HC Deb 09 June 1993 vol 226 cc287-381
Madam Speaker

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

3.52 pm
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 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 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 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. 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)


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. 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


To be fair to the ex-Chancellor from whom we have heard today, he reminded us in his last public speech 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 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 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.

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 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.

4.33 pm
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 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 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


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 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


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 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 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 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.

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.

5.9 pm

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 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 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 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 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 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 that achievement. If the Government wish to add that to their other betrayals they will never be forgiven.

I shall tell the Government what I believe the British people now want from them today. They want a Government who will be honest with them and Opposition parties that will face up to the truth. They want a Government who show that they believe in fairness and who do not penalise the poorest and the most vulnerable for their own mistakes. They want a Government who will set a clear strategy and who will stick to it. They want a strategy that will encourage small businesses, stimulate enterprise, initiate a powerful programme to get the long-term unemployed back to work, give a clear lead so that Britain can make the best out of its future in Europe, prudently invest in the future, especially in skills and in a modern infrastructure, and give independence to the Bank of England to act as a bulwark against inflation.

Was it not amazing that we heard for the second time in the resignation speech by the right hon. Member for Kingston upon Thames that he wished Britain to have an independent central bank? Is it not extraordinary that the two previous Chancellors have taken that view, but that they have been prepared to say so only after they have resigned? I have described what the nation wants from the Government but, unhappily, we have a Government who will provide none of those things. Frankly, the sooner they leave us, the better.

5.34 pm
Mr. John Biffen (Shropshire, North)

The motion makes no reference to the size of the deficit. However, the right hon. Member for Yeovil (Mr. Ashdown) quite properly identified the deficit as the subject that will give rise to growing political debate and differentiation between our approaches to economic problems over the remainder of this Parliament. As he has discovered, it is a topic on which one enters with some trepidation, as there is a natural desire for quantification which may take the general principles rather further than political prudence suggests. However, unless we are prepared to do that, this will he a missed opportunity.

At this stage of a Parliament, the existence of a borrowing requirement of such magnitude is bound to cause a reconsideration of what has been traditional in time-honoured policies. The leader of the Opposition—I regret that he has departed, but he will miss little—said that we needed a wholly new start in economic policies.

I see that my hon. Friend the Member for Billericay (Mrs. Gorman) is present. I say to her and to others in the distinguished company in which we move, to our mutual satisfaction, that that view could be called "fresh start". That of course is exactly what impinges on our national political debate.

We have had a fresh start in the area of Community affairs, and we are obliged to have a fresh start as the House attends to the very difficult problems of how one closes that £50 billion gap. The Government have sought to give us a gentle introduction to the task by publishing their own forecast on how the borrowing requirement may be reduced. I realise that it does not carry the significance of a committed plan, but it is a working guideline published in the 1992 "Financial Statement and Budget Report".

It shows the current deficit of £50 billion dropping by £6 billion in the first year, and by £5 billion and £4 billion in the two years thereafter. I do not believe that that fall is anything like fast enough. I do not think that it is satisfactory, given that we are seeking a balanced and healthy management of our domestic economy.

I hesitate to offer my alternative model, but I hope that, by the end of 1996, that figure will have dropped from £50 billion to about £15 billion to £20 billion. That is a formidable undertaking.

Mr. Nicholas Brown (Newcastle upon Tyne, East)

indicated assent.

Mr. Biffen

I see that I have the nodding acquiesence of the hon. Member for Newcastle upon Tyne, East (Mr. Brown). I think that he would agree that it is none the less a realistic target if the political will is there.

It is important to understand how the deficit arose, and to do so calmly. The early parts of these debates are great spectator events, but now it is a rather tedious show. However, there was very little contribution in the early exchanges to the debate about the real nature of our problems. Of course the recession has been a major factor in the deficit. Nobody can say with much precision the extent to which it has been a factor, but I accept that it could be well over 50 per cent.

However, there is an underlying thrust in public spending in respect of welfare. It is really a demographic consideration. The population at work are a declining percentage, and the population who are on benefits are a growing percentage. That carries the most profound implications for public spending and for the extent to which current public expenditure will crowd out capital public spending, which is the first charge on our economy.

Let us think about the exchanges between those on the Government and Opposition Front Benches earlier this afternoon. In the current circumstances, it is almost impossible to have a constructive and intelligent debate about how we shall try to fashion our future welfare commitment.

I have some mild hope that, when Gordon Borrie produces a report, sooner or later politicians can sit round and consider the funding and commitments in respect of publicly financed welfare, as was the case in the 1950s and onwards, when there was consensus between those on the two Front Benches and between the major elements of the two significant parties about the financing and objectives of defence policies.

In terms of public spending, until we can agree to some parameters for welfare spending, that vital sector will remain undetermined and, to some extent, always subject to those who will play a short-term card in the hope of gaining a modest advantage in bidding for the vote of welfare recipients.

I do not have much optimism about the outcome of the current considerations of welfare expenditure and the massive review that is being conducted by my right hon. Friend the Chief Secretary to the Treasury. I was impressed by the orchestration of the great campaign. I have read all the heartache stories in the newspapers—but the policies were all put to me when I was Chief Secretary and the process was conducted in a miserable, subterranean fashion. I was not seeking to become a high profile politician.

The conclusion that I have drawn is chat, whatever economies are secured by the Government—I wish my right hon. Friends in the Treasury every success—they will be modest in the context of the magnitude of the present borrowing requirement.

Therefore, I inevitably turn to a consideration of the revenue. My right hon. Friend the previous Chancellor showed great fortitude in seeking a substantial increase in revenue through the extension of value added tax. Ultimately, there is no way that my right hon. and hon. Friends or, indeed, Opposition Members, can avert their eyes from the challenge of what to do about income tax.

The revenue required to meet such a deficit means that we cannot conceivably exclude the role of income tax in closing the gap. That is true not merely in the practical terms of the money needed but, more importantly, because I do not believe that we can exclude income tax in terms of the perceived equity. We cannot go to the public of this country with a policy of increasing taxation in order to undertake the essential task of reducing the borrowing requirement and say that we have excluded income tax.

Over the past decade or so, we have paid some penalties in concentrating our fiscal policy so overwhelmingly on reducing income tax. We have done so to the detriment of the other factors in the totality of taxation. We must clarify the concept—we shall require an increase in the standard rate and in the top rate of taxation.

I understand why the right hon. Member for Yeovil (Mr. Ashdown) became coy about book-keeping. I have the same innate diffidence—I do not know how I have survived so far and not become a liberal. I simply do not believe that the sums needed can be achieved in the lifetime of this Parliament without thinking in terms of at least an extra 2p on the standard and top rate of income tax.

Mr. Tim Smith

I am sure that my right hon. Friend is aware that the figures in the Red Book for 1995–96 show that, of the tax increases proposed of £10.6 billion, about £8 billion will be increases in income tax. That is a substantial increase, and to increase the standard rate by 2p in the pound would produce only another £4 billion. Therefore, I think that the Government have the balance about right.

Mr. Biffen

I am sure that my right hon. and learned Friend the Chancellor will be pleased to have the assistance of my hon. Friend the Member for Beaconsfield (Mr. Smith), which makes my right hon. and learned Friend appear as a moderate against my own left-wing extremism.

Mr. David Nicholson (Taunton)

My right hon. Friend has made a statement which has important implications, not merely for the conduct of our economic affairs, but for the debate between the so-called left and the so-called right inside the Conservative party. My conversations in recent weeks with Conservatives in my constituency, which my right hon. Friend knows well, have revealed that Conservatives—both retired and employed—would give the measure considerable support.

Mr. Biffen

The prospect of my becoming a folk hero among Tory activists is not a career move that I sought in the autumn of my days.

I have tried in general terms to sketch what I believe our policy objectives should be when dealing with the budget deficit. There is also the question of how to present those policies. My right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) made a memorable resignation speech, which identified the difficulties that arise when there is no close and intimate understanding between Chancellor and Prime Minister—as Baroness Thatcher found with both lord Howe and Lord Lawson.

I regret that my right hon. Friend is no longer able to serve the Administration, and hope that he will have the same experience as Selwyn lloyd and return to high office at a future date.

My right hon. and learned Friend the new Chancellor clearly holds great fascination for the media. The number of times that I have been asked to comment on his hush puppies and other aspects of his sartorial and theological commitment are beyond belief—he is a cottage industry. However, that will pass, and my right hon. and learned Friend will be left with the problem of how to conduct a policy which I have elaborated and which I believe will be profoundly unpopular.

Even after allowing for the impact of economic revival, my right hon. and learned Friend has been given the task of introducing a substantial increase in taxation and trimming public expenditure that will affect expectations. One of the most challenging tasks for a Chancellor in today's circumstances is to adjust expectations. We are distant from the politics of growth and easy redistribution. The more demanding challenge, which we now face, is to have to learn, in national accounting terms, to live within our means. That task now faces the Administration and the Chancellor.

My right hon. and learned Friend the Chancellor has a good-natured approach to politics—he is of the Ronnie Scott tendency. It is a delicate point to put to him, but I am not sure whether his approach is quite right in the present circumstances. My views are drawn straight from the pantheon of Euro-scepticism—that will not cause my right hon. and learned Friend any difficulty, as he has shown great elasticity over European issues.

In the late 1950s, when, De Gaulle came to office and had Antoine Pinay as his finance minister, he was in a similar position to that of my right hon. and learned Friend. National finances were out of kilter, and many established practices had to be challenged. The policy slogan—one might say, "word bite" had the phrase existed in those days—was "vérité et sévérité"—truth and discipline. In the spirit of fresh start, I do not think that it would do the Government any harm to consider the economic problems that lie ahead in those terms.

5.48 pm
Mr. Roy Hattersley (Birmingham, Sparkbrook)

One factor has become clear during the debate: one of the problems facing the country is that it is led by a man who is visibly incapable of carrying out the office that he now holds—a man who does not sound, look or behave like a Prime Minister. The first few passages of his speech this afternoon contained the most demeaning stuff that I have heard from a Prime Minister in my 28 or 29 years in the House.

I thought that the Prime Minister's speech last week, in which he said, "I am here, I am well and I am staying," hit about rock bottom. When Prime Ministers talk about staying, it means that at the back of their mind is the idea of going. I thought that we had plumbed the depths, but the Prime Minister reached the nadir today, in what passed for political banter, in the opening and closing passages of his speech. The Prime Minister is now a problem for the nation, but at least that problem will not be with us for much longer.

I congratulate my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) on his choice of subject for today's debate. I am second to none in my belief that the Labour party must and will win the next election on the merits of its policies, but the fact that we must fight and win on the merits of our policies is no reason not to remind the general public that, while we shall win next time on our merits, the Conservative party won last time on a calculated deception. The Conservative party made claims and promises which it must have known at the time could not and would not be fulfilled.

This charge of calculated deception has, to a large extent, been endorsed today by the right hon. Member for Kingston upon Thames (Mr. Lamont), whose criticism of Government action—a willingness to put public opinion polls before the national interest, a concern for short-term political advantage at the expense of the nation's welfare —is exactly the charge that the Opposition motion levels at the Government today.

Although he may well deny this, the right hon. sea-green incorruptible Member for Shropshire, North (Mr. Biffen) said very much the same. He pointed out that there may have been an over-reliance on reductions in direct rates of taxation. We all know why that was. It was not a matter of economic judgment: it was an attempt to buy votes, and it was successful during the election of 1987. But the attempt proved disastrous for the economic welfare of this country.

One reason why I am delighted that we have pursued the point made today so eloquently by my right hon. and learned Friend is the fact that the deception of the last election was not an isolated event or single aberration. Indeed, deception at election times has been a course of conduct with the Conservative party—a way of life. We can see this in every election since 1979.

I remind the Prime Minister that the 1992 manifesto promised to continue to protect the value of the pension against price rises as we have for the last 13 years". That was a commitment to continue a previous breach of faith, for the 1979 manifesto had said: We will honour the increases in retirement pensions which were promised just before the election". That was a promise to increase pensions in line with inflation and in line with average earnings. The second half of that promise was wilfully and cynically broken, with disastrous consequences for pensioners who live on the basic pension alone.

When the Government came to power, the basic pension was about 20 per cent. of average earnings. last year, it was 15 per cent. of national earnings, yet the 1992 manifesto talked glibly about helping those who need help most. Had it been honest about Conservative attitudes to the poorest pensioners, it would have said, "We shall continue to neglect men and women who rely on the basic pension." In fact, the manifesto read: We shall continue to care for those in need That was a lie, as the figures eloquently and tragically show.

Over 14 years of Conservative government, the poorest members of society have grown increasingly poor compared with the richest. This Tory Government have the best record of redistribution in the history of British politics; they have consistently taken from the poor and given to the rich. That is bad enough, but the poorest 10 per cent. have actually become poorer in absolute terms during 14 years of Conservatism. They are 6 per cent. poorer now than they were when the Labour party left office—6 per cent. less purchasing power is in the possession of the poorest people in Great Britain. Yet the manifesto speaks of continuing to help those who need help most.

So much for a Government who promised that general prosperity would trickle down and ensure that the poorest were helped—as long as the richest were allowed to flood ahead. Quite the opposite has happened, but this has been the strategy of Conservative party election decisions—a calculated decision not to help those who will not vote Conservative, but to focus help and attention on the voters whom the Tories want to muster to make up their 40 or 45 per cent. of the vote. All that matters to them is returning to power, no matter how cynically or unscrupulously, and no matter how much damage is caused to the people who most need the Government's help.

The facts of the Government's perfidy are beyond dispute. My right hon. and learned Friend set them out eloquently earlier today; other speakers will do the same, offering more and more examples of differences between promise and performance.

The most interesting question is: why have the Government done this so consistently and consciously over the past 13 years? Part of the answer is ministerial incompetence, which the Prime Minister acknowledged when he sacked the Chancellor of the Exchequer. Of course, that has not done the Government's standing any good. When the audience do not like the tune, it is no good the organ grinder sacking the monkey—he has to go himself. If the Prime Minister does not understand that, he does not understand the first rule of politics.

Incompetence is not the only reason. Another is a kind of arrogance combined with cynicism, the belief that the Tory party was born to rule and that any unscrupulous measures are justified to ensure a continuation of that condition. The cynicism comes from knowing that the Tory party can tell lies on election day, can break its promises the week afterwards and then the Tory tabloids will not exploit and expose Tory perfidy as they would that of any other party.

I know that the Prime Minister is putting it about that he is hurt and angry because of the way he has been treated by Conservative newspapers. I hope that it will be some consolation to him to consider how the Conservative newspapers would have treated a Labour Government who had presided over the two-year shambles that has passed for an Administration for this country. I believe that The Sun, the Daily Express and the Daily Mail would have said things about a Labour Government which are undreamt of in the Prime Minister's limited vocabulary. If he feels that he has had a rough time, let him congratulate himself on the fact that a biased and corrupt Tory newspaper system is prepared to support him in a way that it would support no one else.

But the most important reason why the Tory party has consciously and consistently broken its promises is much more fundamental than the shortcomings of Ministers or the cynicism of politicians. The whole idea on which the Tory management of the economy is based has proved to be wrong. let us take two or three election examples. The election of 1987 heralded a new dawn of economic success, by two simple economic means of ensuring increased prosperity: 2p off the standard rate of tax, and the deregulation of credit institutions. Then the country was to be floated off on a boom led by consumer spending. This is orthodox, short-term, inchoate Conservative economics.

Of course, the country was plunged into crisis by a boom in credit, which produced the worst trade deficit in our history and resulted in the record interest rates from which we are still suffering. The ideal was wrong, the principle was wrong and the theory was wrong.

I believe that some of the less intellectual members of the 1922 Committee think that by deregulation, by the Government holding back and playing no part in the promotion of industrial activity and having no concern for regional policy, and by neglecting training, this country can become prosperous in a Haitian sort of way—by becoming a low-skilled, low-earning, unregulated, laissez-faire economy. It cannot be done. If the Prime Minister does not realise that, all the suffering of the past 14 years and all the recurring economic crises have been for nothing.

Preposterously, the same principle now applies across a whole range of policy. For my sins, I sat through an education debate in the House a few weeks ago in which Tory Members, apparently with conviction, said that competition works in everything else, so it will work in education. Competition has been seen to fail in industry after industry, and the idea that it will solve our education problems is dogmatic nonsense.

Everyone in this country who knows anything about education realises that the way to improve the literacy of people leaving school at 16 is to ensure that they have all had one or two years of nursery education at the other end of their school careers. That is a simple, well-known principle. But instead of concentrating resources on nursery education, the Government are prepared to let Britain lie at the bottom of the European table for availability of nursery places and to pursue some doctrinaire nonsense about comparisons between schools which will allow head teachers to compete with each other.

I repeat that the whole idea is wrong. Even those few members of the Government who might have wanted to keep their promises could not have done so, because their policies are built on philosophical sand. They are trying to build policies on a half-understood idea—Adam Smith advocated by people who have never read him or who cannot understand him and do not realise that those simple precepts do not apply to the sophisticated world of 1993.

We in the Opposition must remember that, whatever the changes in the Treasury and whoever succeeds the Prime Minister, the idea will still be wrong and the mistakes will still be made. There is no intellectual or political recovery for the Government because their entire policy is based on a misconception. The knowledge that our idea is day by day gradually being proved right will surely sustain us to the next general election and enable us to win on our policies and on the merits of what we propose.

6 pm

Sir Terence Higgins (Worthing)

The tone of the debate was set by the leader of the Opposition. The matters that we are debating are of tremendous importance to all our constituents because their prosperity and welfare depend on the solution to the problems of economic management that face us. The leader of the Opposition is totally incapable of dealing seriously with these matters, and trivialised them throughout his speech. Those who have suffered throughout the recession from which we are now emerging will not have regarded his speech as amusing. When he sought to deal with the problems, he made no attempt whatever to analyse them.

Since the right hon. and learned Gentleman's speech, the tone of the debate has improved somewhat, and I should like to deal with some serious issues.

My right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) rightly identified the root cause of our present problems as the over-stimulation of the economy following the stock exchange crash of 1987 and the need to control the subsequent inflation. Throughout the world, and certainly in the Treasury, there was a misunderstanding of the underlying economic situation at that time. The Opposition and the liberal Democrats advocated far more stimulus than that in which the Government engaged.

The question that arose was how best to reduce inflation, and it is worrying that it has taken such a long time to do that. My right hon. Friend the Member for Kingston upon Thames spoke about the exchange rate mechanism. If the then Chancellor, now the Prime Minister, had telephoned me the night that he was thinking of joining the ERM and asked about the least painful method of getting back on course—in fact, he did telephone me—and if I had had total foresight and had known the best way to do that, I would have told him to join at the prevailing rate and to withdraw from the ERM in about September 1992.

Any other way to reduce inflation, as we did, would have been even more painful. Had we sought to reduce it to the extent that we did through general deflation, the effect on the economy would have been far more traumatic, as my right hon. Friend the former Chancellor said. In any event, it is doubtful that we would have had the resolution to do that.

I am firmly convinced that the so-called fault lines in the ERM are so fundamental that it would not be appropriate for us to consider rejoining the ERM in the foreseeable future. The basic fault line in the system is the fact that an independent central bank in Germany is preoccupied with reducing inflation and is concerned only with German interests and not with the overall economic situation in Europe or the world.

While that situation persists, it would be inappropriate for more than a small number of countries even to consider joining the ERM. A move towards a European central bank would not provide a solution because the tensions that would confront it as a result of a lack of economic convergence in the Community would be too great for it to deal with.

In his resignation speech, my right hon. Friend the Member for Kingston upon Thames spoke about the need for an independent central bank in Britain. However, for the reasons set out by the Prime Minister, that would be wrong. It is a little paradoxical for my right hon. Friend the Member for Kingston upon Thames to say that we need an independent central bank to control inflation when, without such a bank, we have reduced inflation to its lowest level for about 30 years.

I shall concentrate on the more important issues of the future. In economics, timing is absolutely crucial. I am worried that we are in danger of making more fundamental mistakes. As always, I listened with great pleasure to my right hon. Friend the Member for Shropshire, North (Mr.Biffen), who did not touch on timing but concentrated on the deficit. The recovery is still fragile and there is a danger that if action to bring the deficit under control is taken too rapidly the recession will be prolonged, the recovery will be aborted and the deficit may be increased rather than decreased.

It is perhaps ironic that, at a time when we are about to move by way of the proposals for a unified Budget to a Budget more closely resembling that of a household, we are in danger of adopting a Keynesian relic or the fallacy that what is right for the individual in recession is right for the Government. An individual should rightly tighten his belt when he falls on hard times, but that is not the appropriate procedure for the economy as a whole.

The idea of a significant fiscal deficit is not at all inappropriate at present. We must wait until the cyclical factors begin to take effect. If we seek to take action on the deficit before that happens, an effective recovery may take a long time. No one knows how much of the deficit is structural and how much is cyclical. There have been some recent analytical studies, and I have one here by Greenwell Montagu.

It is important to ascertain that, but the Red Book contains a number of estimates showing that the deficit is declining, even under the relatively slow rates of projected economic growth, and that it is significantly below the round, headline figure of £50 billion which has been bandied about.

My plea to the Chancellor is to consider carefully the importance of the timing for getting us out of the recession and for controlling inflation. The issue is not about the size of the deficit but about whether it is funded. One of the curiosities of the last Budget was a sudden sleight of hand by the then Chancellor who, having said that there was a full funding rule, which everyone had always supposed meant fully funded from sources other than the banks, suddenly said that some of it would be funded from the banks and that that would now be called full funding.

That has never been understood by that expression. The question is whether the present deficit can be fully funded in the original sense. My own feeling is that it should be possible to do so at prevailing interest rates. I shall not go into the nitty-gritty of the yield curve, but it should be possible to fund it to a very large extent.

The present trends in money supply figures should not give us too much cause for concern at this stage in the cycle. Although it may not be possible to fund it fully, I am rather doubtful about the case for further cuts in interest rates, not least because it is becoming increasingly apparent that further cuts in interest rates by the Government are likely to be passed on only to a very small extent, if at all, by those lending to industry or to consumers.

Therefore, the incoming Chancellor, in balancing those difficult equations, will need to take into account whether it is possible to cut interest rates, given the need to fund the deficit and maintain the overall economic balance.

I want to mention two other ways in which the deficit might be controlled—public expenditure and taxation. My right hon. Friend the Member for Shropshire, North referred to each of them. I have always thought that there was a considerable case for a Budget purdah in regard to taxation. Now that we are to bring together the two sides of the equation, there is a strong case for extending that purdah to public expenditure.

It is appropriate to say that we are carrying out a general review of public expenditure. Rumours may then circulate and be stimulated by the Opposition as to what particular cuts might be envisaged, but it is tremendously important for Ministers, particularly Treasury Ministers, not to refer to any of those possibilities.

It is not just a matter of sub-post offices, pharmacists, prescription charges or pensions. The concern that has been stirred up by the Opposition and, in particular by the press has caused real and genuine concern about issues which had not been decided. Rumour after rumour has been presented on the newspaper placards and elsewhere as fact when no decisions have been taken.

It is therefore tremendously important that Ministers should adopt a stance of purdah in regard to taxation and to public expenditure. We are in danger of taking action to protect those below the benefit level while disregarding those just above it.

I hope that the new Chancellor will look again at the papers in the Treasury on the proposals for a tax credit scheme. We considered such a scheme way back in the 1970s and we were about to legislate in the following Budget, but we lost the election to the Labour party. It was frustrated by a combination of Joel Barnett and Barbara Castle when they came into office.

