The Economy

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

I have to inform the House that Madam Speaker has selected the amendment standing in the name of the Leader of the Opposition.

The Chancellor of the Exchequer (Mr. Kenneth Clarke)

I beg to move, That this House welcomes the publication of the Government's latest forecast, which shows growth continuing at a steady and sustainable rate, inflation remaining low, exports rising and Government borrowing falling; and recognises that this favourable outlook for the economy is a result of the Government's firm commitment to the healthy and sustainable recovery of a modern and competitive industrial economy. On Monday, Welsh Labour and Liberal Members failed to turn up at Welsh Question Time. I can only assume that they could not think of anything that they wished to say or ask. I am rather surprised that the hon. Member for Dunfermline, East (Mr. Brown) has turned up this afternoon, because he can never think of anything to say that resembles an economic policy. In fact, he comes to debates only when he has to. Once a year at the Budget, and once a year for the summer economic forecast, he hears me describe the progress of the recovery and I set out the encouraging framework for the year ahead. The hon. Gentleman gets up, tells us a few jokes, gives us a few grumbles and platitudes and then he is away again.

All the parliamentary days that the Opposition have allocated to them during the year are problems for the Labour party. It has to cast around for subjects that it wishes to raise. Never once in my time as Chancellor of the Exchequer has it asked for a debate on the British economy. This is a debating Chamber, but so far I have had two years of debating with a tartan Trappist monk.

Why can that be? Why has the hon. Gentleman suddenly become such a diffident shadow Chancellor? The summer forecasts, which we are debating because they are statutorily produced at this time of year, show why. They show that the British economy is doing well and that it will carry on doing well. Anything that is good news for Britain is very bad news for the Labour party.

With every quarter that goes by, this country creates more wealth and more jobs and wins more export markets. The day steadily gets nearer when most people will appreciate from their daily lives that this healthy recovery is delivering rising living standards, more secure employment and more secure family finances.

How can the hon. Gentleman make a speech as shadow Chancellor when he cannot even say whether he agrees with me on interest rates? How can he face the House when he does not have an inflation target? How can he criticise the public finances when he will not say whether public borrowing is too high or too low? He only sets himself a borrowing target that is about as rubbery as an elastic band.

Mr. Alan Milburn (Darlington)

Will the Chancellor give way?

Mr. Clarke

It is a little early. I usually give way frequently and shall do so in due course if Mr. Deputy Speaker allows it.

Mr. Gordon Brown (Dunfermline, East)

On the precise matter of the borrowing target, given that the Prime Minister said in 1988 that he would balance the Budget every year, will the Chancellor tell us the first year when he will be able to balance the Budget—is it this century or the next?

Mr. Clarke

There is a forecast which shows that we are well on course to balance in the medium term. Recalling the Red Book, I think that we show balance in about 1998–99, or something of that kind. We are certainly on course towards balance in the medium term.

Mr. Brown

rose—

Mr. Clarke

I shall give way again in a moment. In the two years in which the hon. Gentleman has failed to raise the subject of the British economy in the House, he has seen us cut the forecast borrowing requirement, from £50 billion when I took office, to £23.5 billion next year. We have halved it. We are reducing public borrowing and controlling public spending despite all the hon. Gentleman's votes against us. We are well on course to balance in the medium term.

Mr. Brown

Given that the Government have broken all their promises on tax and are now breaking their promises on spending, will the Chancellor confirm that he is breaking the promise made on the balanced Budget? The Prime Minister said that the Budget would balance every year. Will the Chancellor tell us in which year the Budget will balance, and confirm that in 1998–99 there is a deficit of £5 billion in the Budget forecast and that he is wrong?

Mr. Clarke

It is my recollection that the Government's policy—in contrast to the Opposition, who have not had one—is to move towards balance in the medium term. That is all I can recall. I do not recall the 1988 quotation and I do not rely on the hon. Gentleman's recollection of it. We have always made it clear that we believe in balancing the public finances over the medium term. It has always seemed to me obvious that public finances go into deficit in times of recession and recover at the top of the cycle. We are on course for that. Indeed, we have been controlling public borrowing very effectively for the past two years in the teeth of the votes and opposition of the hon. Member for Dunfermline, East.

