is a great distinction between those two statements. The Prime Minister.

§ The Prime Minister

My right hon. Friend and I faced crises both before and after September last year. We worked together towards objectives that we shared, and we were always agreed as to our main goals: low inflation, sustainable economic growth, an increase in prosperity for all our people as medium and long-term objectives. I believe that history will look favourably on my right hon. Friend's economic and financial skills, but a strong Government need political skills as well— [Interruption.]—when leading a democratic society and, in particular, when handling a lively House of Commons with a small majority.

Dealing with the problems of a small majority is a fundamental fact of democracy that no one dare or should even attempt to overlook. However, as we have shown in the battle over inflation and in our pursuit of European policy, against great difficulties in this House, we were not prepared in the Government to allow short-term difficulties to deflect us from what were the right long-term policies for this country. That was the position, and it is the position.

I am grateful to my right hon. Friend for his support and help throughout the past two and half difficult years. I acknowledge the difficulties that he has faced and the courage with which he has faced those difficulties. and I accept the support that he has offered to the Government for the future. I welcome the opportunity to debate economic policies at a time when output is up, exports are up, productivity is up, confidence is up and, as announced today, when business starts are up.

The right hon. and learned Member for Monklands, East has just made the speech that we expected of him. At the end of it, we are no better informed about his economic policies than we were at the beginning of it—or even about whether he has any economic policies or whether he has progressed beyond the sound bites that so frequently construct them.

We do know something about the right hon. and learned Gentleman. We know that he is the man who announced the biggest tax increase in peacetime history, just before the general election. He is the man who said confidence would carry on falling, just before the CBI announced the highest level of confidence in 10 years, and he is the man who calls for a debate on the economy just as the economy is recovering. I hope that, with timing like that, the right hon. and learned Gentleman never takes up boxing, because it would be very painful. Many things can be said about him, but "floats like a butterfly, stings like a bee" is clearly not among them.

What does seem right about the right hon. and learned Gentleman was said by the right hon. Member for 299 Chesterfield (Mr. Benn). I remind the right hon. and learned Gentleman what his right hon. Friend said about him: I do not think that Members of Labour's Front Bench would have even two ideas about what to do with the economy if they came to power…a series of sound bites glued together and called an economic policy is not an economic policy."—[Official Report, 20 May 1993; Vol. 225, c. 420.] That remains as true at the end of the right hon. and learned Gentleman's speech as it was before.

Today's debate goes right to the heart of the fundamental divide between the Conservative party and the Labour party. The Labour party stands for higher public spending, higher taxation and more state interference in business and industry. We stand for controlling public spending, bringing direct taxation down where we can and getting the state off the hacks of businesses and individuals.

Let me deal with one matter that was fundamental to the right hon. and learned Gentleman's speech. let me turn immediately and clearly to social policy. I did not come into politics to dismantle the welfare state. I have no intention of doing so and neither does my party. At the moment, in different parts of the country there are many vulnerable people who are worried. They are worried because the Opposition systematically, day after day, leak after leak, sound bite after sound bite, have sought to frighten them. The Opposition have peddled scare after scare—

§ Several hon. Members

rose—

§ The Prime Minister

I will give way later.

The Opposition have peddled scare after scare, yet the leader of the Labour party is deep into moral outrage—righteousness to self-righteousness is second nature to him. He is an honourable man, one might say—surely not the man to spread scare stories; surely not a man to condone scare stories, so let me be charitable to him. Perhaps he did not know—had no idea—when the hon. Member for livingston (Mr. Cook) swore that we would privatise the national health service, when the right hon. and learned Gentleman must have known that that was untrue. He could not have known about that, because he is an honourable man.

What did the hon. Member for Holborn and St. Pancras (Mr. Dobson) say? He said that the Government were threatening to cut pensions and benefits for the worse off. In the autumn statement 13 days later, pensions and benefits rose. I am sure that the right hon. and learned Gentleman did not know what his hon. Friend would say, because he is an honourable man and would not have sanctioned it.