Dame Elaine Kellett-Bowman (Lancaster)

I had the privilege of serving on the tax credit Select Committee. We were very much in favour of it and it would have been simple to implement such a scheme then before the figures became too astronomic. We were fully committed to bringing it in, and it was a disaster that the Labour Government put it to one side.

Sir Terence Higgins

I am grateful for my hon. Friend's endorsement, because the idea is certainly worth looking at again in the context of the relationship between benefits and taxation.

Public expenditure is not normally an appropriate means of regulating the cycle. What we want is what we have—a public expenditure plan over a number of years. Subject to my earlier point about timing, that needs to be taken into account, but it is not an effective method of cyclical regulation.

The tax system is more appropriate, but any proposal should to be related to rates and not to structure. It is a mistake to alter the structure of taxation for short-term management reasons. That is one reason why I believe that the extension of VAT to fuel is not an appropriate solution. I should have preferred a straight change on rates, not least because it is reversible whereas, because of pressure from the European Community, eroding the zero rate base of VAT is not reversible because the Community would not allow it.

The Treasury Select Committee said that it believed that the recession would be longer and deeper than anyone else supposed, and it was right. We based our argument on the fact that forecasters invariably underestimate turning points. Whether the economy is going up and then coming down into recession or going down and then recovering, in every cycle since the war the errors have been bigger.

We were clearly at a turning point, and we said that the recession would be longer and deeper than anyone supposed, and we were right. The record shows there to be a degree of symmetry in the strength of the subsequent recovery. We must all hope that that is so, but I have two worries. We do not know how much our existing industrial and other capacity has been eliminated during this very long recession, and I am concerned that the banking system, which has eroded its own capital base to a large extent by a series of unfortunate errors, may not be able adequately to finance the recovery.

We need to consider carefully what might be done to help because, although we all know that companies go bust in a recession, companies often go bust as the recovery begins because they run out of working capital. I hope that my right hon. Friend will look at the banking system.

I conclude by wishing my right hon. and learned Friend the Chancellor well in his new high office. As my right hon. Friend the Member for Kingston upon Thames said, we have managed to get down inflation, which was absolutely crucial for a prolonged and successful recovery. In many respects, the economy is in good shape and a recovery is possible. The new Chancellor is a graduate of Gonville and Caius college, Cambridge, my own college. The late lain Macleod was the last Chancellor to come from that college.

As far as the future of the country is concerned, the basic stance which was taken by Iain Macleod, combining tough economic policy with compassion for those most in need, formed a firm basis for the Conservative party. I very much hope that the new Chancellor will bear that in mind when he makes the immensely difficult decisions which will have to be made to get the economy going again and to achieve a successful and prolonged recovery.

6.13 pm
Dr. Tony Wright (Cannock and Burntwood)

This day and this debate have acquired a significance that none of us had envisaged. We did not know about the dramatic events earlier today, but they form an essential part of the debate. I do not say this with any particular relish, and certainly not with malice, but we have seen the disintegration of a Prime Minister. We are witnessing also the disintegration of the Government and of a regime and of an ideology that sustained that regime over many years. When people look back on this day, they will identify it as the moment when that became clear to everyone.

The remarks of the former Chancellor of the Exchequer met a resonse from the Prime Minister that essentially confirmed everything that the former Chancellor said. The Prime Minister paid tribute to the right hon. Member for Kingston upon Thames (Mr. Lamont) for his outstanding achievement, but said that he had had to go because the polls made that necessary. One has never known a more lamentable statement from a Prime Minister. It is a total abdication of leadership. I say that not with any malice but with a good deal of sorrow in many respects.

The motion refers to promises broken, but the promises that the Government kept are more fundamentally worrying. When the present regime began in the late 1970s —this is germane to the remarks of the right hon. Member for Worthing (Sir T. Higgins), who mentioned lain Macleod and his times—the Conservative party, untypically in the modern period, fell into the grip of a theory or ideology which has sustained it ever since, and which has brought that party and this country to the present travail and shambles.

That theory required a number of actions. They included cutting direct taxation, to stimulate a great flowering of innovation, invention and enterprise; rolling back the state, by privatising where that could be done; and dismantling the trade unions, because they were said to be the key to industrial decline.

There were other parts of the story. Sir Keith Joseph, the man with the perennial frown—for whom I had a good deal of regard and respect—worried away at other problems. He went around assuring us that crime was derivative of socialism, and that socialism corroded moral fibre. He said that, if only socialism could be corrected, crime would be overcome. He argued also that, if only one could do away with the dreadful socialists, there would be a great revival of the family and of family life. The whole set of ideas advanced at that time sustained the programme that followed.

Never since 1945 have a Government so meticulously done, from 1979, the things that they said they would do. They have stuffed the trade unions, privatised wherever they could, and eroded the basis of direct taxation. The Government have done everything they said had to be done to reverse the historic decline in the British economy and to regenerate society. The problem is that it has not worked, but has produced the present shambles.

I will not detain the House with the figures, but it will be aware of the condition of British manufacturing industry, our share of world exports in manufactured goods over the past 20 years, the state of family life, and the crime rate. We are now experiencing the consequences of the Government's ideology and of the promises that they have kept.

No longer can the Conservative party claim that it is the party of economic management, sound money and low taxes. Right up until the last general election, many people still believed that it was—but the party of sound money now presides over the biggest hole in public finances that anyone can remember.

What is to be done? As we heard today, and as we hear every day, the Government are adrift. They do not know how to respond, because their ideology has not prepared them for the present situation. The danger is that many in the Government's ranks, faced with that hole in public finances, see the possibility of eroding the post-1945 welfare state not as a desperate necessity, but as another opportunity. Using the argument that public finances demand this, the Government can launch another assault against the welfare system, which would be morally reprehensible.

I remind the House of the remark by the late Richard Titmuss, that services for the poor end up being poor services. If one undermines the principle of universality, one creates ghetto services for poor people and erodes the basis of the system.

Different population groups are classified as C1s, C2s, and so on. I suggest that we shall soon be hearing about another category, whom I shall call the just-abovers. They are a powerful group of people—those who are just above the level at which benefits are paid and who, as they see it, get nothing out of the system. If certain Conservative Members are serious about some of the public finance changes that they talk about, they will hit the just-abovers very seriously [and there are lots of just-abovers in places such as Christchurch. I warn Conservative Members against going down that path.

There are serious arguments to be made about the means of financing the welfare system. We are having them on this side of the House, and Conservative Members, in their antique way, are having similar arguments. However, our commitment is rather different. We must do all in our power to maintain the integrity of the welfare system, and hold seriously to our views on social housing, poverty and inequality.

My right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) reminded the House that greater inequality makes certain things happen. We now have more inequality. The Government said that no one should worry about such things as social justice, because they were just Labour hang-ups—and if only they were forgotten about, there would be prosperity and tranquillity. That has not happened. So we have an immediate serious problem about welfare to address. The Labour party perhaps burnt its fingers at the last election by trying to talk honestly about tax and telling people that, if they wanted services, they had to pay for them—a fairly direct messag—and we know what happened as a result.

Now, it is not us but others who are telling some of the truth. A report produced this week by the City brokers Greenwell Montagu says that the tax burden has sunk to a 15-year low as a result of what they call over-aggressive tax cutting in the 1980s". It argues that the real revenue prize for the Chancellor is the £100 billion of tax allowances and exemptions. They include the generous tax shelters which allow companies to reduce corporation tax bills, and tax relief on mortgages.

There is a pot there that can be used. There are choices to be made in the short term about how to fund this hole in the public finances, and different approaches to it. The Opposition must be fairly robust in arguing for our values as we approach that.

There is a larger choice, too. The choice that opened up in the late 1970s—which has sustained this Government ever since—is now disintegrating. There is a short-term choice of how to finance the deficit and another choice of a completely different sort of direction for the economy and society—one that has far more to do with the values of community, partnership and decency than we have known in the past 14 years. I think that people are ready for that different approach; the tragedy is that the Government are blocking it.

6.31 pm
Sir Peter Hordern (Horsham)

The hon. Member for Cannock and Burntwood (Dr. Wright) seems to have a very favourable view of what took place in the 1970s. My recollection is somewhat different. He seems to regret that many of the nationalised industries have been privatised, that action has been taken to reform the trade unions, and even that taxation has been reduced. My recollection of the 1970s is that we did indeed live in times of severely nationalised industries and total control of the Government by the trade unions. I remember a White Paper produced by Dame Barbara Castle, called "In Place of Strife", which had to be withdrawn.

I also recollect that there was an even larger deficit. I am the first to complain about the size of the Government's deficit, but there was an even larger deficit under the Labour Government in the 1970s, which then stood at 9 per cent. of GDP. The International Monetary Fund then came in, the Government had to write a letter of intent to Dr. Johannes Witteveen, and capital spending in the public sector was cut by 23 per cent. in every way. I am not talking about reductions of growth, but about actual capital reductions. There was the highest rate of taxation, both personal and on companies, and that was enough to ensure that Labour was defeated, at that time and ever since.

The electorate are no fools; they will not easily forget what happened then. When they see that the Labour party is still in hock to the trade unions, with John Edmonds dictating to the leader of the Opposition what policy he should have, I must tell the Opposition that they are, frankly, unelectable.

My right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), the former Chancellor, made a very interesting personal statement, which I commend. He made the interesting point that he had argued for an independent central bank. I have been on about this for some time. If I understand my right hon. Friend the Prime Minister correctly—if his only objection concerns parliamentary accountability—I think that this is something we can press forward with.

As the House knows, the Federal Reserve Board in the United States is accountable, in the sense that it gives an account of itself to the appropriate Senate committees. I do not know what the appropriate committee here would be; I suppose it could be the Treasury Select Committee. I can think of some improvements that I would wish to make to that Committee but, regardless of that, I think that it, or some such body, would be a suitable organisation to which the governor of the central bank could give evidence. In fact, he already gives evidence to the Treasury Select Committee.

My right hon. Friend the Member for Kingston upon Thames and lord lawson, both former Chancellors, have said that our anti-inflation policy would be more credible with an independent central bank. I have advocated that for a long time, and I hope that my right hon. Friend the Prime Minister will consider the matter.

Sir Terence Higgins

My right hon. Friend must also consider how, in such circumstances, we would co-ordinate fiscal and monetary policy.

Sir Peter Hordern

In exactly the same way as it is co-ordinated in the United States and the Federal Republic of Germany, where the independent central bank is given a responsibility to control inflation. For that reason, it is totally in control of interest rates.

It would be desirable, as my right hon. Friend says, for them to be closely co-ordinated. It is by no means possible, either in Germany or the United States, but I maintain that it is a better position than the one we have here. Monetary policy is not as credible as it might be if the central bank were independent. An independent central bank's position would be very much easier if there were not such a large deficit. I think that my right hon. Friend would agree that monetary policy cannot be conducted with such a large deficit. I will come to that, in a moment.

My right hon. Friend referred to the independence of the central bank and the ERM, as did my right hon. Friend the Prime Minister. Some people think that our membership of the ERM is all we need to explain our present difficulties. They look back to a golden age, before we entered the ERM, and say that entry of the ERM was the cause of our problems. But, as my right hon. Friend said, the root of our difficulties was the surge in credit in the late 1980s.

The Government did not stand idly by at that time. Interest rates had been as high as 15 per cent. for a year before we joined the ERM in October 1990, and for most of the year before that they had been up to 14 per cent. Interest rates were reduced by 1 per cent. on the day we joined the ERM, so there is no question of having an easy time before. It was nothing of the kind. Interest rates cannot be at 15 per cent. for a year without slowing down the economy. That is what it was intended to, and did, achieve.

Inflation was 10 per cent. when we joined the ERM, and it is now less than 2 per cent. In the late 1980s, we went on a spending spree with borrowed money, and we are still paying the bill. We shall go on paying the bill, in my opinion, for some time to come.

It is not surprising that the Government are unpopular in the country. We were not popular after lord Howe's Budget in 1981—I remember the same kind of scenes as we have seen in the House today after that Budget—but I remind the Opposition that we won the 1983 election with a majority of well over 100. The recovery that we are now seeing in better unemployment figures, improved investment and greater company and consumer confidence will continue. Inflation is at its lowest level for many years, as are interest rates. We have the right ingredients for sustained economic growth.

Some economic forecasters and commentators say that we should cut interest rates still further, and allow sterling to fall against other currencies. It is extraordinary how often in the economic cycle there is pressure to inflate the economy at a time when there are clear signs of recovery. Exactly the same happened in 1972, when the Government were persuaded to execute a U-turn and print money. It was wrong then, and would be now.

In those days—I have been a monetarist since 1966—to be right-wing was to oppose printing money, and to oppose prices and incomes policies. To be right-wing nowadays is to cut interest rates to the point of invisibility, and do everything possible to sink sterling. If any policy is more calculated to cause inflation, I do not know of it. After all that the country has been through, it would be criminal to throw away all the progress that has been made after such necessary sacrifices and pain.

The sacrifices and pain have fallen on the private sector. There has been no similar restraint in the public sector, with the commendable exception of public sector wages. As a result, we are due to borrow £50 billion this year, which is simply too much. If we must have value added tax on fuel and power, we might as well have it at once. To be blamed for imposing VAT on fuel and power without getting any revenue for a year seems perverse.

I can understand why economic forecasters believe that it would be better to inflict VAT on fuel and power when the economy is growing faster, but it is a great mistake to try to finesse the situation on clever City forecasters' advice. As for putting their advice in the Red Book—I hope that my right hon. Friend will see that this does not happen again—that is carrying attention to the views of these people to the point of adulation.

The ancient Greeks had a good way of dealing with forecasters. If an oracle got it wrong, he was dragged out of his cave and stoned and his bones were left to bleach in the sun. So it should be with these oracles.

I can tell my right hon. Friend what impresses the City. It is £50 billion. It is far too high, both as a figure in itself and in the scope that it gives for markets to make things difficult for the Government. After all we had a public sector surplus of 3 per cent. of gross domestic product only four years ago. It is the pace of decline that is so alarming. So we need to see some positive signs of addressing this deficit quite soon.

Some favour cutting the growth in public spending, and others favour increasing revenue. Incidentally, the speech of the right hon. Member for Yeovil (Mr. Ashdown) this afternoon was utterly disgraceful. To talk of great matters of principle and of the need to raise taxes, without giving a single idea of any figure, was cynicism of the worst possible kind.

Cutting growth of public spending and increasing revenue are both in order. We have a higher proportion of public spending as a proportion of GDP at 45.5 per cent. than under the last Government of 1979–80, when it was 44 per cent. So what is to be done? There are always scare stories from Departments at this time of year, but it is the Treasury's duty to investigate savings and efficiency in Departments.

I have often wondered why there are so many civil servants in the Ministry of Defence. Come to that, why are there so many admirals and generals? Why has so little attempt been made to release Minstry of Defence property, much of it unoccupied for over a year? There are still substantial savings to be made at the Ministry of Defence, particularly in the procurement programme.

Since district health authorities are now simply purchasing authorities, why do we not cut out two thirds of them by amalgamating them into new single authorities and cut out regional health authorities altogether? What is the point of them?

We shall have a problem in the next century, with more people living longer and fewer people to support them. I know that the Labour party is looking at this matter with great care. We also need a national insurance system which is properly funded. Why do we not therefore abolish the upper earnings limit and have a graduated scheme against which contributors could make separate provision for all kinds of benefit outside and in addition to the state sector? We need to encourage people to provide for themselves in sickness and in old age, over and above what the state can do.

There is a case for increasing the rate of corporation tax. If capital gains tax were reduced, the yield would increase substantially and the assets themselves be put to better use.

I wish my right hon. and learned Friend well in the difficult task that lies before him. There are no easy solutions. We must remember that we cannot be immune from the pressures of the world economy. The best that we can do is get ourselves into a competitive position and remain there. low inflation is the key to the low long-term interest rates and sustained economic growth that we all wish to see.

6.43 pm
Mr. Ronnie Campbell (Blyth Valley)

A lot of water has gone under the bridge since 1979, and we should look back to that time and see what has happened since then.

When the former Chancellor, the right, hon. Member for Kingston upon Thames (Mr. Lamont), said that it all began in 1988, he was right, because at that time we had a slashing of taxes—not all wrong, by the way, especially with the top rate of tax—and some of the figures, which were staggering then, are even more staggering when we read them now. With that Budget, the richest 1 per cent. were getting away with £30,000 a year less tax than they had paid in 1979—a loss to the Treasury of £8.6 billion in that year. As my hon. Friend the Member for Bolsover (Mr. Skinner) said in an intervention not long ago, the accrued sum is £26 billion over the past 10 years. The richest 5 per cent. were saving £9,000 a year under that Budget—a loss to the Treasury of £12—5 billion.

I am trying to put in perspective where the money went and where the recession started. As the ex-Chancellor said, it started there. Yet we were giving sums of money of this size to the richest 5 per cent. and the richest 1 per cent. in the country. Now we hear that there is a loophole in directors' pay. We read that John Birt, the BBC director-general, has been able to have his salary paid through a private company, which means that he does not pay his contributions or his taxes to the Exchequer. That has happened not just with people like Birt; it is happening with a lot of executives. Many directors are having their money paid through private companies and fiddling the taxpayers and the Treasury.

We have had this "fast buck" economy for some years, and during that time the number of jobs in manufacturing industry has fallen from 7.1 million in 1979 to 4.5 million in 1992. That means that manufacturing industry has been halved since this Government came to power. People want to know why the Treasury is not getting enough money. It is because the Government have destroyed half the country's manufacturing industry—and those are the Government's own figures, not mine. The figures can be obtained from the library.

The United Kingdom trade deficit in manufactured goods will reach £17 million compared with £5.5 billion surplus when the Government came into office. There was a surplus when they came in; now we are £17 billion in the red. That shows the calibre of this Government. At present, the unemployment figure is 3 million or perhaps 4 million. It is 3 million officially, but it is 4 million if we add in the 18 fiddles that the Government have used during their time in office to get the unemployment figures down. One million of those on the dole are under 25—the Government's own figures, not mine.

We have seen the collapse of DAF, with no intervention from the Government. Thousands of jobs in DAF have gone. In the mining industry 15,000 jobs are going. We see 7,000 jobs going in British Aerospace 10,000 jobs in British Shipbuilders and Swan Hunter, 6,000 jobs in Imperial Chemical Industries, 7,500 jobs in Guest, Keen and Nettlefold and 11,000 jobs in the car industry.

We live in a low-wage economy where, because wages are being driven down, the British workers' wages are already 18 per cent. lower than those of their counterparts in France. British workers are 30 per cent. down on their counterparts in the Netherlands and 42 per cent. down on their counterparts in Germany. Their wages have been driven down by the Government year after year. British workers work longer hours than any of their counterparts in Europe, and get fewer holidays than anyone in Europe does.

The Government have a terrible record. Over the years, they have had £100 billion from North sea oil and the sale of the nationalised industries. I shall repeat that, in case the Chief Secretary did not get it: the Government have had £100 billion from North sea oil and the sale of the nationalised industries. That is a colossal amount of money.

What did the Government do with that money? There was the fiasco of the poll tax, to begin with. We have seen what has happened to the poll tax. Time after time the Government were warned about what would happen, but they took no notice of anyone. This Government's attitude is arrogant. They dismiss the views of everyone. Even today the Government display an arrogant attitude towards the health service and education. They will listen to no one.

The Chief Secretary was one of the architects of the poll tax. And what did the poll tax cost the taxpayers? Tory arrogance cost them £19 billion, which amounts to £400 for every man, woman and child. The poll tax should stick round their necks for the rest of their lives. The people of Britain should make sure that they are not allowed to do anything like that again.

What about black Wednesday? Because the Government could not make up their mind, because they were at odds with each other, that one day cost the taxpayer at least £5 billion. The Chancellor and the Prime Minister could not make up their minds about whether to stay in the exchange rate mechanism or to come out of it, so taxpayers lost £5 billion in one day. The Government are supposed to be running the economy for the people of this country. I reckon that they are running it for themselves.

What have the Government done to local government in the past few years? They say that local government is not efficient, but if the things that I have just mentioned had been done by local government, either local government would have been surcharged or local government people would have been put in gaol. The Government have taken £23 billion from local government. I do not doubt that, when they sit round the table trying to get rid of the £50 billion deficit, local government will yet again be the target.

One Minister said in the newspapers—he would not be named, so I cannot name him—that local government is an easy option because the Government can cut local government and not get the blame; the local authorities, which are mainly Labour, get the blame for doing the cutting; the Government just withdraw the grants. That is true. I bet that when the Government get round to cutting, local government will be hammered and will be cut to pieces.

The Government are spending £50 billion more than they receive in taxes. Half the country, of course, are fiddling their taxes, just like the executives who, as I said earlier, are paid through private companies and avoid paying their taxes. The Government will have to raise taxes, but they will not tax the rich more—the banks and big business. The poor and working people will be taxed more.

Prescription charges have already been increased by 13 per cent. in one smash go to bolster the health service, which is crumbling before our very eyes. The idea has been put forward that people should pay when they go into hospital and that they should also pay to see their doctor. It is also suggested that people should pay for using our roads. Student fees may go up even more. It is all on the table for the Government to decide. And all of it will be down to the poor, not to the rich. It is time that the Government taxed the rich more instead of taking more money away from the poor. It was not the poor who brought in the poll tax, or the likes of it.

Britain was once the workshop of the world. It has been reduced to an unimportant, third-rate, capitalist power off the shores of Europe. It is a fast-buck economy. Factories are closing, pits are closing and shipyards are being brought to their knees. The Government have closed everything, just like a matchbox or a deck of cards. Millions of people have been thrown out of work, their lives and hopes shattered by the free play of market forces. Mysterious speculators, City gents, members of boards of directors or big monopolies and the banks cheerfully sell millions of pounds to make even more millions of pounds.

There are only two choices. Either we serve the interests of the wealthy and the powerful, or we serve the interests of the millions of workers of this country, as well as the interests of the unemployed, the homeless, the old, and even the middle class. They face ruin under this unjust, outmoded system. There is no third option. The Tory principles are simple: rob the poor and the needy and give to the rich and the greedy.

6.55 pm
Sir Thomas Arnold (Hazel Grove)

I join my right hon. and hon. Friends in congratulating the Chancellor of the Exchequer on his appointment, although I wish that the circumstances of his appointment had been somewhat different.

At the opening of this Parliament, the Queen's Speech included the sentence that the Government will set policy in the medium term to ensure that the United Kingdom meets the convergence criteria set out in the Maastricht treaty".—[Official Report, 6 May 1992; Vol. 207, c. 51.] I took that to be the economic strategy of the Government at the time. Therefore, I welcome very much indeed the extremely sceptical remarks that the Prime Minister addressed to the House this afternoon on the subject of the exchange rate mechanism and therefore, by extension and implication, some of our responsibilities under the Maastricht treaty.

Later this year the Government will come forward with another Queen's Speech. I hope that at that time they will feel able to restate what was said this afternoon: that there is no intention of going back into the ERM in the foreseeable future. Personally, I should like the Government to go further and to state now, if at all possible—I address this remark specifically to the Chief Secretary since he is sitting on the Treasury Bench—that there will be no attempt to re-enter the ERM during the lifetime of this Parliament. That would, I believe, greatly reassure my right hon. and hon. Friends and would send a signal to the markets and other commentators about the Government's specific intentions.