Mr. Milburn

Will the Chancellor give way?

Mr. Clarke

No, I must press on to the summer economic forecast, which is what we are debating and which the hon. Member for Dunfermline, East must have forced himself to read. No doubt he read it through tears and while concentrating ground his teeth, because the summer economic forecast shows that 1994 was an excellent year for the British economy. Output grew by around 4 per cent., which was faster than in any other major European economy; inflation had its best run since the early 1960s; exports grew by more than 8 per cent.; and unemployment fell by more than a third of a million in 1994 alone.

973 The combination of healthy growth, low inflation, strong exports, rising incomes and employment and a falling budget deficit is set, as the forecast shows, to continue in the years ahead. These are the best economic prospects for future growth and prosperity that I have seen in my career in politics.

Partly due to the policy measures that I have put in place, growth has slowed to a more sustainable rate this year. That is deliberate and desirable. The British people want greater economic security and they want to be sure that this time growth will last. The Government are working hard to deliver an economic recovery on which the public can rely—[Interruption.] I shall return to the amendment signed by the hon. Member for Bolsover (Mr. Skinner) and his economic policy in a moment. I was delighted to see it on the Order Paper and I shall give it its fair measure of attention when I get there.

The hon. Member for Bolsover has far more by way of clear economic policy than members of the shadow Front Bench. The contrast between the two is interesting and enlightening. Although it was not called, I propose to speak to the hon. Gentleman's amendment if I can do so and remain in order.

Mr. Tony Marlow (Northampton, North)

rose—

Hon. Members

Give way to him.

Mr. Clarke

I shall give way to the hon. Gentleman— my hon. Friend—in a moment. Surrounded by a range of opinions on this subject, the Government are delivering a healthy economic recovery, which will not be derailed by inflation, as it so regularly has been in the past.

Mr. Marlow

My right hon. and learned Friend knows that the list of wonderful and desirable things he is talking about could well be affected by whether at some stage the United Kingdom joins the single currency. There was a vote last week in the Conservative party and 89 of his colleagues signified their support for a platform of no single currency. Does not that mean that there is no possibility in the near future that a Conservative Government could ever seek to put a single currency before the British people? If so, would not it be wise to advise the Europeans that there is not going to be a single currency in Britain? [Interruption.]

Mr. Deputy Speaker

Order. Before the Chancellor answers, the House must settle down. I remind hon. Members that interventions are supposed to be brief and to the point.

Mr. Clarke

I shall stick to the summer economic forecast. We have come here to debate the summer economic forecast, yet those on the Opposition Front Bench have nothing to say, Opposition Back Benchers wish to put forward a very socialist programme and my hon. Friend the Member for Northampton, North (Mr. Marlow) brings up one subject, regardless of what we are debating, on each and every occasion. Judgments about the single currency will be made in the interests of the British economy and in the best judgment of the House if and when the issue arises. At the moment we have a strong, steady recovery, which must be sustained.

974 The Treasury summer economic forecast shows that we remain on course to deliver sustainable growth. There is no need to react too strongly to the recent slowdown in activity. The reason why I am confident that this is merely a change of pace on a continuing running recovery is that the fundamentals of the economy are now in such sound shape. We expect the economy to grow by around 3 per cent. this year and by 2¾ per cent. next year. That growth will continue to be led by exports, supported by business investment. We expect the current account balance to continue to narrow from £2 billion in 1995 to £1 billion in 1996.

One important feature of the recovery has been that inflation has stayed low as the recovery has matured. Underlying inflation has now been below 3 per cent. for the past 20 months. That is the best performance on inflation that this country has seen since 1961. We expect underlying inflation to rise temporarily to around 3 per cent. by the end of this year, as some of the effects of the recent depreciation of sterling and the worldwide increase in commodity prices feed through into the price change. We then expect inflation to fall back to 2½ per cent. by the end of 1996.

The forecast also shows that Government borrowing is on a clear downward path. We expect the public sector borrowing requirement to have halved between 1993–94 and 1995–96 and to fall to £16 billion—just 2 per cent. of gross domestic product—in 1996–97.