It was the right hon. and learned Gentleman's party that repeatedly claimed that trust hospitals were leaving the health service. They were not: the Labour party knew that they were not, yet it needlessly scared sick people for a vote or two, time after time. The right hon. and learned Gentleman could not have authorised that, because he is an honourable man—or so I had thought. But then I discovered what he had to say: What's going on…will lead to the privatisation of the NHS. That was flatly untrue, of course, and another scare. I wonder who could have spread it? The right hon. And 300 learned Gentleman spread it. In the Labour party the scares come from the top and behind that moral righteousness is someone who has no scruples whatever.

The right hon. and learned Gentleman claims that the Conservative party won the election by telling untruths. let me remind him about that election. It was his party that published 10 patient case histories and had to withdraw them when it turned out that it had made them up. It was his party that made up untruths about a sick little girl and spread them across the country. That is the party that dares to talk to us about standards. There is a word for that, but it is not parliamentary.

Let me turn to the subject of public spending. The Government know that, if the economy is to grow, the tax man cannot take more of the proceeds than the country can afford. In the Conservative party, we understand that people want more money in their own pockets and do not want the Government to spend their money for them. Of course, in the recession, spending had to increase. I do not apologise for that increase in spending—it was necessary in the recession and it was necessary to protect the vulnerable. I saw no support from Labour Members for any expenditure reductions throughout the recession and every support for dramatic increases week after week from every Member of the Opposition parties.

§ Mr. Calum Macdonald (Western Isles)

Will the Prime Minister give way?

§ The Prime Minister

later.

During that recession, not only did expenditure necessarily rise but income necessarily fell and that added to the borrowing requirement. Even though a great deal of that will reverse as growth returns, it is going to take time. That is why we have embarked on the public spending review. Governments have to take difficult decisions. We have to face structural increases in public spending, as any Government would. There are demographic changes, changes in student numbers and more elderly people, especially the very old.

As we address those problems, the Opposition gaily spread mischief—a little fib here, a little scare there—yet as it does so it is carrying out a review into social expenditure. It does not have the courage to do it directly; it has farmed it out to the Commission on social policy. The only form of contracting out that the Labour party approves of is contracting out difficult decisions to other people.

The right hon. and learned Gentleman cannot run away from what he said: We —that is, the Labour party— should be prepared to re-examine everything. I have not ruled anything out". That is its position on social policy and Labour Members nod in agreement. Daily, the Labour party invites us to rule things out, while it examines everything—pensions, child benefit and every other aspect of social policy.

How responsible the right hon. and learned Gentleman is. I suppose that that comment shows that he wants to grapple with real problems, but when he faces other audiences, he wants to rule everything out. Which is the real right hon. and learned Gentleman? The gritty, determined facer of problems who wants to examine everything where nothing is ruled out, or the wriggler, twisting and turning, saying one thing to one audience and another thing to another audience?

§ Mr. John Garrett (Norwich, South)

Could the Prime Minister, First lord of the Treasury, tell us what he was doing during the long period of recession, which has caused so much misery throughout the country? Was he looking the other way? Was he train spotting? Was he walking into cupboards? Has there ever been a more wimpish approach to the problems that face this country than that which he has shown?

§ The Prime Minister

I shall tell the hon. Gentleman directly: we have been presiding over a policy that brought inflation down to 1.3 per cent. and interest rates down to 6 per cent. so that this country is now poised for the largest growth in the European Community this year, next year and probably for the years beyond that. We have been taking the long-term view, not the short-term, option. That is what we have been doing-I am grateful to the hon. Gentleman for giving me the opportunity to point that out—while he has opposed every policy that has brought down inflation and interest rates.

The Opposition will be glad to know that our review of public spending will be careful and thorough. There will be two criteria: are any changes fair, and are vulnerable people protected? When the answer is no, we shall not make the changes. When the answer is yes, we shall set out to the House the implications of those changes. There are no soft options. The Government's duty is to examine them all and pick the right ones. We know that we need to reduce public borrowing, which is why, in the last Budget, we decided that some increase in revenue was necessary.

We decided to introduce value added tax on fuel and power, not least because it would help meet our Rio commitments, commitments that the Opposition urged us to extend. We had every reason to expect cross-party support. The liberal Democrats had stated in their green paper: Liberal Democrats advocate as a first priority the imposition of a tax on energy…The UK is unusual amongst EC members in not applying even standard rates of VAT on domestic fuels…we would press forward…by ending the anomalous zero rate of VAT on fuel". Where were those men of principle in the Division lobbies after the Budget?