There is still the suspicion in some quarters that the Government intend to set policy in such a way as to enable us in due course to rejoin the ERM. Although it was helpful and certainly of great use in bringing down inflation, membership of the ERM led to the imposition of conditions and restraints on our economy that ultimately proved unacceptable, not just to the markets but to sentiment in this House.

I do not believe that we can return to the position where the economy is required to answer the demands of policy rather than the other way round. I hope that henceforth the Government's economic strategy will be not to set policy in the medium term by meeting the convergence criteria set out in the Maastricht treaty—the phrase to which I have already referred—but to set about promoting the recovery that I believe is now under way.

The amendment to the Opposition motion begins by saying that the Government welcomes the widespread indications of economic recovery in the United Kingdom at a time when many other major economies are in deepening recession". I agree with that statement. I agree also with my right hon. Friend the Member for Worthing (Sir T. Higgins), who said that the state of the economy remains fragile. Some of the indications are very healthy, but there is still a long way to go. Conditions in the north of England are better in many respects than they are in parts of the south-east and the south-west.

I hope that my right hon. and learned Friend the Chancellor of the Exchequer will not be put off from promoting a policy for recovery and expansion by too many fears about inflation. I entirely agree with my right hon. Friend the Member for Horsham (Sir P. Hordern) that we must learn from the lessons of the early 1970s and we must not repeat those mistakes. Nor should we forget that, in the early 1980s, with the development of the medium-term financial strategy, a framework for policy was established that was tailored to the domestic monetary needs of the British economy. That is surely what we should be doing again.

There are some worrying signs that the growth in money and credit has not been as robust as it should be if the recovery is to take firm roots. In terms of both broad money and narrow money—to take two of the Government's indicators, monitoring ranges, targets, or whatever they are called—there have been some signs that perhaps more needs to be done.

It may be sensible for the Government to loosen monetary policy, while seeking to tackle the deficit by tightening fiscal policy. I would see nothing wrong with that. The Budget was not so long ago that we can know for sure how the economy will move as a result of the measures taken at the time, and, should it become apparent later this year that some tightening of fiscal policy is required, I would support that, and I support the remarks of my right hon. Friend the Member for Shropshire, North (Mr. Biffen).

We should not take too much of an ideological view of those matters any more than we should take an ideological view of monetary policy. If it becomes clear that cutting interest rates is a good way of providing some further stimulus, it should be considered. It should, nevertheless, be within a framework that sets out a discipline and the Government's plans for the growth of money in line with the domestic needs of the economy.

It is to that theme that I return in conclusion. The Government must do everything possible during the rest of this Session and in the next Session to ensure that the economy reponds to our domestic needs. They should put aside any thought of re-entering the ERM during the lifetime of this Parliament and should not set policy by the extremely stringent, tough demands of the convergence criteria of the Maastricht treaty because that will not work and will only hinder recovery.

7.2 pm

Mr. Barry Jones (Alyn and Deeside)

I thought that my right hon. and learned Friend the leader of the Opposition left the Chamber the victor of this afternoon's debate. He precisely, and often quite humorously, pulverised the Government's record.

The House today heard speeches from the former Chancellor and the Prime Minister. In effect, we may have heard not just one resignation speech but two. I listened to the former Chancellor's resignation speech. I have never heard the word "loyalty" used to such devastating effect —with contempt, with reproach, with anger. He skewered the Prime Minister on that word. It was one of the most dramatic moments that the House has witnessed, even compared with the personal statement made by lord Howe about the then Prime Minister, Margaret Thatcher. I thought that I heard the former Chancellor complain that, in Cabinet and elsewhere, the Prime Minister had bullied him in his work at the Treasury.

The Prime Minister's speech was tragic. Many Labour Members thought that it was a speech of parliamentary suicide which dwelt over-long, and foolishly, on an apprently hypnotic leader of the Opposition. The parliamentary by-election in the constituency of Christchurch may almost be a plebiscite on the future of the Prime Minister.

The right hon. Gentleman used a boxing metaphor. He may have seen the show at the Mermaid theatre, which is devoted to the life and times of the greatest, Muhammad Ali, whose autograph I once obtained in these precincts on a copy of Hansard. Muhammad Ali did go one fight too far. I encountered Ali in the Central Lobby only weeks after his disastrous fight with Larry Holmes and clearly, with the benefit of hindsight, he should not have embarked on that fight. Larry Holmes had once been just his sparring partner. To continue the metaphor, at the Dispatch Box today, we saw a Prime Minister who was not just lethargic and dispirited but, almost by the process of government and leadership, or the need to give that quality, punch-drunk.

I was disappointed at the Prime Minister's comments. I wanted him to say that he believed in the primacy of manufacturing industry. I wanted him to show the House and the nation at large that he had policies and a programme to restore the economic and industrial greatness of our nation. There was not a clue of that, no sign of that and no determination to provide that leadership, that vision and that policy.

Like my hon. Friend the Member for Blyth Valley (Mr. Campbell), who made a powerful speech, I ask myself, where has the £100 billion of North sea oil revenue gone? Why was it not invested in manufacturing industry? Why did the steel, chemical and textile industries contract? Why did our collieries and shipyards close? Why are our businesses going bankrupt? Why is our economy coming apart at the seams? Those where the questions that the Prime Minister should have addressed and, albeit in the bear-pit of the Chamber this afternoon, he should have attempted to give the country and hon. Members the answers.

A dilemma has arisen in my constituency and some of my constituents are in a predicament. Corporate Jets, part of British Aerospace, was recently sold. My constituents are perplexed and angry. British Aerospace owned that company until a week ago, and 600 of my constituents who work there awoke one morning last week to find that the production process and, in effect, they themselves had been sold to an American company. British Aerospace is our nation's largest employer, but it decided to sell the executive jet—an aeroplane that can fly the Atlantic and is arguably the best of its kind in the world—to an American competitor. That is symptomatic of what is wrong with Britain's industrial policy.

My constituents want to know whether the President of the Board of Trade knew that British Aerospace was going to sell Corporate Jets, whose great executive jet can beat the competition throughout the world. They want to know whether the Prime Minister knew that Corporate Jets was going to be sold. They want to know whether, as employees of an American company, they have an industrial future and whether they will continue to produce that wonderful aeroplane for more than three years. They look to the Government for a guarantee.

Speeches must, of necessity, be brief. I believe that the nation needs a strong regional policy. It wants investment in manufacturing industry, more apprenticeships and investment in schools and skills training. We need investment in manufacturing industry to sustain what is left of the welfare state. The nation does not want dispiriting diversions such as that caused by the Asil Nadir scandal or the cynicism and menace of the Matrix Churchill case. It wants Cabinet leadership which has the nation interest at heart. We have today seen evidence that the Conservative party can no longer give the nation the leadership it needs.

7.10 pm
Mr. John Townend (Bridlington)

I was most disappointed by the leader of the Opposition's speech. It was a brilliant, witty and humorous speech worthy of the music hall, but it had no real content. The right hon. and learned Gentleman showed himself to be wholly devoid of the necessary attributes one looks for in a Prime Minister. Having admitted that we have a public sector deficit of £50 billion, and when asked whether he would deal with it by reducing public expenditure or increasing taxation, he stood at the Dispatch Box and said that he would deal with it by reducing unemployment.

That is fatuous. If unemployment goes down, the deficit will of course also go down but, even if unemployment were nil, we would still have a deficit because only half of the deficit is due to the recession. The rest is structural. By his answer, the right hon. and learned Gentleman showed that he is barren of ideas and knowledge and wholly incapable of being Prime Minister.

I begin my main speech by saying how sad I was to learn of the previous Chancellor's departure. I worked with him as Chairman of the Back-Bench finance committee, and I am sure that history will be kinder to him than the media and some of his colleagues. He knows that I disagreed with his policy in the summer of last year but since white Wednesday, as I call it, he put in place the right policies for recovery: low interest rates, a competitive pound and low inflation. He had a healthy scepticism for the exchange rate mechanism and, if he were honest, he thought that a single currency was for the birds. He was determined to do all in his power to cut spending and reduce the deficit. His Budgets were innovative and elegant, and he introduced two great reforms which will come to be appreciated in time.

First, our method of devising the Budget always seemed ludicrous. We did not decide how much we had to spend. Instead, every Ministry decided how much it wanted, we added it all up and then decided how we could finance the total. The previous Chancellor changed the system—the Budget will now be worked out from the top down instead from the bottom up.

My right hon. Friend's second innovation was to bring the fixing of taxes and the dealing with public expenditure together at the time of the Budget. That is a first-class reform, which will start this year. It must be a bitter blow that he was not allowed to present it.

The new Chancellor, whom I congratulate on his appointment, faces two very important tasks. The first is to ensure that the recovery which, as some of my hon. Friends have said, is not yet strong—indeed, in some areas it is virtually non-existent or fragile—continues to strengthen. As other European economies go into an even deeper decline, and as the American economy falters, there is a danger that Britain's recovery could slow down.

The new Chancellor should do everything possible to ensure that that does not happen. I suggest that he uses the freedom of a floating pound to lower interest rates as necessary and to slacken the monetary stance. If need be, he should at the same time tighten the fiscal stance, but I shall deal with that in a moment.

My initial worry about the new Chancellor was that, after white Wednesday, he was one of those who wanted to rejoin the ERM at an early date. However, he has recently expressed the view that it is unlikely that we shall rejoin during this Parliament. I hope that it is a real conversion rather than a diplomatic one. I should like to think that it proves that he now supports a floating exchange rate. If he confirms that, many of my colleagues will breathe a sigh of relief.

The second vital task facing the Chancellor is, of course, the reduction of the public deficit which will this year rise to £50 billion—more than 8 per cent. of gross domestic product. If the Chancellor succeeds in his first task of obtaining higher growth, it will go some way to solving the deficit problem. If, however, he fails, and if the recovery grinds to a halt, the deficit will get worse. Even if he is successful, other action will be needed. The big debate in the House and in our party is whether we should reduce the deficit by increasing taxation or reducing public expenditure.

In his last Budget, the former Chancellor presented a package of tax increases worth £10 billion. I must tell the new Chancellor bluntly that he should turn his attention to what I admit is the difficult task of reducing public expenditure and forget any idea of increasing income tax, especially the standard rate.

The Tory party won the election for two basic reasons. First, the British public preferred the Prime Minister to the former leader of the Opposition. Secondly, they believed that we would take less out of their pay packets than the Labour party, and that Labour was the party of spending and taxation. We should heed the warning of George Bush's experience across the Atlantic. He said, "Watch my lips." The people watched his lips, and he did not do what he had promised. As we know, he lost the election. If we go into the next election with direct tax rates higher than those at the previous election, we shall Jose all credibility. We shall be finished, and there will be no significant difference between us and the Labour party.

We are already committed to the proportion of GDP taken by taxes rising from 34.5 per cent. this year to 37 per cent in 1997–98. That compares with only 29 per cent. in the United States and 31 per cent. in Japan and Switzerland. There is no alternative to cutting public expenditure.

I accept that there will be difficulties. I have heard it said that we cannot cut overseas aid because 20 Conservative Back Benchers will not vote for it and that we cannot touch social security because a further 15 would not accept that. Everyone favours cutting Government expenditure in the generality but not in the particular. I must tell my Back-Bench colleagues—I am sorry that there are not more of them here—that cuts will have to be made across the board and everyone's pet service is likely to be affected.

The alternative—there is only one—would be a massive —I stress that word—increase in taxation which many Conservative Members would not stand for and which the country would not accept. When the package is proposed, it must be accepted as a whole. We cannot choose from it a la carte—we cannot allow people to say that they like one part but not another.

The increase in public spending is a major cause of our deficit. I wish to put the matter in context, because many people believe that the deficit was caused mainly by the recession. In the past four years, public sector spending went up by no less than £30 billion in real terms. In the four years to 1991, it went up in real terms by £3 billion. Since 1988–89, public spending increased from 39.25 per cent. of GDP to 45.5 per cent. of GDP this year, an increase of 6.25 per cent.

So much for all those accusations of public expenditure cuts. On those figures the Government could be accused of being profligate. I feel that the Government made a big mistake in not grasping the nettle in the public spending round last year. If they had started earlier, the problem would have begun to be solved earlier.

I shall take a few moments to make suggestions about where savings could be made. It is easy to say, "Cut spending," but not so easy to say where the cuts should be made. During the recession every business in the country has had to cut its costs and slim down its work force. Whole layers of management have been abolished. Barclays bank, for example, has got rid of 6,000 people. But in the bloated public sector no such exercise has taken place; indeed, the number of civil servants is rising.

If we compare the present public sector with the industries that used to be in the public sector but have now been privatised—British Telecom, British Gas, the electricity companies and so on—we see enormous differences. Those privatised industries have cut costs significantly and reduced their Labour forces, yet they have increased efficiency. Under British Telecom the telephone service is infinitely better than it used to be, and BT now has 33,000 fewer employees. This year the British Airports Authority has reduced its work force by 19.5 per cent. and PowerGen has reduced its work force by 20 per cent.

If local government—excluding teachers—and the civil service did only half what the private sector has done, billions of pounds would be saved. Indeed, if they reduced manning levels by only 5 per cent.—private companies have had to do much more—they would save 2 per cent.

There was a lot of laughter when my hon. Friend the Member for littleborough and Saddleworth (Mr. Dickens) mentioned overseas aid. But we are spending more than £2 billion on overseas aid. That is very worthy, and if we had the money I should support it. However, not only do we have a Budget deficit: we have a large balance of payments deficit. We are borrowing foreigners' money to give to other foreigners, and we shall have to repay the loan with interest. In our present straitened circumstances we could easily knock £0.5 billion off aid.

The fact that expenditure per head on major services is significantly higher in Scotland, Wales and Northern Ireland than it is in England is kept rather quiet. The local government grant per head in Scotland is 50 per cent. more than in England. In Scottish schools we spend almost 50 per cent. more per pupil, and on health we spend more than 30 per cent. more per head in Scotland than in England.

I found the figures for the north of England, because it always used to be said that spending was lower in England because England has wealthy areas in the south. But the figures for Scotland are significantly higher than those for the north of England. That is not fair and we cannot afford it. We should move progressively to a system in which the amount spent per head in all the countries of the kingdom is roughly the same. Our English children have the right to have the same spent on their education as is spent on the education of the Welsh, the Scots and the Irish.

Ms Glenda Jackson (Hampstead and Highgate)

Do the people in Scotland, Wales and Northern Ireland pay a different rate of income tax from that paid in England?

Mr. Townend

The hon. lady makes a relevant point. No, they do not. We all pay the same tax, so it is unfair that over the years excessive sums have been spent in Wales and Northern Ireland. There is one exception for Northern Ireland: I accept the need for higher expenditure on law and order there.

We must examine the social security budget, however hard it is to do so. We are not the only country that is having that problem. Germany is having it; the Germans are having to consider their swollen social security budget, and France is having the same problem. We are spending £60 billion a year. Anybody who deals with social security will tell us that more and more people are playing the system and abusing it.

Mr. Alan Duncan (Rutland and Melton)

We are spending £80 billion.

Mr. Townend

I accept that I made an error. When we are spending £80 billion there is always room for significant increases in efficiency in absolute rather than in percentage terms, and for cutting out waste. The number of people claiming invalidity benefit has doubled in 10 years. I hardly think that the health of the nation has declined by 50 per cent. during that period. We must consider whether some benefits should be taxed, and whether they should be universal or targeted.

Central Government support for local authorities accounts for another £60 billion a year. Increases in local government grants should be limited to the level of inflation for non-wage costs and to 1.5 per cent. for wage costs. Many hon. Members will accept that there is still an enormous amount of waste in many local authorities, especially in some of the Labour-controlled authorities.

I support strong defence, but do we need to incur the cost of keeping troops in Germany now that the communist threat has declined? Would it not be cheaper to bring them back to this country? We should save not only on our budget but on our balance of payments deficit.If we are to be the policemen of Europe, with our troops in Bosnia doing the work of Europe, is it right that wealthy countries such as Germany and some of the Scandinavian countries do not contribute? If we are sending our troops should not those countries make financial contributions, as happened in the Gulf war?

In all Departments there are savings to be made, but in the past, when savings have been made, they have been used to improve and develop services. I quite understand that, but I suggest to my right hon. Friend the Chief Secretary that in the present difficult situation any savings should go back to pay off the deficit. The Chief Secretary has a thankless task, and he needs the unstinting support of the new Chancellor and of the Prime Minister to force spending Ministers to reduce their demands. I am sure that he will get that support. All three of those Ministers will need the 100 per cent. support of Conservative Members, and they will get it. We need it if we are to have any chance of winning the next election.

If we fail, and we do not deal with the deficit problem, we shall have difficulty in funding it. Eventually interest rates will be forced up, and if that happens while the recovery is still fragile the recovery will be set back. But if we deal with the deficit, and if we have the courage to grasp the nettle and to deal with the problem of public spending, having solved the problem of inflation and achieved a competitive pound and low interest rates, we shall get the economy of this country going, so that in four years' time we shall win yet another election victory.

7.26 pm
Mr. William Ross (Londonderry, East)

I have listened with interest to many of the speeches made in the debate, and not least to the remarks of the hon. Member for Bridlington (Mr. Townend). I am sure that, when the hon. Gentleman was speaking about education expenditure in Northern Ireland, Scotland and Wales, he noted that by general consent the education establishment in Scotland and Northern Ireland produces somewhat better results than are produced in England. I welcome his implied commitment to raising expenditure on education in England so as to achieve the same satisfactory results as we achieve in Northern Ireland and in Scotland. I cannot speak for Wales; I shall leave that to a citizen of that part of the United Kingdom.

This interesting debate has produced a lot of material for the press and the other news media. However, I must confess that both the motion and the amendment are lacking in content and deal only in generalities in a way that does not tell us much. Amusing as the speech by the leader of the Opposition was, neither his speech nor that of the Prime Minister told us much more. We are left with little to vote for, but we may find something to vote against. That may be negative, but in that it is rather like much of what is now going on in the governance of the country.

The real problem facing us all is the £50 billion deficit in the budget. I do not believe that Ministers can welcome that. The House will recall that the Government have increased public expenditure over recent years; the hon. Member for Bridlington drew attention to that fact. Much of the increase took place just after the departure of Baroness Thatcher from the Front Bench. The increases in expenditure were considerable.

Never mind the current deficit; let us look for a moment at what the result of that will be if it continues at anything like the projected figure over the next few years. The total public debt will double in a very short time, and that will lead to huge increases in interest charges to service that debt. Much of the debt is not used for productive purposes. The money is simply spent on social security, education and other matters, and any return from those will be very long in coming.

Once the public debt rises to those proportions, the most intense pressure will be put on interest charges. There is no way that the Government, or the Opposition, can escape that. It is therefore essential that the reduction of the deficit is the first priority of the Government. The question that has to be answered but which has not been answered—those on the Opposition Front Bench have not given much of an answer either—is how to reduce the deficit. The recurring statements from hon. Members of all parties to the effect that we are not to rejoin the ERM make a blooming good start. I am glad that nearly every hon. Member now seems to agree with the members of my party, who never wanted to be in it and who stated their opinion clearly all the way down the line.

Mr. Austin Mitchell (Great Grimsby)

Hear, hear.

Mr. Ross

I am glad that I have the support of the hon. Member for Great Grimsby (Mr. Mitchell), although those on his Front Bench do not share his very sensible views on the matter.

That position on the ERM is a good start, but it is not the end of it. The Government understand that they have to raise taxes and a number of speakers have touched on that today. One speaker drew attention to something that I never could understand: why do the Government take three or four bites at the same bitter lemon? They tell us that they are to impose VAT on fuel next year, and they get bad publicity. They will get another dose of bad publicity next April when the 8 per cent. increase takes place. And they will get a third dose when the 17.5 per cent. increase is completed the following year. If they are to do something nasty to people, they should do it once and get it over and done with. However, if the Government want to bring continuing pain on themselves, that is their worry and not mine.

My objection to the imposition of VAT on fuel is twofold. First, the increase will bear heavily on the lower paid. There will always be people who will be severely hurt by the measure, no matter how much the Government raise social security payments to cover the unemployed and the poorer sections of the community. My second point is more far-reaching: the Government have cleared the way for further increases and changes in the scope of VAT. Having once breached the zero VAT rule that has prevailed for many years, they may go on and start slapping VAT on other items in future years. That is something that no hon. Member would wish to contemplate.

If the Government want cash, they should do as I suggested in my speech on the Budget —increase income tax. It is flexible, it provides instant money and, as soon as the economic conditions allow, it could be easily reduced again. The VAT increase will be very difficult to get rid of once it has been imposed.

Mr. Peter l. Pike (Burnley)

Is not the reality that income tax, of all taxes, is the fairest as it takes into account ability to pay, and that that is why income tax should be used if the Government need to raise more income?

Mr. Ross

There is a great deal of truth in what the hon. Gentleman says, and that is why I would have favoured it.

If Ministers, like the rest of us, had been out in the real world, talking to those who were earning comparatively good salaries and who were concerned about those with no job, they would have found many of those folk willing to pay extra tax in order to relieve the burden that has been created by the Government's mismanagement.

The Government must have a long-term strategy, and if the former Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont), is to be believed, there is precious little sign of that around. Part of the original long-term strategy was membership of the ERM. The ex-Chancellor told us that he tried very hard to make it work, and membership of the ERM was the basis of the policy of the Government. Those of us who were against membership have been proved correct in our assessment that fixed exchange rates do not work.

The ERM was, to a large extent, a bomb shelter for the Government. That expression has been used in another context about the Government. But it was a fragile bomb shelter, because its protective strength depended entirely on the Germans paying the price. Once the Germans said that they were no longer paying the price, the bomb shelter crumbled immediately.

We should also consider carefully what the former Chancellor said about the need for courage and determination. He said that he did not believe that the Government had the courage and the determination to carry through the necessary economic policy, and it was for that reason that they needed the ERM. In other words, he is telling the country, the world and the House that the Government lacked the backbone to govern, to take the flak, and to do what was necessary to explain their policies and stick by them.

I wonder how someone who was, until recently, the second most senior Minister in the Government could say that, and could then say that they are still fit to govern. Those may seem harsh words, but the Conservative party must ponder them.

The same frailty of purpose shows when Conservative Members, including the former Chancellor, tell the House that they believe in a central hank. Such a bank would have only one purpose—to act as a bomb shelter for Government decisions. If people stand before the electorate and ask for votes, they then should have the guts to govern. They should have the guts to take responsibility for the economic policy which has to be carried through for the long-term welfare of the community. The promotion of a central bank is an abdication of the responsibility which people seek at elections, and no Government should shelter behind it.

Chancellors of the Exchequer cannot be popular. They are not in office to he popular; they are there to do what is right. I hope that the new Chancellor will have the strength of purpose to do what is right. I hope also that he will be supported by the Cabinet and by the whole of his party in doing that. We have been told, not only by several speakers in today's debate, that recovery is under way. The Government amendment says that recovery is under way. If that is so, why has a new Chancellor been appointed when the policies of his predecessor—initiated after the brilliant Wednesday in September of last year—were beginning to work? The ex-Chancellor told us why. The pollsters and the news media drove him from office. That is a damning indictment of the strength of the Cabinet and of the Conservative party.

If we are to get out of the deficit in which we find ourselves, largely as a result of the policies pursued by the Treasury in the 1980s, the Government must increase revenue and must cut back public expenditure. They must aim also for much higher growth.