Mr. Malcolm Bruce (Gordon)

rose—

Mr. Clarke

Britain's budget deficit is falling faster than that of any other major European country.

Several hon. Members

rose—

Mr. Clarke

I think that the hon. Member for Gordon (Mr. Bruce) was first

Mr. Bruce

I appreciate the fact that the Chancellor wished to finish that point. Does he believe that the forecast of a public sector borrowing requirement of £16 billion for next year would be a favourable background against which to cut taxes, or that he should be continuing to fulfil the golden rule of achieving a balanced budget?

Mr. Clarke

I have always refused to set a figure at which we would cut taxes and a figure at which we would increase them. Budget judgments are far more complex than that. However, it is absolutely essential that public sector borrowing is on course to achieve the balance over the medium term, which is the Government's clear target. Other than that, it is not as straightforward as the hon. Gentleman states, or merely a matter of saying that the PSBR is a particular figure this year and that taxes go up or down.

Mr. Milburn

Will the Chancellor explain why the summer forecast has revised the PSBR upwards from £21 billion to £23 billion? Will he answer the question asked by my hon. Friend the Member for Dunfermline, East (Mr. Brown), the shadow Chancellor: on which date does he expect there to be a balanced budget?

Mr. Clarke

I have explained to the Treasury and Civil Service Committee why we have revised the figure up slightly. The tax take is somewhat lower than we expected for a variety of reasons, including our success with inflation. When wage inflation and other inflation is kept 975 down, the tax take is reduced. It is an irony that, on the margins, low inflation is bad for the PSBR. Our taxes are affected by a low level of inflation, but we set the spending budgets of the Departments in cash so that they spend up to the cash figure set on higher estimates of inflation. That is why we have changed the figure.

Mr. Milburn

What about the target?

Mr. Clarke

The target is to move towards balance over the medium term. I do not believe that, some time in 1988, we made a different promise. I seriously doubt that, but I shall check.

Mr. Gordon Brown

On balancing the budget and tax cuts, will the right hon. and learned Gentleman confirm the following statement in the Conservative party economic brief for this debate? It states: The Prime Minister has announced that it is his objective to reduce capital and inheritance taxes, and if possible, abolish them altogether. Is it the Government's policy to abolish capital gains tax and inheritance tax at a cost of £3 billion?

Mr. Clarke

I heard the Prime Minister last give that long-term objective in a recent speech. In the longer term, I know that the Prime Minister believes that it should be reasonable to get rid of capital gains tax and inheritance tax as well. Inheritance tax is extremely uneven in the way that it falls. Capital gains tax in this country bears quite heavily on some forms of investment, but the Prime Minister has given no sort of commitment about when we might achieve such an ambitious objective. [Interruption.] I heard the speech, unlike the hon. Member for Dunfermline, East. The Prime Minister set out those objectives as a long-term aim for the Conservative party.

Mr. Brown

It is becoming very revealing that the Prime Minister is announcing the Chancellor's decisions in advance of the Chancellor, but will the right hon. and learned Gentleman further confirm that it is now the Government's policy to tax executive share options as income? Having resisted it in three separate Budget statements, but given that it is now being supported by the Tory members of the Employment Select Committee and—I understand—by the Deputy Prime Minister, will the right hon. and learned Gentleman admit that he has been wrong and that it is now the Government's policy to tax executive share options as income and get millions of pounds into the Exchequer as a result?

Mr. Clarke

For a shadow spokesman who has not got a tax policy and cannot even say whether he thinks that taxes are too high or too low, the hon. Gentleman really must not mess about with his press cuttings in that way, trying to find interventions to make in a debate such as this. On share options, he must wait for the Greenbury committee report. [Interruption.] It was this Government who invited the setting up of the Greenbury committee and this Government who invited it to make recommendations. At the right time, we shall respond to Greenbury. Today, we are talking about a summer economic forecast, about which, for all the reasons that I have just been setting out, the hon. Gentleman does not want to talk. He is trying to change the subject from the British economy.

Several hon. Members

rose—

Mr. Clarke

No, I am not giving way.

Mr. Brown

rose—

Mr. Clarke

I will of course give way to the Opposition Front-Bench spokesman, but not for faffing about trying to get soundbites out of this morning's newspapers. I would like him eventually to address the strong and healthy economic recovery on which he has no comment and for which he has no alternative policy.