What did the Labour party say? It said: Zero rating on items such as food, fares, books and children's clothing should remain as an essential part of the VAT system. That was quite clear. It continued: We will also use the tax system, as well as regulation, to help protect the environment. That can mean only one thing. In the list of zero-rated items, there is no reference to zero rating for domestic fuel. The Opposition intended to put it up, and they know it. If they did not, will they tell me now why it was not in their list of zero-rated items? The right hon. and learned Member for Monklands, East does not answer—no doubt, as a QC, he believes in the right to silence for an accused.

When we introduced VAT on fuel and power, we made it clear that there would be extra help for less well-off pensioners and others on low incomes. I am glad to repeat that commitment. In recent months, the right hon. and learned Gentleman has made a great deal of the VAT increase, as have his hon. Friends.

§ Ms Hariet Harman (Peckham)

So have the voters.

§ The Prime Minister

So did the voters, says the right hon. lady. What the right hon. and learned Gentleman did not mention is that he was the Energy Minister who let 302 electricity prices rise. What was the increase—5 per cent., 10 per cent., 15 per cent.? No, it was 30 per cent. over and above inflation. What did the right hon. and learned Gentleman do to help the less well-off? I shall tell the House what he did—absolutely nothing. The position is clear.

The right hon. and learned Gentleman cares about pensioners when he is in opposition—how he cares about pensioners in opposition—but in government he disregards them absolutely. One may think that that was a single lapse but, in case anybody thinks that that is so, let me say that the right hon. and learned Gentleman was a member of the Government who twice held back the Christmas bonus and cut capital spending on the health service. That is his record, and he should be ashamed of it.

There is another case where the right hon. and learned Gentleman's actions do not match his words. Today, he again attacked our borrowing levels, but his election promises would have put up borrowing way above the present level. He is still at it. "Let's spend £6 billion of capital receipts," says the right hon. and learned Gentleman. "Let's spend an extra £1.5 billion on public sector pay." The shadow Chancellor says, "Let's renegotiate our rebate and pay more to the European Community."

Is there any area of Government spending that the Opposition are prepared to cut? Perhaps the shadow Chancellor can tell us. Perhaps we could have another sound bite to tell us where he would find the necessary savings. Or perhaps the deputy leader of the Labour party can tell us; after all, she came into government to implement the cuts in education that her hon. Friend the Member for Eccles (Miss lestor) refused to make.

§ Mr. Geoffrey Dickens (Littleborough and Saddleworth)

Will my right hon. Friend explain why, if the Opposition are sincerely worried about the disadvantaged people of this country, they demand more and more overseas aid, day in, day out? [Interruption.]

§ Madam Speaker

Order. We all like a little bit of fun and hilarity, but we also want to hear the Prime Minister.

§ The Prime Minister

The fundamental point about overseas aid is that, in order to sustain it as the Government have done, one needs to pursue the right economic policies, as we have also done.

I am glad that the motion mentions manifesto promises—glad, but a little surprised because the right hon. and learned Gentleman has scrapped all his election promises. We stand by our manifesto policies. We promised action on trade unions, housing, lotteries, railways, education and asylum, and we have kept our promises. Bills on each of those matters have already passed through the House. We promised to uprate pensions and benefits, and we have done so. We promised to maintain child benefit, and we have done so. We promised to increase real resources for the health service, and we have done so; year on year, spending is at record levels. They are the promises we made, and we have kept each one.

§ Mr. John Fraser (Norwood)

When the Prime Minister went on his trip down memory lane to Brixton and other ethnic areas, did he tell the people that he was going to take away the right of appeal for visitors?

§ The Prime Minister

The hon. Gentleman knows as well as any hon. Member that the great improvement in race 303 relations in this country is directly related to the firm but fair immigration policies pursued by this Government. I am surprised to hear him venture down that track, in view of his record of favouring good race relations.

We promised to deliver low inflation, and we have delivered on that promise. We promised to resume economic growth, and it is now resuming. Inflation, at 1.3 per cent., is at the lowest level for 30 years. Interest rates, at 6 per cent., are the lowest in the Community. There are now too many signs of recovery for even the Opposition to ignore them. Manufacturing output has increased for months in succession and unemployment has fallen three months in a row. It is too high—I share that view—but it is moving in the right direction, and sooner than most people expected.