I was never convinced by the view expressed by Conservative Members during the 1980s that it did not really matter what sort of industry there was, and that service industry could replace manufacturing industry. It always seemed to me that manufacturing industry, the production of goods, had a greater depth and strength than could ever be found in service industries. As hon. Members have repeatedly said in such debates over the years, manufacturing industry is the source of wealth of this country. Of course, I believe that it goes further than that. like Churchill, I would have chosen the open sea rather than Europe when considering where to sell the goods that I produced.

In this debate there is not much comfort for Conservative Front-Bench Members. One cannot but wish them well. We have all had a hard time of it, but there is not much comfort for the Government, the governing party or the country in the days and months ahead. There has not been much comfort in what we have heard from the Opposition, either. It is time to face reality. This is supposed to be the House of the great communicators. It is time to tell people outside what the reality is, what the medicine is and what the long-term hope and vision are. If we do that, folk will take the medicine, once they believe that it is necessary. Up to the present they have neither been told what is necessary nor been convinced by what they are being told.

7.40 pm
Mr. James Clappison (Hertsmere)

The debate has touched on some important issues, such as public spending, revenue and the borrowing requirement, but it has also had some of the characteristics of a parliamentary set piece and all the rituals that go with such an occasion. There were all the charges, counter-charges, froth and bubble that one usually associates with such occasions. The right hon. and learned Member for Monklands, East (Mr. Smith) took his full part in the ritual, as did the right hon. Member for Yeovil (Mr. Ashdown), but with—I do not mean to be too damning of the right hon. Gentleman —much less skill than the right hon. and learned Member for Monklands, East.

I would not concur with the judgment of the hon. Member for Alyn and Deeside (Mr. Jones) that the right hon. and learned Member for Monklands, East was hypnotic. I do not think that the public will be entranced by his lack of alternative concrete policy. The test that the right hon. and learned Gentleman must pass will come later, not today.

Opposition Members should not have too many illusions about public confidence in the Labour party and the policies that it has espoused over the past 14 years. In particular, they should have no illusions about the extent to which Conservative values are now shared. Those values are now shared more widely than ever before among the electorate, particularly values concerning the delivery of high-quality public services and value for money. [Laughter.] The hon. Member for Great Grimsby (Mr. Mitchell) may find that remark funny, but I am sure that the people of Grimsby do not. It is an important issue throughout the country.

Opposition Members should have no illusion about the need for sound finance, which has been an important hallmark of the Government over the past 14 years, the need to constrain public expenditure as a proportion of national income and the need to aim to balance the Budget over the Budget cycle.

I concur with what my right hon. Friend the Member for Worthing (Sir T. Higgins) said about timing and economics and about economic judgments being somehow different from judgments that are made in everyday life. Of course that is right, but Conservative values are echoed throughout the country. That is particularly true in respect of public services. Whatever other charges can be levelled against Conservative Front-Bench Members. it cannot justly be said that over the past 14 years there has been a lack of resources in public services, and certainly not when measured in real terms. That is true in respect of education and health.

On education, it was noticeable that the right hon. and learned Member for Monklands, East chose to make testing the focus of his attack on the Government. It is an important subject and there is certainly an issue about the administration of such tests, but it is not the touchstone of whether adequate revenue and resources have been devoted to education.

I should have thought that there was a more accurate reflection of the increase in real terms of expenditure on education and the vastly increased proportion of young people who are now entering higher education compared with the number under the previous Labour Government. Opposition Members talk about a high-skill economy and a better trained and educated work force. They might care to reflect on the fact that nearly one in four school leavers now go into higher education, compared with one in eight under the previous Labour Government.

Whatever Opposition Members might say about health —of course they disagree with the health reforms and think that the Government are wrong—they cannot dispute that spending has increased massively by about a half in real terms over the past 14 years. Opposition Members used to talk about the proportion of gross domestic product spent on health. That proportion, too, has risen. There has been a massive increase in resources, which has been reflected in public confidence in the quality of our public services, particularly the health service and education, and that has been reflected in election results over the past 14 years.

Opposition Members have talked about public finances. I echo the sentiment that was expressed by my right hon. Friend the Member for Horsham (Sir P. Hordern) when he talked about the state of finances and considered the timing of public finances, especially debt and debt repayment. Over the past 14 years, although public spending has increased in real terms, the Government have had success in constraining the proportion of Government expenditure as a proportion of national income.

They were able to bring the proportion beneath 40 per cent., which was a considerable achievement. They have also had considerable success in balancing the Budget. As my right hon. Friend the Member for Horsham rightly said, repayments of debt were made until as recently as 1990. For a substantial part of the latter 1980s, repayments were made, and that reduced the absolute level of debt. We all know that things have changed since then, in large measure because of the recession.

I must now express the views that were forcefully put to me in my county of Hertfordshire. Hertfordshire is one of the areas of the south-east that have endured the recession. It had a good period in the middle of the 1980s, but it went into recession earlier than some other parts of the country. By its good standards of prosperity and growth, it has suffered during the recession. I am glad to say that the people of Hertfordshire have kept faith with the Conservative party over that period, and they look to the Conservative party to provide growth now. Certainly, there is no lack of concern about unemployment in Hertfordshire. Conservative Members feel for our constituents who have endured unemployment and for businesses that have had to struggle. There is no doubt about the struggles that many have faced.

The most important issue for the success of local economies, the national economy and the state of public finances is growth. Just as recession led us into the current state of public finances and the public sector borrowing requirement of £50 billion, so we must look to growth to put workers back into jobs and to put businesses back into profit—workers working once again and paying tax as before. We have to look to growth as the principal way of dealing with the public sector borrowing requirement.

I firmly endorse the use of the word "fragile" by my right hon. Friend the Member for Worthing. It was an apt description; growth is fragile. In the past few weeks, I have spoken to many business men, business men's leaders, local chambers of commerce, the Confederation of British Industry and others, and the word "fragile" has been used many times. They are delighted to see the signs of growth. Across the board, they see growth coming and a change in the atmosphere, but the word that keeps coming back is "fragile". They believe that growth is being sustained, but that it needs to be nurtured and built on.

I strongly endorse the comment of my right hon. Friend the Member for Worthing that the overriding priority must be the nurturing of growth. All other policies must be subordinate to that, both for the sake of businesses and for the sake of the PSBR and the country's finances. Anything that disrupted that growth or that turned us back into recession would have a bad effect on public finances, as well as being undesirable from the point of view of business. I urge Ministers to make the matter a top priority. That is the test that the Government and Opposition Members will face. The real test for Opposition Members does not lie in the ritual of these set-piece occasions; it is whether their policies are more or less likely to bring about growth.

Mr. Andrew Smith (Oxford, East)

indicated assent.

Mr. Clappison

I am glad to see that the hon. Gentleman agrees. That is the first time today that real commitment has been given to growth. The leader of the Opposition made a speech which, although it involved great ritual, did not set out Labour's alternative strategy for growth satisfactorily. We heard little about what the Labour party has set forward as its policies for growth.

Where are those policies? The minimum wage, the centrepiece of the Labour party's main policies, is one of the few policies not discarded since the election. The hon. Member for Oxford, East (Mr. Smith) looks less interested now. Does he think that that policy is more or less likely to promote growth? More important, what do business men, who are more reliable witnesses, think? Can the hon. Gentleman find many business men who support his contention that the minimum wage would improve job prospects and growth?

I can tell the hon. Member for Oxford, East that business men in my constituency are not exactly dancing with glee at the prospect of a minimum wage, nor are they dancing with glee at the prospect of being signed up for the social chapter. That does not lead business men to have any joy in my constituency—nor, I suspect, would it induce international investors to queue up for an aeroplane ticket to london rather than to Frankfurt or Paris.

We could also do with less talk about sweatshops. There should be less of that derisive talk. That expression was used again this afternoon by the right hon. and learned Member for Monklands, East. It does this country no good whatever to hear that sort of talk. What is important is for the competitive advantages of this country to be sold abroad as effectively as possible and not to be talked about in terms of sweatshops. Thousands of constituents of hon. Members on both sides of the House are benefiting from that internationally competitive position, attracting inward investment into this country.

Ms Ann Coffey (Stockport)

I wonder whether the hon. Gentleman is aware that, in a recent survey in Japan among Japanese firms that were asked about the factors that encouraged them to invest in this country, Labour cost was the least consideration. The consideration that was important to those firms was local authorities' enthusiasm for their being here, the English language and grants that were available. I wonder whether the hon. Gentleman would feel better—I can see that he has a great interest in the economy—if he dealt in the facts of the matter.

Mr. Clappison

I doubt very much that Japanese investors would be impressed by the prospect of a return to the 1970s or by the implementation of the social chapter. They would not be impressed by bureaucracy, unnecessary costs, more regulation or higher Labour costs, all of which are implicit in the social chapter and in the other policies of Opposition Members.

One of the expressions about which we have heard much less recently from the Opposition is "two nations". That was quite a fashionable part of Labour's vocabulary throughout the 1980s. The internationally competitive position of Great Britain has brought about a great deal of inward investment into the parts of the country that the Labour party used to characterise in terms of two nations, especially areas such as south Wales and the north-east. Those are areas that are represented predominantly by Opposition Members. The jobs and prosperity that that investment has brought under a Conservative Government have made a substantial difference to those areas. Talk of sweatshops does not bring any benefit to the electorate or to the residents of those areas.

There is one other thing that the Labour party should do: it should start to acknowledge the fact that growth is taking place. The right hon. and learned Member for Monklands, East chose to quote from a manufacturing journal about the state of manufacturing industry. He would have done better to listen to the real voice of employers—to what the Confederation of British Industry says. In its most recent survey, it found that there was increasing business confidence.

The right hon. and learned Gentleman should have looked at the CBI's most recent forecast for growth, which it revised upwards this year from 1.4 per cent. to 1.6 per cent. That is a modest revision upwards, but it will translate into thousands of jobs and far greater prosperity for many families. The CBI sees even more robust growth taking place the following year, with an increase from 2.4 per cent. to 2.6 per cent. growth. Growth is taking place, which is the fundamental fact that Opposition Members cannot avoid. The real test for them has yet to come.

As I have suggested in endorsing views expressed by my hon. Friends, growth must be the main engine for dealing with the public sector borrowing requirement. I, together with many of my hon. Friends, believe that the Government must devote the utmost attention to that. There is great controversy about how much of the deficit is cyclical and how much is structural. There is considerable uncertainty about that and there are differences of opinion.

It is certain, however, that every penny of that debt is mounting up and that interest has to be paid on it. In those circumstances, it is entirely right for a Conservative Government, who are committed to good housekeeping, to conduct a public expenditure review in the terms announced by my right hon. Friend the Chief Secretary to the Treasury. It is also entirely right for my right hon. Friend to give the undertaking accompanying that review that the interests of the most vulnerable and of those most in need will be given high priority. It is entirely right that such a review should take place.

I endorse the words of my hon. Friend the Member for Bridlington (Mr. Townend) when he spoke about the attitude that we should take towards that review and about the framework in which it is taking place—of priority being given to those most in need. It is an extremely necessary review, in the medium term and in the long term, and there are some fundamental issues concerning the proportion of the population in work and the proportion of the population who must be supported by those in work when there is an increasingly aging population. Those are all most important issues. It is right for the Government to address them now and it would be a dereliction of their duty if they did not do so.

During the review, my right hon. Friend the Chief Secretary must be given unstinting and unqualified support. There may be some decisions that we find difficult to accept—there always are. Hon. Members have interests and everybody considers each cause and each interest to be needy. However, at the end of the day, there must be support.

My hon. Friend the Member for Bridlington mentioned overseas aid. He said that there might be 20 Conservative Members who would vote against any cuts in the overseas aid budget. He may have been thinking of me as one of those hon. Members, because last year I signed an open letter to the then Chancellor of the Exchequer urging him to protect overseas aid. Many of the others who signed the letter were Opposition Members. Twenty other Conservative Members signed the letter, and my hon. Friend the Member for Bridlington may have me in mind. I have always believed that overseas aid is an important priority. I have held the basic, instinctive view that, although we may have problems in this country, they are as nothing compared with the problems in the parts of the world that overseas aid assists.

Be that as it may, the needs of our public spending review must take priority over such feelings and sentiments. If it comes to pass that there must be a reduction in overseas aid, I shall go through the lobbies in support of the Government. I know that in doing so, I shall reflect the views of many of my constituents, including many who regard overseas aid as an important priority. The Government must be given a free hand and support within a framework of policies in which the interests of those most in need are given the highest priority.

I endorse the comments made about the undesirability of increasing taxation, but it is a matter of judgment. My right hon. Friends must take into account economic circumstances and the likely effect on demand. They must bear very much in mind the long-term Conservative commitment to a low-tax society, with the low taxation of both individuals and the corporate sector. I invite them to consider that issue carefully when forming a judgment.

I was interested in the absence of any comments about revenue from Opposition Members, particularly the right hon. and learned Member for Monklands, East. He called for the debate on public spending and criticised the public sector borrowing requirement and one might have expected him to say something about Labour's proposals on the subject.

The absence of any comment was particularly surprising, because the hon. Member for Dunfermline, East (Mr. Brown) went on the radio this morning and shared with the "Today" programme his views on revenue; the right hon. and learned Member for Monklands, East did not share those views with the House today. At the top of the hon. Gentleman's list of priorities for raising more revenue was a new tax, which he described as the public utility dividend.

I would welcome hearing about the so-called public utility dividend when the Opposition Front-Bench team wind up the debate. The subject seems to warrant close examination, not just because of any anomalies or injustices that it may create or because the so-called public utilities are already subject to the regulator and already pay tax through corporation tax—a factor that the hon. Member for Dunfermline, East did not seem to consider. The Opposition should consider not just those factors, but the effect of any such taxation on the ability of the utilities in private hands to invest.

Opposition Members soon lose sight of the vital thread between profit and investment and the effect on the ability of the utilities to invest and provide a better service to customers, about which we have heard and which, over the past 14 years, have been increasingly accepted by the public. Opposition Members have had to concede that fact, as they have opposed successive privatisations, only to relent of their opposition and abandon their pledges. Those privatisations are now accepted as a fact of life.

The right hon. and learned Member for Monklands, East betrayed his instinctive hostility towards privatisation when he addressed the House on railway privatisation. The credibility of Opposition Members does not rate highly when they talk about public finance and privatisation. They are hostile towards privatisation, but they should consider what their advice on privatisation has been and what the effect on public finances would have been had their advice been taken. That is a substantial issue for them to consider.

If the Opposition had had their way, there would have been no privatisation in the past 14 years and thus no receipts from privatisation. There would have been no receipts—cumulatively worth £30 billion with interest— from the privatised utilities. If we had listened to the advice of Opposition Members and the right hon. and learned Member for Monklands, East, we would have paid a price of £30 billion. If we had listened to their advice and there had been no privatisation, we would have had £30 billion less to spend on public services, £30 billion more to find in taxation or a public sector borrowing requirement of £80 billion rather than £50 billion. Their advice would have come at a high price, and I invite them to explain to the House the impact of their proposal to introduce a public utility dividend.

I believe that contributors to today's debate have been carried away with the ritual and we have not heard an alternative strategy that any reasonable person would expect Opposition Members, particularly the right hon. and learned Member for Monklands, East, to set out. That is the real test for Opposition Members. The Opposition's credibility is no higher as a result of their endeavours in today's debate. They have made no contribution to the debate.

8.7 pm

Mr. Austin Mitchell (Great Grimsby)

Today's debate has had the feel of a debate on a no-confidence motion. The hon. Member for Hertsmere (Mr. Clappison) seemed to approach it as such when, in his sweetly sanctimonious way, he defended an imaginary Government. He said that all the problems were caused by the Labour party and that, after 14 years in opposition, the faults were all those of the Opposition. That is an amazing achievement for the Opposition.

It feels as though we are discussing a sort of no-confidence motion. However, we are discussing a statement of obvious fact. The Government deceived the people at the last election. They concealed the mess, and now that they face the mess that they created they do not have the foggiest idea how to get out of it because they are suffering from a crisis of leadership. This shambling decrepit Government are going nowhere. To use an image from Scarborough, the Holbeck Hall Government are sliding slowly into the sea while the Chancellor plays his jazz piano in the bar room to alleviate the suffering of the hotel residents.

Today's debate has not been great, but it has been revealing. Particularly illuminating was the hurt, doubt, misery and pain on the face of the ex-Chancellor, the right hon. Member for Kingston upon Thames (Mr. Lamont) at the way in which he was treated for following his Prime Minister's policies to the letter. I offer him an old adage, when it was said of Harold Macmillan in 1962: Greater love hath no man than this, that he lay down his friends for his own life. That is what happened to the former Chancellor.

Equally revealing was the Prime Minister's vapid performance—it was low level stuff and he showed no dignity. It reminded me of his speech at the last Tory party conference when he was expected to rise to the occasion and give the Tory party a lead. He sank to it and told his followers, "When a child's got to go, a child's got to go —we need more toilets on the motorway."

I drove to Banbury this morning and thought that I saw the Prime Minister's monument as I approached Banbury because on the M40 I saw a huge sign in yellow and black stating, "Emergency WC". I thought that the Prime Minister's vision had been realised on the M40. That shows the height of the Prime Minister's thinking. He is the man who has to lead us out of the mess that we are in. Everyone can make his own judgment about the Prime Minister's stature and whether he is up to the job. The embarrassed faces of those behind the Prime Minister when he made his speech today showed that the prevailing consensus in the Conservative party is that he is not up to the job as the Holbeck Hall hotel slips into the sea.

I want to be open with the hon. Member for Hertsmere about the Labour party's faults. The problems are not all of the Prime Minister's making—he inherited a mess. He won the prize of power just as that power turned to dross and has had to cope with the disasters that arose from the misguided policies of the 1980s. As my hon. Friend the hon. Member for Cannock and Burntwood (Mr. Wright) said, the Government came in promising what they would do, and did it.

The Government claimed to have performed a miracle through their policies. That claim was about as valid as the hyped up profits created by creative accountancy and lax accountancy standards in this country in the companies operating in the 1980s. Creative public relations laid claim to the Tory miracle. The 1980s were an enormous wasted opportunity—the benefits of North sea oil have been thrown away by the Government. The only benefit that we gained was the huge credit bubble of asset inflation. Asset prices rose and more credit was allowed—the one stoked the other in a sort of North sea bubble which began with an enormous depression produced by the Government's economic incompetence and ended in another severe depression.

Those depressions decimated large swathes of manufacturing industry in this country. It is the industry that we live by, the manufacturing that pays our way in the world and which alone can generate growth and support our services and standards of living. Most of our trade is still in manufactured goods. Whatever the Minister may think about the financial sector, we depend essentially upon manufacturing. If we do not produce, we cannot consume or maintain our standards of living.

Manufacturing has been closed down more rapidly here than in any other advanced industrial country. In the 1980s we lost more jobs in manufacturing than any other manufacturing country, and a larger share of our own market-40 per cent. of our domestic market in manufactured goods is now taken by imports, double the proportion in France and Germany. All this is the product of Government policies throughout the 1980s.

Now, at the end of the period, the Prime Minister has to clear up the mess. It was concealed in the 1980s by North sea oil and by the £30 billion privatisation receipts. There was no need to increase taxes; the tax base could be narrowed because of the revenue from privatisation. Now those revenues are drying up because we are reaching fell-off-the-back-of-the-Government end of privatisation. Now that North sea oil's contribution is set to attenuate, we have to clear up the mess—an horrendous trade deficit that will reach record levels when the figures are published in six months' time; and a public sector deficit which is at crippling levels. The burden of debt grows apace on both counts.

Such growth as the Government are achieving—they are achieving some—results from the competitive devaluation into which they were forced—to our shame —by the men in red braces, not the men in red ties, who I wish had forced them into it. But the Government are putting back on their straitjacket in the form of the Maastricht treaty, which effectively will compel them to go back to the exchange rate mechanism. So their pathetic recovery has a finite time to run, because they have no idea what to do next.

The Government think that the market will provide. All the market does in this sort of extreme situation is compound decline: it compounds prevailing trends. Those trends are towards peripheral decline in this economy, and that will be highly damaging.

I can offer the Government an agenda. First, they must let the pound fall further. Any country with a balance of payments deficit as large as ours must let its currency fall. There is no other way of closing the deficit. The pound has come down by 16 per cent. since devaluation, since when it has risen again by 7 per cent. The result, as an article by Edward Balls in the Financial Times last week showed, is that we are still less competitive than we were in 1987. The pound has further to go. It must come down if we are to boost exports and win back the markets that we have lost.

As part of this process, interest rates must come down too. They are still higher in our economy than in the American and Japanese economies. Industry will not invest at these rates; we cannot stimulate the economy at these rates.

My third piece of advice to the Government is: do not worry about the deficit, as the hon. Member for Southend, East (Sir T. Taylor) is always telling us. It exists for good Keynesian reasons. There is no point in trying to cut it back at this time. Nor should we attempt to fund all of it. Why go to the trouble, expense and burden of debt of funding the whole deficit? We should require the banks to buy and hold Government debt. Why should they not? They have the money to do it.

Moreover, although this might hurt the vested interests of the City and the fees and Commissions earned there, we should ask whether we should fund the debt at all. Why not require the Bank of England to give the Government ways and means advances—without charging interest on them at market rates, as it does at the moment? The advances should be free of interest to the Government. That would have no inflationary consequence, because inflation is not a monetary phenomenon—it is caused by pressure on resources.

At the moment, resources are slack. The banks enormously expanded credit in the late 1980s, then suddenly contracted it at the end of the decade. That gap in credit has to be made good. Why should we not use public credit, with advances from the Bank of England on which we do not pay interest and so do not build up a burden of debt? These advances could be used to stimulate the economy and to do the work that must be done to achieve economic growth.

I am not an expert on these matters, but the idea must be looked at. The only things stopping us trying the approach are the vested interests of the City and its desire to manage Government debt and to keep on creating that debt.

Fourthly, we need a sensible industrial strategy— investment in training and infrastructure. Now is the time for that. I have to admit that Opposition Members have not understood that supply side measures do not generate their own demand. Clearly, there is no point in training unless we also stimulate demand so that there are jobs for the people whom we have trained. In that way, an expanding industrial sector will be ready to benefit from the competitive advantage that we give it.

At this early stage in the life of a Government I am afraid that we are at a turning point. We have been there before—politics and politicians treading water, and no clear direction for the nation and the parties to move in.

We were in the same situation in 1961–62, when the Macmillan Government began to falter, just as this Government are faltering. Again, in 1978–79 the Labour Government whom I was elected to support and did support began to falter in the same way. At both junctures, a new impetus and dynamism emerged, in 1978–79 in the form of Thatcherism, with its easy answers which have now failed, and in 1962–63 in the form of the Labour party's planning for the white heat of technology.

The worrying thing about today is that we are treading water but no impetus has yet emerged. It will certainly not emerge from the Government, who have run out of options and policies. All that could possibly emerge from the Government is a new impetus from the new Chancellor, who is something of a wild card and who may have the makings of a Maudling. He is unpredictable. But it will be nothing more than a new tune played by the jazz pianist on a fairly decrepit piano.

There will be no new ideas from the liberals either. They are essentially a collection of protests, a bucket to spit into, not a coherent party. I thought the leader of the party made a brilliant speech today. The problem with the liberals is that they do not have debates within the party, only conflicts in the leader's head, which is a rag-bag of policies from which he plucks out and offers whatever happens to be fashionable. Then he puts it back again.

It is only a few months since the liberals were telling us that the answer to all our problems was to move to the narrower band of the exchange rate mechanism at a rate that is now agreed to have been grossly overvalued. Nevertheless, the cry was, "Narrow bands now, narrow bands now." I can remember that cry coming dramatically from the lips of the liberal's economic spokesman.

I am disappointed that no alternative has yet emerged from the Labour party. That could be a question of the party; it could be a question of my temperament—an obtuse Yorkshireman used to bull-at-a-gate tactics, wanting to get on with it, to get the boot in now and to provide the sort of opposition that the leader of my union, the General and Municipal, wants us to provide. I must accept that the Scottish method is cannier, slower, more cautious, more intellectual. We are in a policy purdah at present. It is certainly sensible to develop new policies for new situations. That was what happened between 1959 and 1962, when the Opposition finally emerged with a powerful range of new policies. That is an understandable phenomenon. It is just that my natural Yorkshire bloody-mindedness wants us to do more now.

All three parties are obsessed with Europe, European approaches and methods and the problem of Maastricht, but those issues are remote from the considerations of most of our people who sense an overwhelming national failure. They sense that the nation is faltering, is not going anywhere, and that its industrial base is not strong enough or viable enough to provide jobs, generate growth and improve the lot of our people. It is not providing a platform for work and skills and the growth that is needed to improve people's lives.

There is a sense of national failure and it will not be solved by endless talk about Maastricht, about putting Europe at the heart of everything that we do or about putting Britain at the heart of Europe. It will be solved only by addressing the fundamental problem that our manufacturing base has shrunk too much to be viable. Unless we widen and deepen it, make it competitive and generate skills, Britain will not survive as a nation of which we can be proud.

8.21 pm
Mr. Tim Smith (Beaconsfield)

It is always a pleasure to follow the hon. Member for Great Grimsby (Mr. Mitchell). Before he spoke, I had intended to say that there was more consensus in the House on interest rate and exchange rate policy than for some time, but the hon. Gentleman rather shattered that when he said that we need to reduce interest rates and devalue further. He suggested a splendid scheme for borrowing all the money interest-free, but even if that were viable it would be highly inflationary.

We need a policy that will promote growth, create jobs and tackle unemployment. It must promote manufacturing and Britain's exports, increase productivity and reduce our unit Labour costs. It should deregulate as far as possible and reduce the burdens on industry, thus making the United Kingdom attractive to investors.

By and large such a policy currently exists. Interest rates are lower than they have been for about 25 years, and inflation is lower than for 30 years. The exchange rate is much more competitive, and during the recession productivity has made tremendous strides. Britain's exports are more competitive than for many years, and there are tremendous opportunities for more.

The prospects for recovery are good, but there are two qualifications, one of which is domestic and the other international. The domestic one is that there is still less consumer confidence than we would like, largely because of the threat of unemployment and the fact that many people still suffer from negative equity. There is some way to go to overcome those problems.

Internationally, we are competing in markets that are rapidly contracting. I am not sure that people appreciate the dire state of the German economy, where industrial production fell by 12 per cent. in the past year. Although it is a difficult market for us, British exporters are having great success there, simply because high costs are pricing many German manufacturers out of the market.

The main threat to recovery is the size of the public sector borrowing requirement, which has been mentioned many times in the debate. I am sorry that the leader of the Opposition refuses to address the issue and say how he would tackle it. He simply engages in scaremongering about reducing expenditure, although the Government have made it quite clear that above all else they will protect the most vulnerable in society.

I am also sorry that the leader of the liberal Democrats refused to say how he would set about increasing taxation. He said that, in his opinion, £30 billion of the deficit was structural and should be tackled by increasing taxes. If he tried to deal with all that by way of income tax, it would require an increase of 15 per cent. in the standard rate. The right hon. Gentleman should say precisely what he has in mind for tax increases.

Prospects for the PSBR are hard to forecast. There are advantages in having forecasts in the Red Book from a panel of independent forecasters. Although the Government have forecast for next year a PSBR of £44 billion, the independent forecasts range from a low of £32 billion to a high of £60 billion. That illustrates the difficulty of forecasting from a range of large figures. We should not get too hung up on £50 billion or £44 billion.

The deficit is clearly too high, and has risen rapidly. Only five years ago, the public sector debt repayment was £15 billion, and some optimistic Members spoke about repaying the national debt by the year 2000. The situation can be reversed with equal rapidity if we can secure the necessary economic growth, because there is no doubt that much of the deficit is cyclical and not structural.

However, we must tackle it in the meantime, because of the cost of servicing the debt. I accept the tax increases in the Budget of £6 billion next year and £10 billion the following year, but I should not like to see further tax increases. If the Government need to do more to tackle this large deficit, they will have to reduce public expenditure.

I disagree with my right hon. Friend the Member for Shropshire, North (Mr. Biffen), who said that we should increase income tax by 1p or 2p in the pound. I intervened in his speech to say that there were to be income tax increases of £8 billion. It is not quite that, but out of the £10 billion proposed for 1995–96, only £2 billion is accounted for by VAT on domestic fuel and power. The other 80 per cent. is accounted for by increases in other taxes. When the increases in income tax and national insurance contributions are added, they amount to more than half that, to almost £5 billion.

Therefore, the Red Book already proposes substantial tax increases and I disagree with those who say that they are unfair. They are spread to cover all taxpayers, because the allowances and the basic rate limit will be frozen and various other restrictions will be introduced. In two years, that will increase the income tax bill of every taxpayer. That will be sufficient, and, as I have said, further inroads on the deficit should be made by tackling public spending, because much public expenditure could be reduced without affecting the most vulnerable in society.

Prospects are now better than for some time. Business confidence is higher than for more than 10 years, and the prospects for manufacturers and exporters are good. Manufacturing performance has been impressive. Our motor components manufacturers are selling to Germany, to Mercedes. Rover now produces motor cars that can compete with BMW and Mercedes.

Industry needs a period of stability in exchange rates, interest rates and inflation. Given that, there will be gradual economic recovery, which we shall all welcome.

8.28 pm
Mr. Peter l. Pike (Burnley)

The debate is on important issues. The Prime Minister challenged my right hon. and learned Friend the leader of the Opposition about our programme at the election, but he failed to recognise the key difference between the Opposition and the Government. The side that wins the election has one important advantage over the people who lose, which is that the winner has an opportunity, in theory, to deliver its election programme—or break its promises. The Opposition do not have that opportunity.

The issues that we are now discussing reflect the simple fact that the Government have broken so many of the manifesto promises they made last April. They have not lived up to the statements that they made to the people in order to win the general election.

I wish to challenge the Government on one or two important points. I have raised the first issue time and again, and Ministers, have failed to answer it. The Government's public expenditure plans in the past and for the future always include figures representing receipts from the sale of assets such as National Power, British Telecom or PowerGen. I shall not debate the folly or otherwise of the railway privatisation as it is not appropriate to the debate, but assuming that the Government continue with the policy, what will they do when they have no more assets to sell to supplement their programme? They have to tell us what they will do then.

It all comes back to the fundamental question that we are debating today. Everyone is saying that we have to do something to reduce the £50 billion public sector borrowing requirement. The options are to increase taxation or to reduce public expenditure or, in theory, a combination of the two. The other possibility, which we all want, is a growth in the wealth of the country.

As I represent a key manufacturing area, I feel that there has to be growth in the manufacturing sector and in employment in manufacturing industry to get our balance of payments into surplus and reduce the appalling deficit in manufactured goods. Whoever is in office, we will never get the economy right until we recognise, once again, that the nation's wealth, and indeed its bread and butter, depends on our manufacturing base. Until we tackle that and get it right, we shall continue to have difficulties.

The Government say that they do not want to increase taxation, but we saw numerous examples of increased taxation in the Budget. Time and again in the past 14 years, they have got away with conning the public. They have done it cleverly by reducing direct taxation and increasing indirect taxation.

The overwhelming majority of people in my constituency now pay a higher percentage of their earnings in tax than they did under the Labour Government. They pay less in direct taxation, but their indirect taxation has increased.

When the Tories won the election in 1979, they increased VAT from 8 per cent. to 15 per cent. They then increased it to 17.5 per cent. to reduce the impact of the poll tax. Everything that was zero-rated is gradually being brought into the scope of VAT, and it has now been extended to domestic fuel and power. We all know that that was only the first step. Everything that is zero-rated at present is also under threat.

I believe that domestic fuel and power should remain zero-rated. The case for their being zero-rated was good in the first place, as it was for children's clothes, food and transport. The public believe, as I do, that the Government will gradually bring those items within the scope of VAT, as well as books and newspapers.

The Government are obsessed with not increasing income tax, which is based purely on the ability to pay and is the fairest possible way of raising revenue.

The hon. Member for Beaconsfield (Mr. Smith) said that the Government will protect the most vulnerable people in our society. We have heard that phrase time and again; we have also heard about better targeting. I know what has happened in Burnley after better targeting and the protection of the most vulnerable. The poorest and most deprived sectors of the community have lost and the wealthiest have gained. That is what better targeting means in Tory terms—making the poor pay and suffer more, and giving a little more to those who at least need it because they are already wealthy.

I referred to the increase in VAT. I received from the library a table of the increases in the price of leaded petrol. I shall not debate the rights and wrongs of duty on fuel for cars, but it was 48.8 per cent. in January 1979 and it is now 71.1 per cent. of the price we pay on a gallon of fuel, assuming that one is still using four-star leaded petrol, which I do not. That is only another example of how the Government have shifted taxation on to national insurance, VAT and other duties. For 14 years, they have managed to get away with conning people that they would lose as a result of higher income tax.

Last year, the Government got away with telling people who pay no tax that they would pay more if Labour were elected, when they would have been further from paying tax. I do not know how people believe some of the ways that the Government manage to con people.

I shall now turn to low pay, which I mentioned in a question to the Prime Minister last April. I also received a letter from him last week. The Prime Minister and the Government fail to recognise the scandal of low pay. In the 1990s, it is tragic to erode the protection of workers and working conditions that were fought for for so many years.

Why should we say that workers are not entitled to fair pay and conditions for a fair day's work? Why can we not have the social chapter and why is Britain second-class? It is because we have had a Tory Government since 1979. Why are we abolishing the wages councils, and why can we not have a national minimum wage? It will not lose jobs, as Conservative Members claim. That is a fallacy.

In my constituency, people work for scandalously low pay. I see that my hon. Friend the Member for Pendle (Mr. Prentice), who represents the constituency adjacent to mine, is in his place. Some people in our constituencies work for £60 a week before deductions. The Minister says that they get family credit, but it is appalling that in 1993 some people have to work for poverty wages. They have been unemployed, and are so desperate to be in work that they are prepared to accept low pay rather than to be on benefit. All credit to them, but it is a disgrace and a scandal.

Lancashire county council had a report published by the low Pay Unit. My constituency has a high percentage of people on very low pay. The report shows that Blackpool had a percentage that was not quite as bad as that for my constituency, that pay was slightly higher there. That was clearly because a high percentage of people in Blackpool are still protected by wages councils in catering, hotels and tourism. Once those wage councils are abolished, the people of Blackpool will see wages at the bottom end drop to the same level as in Burnley and north-east Lancashire.

As to the use of housing capital receipts, I have never in peacetime known so many housing problems. Homelessness has become a national rather than a big city problem, and councils are unable to meet their obligations to provide home improvement grants in the private sector, build their own houses, or improve their existing housing stock.

Housing associations, which the Government favour and which Labour does not oppose, say that they cannot build affordable housing and that a ghetto is being created, because only those at the top end of salary scales and those on full benefit can obtain a housing association property.

But for Government dogma, the capital receipts that already exist could be used. A concession has been granted for the current year, but we do not know whether it will be extended. Historical capital receipts, to which I shall refer later, cannot be used.

As to the current year's receipts, I was in the Chamber when the former Chancellor of the Exchequer, who is now in his place again, made his statement about their use—but that is more of a con trick than a reality. local authorities such as my own have lost their urban programme money. The Prime Minister said, "You should be glad that some authorities have city challenge." It is little use telling an authority that, although it did not receive city challenge money, it should be happy that others did and to pay for it.

In Burnley, receipts taken into account have been increased in the Government's calculations, and capital allocations have been reduced in the specific capital grant, from 75 per cent. to 60 per cent. That not only takes account of Burnley's theoretical capital receipts—so it will not even break even—but overstates the situation, so that Burnley will lose. Capital receipts will not help, and Burnley will be able to do less about its housing as a result of the change.

If the Government allow historical capital receipts to be used over a sensible, phased period, and directed at areas of need—I accept that some benefiting areas do not need them—we could tackle the housing crisis and get back into employment building and construction workers and those who make items such as baths, taps and window frames. That would give them consumer spending power, and they would pay tax and national insurance instead of claiming benefits. As people moved house, they would buy curtains and carpets.

I could develop that theme, but I hope that the Chancellor of the Exchequer accepts that capital receipts should start to be used. That would not only help to tackle the housing problem, but would start, in a sensible, phased manner, to get the economy moving in the direction we want, reduce unemployment and lower the public sector borrowing requirement. I hope that the Government will face reality and acknowledge that they can take certain initiatives, if only they would be willing to change their policies and direction.

8.44 pm
Mr. David Willetts (Havant)

I find myself next to the former Chancellor of the Exchequer, my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont), who made a significant personal statement earlier and reminded the House of his historic achievement in bringing inflation below 2 per cent. The main policy issue that he raised as a point of disagreement between himself and my right hon. Friend the Prime Minister was the case for an independent central bank. He argued for it on the ground that there was a need to bring extra credibility to monetary policy.

I take this opportunity, as my right hon. Friend the Member for Kingston upon Thames is fortuitously in the Chamber, of commenting on that proposal. I believe that my right hon. Friend did his own record a disservice, because credibility is gained not by legal change and statutory measures but above all by showing the markets that Governments are prepared to take the tough measures necessary to bring inflation down.

This Government have gained precisely that credibility as a result of standing by policies that brought inflation below 2 per cent. My right hon. Friend the Member for Kingston upon Thames referred to the improvement in the yield curve. That was achieved because credibility was gained without having a new, legally independent central bank.

It is also possible to gain greater operational independence for the Bank of England without putting it on a new statutory footing. Indeed, significant progress was made under my right hon. Friend's Chancellorship. I think back with some embarrassment to my own experiences 10 years ago as a Treasury official working on monetary policy.

In those days, the Bank of England used to send the Treasury a draft of its report on the conduct of monetary policy which was to appear in the Bank's Quarterly Bulletin. We used to sit around working out whether the sentence was correct, and whether this or that paragraph was entirely consistent with the Treasury view. We used to send long letters back to the Bank of England explaining why it should not say X or ought to formulate a point rather differently. That no longer happens.

Instead, in a welcome policy innovation, the Bank of England produces an independent report on the Government's inflation performance and on prospects for inflation. Neither Ministers nor officials would wish or dare to tamper with that. It has brought significant credibility to Government policy.

The irony in my right hon. Friend's remarks this afternoon was therefore that the objective which he seeks —gaining greater credibility for monetary policy by operational independence for the Bank of England—is one towards which significant progress was actually made during his Chancellorship.

My right hon. Friend's statement was in striking contrast to the speech of the leader of the Opposition, which contained nothing of substance. No one has a clearer idea now than at the beginning of the debate of where the right hon. and learned Member for Monklands, East (Mr. Smith) stands on the big questions of fiscal policy. The right hon. and learned Gentleman calls a Supply day debate on taxing and spending but tells the House nothing of Labour's policies. Does he believe that the PSBR is too big, that public spending is too high or too low, that tax increases are necessary or not? For any leader of the Opposition with pretensions to government to devote a 30-minute speech to spending and taxing without answering any of those questions was an intellectual and political failure of considerable proportions.

The debate was simply an attempt by the Opposition to exploit the ritual of the annual public expenditure round. The well-known stories appear, like the first cuckoos of spring, with speculative press reports as to what might happen in the Public Expenditure Survey Committee. One would have thought that, after years of such stories circulating, people would learn to take them with more of a pinch of salt than they appear to be doing this year.

Mr. Robert Hughes (Aberdeen, North)

Perhaps the hon. Gentleman has a lesson for us. Perhaps we do believe what we read in the press; perhaps the actuality is worse.

Before the Budget, the word was that VAT would be imposed on books and newspapers: everyone got very excited about that, and we received letters from newspaper proprietors and the like. What happened, however, was worse. Is the hon. Gentleman saying that he welcomes the imposition of VAT on domestic fuel? When he stood for election, did he tell the voters that his party would introduce it?

Mr. Willetts

I am talking about the prospects for this year's public expenditure round. My right hon. Friend the Member for Worthing (Sir T. Higgins) made an interesting observation when he asked why Budget purdah could not be extended to that. But surely the point is that Treasury Ministers already face a dilemma similar to that presented by the run-up to a Budget.

If Treasury Ministers rule out every tax increase that they do not intend to implement whenever the possibilities are mentioned, eventually the shape of the Budget will become apparent. Similarly if every scare story in the press about a public expenditure idea that will not come about is ruled out, we shall be left with a clear indication of the state of the Treasury's negotations with spending Departments. That is no way in which to conduct the public expenditure round.

The hon. Member for Aberdeen, North (Mr. Hughes), challenged me to say what would emerge from the round. The best indication can be found in previous negotiations. last year, the Chief Secretary to the Treasury scored a considerable achievement: he achieved a reduction of £2 billion in public expenditure plans for 1994 and 1995 on what had previously been planned. Normally, planned spending is increased every year as the year in question approaches.

Let us look at the figures for expenditure increases. Following an unsustainable 6.5 per cent. increase in real spending in 1992–93 and a 3.75 increase in 1993–94, the plans provide for a 1.25 per cent. increase in next year's spending and a 0.75 per cent. increase in the year after that. Despite all the scares about cuts, the public expenditure round will actually involve a rather different Treasury battle—a battle to hold to its previous plans. If it can do that, it will be doing well.

The Chief Secretary has also announced a fundamental medium-term review of public expenditure. The Opposition have launched their own fundamental review of public spending, under the chairmanship of Sir Gordon Borrie. I do not feel that the Opposition are in a position to attack the Government for their review when the Opposition are carrying out a review of their own. We are told that the Opposition's review rules out no options; we are told that it is very wide-ranging. I was rather surprised to receive a letter from Sir Gordon Borrie inviting my suggestions for Labour's review on social spending: surely it is impossible to be more wide-ranging than that. I am still waiting for a letter from the Chief Secretary—but that is another story.

In considering medium-term expenditure on the welfare state, it is worth trying to identify some areas in which cuts are possible. I believe that, given the decision by the European Court of Justice that pension ages must be equalised, a manifestly sensible move would be to equalise them at 65. I also believe in better targeting of social security benefits: it is absurd that the most affluent fifth of pensioners with large incomes from occupational pensions and personal savings receive more income from the state in benefits than the poorest fifth. It is difficult to defend such a position.

The decisions faced by the Government, however, do not just concern expenditure; they also concern taxation. As my hon. Friend the Member for Beaconsfield (Mr. Smith) rightly pointed out, the Budget contained an announcement of significant increases in personal taxation. The row about the increase in VAT has distracted attention from the fact that the freezing of personal tax allowances, and future increases in national insurance contributions, will mean asking the personal sector—especially the more affluent members of society —to pay higher taxes to bring down the deficit.

The best way in which to raise further revenues is to enable the economy to grow as rapidly as possible. Part of the explanation of the fiscal difficulties that we have experienced over the past two years is that tax revenues have proved much more sensitive to the state of the economic cycle than was expected by either the Treasury or outside forecasters. The recession has five times as much impact on the PSBR through lower tax receipts than through higher spending. The real problem has been the collapse in tax revenues. As we look to economic recovery, it is reasonable to expect those tax revenues to pick up. For that reason, we must do everything possible to encourage strong growth.

There is nothing inherently virtuous about slow growth. Sometimes people are tempted to talk about it as though it were more reliable, sober and respectable than rapid growth—as though economic growth were like alcohol, best taken in moderation. That is not true at all. If the country has the capacity to sustain rapid growth without inflation, we should seize the opportunity.

At this point, we must engage in a rather esoteric debate about unused capacity in the economy. If the economy contains a large amount of unused capacity, we can look forward to several years of strong growth with low inflation. The experts differ: estimates of unused capacity range from 3 per cent. from Mr. Gavyn Davies to 10 per cent. from Professor Patrick Minford. As both are members of the Treasury's panel of outside forecasters, we can doubtless expect some interesting discussions of that technical point on the panel.

I belong to the group that believes that there is a significant amount of unused capacity in the economy. I believe that the supply side reforms that the Government introduced in the 1980s have had a permanent effect, raising the growth potential of the British economy. The interpretation of the recession put about by the leader of the Opposition this afternoon has been proved wrong by the evidence.

The right hon. and learned Gentleman spoke of an ill-trained work force and a collapse in investment, but the figures and the research simply do not bear him out. Industrial investment is rising more rapidly than GDP, and hence rising as a percentage of GDP; moreover, it fell much less during the current recession than during the previous one. Companies continued to invest during this recession.

I see that the leader of the Opposition is now in the Chamber. He said a good deal about a crisis in the training of our supposedly ill-trained work force. This week, two independent academic experts have produced a report on what they call employee commitment and the skills revolution". Let me quote two paragraphs from it: The Training in Britain inquiry"— in 1986–87 found that 33 per cent. of employed people aged 19–59 had received training in the past three years. In our sample of employees aged 20–60,"— and, remember, this was a piece of research conducted during the recession— 54 per cent. had received training over the past three years. This is a dramatic increase in such a short period. Nearly all the reported training was related to the current job, and four-fifths of it was provided by employers. The performance of the British economy on training has improved dramatically, and it is precisely because of the success of our supply-side revolution in the 1980s that we can look forward now to the prospect of years of strong growth without inflation.

8.58 pm
Mr. Alan Keen (Feltham and Heston)

I will be extremely brief. I could be even briefer if I were just to list the Government's economic achievements, but that would not be worth standing up for.

The debate is really about the Prime Minister and the economy rather than about the economy on its own—they are linked so closely. I would like to try to explain something that a lot of people have found extremely puzzling, and that is why the Prime Minister is always smiling, through good times and bad. As sporting metaphors have been used already tonight, I thought that I would use a footballing metaphor in my explanation.

We are all happy when our teams are at the top of the league—that is understandable—so the Prime Minister should have been happy when the economy was doing well. But as the economy started to struggle and as the football team began to fall down the league table, he still smiled, and that was a denial of the fact that his team was slipping down. As it went further down the league table, he was still smiling, even as the revenue began to fall, the supporters stayed away, some of the best players had to be sold off and they even had to sell the training ground. He still seemed extremely happy, because he had told British firms that having to sell three of their four factories and sack half their work force was just slimming down. So he was still not unhappy, despite his team's falling performance.

As he approached the bottom of the league table, surely he must now have been slightly unhappy? But he was still smiling. He then began to tell us that there was a recession and a chance of relegation after all, but he did not really recognise that until the last minute. Then suddenly he became very happy because, he said, things could not get worse, soon we would be bumping along at the bottom of the league table and the situation could only improve. However, he had forgotten relegation. In the Prime Minister's case and in the real world, we are talking not about relegation but about resignation, and that is what we look forward to very soon.

I should like to give my best wishes to the new Chancellor of the Exchequer, as I gave my best wishes to the ex-Chancellor. Some people, perhaps unfairly, have said that the new Chancellor has made a mess of education, of the health service and of the Home Office. I do not know whether that is true, but if it is, he must be extremely frustrated at the Treasury, because someone has beaten him to it. Nevertheless, I wish him well.