It is certainly sooner than the hon. Member for Dunfermline, East (Mr. Brown) expected, because, after the Budget, he said: I make one Budget forecast—that, after the Budget, unemployment will rise this month, next month and for months afterwards".—[Official Report, 17 March 1993, Vol. 221, c. 289.] One day later, unemployment fell. The next month, it fell again, and the next month, it fell again. Another sound bite is needed, I think.

The recession has been damaging, and recovery has not come easily, but it is now under way—[Interruption.]

§ Madam Speaker

Order. Hon. Members must come to order. The bawling and shouting coming from the Back Benches this afternoon is utterly disgraceful. [Interruption.]I know who the Members responsible are, and I need no one to point them out for me.

§ The Prime Minister

Some time ago, the right hon. and learned Member for Monklands, East admitted: we change our policies as we move towards a different election…We'd be a very foolish Party if we went into an election in…1995–96 with exactly the same policies". That is certainly true. But whose policies were they? They were the right hon. and learned Gentleman's. He was the undisputed author of Labour's defeat. He was the man who drew up the disastrous shadow Budget. Hon. Members may remember the hype, the fake presentation, as if it were a real Budget, and the responsible tone—the right hon. and learned Gentleman even posed for photographs outside the Treasury. lots of passers-by do that, but they never get into the Treasury.

The right hon. and learned Gentleman talks of broken promises, as does the shadow Chancellor, the hon. Member for Dunfermline, East. That is a good sound bite, but for the wrong party. The Labour party has broken every promise that it made about future policy at the election. Every one has gone to the social justice Commission.

The right hon. and learned Gentleman said: We must be prepared to examine in an open-minded way some of the fundamental features of our approach. What is the right balance between universal and selective benefits". It was not Milton Friedman who said that, nor my right hon. Friend the Chief Secretary, nor even lord Desai—no doubt he would have been sacked if he had said it. The right hon. and learned Member for Monklands, East himself said it. Yet time after time he accuses us of examining aspects of public expenditure that any responsible Government would need to examine.

He is the man who said that his planned increases in pensions and child benefits were essential, and that his tax 304 proposals were fair, reasonable and popular. They have been so popular that he has dropped them all. So much for his promises. I would rather listen to the late Robert Maxwell on pension probity than to the right hon. and learned Gentleman.

I know that the exchange rate mechanism and economic and monetary union are matters of some importance to hon. Members on both sides of the House. Since we left the ERM, there has been substantial debate about monetary policy and the possibility of economic and monetary union. In the negotiations at Maastricht I sought and secured an opt-out on the single currency because I was sceptical of its economic impact across Europe and its artificial deadlines, and because I believed that such a decision was for the House to make.

Since then, economic developments in the European Community have strengthened the reasons for caution that I set out. The European Community economies have diverged rather than converged. As we come out of recession, our main partners are heading into a recession. Some of our European partners remain keen on early monetary union, although many of their central banks are less keen. Even the keenest must now see the difficulties. The criteria for monetary union will simply not be met. When I was negotiating at Maastricht, the idea of a monetary union in 1997 looked ambitious, perhaps even a little dubious. I have to tell the House that it looks wholly unrealistic today.

The economies of Europe are not remotely ready for one currency throughout the 12, soon to be 16, countries, and I believe that they will not be ready—if they ever will be—for many years. That is not an anti-European view; I simply do not believe that the economic circumstances will be right, and if they are not right the damage that proceeding would cause the Community would be profound, and I should not wish to see it occur. If some of our partners decided to go ahead prematurely, that would be an economic mistake. I do not believe that we should go with them.

We have sought reform of the exchange rate mechanism. I make no secret of the fact that I prefer stable exchange rates, and so does industry. But I cannot accept that the present operation of the ERM is satisfactory. Sterling was forced out, in the circumstances described by my right hon. Friend the Member for Kingston upon Thames, but so was the lira. The franc, the peseta, the escudo, the punt and others have at different times been put under great pressure. Certainly, I could not recommend that sterling return at present. We should need greater convergence between the monetary policies appropriate for all the Community economies, and we should need to be satisfied that the system would be operated to the benefit of all its members.

In January, I made it clear that those circumstances would not apply this year. I now doubt whether they will apply for some years ahead—possibly they will not apply in this Parliament.