8.59 pm
Mr. Gordon Brown (Dunfermline, East)

I begin by acknowledging the central importance to the debate of the resignation statement made by the ex-Chancellor of the Exchequer. I also welcome the new Chancellor to his job and to his first debate on Treasury affairs, and I congratulate him on the fact that in only nine months he has made the transition from Chancellor-in-waiting to Prime Minister-in-waiting. I doubt that he will have to wait terribly long after today's events. Given that only yesterday he said that he had to turn the economy round, may I tell him that, if he is to achieve anything in his new job, he must also make the transition from the failed Conservative agenda to a new agenda for policy-making that will succeed.

First, we need a fresh industry policy for Britain that will bridge the technology, research and investment gap that is identified by everyone who looks at the issues, and ensure long-term, sustainable growth. Secondly, we need a long-term skills strategy for our country that will implement for Britain the skills revolution by reallocating resources and persuading employers to use resources for training their work force.

Thirdly, we must have immediate action against the surge of mass unemployment. If the Chancellor is to cut borrowing in the long term, he must cut unemployment and raise the long-term growth rate of the economy. If he feels that he must make a choice between public spending and tax reforms, let me tell him that, before he starts to cut the budgets for housing benefit or for invalidity benefit or for pensions, he should look at the very substantial tax abuses that our colleagues on the Opposition side of the House have identified—tax abuses that even the former Chancellor on his last day, in an interview in The Guardian, exposed.

As his first Budget approaches in November, let me give the new Chancellor some advice on his Budget purdah to which, given his outstanding track record for reticence, he may be temperamentally unsuited. I suspect that Budget purdah will only work for him if he is told to go away and lie down in a dark room, made to keep taking the tablets and compelled to think carefully about whether he has even one new proposal for the economy to offer.

The Chancellor believes that he comes to the job with something of a clean sheet. May I just remind him that Opposition Members know that he not only supported loyally but was vociferous in supporting all the changes that were made by previous Chancellors, many of which have done so much damage to the economy? When I consider his outspoken support for Government policy, I think particularly of his speech at the Welsh Conservative Conference exactly five years ago this weekend.

The Chancellor is obviously very proud of that speech. He said: There can no longer be any doubt that we are now enjoying extraordinary economic growth, so the real question facing us today is, will it last? If the experience of the sixties and seventies is all we had to go by, I would have to answer no, but I believe that under Mrs. Thatcher Britain has seen such a change, and such irreversible change, that I can answer yes—yes, it can last. In the old days, borrowing always threatened to get out of control. Today all that has changed. One Chancellor of the Exchequer departed after creating an unsustainable boom and boasting about it. A second Chancellor eventually went after failing to secure the strong recovery that was promised. The new Chancellor, therefore, should learn not to exaggerate the successes of Conservative policy at any time.

We have a new face as Chancellor. It would have been better this evening if we had also had a new policy from the Government. The whole purpose of the debate is to determine whether the change of personnel in the Cabinet has been matched by a change in policy. Having heard the Prime Minister this afternoon, it is clear that, although he has changed his Chancellor, he has no intention of changing the social and economic policies of the Government in favour of the people of this country.

The revelations of the former Chancellor of the Exchequer were the key feature of the debate: that there is no chance of change under this Prime Minister. His revelations were about the way that affairs have been conducted in Downing street. What was significant about the ex-Chancellor's revelations was that, in the case of every central event, when mistakes were made it was the Prime Minister's insistence upon making those mistakes that caused the problems that the country faces: the intensification of the recession before the right hon. Gentleman became Chancellor, the use of interest rate policy in advance of the election, the timing of decisions such as the decision to join the exchange rate mechanism.

These were not indictments of isolated policy errors. It was not just about mistakes of timing over this or that decision. Today we had a crushing indictment of the style of the Prime Minister and of the character of his Government. What the country feared, and now knows, is not that the Government have got it wrong on just about every major issue that they have tackled but that they have no strategy, no purpose and no sense of direction, that they are driven by events, not controlled by them, that they listen to Saatchi and Saatchi before they make their decisions, that there is nothing at the centre, just a void, that there is no central philosophy governing events.

The former Chancellor's indictment was perhaps the harshest we have ever heard from a campaign manager about the candidate he supported and with whom he worked as a colleague for more than five years at the Treasury. The Prime Minister should now confirm what the ex-Chancellor has alleged: that interest rate decisions were taken with a view to politics, not the economy, that the policies did not matter too much, just how they were presented, that everything was done with the next 36 hours in mind.

Having heard the former Chancellor's statement, I can understand his sense of grievance at the Prime Minister. He now knows, at first hand, what is meant by the phrase, "Unemployment is a price worth paying." His unemployment, the Prime Minister considered, was a price worth paying for a few more months in office. Can the ex-Chancellor say that he has any regrets now? He could be forgiven for regretting that he ever trusted the Prime Minister. The second in command was sacked for obeying the orders of his leader. If the policy was that of the Prime Minister, the whole country will now ask: why was it that the Chancellor, not the Prime Minister, paid the price for the mistakes?

What we have found, of course, over the past few weeks is that it is not just the former Chancellor who believes what is said in the resignation statement. There are others who sense that this Government have lost their direction. People as close to the Prime Minister as the former Chancellor believe exactly the same. On every central aspect of criticism that was made by the former Chancellor, is not the new Chancellor already on record as agreeing with him?

The Chancellor gave an interview immediately after the county council elections, in which he made it clear: We are in a dreadful hole. That is hardly an endorsement of the Government's record under the Prime Minister. The Chancellor went on to say—this is significant because of the turn of events: The key thing is not to get into a panic"— advice the Prime Minister did not seem prepared to take— or start looking for a head to go in the basket to appease our more worried Back Benchers. It is comforting for the ex-Chancellor that the new Chancellor did not think that the answer was to get rid of the old Chancellor, to have any summary executions from the Government or to panic with a reshuffle, or that those actions would solve the problem.

The Chancellor went on: We have to approach this thing with common sense and decide how we are to get out of this dreadful hole we are in. That requires a medium-term view, an agenda for the Government over the next two or three years. It requires an agreement about how we are going to present the agenda in a way that gives back a sense of purpose to our followers. The new Chancellor was in no doubt that what was needed was a new agenda and for the Government to give a sense of purpose to their followers. What is the difference between what the former Chancellor said about the Prime Minister and what the new one is saying? They both agree that the Prime Minister and his Cabinet have lost their way and their sense of direction.

What has been the Prime Minister's reaction in the past few weeks? It is certainly not to turn up at events where he should be to answer debates that he has been involved in. What change has come about as a result of the Prime Minister's recognition of the problems of the county council elections? Have we had a new industry policy? [HON. MEMBERS: "No."] A new deal for the unemployed? [HON. MEMBERS: "No."] Have they dropped rail privatisation? [HON. MEMBERS: "No."] Have they thought again about coal privatisation? [HON. MEMBERS: "No."] Have they even thought about prison privatisation or dropping VAT on fuel and the charges to pensioners?

In response to one of the worst years ever for a Government, in response to one of the biggest by-election defeats ever inflicted, in response to the creation of a situation in which we no longer talk about the Tory shires, but only about the Tory shire, we have had a series of Cabinet promotions, with one member of the Cabinet dropping off at the end. After 1 million redundancies in the country under this Prime Minister, had we not the right to expect more than just one redundancy from the Cabinet?

The Prime Minister explained why only one person went from his Cabinet and there were no new changes in policy. When he was asked at a press conference in Paris only a few days ago, he said: All that was necessary was to refresh the Government. There was not a change to help the country, the economy, unemployed people or our trading position, but somehow the Cabinet was in need of refreshment, as if the problem was boredom in the Cabinet rather than crisis throughout the country.

As a means of refreshing the Cabinet, what happened? What decision was made? The refreshing answer to all our problems was the right hon. Member for Wokingham (Mr. Redwood) becoming Secretary of State for Wales. The right hon. Member for Wokingham presumably went to Wales because Wokingham and Wales both start with "W". He was plucked from relative obscurity and given a road map to take him to Cardiff. A Cabinet that needs to be refreshed by the inclusion of the new Secretary of State for Wales is indeed a Cabinet in need of refreshment.

The only new initiative after a year of disaster that has come from the Prime Minister is that he thinks that the presentation of events must be improved—as the former Chancellor confirmed today—and not the policies. The fact that 1 million more people are unemployed under his leadership is simply a problem of presentation.

Ten million pensioners facing the imposition of VAT must be an excellent policy sadly misrepresented. Spending cuts in health or other services are a great idea, if only it could be got across. According to the Prime Minister, the only problem is how policies are communicated. That is such a pathetic explanation that I can understand why, after 30 minutes with the Prime Minister, the former Chancellor could not understand why he had been sacked, and was eventually reduced to faxing rather than writing a letter.

As the Government will find, the truth is that one can change the style, the presenters, the ad men and the public relations agency but, if there is no strategy, no direction and no purpose—as we now know—everything remains the same. I must warn the Prime Minister that he may think that the economic crisis is over, but for him the political crisis is only just beginning. He should be clear that, if the ex-Chancellor was the last to know at the last reshuffle, he—the Prime Minister—will be the last to know at the next reshuffle. Next time, it will not be the Prime Minister telling the Chancellor to go; it could be the Chancellor telling the Prime Minister to go.

I can imagine how events will unfold, but the former Chancellor knows only too well. The Prime Minister may think it safe to relax and go to a party—[Interruption.] It is safer for the Prime Minister to be beside the Chancellor in the next few days watching him. I can imagine how events will unfold. like the former Chancellor, the Prime Minister will think that his troubles are over, that the worst of the crisis is behind him and that he has survived. He will think it safe to relax and go to a party, perhaps at the invitation of a Cabinet colleague, such as the Chief Secretary, as happened only a few days ago. Perhaps it will be a birthday party at the Spanish club, with a relaxing glass of champagne.

The Prime Minister will arrive back in Downing street and will notice the Chief Whip's car parked outside No. 11. In a flash he will remember that absent from the agreeable gathering he has just left were the Chief Whip, the chairman of the party and his next-door neighbour, the Chancellor—the three men who did not go to dinner. He will then recall that the Chancellor's freely announced and admitted ambition is to take over the office of Prime Minister.

The next morning, at 9 am—as the former Chancellor knows all too well—there will be a telephone call. The Chancellor is on his way to No. 10 Downing street, not to discuss the economic crisis but to hear the unwelcome political news. The Chancellor, the chairman of the Tory party and the Chief Whip will tell the Prime Minister that his time has come. He will turn in despair to his political friends and find that he has none—et tu, Portillo?

The Conservatives have come a long way in managing change at the top. They are no longer the men in grey suits but, as the Chancellor found out, the men who did not come to dinner. Although lady Thatcher put up iron gates at the end of Downing street, they are not enough to save the Prime Minister. To protect himself, he will have to brick up the door of No. 11 Downing street. He will find that the greatest threat to his position is the enemy within.

The Prime Minister's problem is obvious—he can blame one Chancellor, but it is difficult to blame two. Having sacked one Chancellor when things got tough, he cannot when things get tough again sack another, because the country will ask not what is wrong with the Chancellor but what is wrong with the Prime Minister.

The country requires a strategy for government. It is interesting that the Prime Minister came into the Chamber a few moments ago—he has to be told what to do by the Opposition now, because he has no ideas of his own. This country requires a strategy, a long-term view, an economic and social policy that deals, as the former Chancellor said today, not with only with the problems of today but with the problems of a whole decade. The country needs a social policy based on the needs of the people and on principles, not on an expedient approach to events.

That cannot be delivered by a Government who govern for 36 hours at a time, motivated only by the next day's headlines. We argue that it must be done by a Government who are fair to people, fair to pensioners and fair to those in poverty, a Government with a modern approach to the public services, a Government with an industrial policy. It cannot be done by a Government dominated, as the former Chancellor said, by short-termism and by the approach of Saatchi and Saatchi.

What about industrial policy? The Confederation of British Industry is complaining that there is no proper partnership between Government and industry. It has said that, despite all the talk from Downing street, there is no real attempt at a partnership between Government and industry to secure long-term growth. Today the Government's, and the country's, record on research and development has been published, showing that we have one of the worst records in Europe.

Of course, the complaints about the Government's strategy come not only from the CBI, the engineering employers, the Labour party and the trade unions; complaints have come from within the Department of Trade and Industry itself. The DTI report shows that we are 30 per cent. behind the world's best in productivity, and 40 per cent. behind in skills, and says that the factors that determine competitiveness and that must be improved as a matter of urgency are education and training, finance for business, innovation, international trade, physical infrastructure". In all those areas, companies can do best when they have the support of Government in partnership with them. But, because of a dogmatic approach to industrial policy, we are doing badly in all those areas.

Is not the trade deficit a real problem, which the Government cannot wish away as a short-term problem that need not be tackled? Is not our industrial capacity weaker than it should be? Is it not true that, as the CBI has said and the former Chancellor has acknowledged, there should be a long-term policy for Britain? Is not our skills base low because we have not thought about the long term and about investing in the future? Does not everything that has been said about the lack of strategy and long-term direction, and about the lack of thinking about the future, apply directly to the contraction of our industrial base and the failure to support manufacturing and trade under the Conservative Government? A Government bogged down in short-termism, as the former Chancellor said, cannot solve the problems of our skills base either.

The training budget has been cut. We are 20th out of 22 in the international skills league, falling behind not only Germany and Japan, but Korea and Taiwan. Is that not also the result of the abject failure, confirmed today, ever to be prepared to think for the long term? When we are cutting budgets for people who are unemployed, when there are 80,000 fewer training places than when the recession started in 1990, is it not the height of irresponsibility for a Government to fail to use the best resource of our country—the talents and skills of the people in our community?

While I am on the subject of long-termism, will the new Chancellor, who says that he is tough on vested interests, agree that the banks have largely failed to meet the country's needs, that their charging and Commission policies have to be reviewed, and that he should now lay down minimum standards? If he is to take on people other than the weak and the poor, that is the vested interest that the Chancellor should take on, in the interests of the people of this country.

It is also because the Government have no long-term view that exactly what we predicted would happen to our public services and our welfare state is now happening. Because they have no long-term view and no sense of social cohesion, because they think only of tomorrow's headlines, they think that they can get away with breaking promises to the sick, to the disabled and to pensioners in this country.

The Prime Minister spent a great deal of time accusing the Labour party of scaremongering about public expenditure. let me just remind the Prime Minister, and the country, what he said: We will stand by the figures in the Red Book. I see no reason why we should not meet our promises. We have seen these concerns in the past and it has not been necessary to change plans. Any Prime Minister worth his salt, instead of trying to run away from those promises, would be trying to honour them today.

The right hon. Gentleman said: If we were going to cut public expenditure, we would have done it before now, and I do not believe it is economically right. So you can rule out any expectation of that. If the Prime Minister is to carry any integrity from now on —and that is doubtful—he must not do to his promises on public expenditure what he has done to his promises on tax. He must keep the promises that he made to the poorest people in our country.

I will tell the Prime Minister why he should do that. I have a paper that the Government have circulated around the Departments. The Prime Minister says that the Labour party is creating unnecessary scares and fears. It is the Government who are creating those fears by what they are threatening to do to the sick and to invalids in this country. The Prime Minister must look at the papers, which say clearly that taxation of invalidity benefit is a long-standing policy objective…We should review the upper age limit for invalidity benefit. We should be seeking to reduce the levels of average payment. We should be considering taxing the reformed or the replacement benefit. What is the purpose of the changes? Is it somehow to help the sick and disabled? No, the document makes that clear: One of my objectives, which has been discussed with the Chief Secretary"— this comes from the Secretary of State for Social Security— is to curtail expenditure on benefit. We are talking about a Treasury-driven review to cut public expenditure, not in the interests of the sick and disabled but simply for the purpose of saving money at the expense of people who are sick. [Interruption] let the Conservative Members who are shouting recall that they told the invalid, sick and disabled members of the community at the election that they would stand by their promises. Conservative Members said that they had nothing to worry about, that those benefits would not be cut and that it was the Labour party that they could not trust. let billboards in every part of the country show the truth—that the Tory party can never be trusted again.

Mr. Jacques Arnold (Gravesham)

Will the hon. Gentleman tell us why we should believe that the documents are what he claims they are? Will he tell us where he got the documents?

Mr. Brown

The hon. Gentleman seeks to do what the Chief Secretary, the Secretary of State for Social Security and the Chancellor refused to do—to deny the authenticity of the claims.

Mr. Arnold

Will the hon. Gentleman give way?

Mr. Brown

I admire the hon. Member's attempts to appeal to those on the Front Bench on that matter, but there is no doubt that, despite all the claims that public spending would not be cut, the Government are looking to cut that benefit. They are looking to tax it, to reduce eligibility for it and to cut the level of average payment, and are even looking at a replacement benefit.

Mr. Arnold

Will the hon. Gentleman give way?

Madam Deputy Speaker (Dame Janet Fookes)

Order. The hon. Gentleman knows full well that, if the hon. Member who has the floor does not give way, he must resume his seat.

Mr. Brown

I have a message for the Prime Minister this evening from my constituents who are sick and disabled and who are worried about the Government's plans. He may try to eliminate compassion and caring from everything that is done in Downing street.

Mr. Arnold

Will the hon. Gentleman give way?

Madam Deputy Speaker

Order. I do not expect to have to tell the hon. Gentleman twice.

Mr. Brown

It is a commentary on Conservative Members that, when the House discusses invalidity benefit, they try to shout down anyone telling the truth about the dangers to it.

My message to the Prime Minister is that he may be able to eliminate compassion from everything that goes on in 10 Downing street. He may even, by a temporary legislative diktat at Westminster, abandon caring and compassion in his legislation. But he will never persuade the British people that caring and compassion should not be right at the centre of social policy in this country.

This is a Government who made promise after promise to win the previous election. A promise not to devalue was broken. A promise of an immediate post-election recovery starting on Friday was broken. The promise that every teenager would have a job or training, broken; the promise of tax cuts year on year, now broken; the promise of no rises in VAT, broken; the promise that they would balance the books, broken; the promise that there would be no spending cuts, now broken; the promise that national insurance would not go up, broken. Ten broken promises that mean that the Conservative party will never be trusted again.

This is the Prime Minister who, as Chancellor, created all the necessary conditions for continuing recession and who subsequently, as Prime Minister, has sacked a Chancellor whose main offence was that he had only obeyed orders—a Prime Minister who gave the orders and even now assures us that they will not be changed, a Prime Minister who has no strategy whatever, and a Prime Minister who, when pressed on all the difficulties that face our country and economy, pleads only that we should trust him, when the record shows that he has no credibility.

This is a Government with no industry policy because they are short-termist, no policy for the homeless unless it can capture tomorrow's headlines, no interest in pensioners unless an advertising agency tells them that it matters, no policy for the long term because it is not on the agenda of their party posters, and no strategy for the unemployed because they have simply written them off as voters. What is clear now from the debate is that no strategy for economic and social recovery exists within the Conservative party. What is clear is that the whole Tory party now doubts whether the Chancellor and the Prime Minister can get a strategy together.

The Chancellor said that we were in a dreadful hole. The former Chancellor says that the Conservative party deserves to lose without a strategy. There is only one change that can benefit Britain—it is to change the Prime Minister and the Government, and it should happen now.

9.31 pm
The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I begin by thanking the hon. Member for Dunfermline, East (Mr. Brown) for welcoming me to the Dispatch Box. I look forward to facing him for some considerable time to come. I have heard him speak on this subject before. I have listened to debates, I have heard that speech before, and I have no doubt that I shall hear it many times. It is the speech that he always gives. It is an extremely good foil to the speech by the right hon. and learned Member for Monklands, East (Mr. Smith). I put them both into the same category: good on jokes, very weak on content. That is true every time they go to to the Dispatch Box.

At 9.18 pm—after 18 minutes of the speech that we have heard before—the hon. Gentleman paused and asked an unusual question, "What should we do now?" That is a question to which he never returned. What is truth? said jesting Pilate; and would not stay for an answer and we were back into the lists that we have had before.

The hon. Gentleman has an intriguing and forceful speaking style. He does great damage to the Dispatch Box, but it is certainly a very vigorous delivery. He has a particular technique of launching into lists—there is a strategy for this, a strategy for that and a strategy for something else, rapped out in rapid Scottish tones. He has about as much policy content as the average telephone directory, and that has been the case every time I have heard him deliver this particular speech.

If I may say so—it is a modest claim, given the competition that it faced—I thought that the best parts of the hon. Gentleman's speech came when he was quoting me. He has done the usual research. His attack on our broken promises and all the rest of it were half-sentences taken from shredded speeches that somebody delivered on a wet night somewhere in Dudley, and then quoted out of context in order to maintain the pretence that we have broken our promises. I will return to our promises and I will say how we are delivering them. Given the copious nature of the hon. Gentleman's research, I am relieved that he had to go to a Welsh conference in 1987, which I dimly recall visiting, and that he gave a quote about which I have no regrets at all.

It is a few years since I last spoke in the House on economic subjects. I was last on the Economic Policy Committee of the Cabinet in 1985–87, when I used to reply to Budget debates. Nothing was quoted from that. The hon. Gentleman had to go to the Welsh conference to find something that he thought was wrong. In Budget debates when I debated with the hon. Gentleman's predecessors —sometimes with the right hon. and learned Member for Monklands, East—we had the same arguments. Those years-1985 to 1987-were the finest of the Thatcher decade. We had emerged from a recession. When we began the recovery, the Opposition laughed at the idea of recovery.

When we took the tough decisions that were necessary to make this country more competitive and entrepreneurial, the Opposition opposed every one. They stopped asking for debates on the economy. We did not have Supply days any more because we had sustained recovery, when Britain created more jobs than the rest of Europe put together and when we created a more competitive economy. That is the process through which we are going again for the same goal, and the Opposition have learnt nothing whatever from their experience.

This political row today—I always enjoy such rows—is not directed by the Opposition at the things that matter to men and women outside the House. Our constituents know that unemployment has come down a little. They want to hear from us how we are going to get unemployment down and make them feel more secure in their jobs. Our constituents know that we have got inflation down to European levels. They want to know how we are going to keep it there to keep our competitiveness.

Our constituents know that, thanks to a recession that has been more prolonged than anybody expected, we are borrowing money beyond the level that we should. We are spending more than we are raising. They want to know how that can be tackled. In an hour of entertaining rhetoric from Opposition Front-Bench Members, they did not have a single answer to any one of those questions.

Let us deal with the reality of where we are. The hon. Member for Dunfermline, East did not touch on the difficult but encouraging position that the economy is in.

Let me give a short list of my own. Retail price inflation has fallen to a 30-year low. Underlying inflation is lower here than in Germany, lower than in America and lower than the European Community average. Retail sales have been at record levels; in the three months to April this year, they were up 3.2 per cent. on the year earlier. Car production has been rising; in the three months to April this year, it increased 14 per cent. on the previous three months.

Unemployment has fallen for three months in a row; it started falling just after the hon. Member for Dunfermline, East predicted a continued increase in unemployment. Manufacturing output is now growing at its fastest rate for five years. Manufacturing exports reached record levels at the end of last year. Manufacturing investment rose strongly in the last three quarters of this year and non-oil gross domestic product has grown by 0.7 per cent. in the first quarter of this year.

That is the economic inheritance that I have received from my right hon. Friend the Member for Kingston upon Thames (Mr. Lamont) working in partnership with my right hon. Friend the Prime Minister. That is the achievement of the Government's policies, both before we entered the exchange rate mechanism, while we were in the ERM and since we departed from it. It is an achievement that no socialist Government in Europe can match for certain, and no semi-socialist Labour Government in Britain would have got near to.

Mr. Brian Wilson (Cunninghame, North)

I have a genuine inquiry. In view of the litany of triumphs that the Chancellor has recited, does he have any idea why his predecessor was sacked and he was parachuted into his place?

Mr. Clarke

I have described the state of the economy —a matter to which the Labour party has not addressed itself for the past 10 and a half hours.

Quotations have been given—one was given a moment ago. During the past six months, my right hon. Friend the Prime Minister and I have spent much time defending my right hon. Friend the former Chancellor against attacks on him from outside which have always disregarded the present state of the economy. We are now committing ourselves to improving it further. The first issue that the Labour party should have addressed [but has not—is how to sustain that recovery—

Mr. Peter Mandelson (Hartlepool)

This is even making the Prime Minister's speech sound good.

Mr. Clarke

The hon. Member for Hartlepool, who is laughing at me so loudly, was practising public relation techniques when we last emerged from a recession. If he thinks that what we have achieved so far and will achieve again is done simply by investing in a lot of plastic red roses and smart suits, he has another think coming.

The Labour party talks only of our manifesto and promises. I do not think that we shall ever hear anything again about the fatuous promises that it made at the last election. If I had been facing him from the Opposition Benches the hon. Member for Dunfermline, East would be talking not about the state that I have just described but about the consequences of adding about £35,000 million worth of extra public spending to the deficit that we now suffer as a result of the recession.

I was misquoted by the right hon. and learned Member for Monklands, East, who should have been at the Press Gallery lunch where I spoke. I take seriously the commitments that we made in our manifesto, which are credible and deliverable—they will be delivered. The political technique of taking half-quotations out of speeches and using them out of context is no foundation for a credible leader of the Opposition or shadow Chancellor.

I want to consider the issues contained in our manifesto, depart from the tone of debate set by the Opposition and return to some factual demonstrations. The manifesto said that we would increase funding for the national health service in real terms—we have. Spending is set to increase by 1 per cent. in real terms this year and capital spending is at the record level of £2 billion. The manifesto said that we would protect pensions against inflation, as we have done for the past 13 years—we have. Due to the way in which we have done so, pensions and other benefits increased by 3.6 per cent. this April. Inflation today is just 1.3 per cent.

When I was on the Public Spending Committee last year with my right hon. Friend the Member for Kingston upon Thames, we bore in mind the fact that we had said that we would go for capital investment in the roads programmes, housing associations, British Rail and london Underground. We have done all that. Funding for the roads programme has been maintained this year in spite of the fact that construction prices are much lower and allow for even more work to take place. We have given £750 million worth to the housing associations and investment in British Rail will be about £1,000 million this year.

What was the Labour Government's reaction—[Interruption.] What was the reaction to those achievements which were obtained last year in a tight public spending round? The Labour party's reaction was the same that it has given this year—to trot out during a tight public spending round complaints that we were to stop inflation-proofing pensions, cut this for the sick and that for the poor. The Labour party does it every year. I have been not only an Economics Minister but a Health Minister, and I cannot count the number of times it has claimed that we will stop prescription charge exemptions for pensioners.

The right hon. and learned Member for Monklands, East even brought out the hoary old chestnut about how we will charge for visits to GPs. That was a revisit to shabby triumphs. The Labour party won the Vale of Glamorgan by-election by claiming that we were going to charge for visits to GPs, and another John Smith lost the constituency once the health reforms were in place and Labour's accusation turned out to be untrue—

Mr. Gordon Brown


Mr. Clarke

I am impressed by the way in which the bodyguard leaps in to protect his right hon. and learned Friend, who today did not repeat a solitary thing that he promised at the last election, let alone make up his mind about what he wants to do next. At the end of the Maastricht debate, he did not know whether he was going to vote yes or no. At the end of his inquiry into proportional representation, he decided not to plump one way or the other and to hold a referendum. He does not know what to do with clause 4—keep it, scrap it or, as the hon. Member for Blackburn (Mr. Straw) suggests, rewrite it.

The Opposition's jokes are highly entertaining, and I have to confess that, although it is the duty of the Minister to struggle to keep a straight face, I sometimes fail to do so. Sometimes I struggle to keep a straight face when I see the wholesale lack of commitment to any sort of policies on the part of the Labour party.

I should like to turn to a matter dealt with seriously by my right hon. Friends the Members for Shropshire, North (Mr. Biffen), for Worthing (Sir T. Higgins) and for Horsham (Sir P. Hordern) and by my hon. Friend the Member for Havant (Mr. Willetts). They dealt with the Budget deficit, a subject on which there was deafening silence from the Opposition.

At the heart of our manifesto was a pledge to control public spending—one of the reasons why we get returned to office. We have to return the Budget to balance and over time we have promised to reduce the share of the national income taken by the state. It is generally acknowledged that the public sector borrowing requirement of £50 billion is too high, and it will be my day-by-day task in the months ahead, with my right hon. Friend the Chief Secretary, to deal with it.

The overwhelming cause of this large borrowing is the fact that the recession went on longer than expected—not just longer than the Government expected, but longer than almost every forecaster and business organisation expected. The Labour party was no more on target than the forecasters—it always accepted the figures in the Red Book.

We may enjoy ourselves in debate, but to us falls the responsibility of tackling a projected PSBR of £50 billion, which lies like an iceberg in the path of the recovery which we hope to sustain and about which we have heard nothing positive from the Labour party.

My predecessor, my right hon. Friend the Member for Kingston upon Thames, said only recently that as a Conservative Chancellor he hated borrowing almost £1 billion a week. I agree with him. Any Conservative Chancellor hates that and would be determined to tackle it. If Labour had won the election and had carried out its election pledges, it would cheerfully have borrowed much more and, when tackled about it, would have said that it would be paid for out of growth—the best the leader of the Opposition can come up with.

We have set out how we will tackle the deficit—through a combination of economic growth, the tax increases announced in the last Budget and tight control of public spending. Every sensible man and woman in the country knows in his or her bones that the Government have a duty to contribute to that. A continued deficit on such a scale would put at risk the conditions for recovery that we have worked so hard to achieve. Britain is not by any means the only developed country facing this problem. However, we are the only major European economy showing the signs of growth that I have outlined.

Budget deficits are a feature of the last world recession and they are hitting other countries more strongly than ours. For example, in Germany, projections for the deficit have been increased to DM70 billion and the German Government expect their economy to contract this year. The Commission is not increasing its expectation of growth in Germany, as it is for Britain. It expects that economy to contract, and that will undoubtedly mean higher future deficits.

In France, the deficit is almost 5 per cent. of the national product and the new Government have introduced harsh spending cuts and tax increases to reduce it. In the United Kingdom, inflation is below the average, we have limited economic growth, our interest rates are the lowest in the EC and our competitiveness has markedly improved.

Mr. Ronnie Campbell

Will the right hon. and learned Gentleman give way?

Mr. Clarke

No. I apologise to the hon. Gentleman.

The improvement in our competitiveness is one of the Government's finest achievements during our period of office and it has stopped Britain being the sick man of Europe, as it used to be, into, throughout and out of every parliamentary Session. That is not due only to the depreciation of sterling since September. Even in the recession, we are in a good position compared with many of our competitors, because productivity is increasing, earnings are growing at their lowest rate for 25 years and our costs are falling, whereas costs in our competitor countries—[Interruption.]

Mr. Campbell

Will the Minister give way?

Mr. Clarke

No, I will not.

Mr. Campbell


Madam Speaker

Order. The hon. Gentleman must resume his seat.

Mr. Clarke

Our forecast for growth this year has been increased since the autumn statement from 1 per cent. to 1.25 per cent. Almost every independent forecaster—lastly and most recently, the European Commission—has increased the estimate for growth this year. I am cautious. I do not say that the recovery can be expected to unfold rapidly. Prudent economic policies will be needed to sustain it and many things must happen to world conditions as well.

The Government stand ready to share the credit for a strong recovery when we have achieved it, but not before. Nevertheless, we currently have the prospect of increased growth, higher tax receipts and less pressure on public spending.

Mr. Campbell


Mr. Clarke

I shall give way shortly. I am trying to discover whether the liberal Democrats have a serious answer. Growth will obviously contribute—our own forecasts show that—but even a strong recovery will not in itself restore public finances. No sensible observer believes that growth in itself will solve the deficit. Only the right hon. and learned Member for Monklands, East believes that, as he revealed in a shallow interview on the "Today" programme. He said that Labour was against cutting public spending or raising taxes. Labour is not in favour of doing anything in particular. That is the traditional position of the liberal party. let us see if it is moving closer to us.

Mr. A. J. Beith (Berwick-upon-Tweed)

The new Chancellor knows that that is not our position, because he heard my right hon. Friend the Member for Yeovil (Mr. Ashdown) argue that rises in income tax may be necessary as part of a means of tackling the debt. Does the Chancellor intend to devote some of the remaining minutes of the debate to answering the serious criticisms of the conduct of Government policy made by the right hon. Member for Kingston upon Thames (Mr. Lamont), especially what he said about decisions on interest rate policy and about the way in which such future decisions would be made?

Mr. Clarke

Throughout my speech, I have set out medium and long-term objectives. I have said repeatedly since becoming Chancellor, as I said before that, that the conduct of policy of any kind should not be based solely on the pursuit of short-term popularity. Every Government since I have been in the House have been unpopular during most of the time that they were in office, but the British public have the common sense to know that their Governments must sometimes go through such periods. I am setting out the medium-term objectives that will be purposefully pursued.

We had all this talk about raising income tax at the last election. I share the views of my hon. Friend the Member for Beaconsfield (Mr. Smith) on income tax. As my right hon. Friend the Prime Minister pointed out, before the election the liberals committed themselves to raising fuel taxes and green taxes. They talked about the anomaly of VAT on fuel. All that heroic being in favour of taxes is about the same as the heroism of the liberal party on every other subject. They vote against it when it comes before them. That is how they look a difficult decision squarely in the eyes.

Mr. Gordon Brown

Given that the Chancellor puts such a premium on promises, will he confirm that the Prime Minister said that there would be no increase in VAT? Having said that the country was in a dreadful hole and that we needed a new agenda, will he summarise the changes in economic policy that he proposes?

Mr. Clarke

I remember that occasion well. At the last election, before the Labour party moved on—[HoN. MEMBERS: "Answer that quotation."]—I will answer the quotation. It illustrates perfectly the point that I was making 20 minutes ago about taking half-quotations out of context. I do not know why the, hon. Gentleman returned to it.

Mr. Brown


Mr. Clarke

It is no good the right hon. and learned Member for Monklands, East looking at the Transport house brief: he must listen to the context.

That particular phrase had a nice little clip put round it. At that stage in the general election which we were all fighting, the Labour party was telling the country that our plans meant, if necessary, to raise the rate of VAT to 22.5 per cent. The Labour party ran a great scare on 22.5 per cent. VAT before the party moved to the more elevated ground of Jennifer's ear to try to show their concern for the great public services of the country.

Mr. Brown

Will the Chancellor give way?

Mr. Clarke

No. Jesting Pilate must wait for the answer this time. That quotation was dealing with raising the rate. We have not raised the rate.

Mr. Brown


Mr. Clarke

Going back to the manifesto, it contains no word about VAT or national insurance contributions. We have not broken our manifesto pledges. I helped to write the manifesto and I confirm what my right hon. Friend the Prime Minister said. We will deliver that manifesto and getting the wealth-creating economy right is part of it.

Mr. Brown

Will the Chancellor give way on that point?

Mr. Clarke

No. [Interruption.]

Madam Speaker


Mr. Brown

What about the deficit?

Mr. Clarke

The hon. Gentleman does not want to know about the deficit. He has left me three minutes to talk about the deficit.

We have raised taxation. My right hon. Friend the Member for Kingston upon Thames was right to make the impact of that taxation begin to fall next year, so that the recovery could be sustained for longer. The Labour party is against that. It would restore the tax increases in the Budget, thereby adding £6,000 million to the deficit.

The only solid piece of policy in the opening speech was talk of allowing local authorities to spend all their capital receipts. That would add another £6,000 million to the public sector borrowing requirement. When will they ever learn?

We have raised taxation and now we shall look seriously at public spending. We are looking fundamentally at the budgets of health, social security, the Home Office and education. We are about to agree a public spending remit. That is serious government. It will require tough decisions. That is how Conservative government got us out of recession before and that is how we will get out of recession again.

I am delighted that some of my right hon. and hon. Friends were urging the need for tough decisions today. I am sure that, in due course, they will be voting for those tough decisions to deliver what we must do, because we cannot rely on the Opposition. Six letters and they are anybody's. Any lobby will get their support, although usually it is more fundamentally the lobby that is dominated more by the GM B and the other trade unions than by those who actually sponsor them.

It will be hard work, earning our living as a country in the 1990s. We have the beginnings of recovery—we must sustain it. We have set out a medium/long-term strategy, for the results of which we are prepared to answer at the next election.

These debates are all very entertaining, but as my best joke was stolen some time ago, it is the parties opposite that must go back to the dark room and think precisely what contribution they really want to make to serious economic discussion in this country.

Question put:

The House divided: Ayes 278, Noes 302.

Division No. 291] [10.00 pm
Abbott, Ms Diane Ashdown, Rt Hon Paddy
Adams, Mrs Irene Ashton, Joe
Ainger, Nick Austin-Walker, John
Ainsworth, Robert (Cov'try NE) Banks, Tony (Newham NW)
Allen, Graham Barnes, Harry
Alton, David Battle, John
Anderson, Donald (Swansea E) Bayley, Hugh
Anderson, Ms Janet (Ros'dale) Beckett, Rt Hon Margaret
Armstrong, Hilary Beggs, Roy
Beith, Rt Hon A. J. Galloway, George
Bell, Stuart Gapes, Mike
Benn, Rt Hon Tony Garrett, John
Benton, Joe George, Bruce
Bermingham, Gerald Gerrard, Neil
Berry, Dr. Roger Gilbert, Rt Hon Dr John
Betts, Clive Godman, Dr Norman A.
Blair, Tony Godsiff, Roger
Blunkett, David Golding, Mrs Llin
Boateng, Paul Gordon, Mildred
Boyce, Jimmy Graham, Thomas
Bradley, Keith Grant, Bernie (Tottenham)
Bray, Dr Jeremy Griffiths, Nigel (Edinburgh S)
Brown, Gordon (Dunfermline E) Griffiths, Win (Bridgend)
Brown, N. (N'c'tle upon Tyne E) Grocott, Bruce
Bruce, Malcolm (Gordon) Gunnell, John
Burden, Richard Hall, Mike
Byers, Stephen Hanson, David
Caborn, Richard Hardy, Peter
Callaghan, Jim Harman, Ms Harriet
Campbell, Mrs Anne (C'bridge) Harvey, Nick
Campbell, Menzies (Fife NE) Hattersley, Rt Hon Roy
Campbell, Ronnie (Blyth V) Henderson, Doug
Campbell-Savours, D. N. Heppell, John
Canavan, Dennis Hinchliffe, David
Cann, Jamie Hoey, Kate
Carlile, Alexander (Montgomry) Hogg, Norman (Cumbernauld)
Clapham, Michael Home Robertson, John
Clark, Dr David (South Shields) Hood, Jimmy
Clarke, Eric (Midlothian) Hoon, Geoffrey
Clarke, Tom (Monklands W) Howarth, George (Knowsley N)
Clelland, David Howells, Dr. Kim (Pontypridd)
Clwyd, Mrs Ann Hoyle, Doug
Coffey, Ann Hughes, Kevin (Doncaster N)
Cohen, Harry Hughes, Robert (Aberdeen N)
Connarty, Michael Hughes, Simon (Southwark)
Cook, Frank (Stockton N) Hutton, John
Cook, Robin (Livingston) Illsley, Eric
Corbett, Robin Ingram, Adam
Corbyn, Jeremy Jackson, Glenda (H'stead)
Corston, Ms Jean Jackson, Helen (Shef'ld, H)
Cousins, Jim Jamieson, David
Cox, Tom Janner, Greville
Cryer, Bob Jones, Barry (Alyn and D'side)
Cunliffe, Lawrence Jones, leuan Wyn (Ynys Môn)
Cunningham, Jim (Covy SE) Jones, Jon Owen (Cardiff C)
Cunningham, Rt Hon Dr John Jones, Lynne (B'ham S O)
Dafis, Cynog Jones, Martyn (Clwyd, SW)
Dalyell, Tam Jones, Nigel (Cheltenham)
Darling, Alistair Jowell, Tessa
Davidson, Ian Kaufman, Rt Hon Gerald
Davies, Bryan (Oldham C'tral) Keen, Alan
Davies, Rt Hon Denzil (Llanelli) Kennedy, Charles (Ross,C&S)
Davies, Ron (Caerphilly) Kennedy, Jane (Lpool Brdgn)
Davis, Terry (B'ham, H'dge H'l) Khabra, Piara S.
Denham, John Kinnock, Rt Hon Neil (Islwyn)
Dewar, Donald Leighton, Ron
Dixon, Don Lestor, Joan (Eccles)
Dobson, Frank Lewis, Terry
Donohoe, Brian H. Litherland, Robert
Dowd, Jim Livingstone, Ken
Dunnachie, Jimmy Lloyd, Tony (Stretford)
Dunwoody, Mrs Gwyneth Llwyd, Elfyn
Eagle, Ms Angela Loyden, Eddie
Eastham, Ken Lynne, Ms Liz
Enright, Derek McAllion, John
Etherington, Bill McCartney, Ian
Evans, John (St Helens N) Macdonald, Calum
Ewing, Mrs Margaret McFall, John
Fatchett, Derek McKelvey, William
Faulds, Andrew Mackinlay, Andrew
Field, Frank (Birkenhead) McLeish, Henry
Fisher, Mark Maclennan, Robert
Forsythe, Clifford (Antrim S) McNamara, Kevin
Foster, Rt Hon Derek McWilliam, John
Foster, Don (Bath) Madden, Max
Foulkes, George Mahon, Alice
Fraser, John Mandelson, Peter
Fyfe, Maria Marek, Dr John
Galbraith, Sam Marshall, Jim (Leicester, S)
Martlew, Eric Salmond, Alex
Maxton, John Sedgemore, Brian
Meacher, Michael Sheerman, Barry
Meale, Alan Sheldon, Rt Hon Robert
Michael, Alun Shore, Rt Hon Peter
Michie, Bill (Sheffield Heeley) Short, Clare
Michie, Mrs Ray (Argyll Bute) Simpson, Alan
Milburn, Alan Skinner, Dennis
Miller, Andrew Smith, Andrew (Oxford E)
Mitchell, Austin (Gt Grimsby) Smith, C. (Isl'ton S & F'sbury)
Molyneaux, Rt Hon James Smith, Rt Hon John (M'kl'ds E)
Moonie, Dr Lewis Smith, Llew (Blaenau Gwent)
Morgan, Rhodri Smyth, Rev Martin (Belfast S)
Morris, Rt Hon A. (Wy'nshawe) Snape, Peter
Morris, Estelle (B'ham Yardley) Soley, Clive
Morris, Rt Hon J. (Aberavon) Spearing, Nigel
Mowlam, Marjorie Spellar, John
Mudie, George Steel, Rt Hon Sir David
Mullin, Chris Steinberg, Gerry
O'Brien, Michael (N W'kshire) Stevenson, George
O'Brien, William (Normanton) Stott, Roger
O'Hara, Edward Strang, Dr. Gavin
O'Neill, Martin Straw, Jack
Orme, Rt Hon Stanley Taylor, Mrs Ann (Dewsbury)
Patchett, Terry Taylor, Matthew (Truro)
Pendry, Tom Tipping, Paddy
Pickthall, Colin Trimble, David
Pike, Peter l. Turner, Dennis
Pope, Greg Tyler, Paul
Powell, Ray (Ogmore) Vaz, Keith
Prentice, Ms Bridget (Lew'm E) Walker, Rt Hon Sir Harold
Prentice, Gordon (Pendle) Wallace, James
Prescott, John Walley, Joan
Primarolo, Dawn Wardell, Gareth (Gower)
Purchase, Ken Wareing, Robert N
Quin, Ms Joyce Watson, Mike
Radice, Giles Welsh, Andrew
Randall, Stuart Wicks, Malcolm
Redmond, Martin Wigley, Dafydd
Reid, Dr John Williams, Rt Hon Alan (Sw'n W)
Rendel, David Williams, Alan W (Carmarthen)
Richardson, Jo Wilson, Brian
Robertson, George (Hamilton) Winnick, David
Robinson, Geoffrey (Co'try NW) Wise, Audrey
Roche, Mrs. Barbara Worthington, Tony
Rogers, Allan Wray, Jimmy
Rooker, Jeff Wright, Dr Tony
Rooney, Terry Young, David (Bolton SE)
Ross, Ernie (Dundee W)
Ross, William (E Londonderry) Tellers for the Ayes:
Rowlands, Ted Mr. Gordon McMaster and
Ruddock, Joan Mr. Peter Kilfoyle.
Ainsworth, Peter (Easf Surrey) Bonsor, Sir Nicholas
Aitken, Jonathan Booth, Hartley
Alison, Rt Hon Michael (Selby) Boswell, Tim
Allason, Rupert (Torbay) Bottomley, Peter (Eltham)
Amess, David Bottomley, Rt Hon Virginia
Ancram, Michael Bowden, Andrew
Arbuthnot, James Bowis, John
Arnold, Jacques (Gravesham) Boyson, Rt Hon Sir Rhodes
Arnold, Sir Thomas (Hazel Grv) Brandreth, Gyles
Ashby, David Brazier, Julian
Aspinwall, Jack Bright, Graham
Atkins, Robert Brooke, Rt Hon Peter
Atkinson, David (Bour'mouth E) Brown, M. (Brigg & Cl'thorpes)
Atkinson, Peter (Hexham) Browning, Mrs. Angela
Baker, Rt Hon K. (Mole Valley) Budgen, Nicholas
Baker, Nicholas (Dorset North) Burns, Simon
Baldry, Tony Burt, Alistair
Banks, Robert (Harrogate) Butcher, John
Bates, Michael Butler, Peter
Batiste, Spencer Butterfill, John
Bellingham, Henry Carlisle, John (Luton North)
Bendall, Vivian Carlisle, Kenneth (Lincoln)
Beresford, Sir Paul Carrington, Matthew
Biffen, Rt Hon John Carttiss, Michael
Blackburn, Dr John G. Cash, William
Body, Sir Richard Channon, Rt Hon Paul
Churchill, Mr Hendry, Charles
Clappison, James Heseltine, Rt Hon Michael
Clark, Dr Michael (Rochford) Hicks, Robert
Clarke, Rt Hon Kenneth (Ruclif) Higgins, Rt Hon Sir Terence L.
Coe, Sebastian Hill, James (Southampton Test)
Colvin, Michael Hogg, Rt Hon Douglas (G'tham)
Congdon, David Horam, John
Conway, Derek Hordern, Rt Hon Sir Peter
Coombs, Anthony (Wyre For'st) Howard, Rt Hon Michael
Coombs, Simon (Swindon) Howarth, Alan (Strat'rd-on-A)
Cope, Rt Hon Sir John Howell, Rt Hon David (G'dford)
Cormack, Patrick Hughes Robert G. (Harrow W)
Couchman, James Hunt, Rt Hon David (Wirral W)
Cran, James Hunt, Sir John (Ravensbourne)
Currie, Mrs Edwina (S D'by'ire) Hunter, Andrew
Curry, David (Skipton & Ripon) Jack, Michael
Davies, Quentin (Stamford) Jackson, Robert (Wantage)
Davis, David (Boothferry) Jenkin, Bernard
Day, Stephen Jessel, Toby
Deva, Nirj Joseph Johnson Smith, Sir Geoffrey
Devlin, Tim Jones, Gwilym (Cardiff N)
Dickens, Geoffrey Jopling, Rt Hon Michael
Dicks, Terry Kellett-Bowman, Dame Elaine
Dorrell, Stephen Key, Robert
Douglas-Hamilton, Lord James Kilfedder, Sir James
Dover, Den King, Rt Hon Tom
Duncan, Alan Kirkhope, Timothy
Duncan-Smith, Iain Knapman, Roger
Dunn, Bob Knight, Mrs Angela (Erewash)
Durant, Sir Anthony Knight, Greg (Derby N)
Dykes, Hugh Knight, Dame Jill (Bir'm E'st'n)
Eggar, Tim Knox, David
Emery, Rt Hon Sir Peter Kynoch, George (Kincardine)
Evans, David (Welwyn Hatfield) Lait, Mrs Jacqui
Evans, Jonathan (Brecon) Lamont, Rt Hon Norman
Evans, Nigel (Ribble Valley) Lang, Rt Hon Ian
Evans, Roger (Monmouth) Lawrence, Sir Ivan
Evennett, David Legg, Barry
Faber, David Leigh, Edward
Fabricant, Michael Lester, Jim (Broxtowe)
Fenner, Dame Peggy Lidington, David
Forman, Nigel Lilley, Rt Hon Peter
Forsyth, Michael (Stirling) Lloyd, Peter (Fareham)
Forth, Eric Lord, Michael
Fowler, Rt Hon Sir Norman Lyell, Rt Hon Sir Nicholas
Fox, Dr Liam (Woodspring) MacGregor, Rt Hon John
Fox, Sir Marcus (Shipley) MacKay, Andrew
Freeman, Roger Maclean, David
French, Douglas McLoughlin, Patrick
Gale, Roger McNair-Wilson, Sir Patrick
Gallie, Phil Madel, David
Gardiner, Sir George Maitland, Lady Olga
Garel-Jones, Rt Hon Tristan Major, Rt Hon John
Garnier, Edward Malone, Gerald
Gill, Christopher Mans, Keith
Gillan, Cheryl Marland, Paul
Goodlad, Rt Hon Alastair Marlow, Tony
Goodson-Wickes, Dr Charles Marshall, Sir Michael (Arundel)
Gorman, Mrs Teresa Martin, David (Portsmouth S)
Gorst, John Mawhinney, Dr Brian
Grant, Sir Anthony (Cambs SW) Mayhew, Rt Hon Sir Patrick
Greenway, Harry (Ealing N) Mellor, Rt Hon David
Greenway, John (Ryedale) Merchant, Piers
Grylls, Sir Michael Milligan, Stephen
Gummer, Rt Hon John Selwyn Mills, Iain
Hague, William Mitchell, Andrew (Gedling)
Hamilton, Rt Hon Archie (Epsom) Mitchell, Sir David (Hants NW)
Hamilton, Neil (Tatton) Moate, Sir Roger
Hampson, Dr Keith Monro, Sir Hector
Hanley, Jeremy Montgomery, Sir Fergus
Hannam, Sir John Moss, Malcolm
Hargreaves, Andrew Needham, Richard
Harris, David Nelson, Anthony
Haselhurst, Alan Neubert, Sir Michael
Hawkins, Nick Newton, Rt Hon Tony
Hawksley, Warren Nicholls, Patrick
Hayes, Jerry Nicholson, David (Taunton)
Heald, Oliver Nicholson, Emma (Devon West)
Heath, Rt Hon Sir Edward Norris, Steve
Heathcoat-Amory, David Onslow, Rt Hon Sir Cranley
Oppenheim, Phillip Stephen, Michael
Ottaway, Richard Stern, Michael
Page, Richard Stewart, Allan
Paice, James Streeter, Gary
Patnick, Irvine Sumberg, David
Patten, Rt Hon John Sweeney, Walter
Pattie, Rt Hon Sir Geoffrey Sykes, John
Pawsey, James Tapsell, Sir Peter
Peacock, Mrs Elizabeth Taylor, Ian (Esher)
Pickles, Eric Taylor, John M. (Solihull)
Porter, Barry (Wirral S) Taylor, Sir Teddy (Southend, E)
Porter, David (Waveney) Temple-Morris, Peter
Portillo, Rt Hon Michael Thompson, Patrick (Norwich N)
Powell, William (Corby) Thornton, Sir Malcolm
Rathbone, Tim Thurnham, Peter
Redwood, John Townend, John (Bridlington)
Renton, Rt Hon Tim Townsend, Cyril D. (Bexl'yh'th)
Richards, Rod Tracey, Richard
Rifkind, Rt Hon. Malcolm Tredinnick, David
Robathan, Andrew Trend, Michael
Robertson, Raymond (Ab'd'n S) Trotter, Neville
Robinson, Mark (Somerton) Twinn, Dr Ian
Roe, Mrs Marion (Broxbourne) Vaughan, Sir Gerard
Rowe, Andrew (Mid Kent) Viggers, Peter
Rumbold, Rt Hon Dame Angela Waldegrave, Rt Hon William
Ryder, Rt Hon Richard Walden, George
Sackville, Tom Walker, Bill (N Tayside)
Sainsbury, Rt Hon Tim Ward, John
Scott, Rt Hon Nicholas Wardle, Charles (Bexhill)
Shaw, David (Dover) Waterson, Nigel
Shaw, Sir Giles (Pudsey) Watts, John
Shephard, Rt Hon Gillian Wells, Bowen
Shepherd, Richard (Aldridge) Whitney, Ray
Sims, Roger Whittingdale, John
Skeet, Sir Trevor Wiggin, Sir Jerry
Smith, Sir Dudley (Warwick) Wilkinson, John
Smith, Tim (Beaconsfield) Willetts, David
Soames, Nicholas Wilshire, David
Spencer, Sir Derek Winterton, Mrs Ann (Congleton)
Spicer, Sir James (W Dorset) Winterton, Nicholas (Macc'f'ld)
Spicer, Michael (S Worcs) Wood, Timothy
Spink, Dr Robert Yeo, Tim
Spring, Richard Young, Sir George (Acton)
Sproat, Iain
Squire, Robin (Hornchurch) Tellers for the Noes:
Stanley, Rt Hon Sir John Mr. David Lightbown and
Steen, Anthony Mr. Sydney Chapman.