§ Sir Peter Tapsell (East lindsey)

There will be a widespread welcome throughout the party for what my right hon. Friend has just said to the House, and there will be great support for the policies that he has enunciated throughout his speech.

§ The Prime Minister

I am grateful to my hon. Friend, and delighted to have a party at ease with itself.

305 It is clear that the Labour party has no policies at all, and certainly no economic policies. When it had policies, they lost it the election. As the hon. Member for Brent, East (Mr. Livingstone) put it—rather cruelly, I thought —the right hon. and learned Member for Monklands, East bears the primary responsibility for tax and economic policies that lost Labour the election. And now Labour has none. That is not my view alone. It is clearly shared by Mr. Edmonds of the GM B, the union that sponsors the leader of the Opposition—or at least, it sponsored him until last Sunday. I am not sure whether things have changed since then.

Mr. Edmonds says that Labour has an identity problem and asks whether the voters know what Labour stands for". He says that Labour must shake itself out of its lethargy.

He asks: Where was the Labour movement during the past few months? He may well ask.

The Labour leadership cannot have been examining economic policy, because the shadow Chancellor would not recognise economic policy if it gripped him by the windpipe. The Labour leadership may have been absorbed in its falling membership, or it may have been trying to fight off the defeat of the right hon. and learned Gentleman's party reforms.

There is one area of total agreement between the right hon. and learned Gentleman and myself: he wants one man, one vote—a novel concept for Labour. He is right about that, and he has my support. Unfortunately, he does not have Mr John Edmonds' support. Mr. Edmonds wants one member, one vote, so long as he can be the member and he, and nobody else, can exercise the vote.

So long as the Labour party remains subordinate to the trade unions in policy, a paid for and wholly owned subsidiary of the trade unions, Labour Members will sit on that side of the Chamber. I shall tell the right hon. and learned Member for Monklands, East why he and his party fail to convince even the leader of the union that sponsors him. It is because Labour is a party without policies and without principles that it will remain, in the short and the long term, a party without power. [Interruption.]

§ Madam Speaker

Order. Will hon. Members leaving the Chamber please do so quickly? [Interruption.] Order. Come along.

§ Mr. Paddy Ashdown (Yeovil)

I believe that what we have heard and seen this afternoon is nothing less than the beginning of the end of the right hon. Gentleman's premiership. I say that not because of the lack of success of his speech—although I have to tell him that, if he had bothered to turn round he would have seen his fate indelibly written on the faces of Conservative Members. I say it not because of the effectiveness of the speech by the leader of the Opposition, although, in its way, the right hon. and learned Gentleman's was an effective speech, typical of the speeches that he delivers [good for a knockabout but not providing too much revelation about Labour party policy.

I say it because of the speech by the right hon. Member for Kingston upon Thames (Mr. Lamont). I believe that 306 the two speeches that we have just heard, and all the other speeches in the debate, will be forgotten when the right hon. Gentleman's words will be remembered and will reverberate down through the months and years that remain of the Government.

I do not know when the Prime Minister will go. It may take weeks or it may take months. But when he does go, this afternoon will be the occasion that people will point to as the start of that process. As the House will have recognised, the right hon. Member for Kingston upon Thames delivered a speech of considerable dignity. He was clear about his own view of his role in what has happened over the time that he has held high office. However, the speech was devastating in its criticism of the Government and devastating, too, in its criticism of the right hon. Gentleman's friend, the Prime Minister.

The right hon. Gentleman lifted the lid—particularly in the last three or four minutes of his speech—on a Government who lack clear leadership and are blown hither and thither by opinion polls, a Government prepared to fiddle with interest rates for political purposes and infected by short-termism—those are not my words, but those of the right hon. Gentleman—and a Government who lack direction.

The right hon. Member for Kingston upon Thames has shown—more clearly than the words of any Opposition Member could have done—what lies at the heart of the Government of this country. The Conservative party is riven by a virulent civil war, and is without a leader who can mark any kind of course forward for the nation. [Interruption.] I invite Conservative Members to read tomorrow, not my speech nor that of the leader of the Opposition, but that of the former Chancellor, who was a part of the Government and who has taken the lid off it in such a devastating way. I say again that his is the speech that will be remembered.

We now know that the Government cannot bring themselves to face the immensity of the problems that they have created. They cannot recognise the reality of the misery that they have inflicted on ordinary people's lives. They do not understand the concept of fairness, do not care about betrayal and cannot grasp the opportunities that now lie ahead for our country.

The Prime Minister clearly thought that sacking his Chancellor would provide a way out of his problems. But the reverse has proved to be the case, as he was clearly exposed in the words of the former Chancellor today. The Government's crisis, as he expressed it, is not a crisis of men, but also a crisis of measures. It is no good the Prime Minister just changing the people: he must change the policies of the Government as well. That change was called for by the clarion voice heard at Newbury and in the county council elections.

The Prime Minister has given his answer this afternoon. He has changed the Chancellor who he said did nothing wrong but intends to stick to the policies that have done this country so much damage. The departure of the Chancellor did not resolve the Government's divisions—it highlighted them. There are now two Conservative Governments—the Government of the new Chancellor of the Exchequer and the Government of the new Home Secretary. And stuck in the middle of this increasingly bad-tempered contest is the Prime Minister, relegated to the job more of referee than of leader.

The Chancellor's departure did not clarify the Government's economic policies, either—it muddied the 307 waters still further. We are yet to have a clear statement from the new Chancellor of the Exchequer. Such reticence is uncharacteristic of the right hon. and learned Gentleman. When he was Home Secretary, he was never off our television screens, where he expounded the details of the Government's economic strategy. Presumably, it will now be the new Home Secretary who, having secured for himself in his deal with the Prime Minister a position on the Cabinet's economic committees, will now speak for the Government on such matters as the exchange rate mechanism. What has been sauce for the pro-European goose will now be sauce for the Euro-sceptic gander.

Above all, the Chancellor's departure did not add to the Prime Minister's authority over his party or over his Government. As we saw this afternoon, it diminished his standing and undermined his authority, which I believe will never be recoverable. Only the present Prime Minister could achieve this singular double—to make people support Arthur Scargill and to make people feel sorry for the right hon. Member for Kingston upon Thames.

The right hon. Member for Kingston upon Thames is entitled to feel aggrieved. He is entitled to ask what it was that he did wrong. Will the Prime Minister tell him which of his policies he found unacceptable? No; he made it clear that he will not. Nor will he tell him in which areas he was incompetent at his job. This morning we heard from the new Chancellor of Exchequer on the radio that his predecessor was simply hounded out of office by the press.

Is it, then, the measure of our Prime Minister, that, in the very week in which he told the Financial Times that he would not be bullied into a reshuffle, he was? let me quote the Prime Minister's own words: Neither now, nor at any stage in the future, are my reshuffles going to be preceded by assassinations of my colleagues. Despite that, that is exactly what the right hon. Gentleman allowed to happen.

Deep in those words is a message for the whole Government. The Prime Minister agreed with his Chancellor's policies because they were the Prime Minister's policies, set down by No. 10. The Prime Minister never questioned his Chancellor's competence; they acted together. The Prime Minister and his Chancellor were a team. They stood shoulder to shoulder. The Prime Minister saw no need for the Chancellor to depart after black Wednesday. Why? Because, as the ex-Chancellor himself revealed so clearly, although it was damaging for the country to have a Chancellor who had lost credibility, it was convenient for the Prime Minister to have a Chancellor who protected him. That is the reason why the right hon. Gentleman did not resign.

This afternoon we must do more than debate the Government's appalling record of mismanagement in the past: we must put forward the right policies for the future. As the new Chancellor said, he inherits an enormous hole —the black hole of the Budget deficit. Substantial public borrowing will often be necessary. But we do not believe that we can wish away a Budget deficit of this magnitude, which bears down on the whole nation and on our chances of recovery.

We are dealing with the consequences of years of economic mismanagement under the Conservatives. We are now a nation living in debt—this year, 8 per cent. of our national income. The very Government who have told us that they are responsible with public money are now borrowing £1 billion a week. That is £50 every week for 308 every household throughout the land. The interest cost alone of the extra debt which the Government have generated is about £4 billion each year. That alone is the equivalent of 2.5p on income tax just to pay the interest on the Tory debt. Those are the results of deep structural problems in the British economy, but they have been exacerbated by the inept economic policies of the Government.