Question, That the proposed words be there added, put forthwith pursuant to Standing Order No. 30 (Questions on amendments):

The House divided: Ayes 301, Noes 271.

Division No. 292] [10.15 pm
Ainsworth, Peter (East Surrey) Blackburn, Dr John G.
Aitken, Jonathan Body, Sir Richard
Alison, Rt Hon Michael (Selby) Bonsor, Sir Nicholas
Allason, Rupert (Torbay) Booth, Hartley
Amess, David Boswell, Tim
Ancram, Michael Bottomley, Peter (Eltham)
Arbuthnot, James Bottomley, Rt Hon Virginia
Arnold, Jacques (Gravesham) Bowden, Andrew
Arnold, Sir Thomas (Hazel Grv) Bowis, John
Ashby, David Boyson, Rt Hon Sir Rhodes
Aspinwall, Jack Brandreth, Gyles
Atkins, Robert Brazier, Julian
Atkinson, David (Bour'mouth E) Bright, Graham
Atkinson, Peter (Hexham) Brooke, Rt Hon Peter
Baker, Rt Hon K. (Mole Valley) Brown, M. (Brigg & Cl'thorpes)
Baker, Nicholas (Dorset North) Browning, Mrs. Angela
Baldry, Tony Budgen, Nicholas
Banks, Robert (Harrogate) Burns, Simon
Bates, Michael Burt, Alistair
Batiste, Spencer Butcher, John
Bellingham, Henry Butler, Peter
Bendall, Vivian Butterfill, John
Beresford, Sir Paul Carlisle, John (Luton North)
Biffen, Rt Hon John Carlisle, Kenneth (Lincoln)
Carrington, Matthew Hayes, Jerry
Carttiss, Michael Heald, Oliver
Cash, William Heath, Rt Hon Sir Edward
Channon, Rt Hon Paul Heathcoat-Amory, David
Churchill, Mr Hendry, Charles
Clappison, James Heseltine, Rt Hon Michael
Clark, Dr Michael (Rochford) Hicks, Robert
Clarke, Rt Hon Kenneth (Ruclif) Higgins, Rt Hon Sir Terence L.
Coe, Sebastian Hill, James (Southampton Test)
Colvin, Michael Hogg, Rt Hon Douglas (G'tham)
Congdon, David Horam, John
Conway, Derek Hordern, Rt Hon Sir Peter
Coombs, Anthony (Wyre For'st) Howard, Rt Hon Michael
Coombs, Simon (Swindon) Howarth, Alan (Strat'rd-on-A)
Cope, Rt Hon Sir John Howell, Rt Hon David (G'dford)
Cormack, Patrick Hughes Robert G. (Harrow W)
Couchman, James Hunt, Sir John (Ravensbourne)
Cran, James Hunter, Andrew
Currie, Mrs Edwina (S D'by'ire) Jack, Michael
Curry, David (Skipton & Ripon) Jackson, Robert (Wantage)
Davies, Quentin (Stamford) Jenkin, Bernard
Davis, David (Boothferry) Jessel, Toby
Day, Stephen Johnson Smith, Sir Geoffrey
Deva, Nirj Joseph Jones, Gwilym (Cardiff N)
Devlin, Tim Jopling, Rt Hon Michael
Dickens, Geoffrey Kellett-Bowman, Dame Elaine
Dicks, Terry Key, Robert
Dorrell, Stephen Kilfedder, Sir James
Douglas-Hamilton, Lord James King, Rt Hon Tom
Dover, Den Knapman, Roger
Duncan, Alan Knight, Mrs Angela (Erewash)
Duncan-Smith, Iain Knight, Greg (Derby N)
Dunn, Bob Knight, Dame Jill (Bir'm E'st'n)
Durant, Sir Anthony Knox, David
Dykes, Hugh Kynoch, George (Kincardine)
Eggar, Tim Lait. Mrs Jacqui
Emery, Rt Hon Sir Peter Lamont, Rt Hon Norman
Evans, David (Welwyn Hatfield) Lang, Rt Hon Ian
Evans, Jonathan (Brecon) Lawrence, Sir Ivan
Evans, Nigel (Ribble Valley) Legg, Barry
Evans, Roger (Monmouth) Leigh, Edward
Evennett, David Lester, Jim (Broxtowe)
Faber, David Lidington, David
Fabricant, Michael Lightbown, David
Fenner, Dame Peggy Lilley, Rt Hon Peter
Forman, Nigel Lloyd, Peter (Fareham)
Forsyth, Michael (Stirling) Lord, Michael
Forth, Eric Lyell, Rt Hon Sir Nicholas
Fowler, Rt Hon Sir Norman MacGregor, Rt Hon John
Fox, Dr Liam (Woodspring) MacKay, Andrew
Fox, Sir Marcus (Shipley) Maclean, David
Freeman, Roger McLoughlin, Patrick
French, Douglas McNair-Wilson, Sir Patrick
Gale, Roger Madel, David
Gallie, Phil Maitland, Lady Olga
Gardiner, Sir George Major, Rt Hon John
Garel-Jones, Rt Hon Tristan Malone, Gerald
Garnier, Edward Mans, Keith
Gill, Christopher Marland, Paul
Gillan, Cheryl Marlow, Tony
Goodlad, Rt Hon Alastair Marshall, Sir Michael (Arundel)
Goodson-Wickes, Dr Charles Martin, David (Portsmouth S)
Gorman, Mrs Teresa Mawhinney, Dr Brian
Gorst, John Mayhew, Rt Hon Sir Patrick
Grant, Sir Anthony (Cambs SW) Mellor, Rt Hon David
Greenway, Harry (Ealing N) Merchant, Piers
Greenway, John (Ryedale) Milligan, Stephen
Grylls, Sir Michael Mills, Iain
Gummer, Rt Hon John Selwyn Mitchell, Andrew (Gedling)
Hague, William Mitchell, Sir David (Hants NW)
Hamilton, Rt Hon Archie (Epsom) Moate, Sir Roger
Hamilton, Neil (Tatton) Monro, Sir Hector
Hampson, Dr Keith Montgomery, Sir Fergus
Hanley, Jeremy Moss, Malcolm
Hannam, Sir John Needham, Richard
Hargreaves, Andrew Nelson, Anthony
Harris, David Neubert, Sir Michael
Haselhurst, Alan Newton, Rt Hon Tony
Hawkins, Nick Nicholls, Patrick
Hawksley, Warren Nicholson, David (Taunton)
Nicholson, Emma (Devon West) Steen, Anthony
Norris, Steve Stephen, Michael
Onslow, Rt Hon Sir Cranley Stern, Michael
Oppenheim, Phillip Stewart, Allan
Ottaway, Richard Streeter, Gary
Page, Richard Sumberg, David
Paice, James Sweeney, Walter
Patnick, Irvine Sykes, John
Patten, Rt Hon John Tapsell, Sir Peter
Pattie, Rt Hon Sir Geoffrey Taylor, Ian (Esher)
Pawsey, James Taylor, John M. (Solihull)
Peacock, Mrs Elizabeth Taylor, Sir Teddy (Southend, E)
Pickles, Eric Temple-Morris, Peter
Porter, Barry (Wirral S) Thompson, Patrick (Norwich N)
Porter, David (Waveney) Thornton, Sir Malcolm
Portillo, Rt Hon Michael Thurnham, Peter
Powell, William (Corby) Townend, John (Bridlington)
Rathbone, Tim Townsend, Cyril D. (Bexl'yh'th)
Redwood, John Tracey, Richard
Renton, Rt Hon Tim Tredinnick, David
Richards, Rod Trend, Michael
Rifkind, Rt Hon. Malcolm Trotter, Neville
Robathan, Andrew Twinn, Dr Ian
Robertson, Raymond (Ab'd'n S) Vaughan, Sir Gerard
Robinson, Mark (Somerton) Viggers, Peter
Roe, Mrs Marion (Broxbourne) Waldegrave, Rt Hon William
Rowe, Andrew (Mid Kent) Walden, George
Rumbold, Rt Hon Dame Angela Walker, Bill (N Tayside)
Ryder, Rt Hon Richard Ward, John
Sackville, Tom Wardle, Charles (Bexhill)
Sainsbury, Rt Hon Tim Waterson, Nigel
Scott, Rt Hon Nicholas Watts, John
Shaw, David (Dover) Wells, Bowen
Shaw, Sir Giles (Pudsey) Whitney, Ray
Shephard, Rt Hon Gillian Whittingdale, John
Shepherd, Richard (Aldridge) Wiggin, Sir Jerry
Sims, Roger Wilkinson, John
Skeet, Sir Trevor Willetts, David
Smith, Sir Dudley (Warwick) Wilshire, David
Smith, Tim (Beaconsfield) Winterton, Mrs Ann (Congleton)
Soames, Nicholas Winterton, Nicholas (Macc'f'ld)
Spencer, Sir Derek Wood, Timothy
Spicer, Sir James (W Dorset) Yeo, Tim
Spicer, Michael (S Worcs) Young, Sir George (Acton)
Spink, Dr Robert
Spring, Richard Tellers for the Ayes:
Sproat, Iain Mr. Sydney Chapman and
Squire, Robin (Hornchurch) Mr. Timothy Kirkhope.
Stanley, Rt Hon Sir John
Abbott, Ms Diane Bray, Dr Jeremy
Adams, Mrs Irene Brown, Gordon (Dunfermline E)
Ainger, Nick Brown, N. (N'c'tle upon Tyne E)
Ainsworth, Robert (Cov'try NE) Bruce, Malcolm (Gordon)
Allen, Graham Burden, Richard
Alton, David Byers, Stephen
Anderson, Donald (Swansea E) Caborn, Richard
Anderson, Ms Janet (Ros'dale) Callaghan, Jim
Armstrong, Hilary Campbell, Mrs Anne (C'bridge)
Ashdown, Rt Hon Paddy Campbell, Menzies (Fife NE)
Ashton, Joe Campbell, Ronnie (Blyth V)
Austin-Walker, John Campbell-Savours, D. N.
Banks, Tony (Newham NW) Canavan, Dennis
Barnes, Harry Cann, Jamie
Battle, John Carlile, Alexander (Montgomry)
Bayley, Hugh Clapham, Michael
Beckett, Rt Hon Margaret Clark, Dr David (South Shields)
Beith, Rt Hon A. J. Clarke, Eric (Midlothian)
Bell, Stuart Clarke, Tom (Monklands W)
Benn, Rt Hon Tony Clelland, David
Benton, Joe Clwyd, Mrs Ann
Bermingham, Gerald Coffey, Ann
Berry, Dr. Roger Cohen, Harry
Betts, Clive Connarty, Michael
Blair, Tony Cook, Frank (Stockton N)
Blunkett, David Cook, Robin (Livingston)
Boateng, Paul Corbett, Robin
Boyce, Jimmy Corbyn, Jeremy
Bradley, Keith Corston, Ms Jean
Cousins, Jim Janner, Greville
Cox, Tom Jones, Barry (Alyn and D'side)
Cryer, Bob Jones, leuan Wyn (Ynys Môn)
Cunliffe, Lawrence Jones, Jon Owen (Cardiff C)
Cunningham, Jim (Covy SE) Jones, Lynne (B'ham S O)
Cunningham, Rt Hon Dr John Jones, Martyn (Clwyd, SW)
Dafis, Cynog Jones, Nigel (Cheltenham)
Dalyell, Tam Jowell, Tessa
Darling, Alistair Kaufman, Rt Hon Gerald
Davidson, Ian Keen, Alan
Davies, Bryan (Oldham C'tral) Kennedy, Jane (Lpool Brdgn)
Davies, Rt Hon Denzil (Llanelli) Khabra, Piara S.
Davies, Ron (Caerphilly) Kinnock, Rt Hon Neil (Islwyn)
Davis, Terry (B'ham, H'dge H'l) Leighton, Ron
Denham, John Lestor, Joan (Eccles)
Dewar, Donald Lewis, Terry
Dixon, Don Litherland, Robert
Dobson, Frank Livingstone, Ken
Donohoe, Brian H. Lloyd, Tony (Stretford)
Dowd, Jim Llwyd, Elfyn
Dunnachie, Jimmy Loyden, Eddie
Dunwoody, Mrs Gwyneth Lynne, Ms Liz
Eagle, Ms Angela McAllion, John
Eastham, Ken McCartney, Ian
Enright, Derek Macdonald, Calum
Etherington, Bill McFall, John
Evans, John (St Helens N) McKelvey, William
Ewing, Mrs Margaret Mackinlay, Andrew
Fatchett, Derek McLeish, Henry
Faulds, Andrew Maclennan, Robert
Field, Frank (Birkenhead) McNamara, Kevin
Fisher, Mark McWilliam, John
Foster, Rt Hon Derek Madden, Max
Foster, Don (Bath) Mahon, Alice
Foulkes, George Mandelson, Peter
Fraser, John Marek, Dr John
Fyfe, Maria Marshall, Jim (Leicester, S)
Galbraith, Sam Martlew, Eric
Galloway, George Maxton, John
Gapes, Mike Meacher, Michael
Garrett, John Meale, Alan
George, Bruce Michael, Alun
Gerrard, Neil Michie, Bill (Sheffield Heeley)
Gilbert, Rt Hon Dr John Michie, Mrs Ray (Argyll Bute)
Godman, Dr Norman A. Milburn, Alan
Godsiff, Roger Miller, Andrew
Golding, Mrs Llin Mitchell, Austin (Gt Grimsby)
Gordon, Mildred Moonie, Dr Lewis
Graham, Thomas Morgan, Rhodri
Grant, Bernie (Tottenham) Morris, Rt Hon A. (Wy'nshawe)
Griffiths, Nigel (Edinburgh S) Morris, Estelle (B'ham Yardley)
Griffiths, Win (Bridgend) Morris, Rt Hon J. (Aberavon)
Grocott, Bruce Mowlam, Marjorie
Gunnell, John Mudie, George
Hall, Mike Mullin, Chris
Hanson, David O'Brien, Michael (N W'kshire)
Hardy, Peter O'Brien, William (Normanton)
Harman, Ms Harriet O'Hara, Edward
Harvey, Nick O'Neill, Martin
Hattersley, Rt Hon Roy Orme, Rt Hon Stanley
Henderson, Doug Patchett, Terry
Heppell, John Pendry, Tom
Hinchliffe, David Pickthall, Colin
Hoey, Kate Pike, Peter L.
Hogg, Norman (Cumbernauld) Pope, Greg
Home Robertson, John Powell, Ray (Ogmore)
Hood, Jimmy Prentice, Ms Bridget (Lew'm E)
Hoon, Geoffrey Prentice, Gordon (Pendle)
Howarth, George (Knowsley N) Prescott, John
Howells, Dr. Kim (Pontypridd) Primarolo, Dawn
Hoyle, Doug Purchase, Ken
Hughes, Kevin (Doncaster N) Quin, Ms Joyce
Hughes, Robert (Aberdeen N) Radice, Giles
Hughes, Simon (Southwark) Randall, Stuart
Hutton, John Redmond, Martin
Illsley, Eric Reid, Dr John
Ingram, Adam Rendel, David
Jackson, Glenda (H'stead) Richardson, Jo
Jackson, Helen (Shef'ld, H) Robertson, George (Hamilton)
Jamieson, David Robinson, Geoffrey (Co'try NW)
Roche, Mrs. Barbara Taylor, Mrs Ann (Dewsbury)
Rogers, Allan Taylor, Matthew (Truro)
Rooker, Jeff Tipping, Paddy
Rooney, Terry Turner, Dennis
Ross, Ernie (Dundee W) Tyler, Paul
Rowlands, Ted Vaz, Keith
Ruddock, Joan Walker, Rt Hon Sir Harold
Salmond, Alex Wallace, James
Sedgemore, Brian Walley, Joan
Sheerman, Barry Wardell, Gareth (Gower)
Sheldon, Rt Hon Robert Wareing, Robert N
Shore, Rt Hon Peter Watson, Mike
Short, Clare Welsh, Andrew
Simpson, Alan Wicks, Malcolm
Skinner, Dennis Wigley, Dafydd
Smith, Andrew (Oxford E) Williams, Rt Hon Alan (Sw'n W)
Smith, C. (Isl'ton S & F'sbury) Williams, Alan W (Carmarthen)
Smith, Rt Hon John (M'kl'ds E) Wilson, Brian
Smith, Llew (Blaenau Gwent) Winnick, David
Snape, Peter Wise, Audrey
Soley, Clive Worthington, Tony
Spearing, Nigel Wray, Jimmy
Spellar, John Wright, Dr Tony
Steel, Rt Hon Sir David Young, David (Bolton SE)
Steinberg, Gerry
Stevenson, George Tellers for the Noes:
Stott, Roger Mr. Peter Kilfoyle and
Strang, Dr. Gavin Mr. Gordon McMaster.
Straw, Jack

MADAM SPEAKER forthwith declared the main Question, as amended, to be agreed to.


That this House 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.
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