§ Mr. Patrick Nicholls (Teignbridge)

The right hon. Gentleman speaks as though the recession is an entirely United Kingdom fact and has nothing to do with Europe. Surely the right hon. Gentleman, a passionate advocate of a united states of Europe, realises that the recession has applied throughout the Economic Community. If the right hon. Gentleman is really saying that the recession is entirely home-grown, he is revealing himself to be even more economically illiterate than I would have given him credit for. Is he admitting that or not?

§ Mr. Ashdown

Of course I concede—I have always conceded it—that there is a worldwide recession in place, but the hon. Member for Teignbridge (Mr. Nicholls) has to address the question that was so clearly put by his colleague the ex-Chancellor. He made it quite clear that the depths of our recession, particularly in 1987, 1988 and 1989 when the Prime Minister himself was Chancellor, area direct result of the Government's economic ineptness in those years. The ex-Chancellor put the blame for the special position of our country and its deep recession and the damage that has been done on his Government's own policies. I invite the hon. Member for Teignbridge to read that speech.

The country expects—the country demands—that all parties should concentrate now on putting together the policies to start to put Britain on the right road. We know who is to blame for the mess, and the country knows who is to blame for the mess. What people want to know is how we are going to get out of it and who is to get us out of it. The Government have tried one way of tackling the deficit; they have put up taxes. The Government say that they were forced to do that. If that were so, it might be understandable. I do not believe that it is always wrong for a Government to change their mind. If the country is being driven on to the rocks by Government policies, a change of course is needed. Frankly, I would much rather have a Government who changed their mind to be right once in a while than a Government who never changed their minds and were always wrong.

But the Government's explanations for those events will not wash. They say—we heard it clearly in the Prime Minister's speech—that they were somehow taken by surprise by the figures that they inherited after the election, but who did they inherit them from? Themselves. Who had better access to those figures than they? They say that they did not know what was coming, but the projections for the future of the public sector borrowing requirement were widely canvassed by The Guardian and other newspapers well before the election date.

The opposition parties—ourselves and Labour—at least sought to address that position. By contrast, the Government sought to hide it from the nation in order to get themselves elected. We tried to tell the country the truth. The Government deliberately told the people a lie. What is more, they knew that it was a lie. They could not have known otherwise. The leader of the Opposition says 309 that it was a betrayal. Perhaps it was, but it was worse than a betrayal; it was a deliberate act of deceit upon the people of this country.

The Government put themselves forward on a false prospectus for the nation that would have done honour to a Maxwell pension fund prospectus. If the Government had been a company, they would be up before the courts for fraud. They knew it to be a fraudulent prospectus for the nation.

§ Mr. Nicholls

Will the right hon. Gentleman give way?

§ Mr. Ashdown

No, I will not give way. I have given way to the hon. Gentleman once. I have not the slightest intention of doing so again.

Who will ever be able to believe a Conservative promise again? Now, of course, it is the nation that must pay for that deceit. The Government have decided that not the whole nation will pay for that deceit—of course not. It will be the poor and the most vulnerable who must pay for the Government's deception and for their mistakes. That was the real stinging injustice in this year's Budget—not just the imposition of VAT on domestic fuel without adequate compensation, but the fact that in the Budget overall the poorest tenth of our nation are proportionately asked to pay twice as much as the richest tenth. That is the depth of the injustice of this Government and of their economic policy.

If there is a price to be paid to dig the country out of the hole that was created by Ministers, it should be fairly shared among the whole nation. We believe that there is a sense of fairness in the British people. It is a sense which has been continuously ignored by the Conservative party and by the Government, a sense which has been discouraged by their measures, and a sense which is not allowed to express itself through positive policies set out by the Government. But that instinct of fairness is still strong in our nation. It is the instinct that will undo the Government's second strategy, the second act of betrayal.

Having found out that even putting up taxes has not done the trick, such is the scale of the economic mess that we are in, the Government are now telling us that they will resort to draconian public cuts—cuts again in our welfare state, our benefits system, which yet again hit the weakest, hit the poorest and hit the most vulnerable.

So how should we tackle the deficit? Of course there should be savings in public expenditure where they are possible. An efficient tax and benefits system would save millions of pounds. If we had a competent or even reforming Government, savings would be found and could be made. The Government are bloated on bureaucracy. They make expensive mistakes such as the poll tax. They spend a fortune closing down coal mines. They waste money on flawed education tests. They use taxpayers' money to sweeten the implementation of grant-maintained schools. They deliberately boosted public spending before the election, knowing full well that they were not prepared to pay for that spending after the election. But, if savings can be made, they will be made on the margins. Savings alone will not cover the massive Conservative deficit.

Of course we should be closing tax loopholes too, as the Labour party proposes, but that will have an affect only on the margins of the massive Conservative deficit. Of course we should be stimulating employment. Of course it is true 310 that the Government have failed to provide policies for that. However, even if we accept the Government's own forecasts of economic growth in this decade, we are still left with the projected deficit of £30 billion in 1997–98. That is the measure of the economic disaster that has been brought about over the past 14 years.

I say to the Labour party that there is now no realistic growth forecast which by itself brings the public sector deficit down to manageable levels over an acceptable period. Frankly, Labour is deceiving itself and the public if it pretends otherwise. We will probably have to come to the crunch to answer the question that Labour seems so reluctant to answer. If the choice for paying for the Government's mistakes is between cutting into the body and the bone of our welfare state in a way that penalises the most vulnerable and spreading the burden fairly through taxation, there can be only one answer. Paying the price for the Government's mistakes is a burden that must be shared justly by us all, not paid for by the poor, the elderly and the vulnerable.

§ Mr. Dennis Skinner (Bolsover)

I do not know what the right hon. Gentleman's plan is to try to secure a victory in the Christchurch by-election, but he talks about fairly sharing the burden. He is talking in the context of raising taxes. let me explain to him that in the first 10 years of the Tory Government the richest 1 per cent. in Britain had £26.2 billion in tax cuts. Instead of calling upon working-class people in Christchurch or anywhere else, the right hon. Gentleman should be supporting the idea of clawing back that £26.2 billion from the richest 1 per cent. They have had the money, and they must foot the bill.

§ Mr. Ashdown

I hope that Labour Front-Bench Members heard the statement by the hon. Member for Bolsover (Mr. Skinner). They are the ones he needs to persuade. They are the ones who will not say the kind of things that he has said. The hon. Gentleman has asked me what our strategy is for the Christchurch by-election. It is quite simple. It is to have the strategy that we had in Newbury—to tell the blunt truth to the people of this country. They want to hear and are prepared to hear about the seriousness of the economic position and about what must be done to solve it.

They do not want betrayals, such as the Government's betrayal of the nation through their deceit at the general election. They do not want to hear either, as the voters of Newbury so clearly showed, a party such as the Labour party which is prepared to say what must be done, but not how it is to he paid for. That is how we won Newbury and, if we win Christchurch, that is how we shall win it.

§ Mr. Nigel Forman (Carshalton and Wallington)

The right hon. Gentleman talks about the blunt truth. He said earlier that any public expenditure savings could be only marginal. Will he now tell the House the blunt truth? By how much would his party wish to increase the standard rate of income tax to close the deficit?

§ Mr. Ashdown

The hon. Gentleman's own Chancellor could not at this stage give him figures about the public sector borrowing requirement and could not tell him what he will do in the autumn of this year. The hon. Gentleman makes a brave try, but I shall not answer his ludicrous question.

§ Sir Peter Hordern (Horsham)

Why not?

§ Mr. Ashdown

The hon. Member for Carshalton and Wallington (Mr. Forman) asked a question that his own Chancellor would not answer. I have made it clear—I have said something that the Labour party will not say—that rather than cutting into the bone and the body of the welfare state, if we have to balance our public sector borrowing sensibly and responsibly by finding tax, we shall take that view.

§ Mr. Stanley Orme (Salford, East)

How much?

§ Mr. Ashdown

The right hon. Member for Salford, East (Mr. Orme) asks, "How much?" He knows perfectly well that the figures are not yet available to anyone—not even the Government. The right hon. Gentleman should realise that I have laid down some clear principles about how we should deal with the PSBR. His party will not do that.

The people of Britain have worked long and hard to build a decent system of welfare provision. Governments have not paid for it; it has been the people and the taxpayers who have paid for it. It would now be an act of malice and vandalism for the Government to destroy