Mr. Brown

It appears that the Government's tax policy has been handed over, not only from the Chancellor to the Prime Minister, but to the Greenbury committee. Does the right hon. and learned Gentleman support the principle of taxing executive share options as income? Has he now changed his mind?

Mr. Clarke

The Government are a low-taxation Government. We believe that the economy is more efficient as a low-taxation economy. We have already introduced the lowest corporate taxes in the world, we have a long-term aim of tackling inheritance tax and capital gains tax, we have committed ourselves to considering the Greenbury committee's response and everybody knows that we shall continue to reduce taxation as and when we can afford it and when it is in the best interests of the economy, which is in stark contrast to the total silence on the subject from the hon. Gentleman.

Mr. Doug Henderson (Newcastle upon Tyne, North)

Will the Chancellor give way?

Mr. Clarke

I have given way far too often. I shall be criticised shortly for having given way too much.

Sir Michael Grylls (Surrey, North-West)

Will my right hon. and learned Friend give way?

Mr. Clarke

I shall in a moment. This debate is becoming a dialogue with a man so unwilling to give a speech on the subject before us that he is praying for 10 o'clock tonight and trying to find other things to talk about.

I have just described an extremely healthy economy. Why are we having this debate, except for an opportunity for the hon. Member for Dunfermline, East to try to follow up his morning's reading of the newspapers? One of the curious complaints that some people make about this recovery is that it is too virtuous. They say that, because it is led by manufacturing and exports, the British people have not felt any immediate impact on their spending pattern, and they say that because it is free of inflation, people with heavy debts are not seeing their debts eroded by a fall in the value of the pound.

All that tedious political chat about the feel-good factor at the end of last year has not made anybody believe the sort of rubbish that I have just been describing. The well-being of the people depends on wealth being created by a successful and competitive industrial economy. Secure prosperity cannot be created for families by short-term fiscal gimmicks or by letting prices and incomes rip. First, we must allow the economy to create the wealth and then the economy will distribute it. It is a virtuous recovery and virtue brings its rewards in confidence, security and prosperity for people once they are satisfied that the Government will deliver sustained performance.

977 The strength of the British economy at the moment has not come about by chance. We now have the potential to enjoy the elusive goal of sustained, low-inflation growth because the Government have followed a determined and purposeful path. We have pursued the long-term interests of British industry and therefore of the British people.

The decisions that we have taken are now beginning to deliver real benefits to more and more people. Living standards are forecast to grow by £5 a week for households on average this year, and we forecast that they will rise by rather more than that the following year. Sticking to the policies that have pulled us out of recession can now ensure that living standards will rise not only this year and next year but the year after that and the year after that, and, I trust, for many years to come. That is economic security of the best kind. That is what families, pensioners, home owners, business men and everybody else in Britain today want.

Right hon. and hon. Members have the opportunity today to debate the latest Treasury forecast, and the excellent prospects for the economy and for our people, who expect to benefit from it. But of course forecasting is difficult, and the Government do not claim a monopoly of wisdom in that activity.

The hon. Member for Dunfermline, East used to come to the House with different forecasts of his own. Hon. Members will remember the unemployment forecast that he made in the House following the March 1963 Budget—[HON. MEMBERS: "When?"] I mean, the 1993 Budget. The hon. Gentleman must wish that it had been so long ago, but it was only two years ago that 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.] What happened? Unemployment fell that month and the next month, and it carried on falling for months afterwards. It has fallen by more than 600,000 since the hon. Gentleman made that disastrous forecast on behalf of the shadow Treasury team.

It is not fair to say that the hon. Gentleman is never cheerful. He used to smile a little when giving his very gloomy forecasts of disaster for the British economy. In September 1993, even more recently, he said that the balance of payments deficit would worsen over the next two years. What happened? The balance of payments improved; export growth outstripped imports.

The shadow Chancellor can make extremely cheerful forecasts. He was most optimistic about the economic prospects for Mexico. Only last September, in a speech at the National Film Theatre—a suitable setting—he singled out Mexico as a country that had pursued the right kind of economic policies". Only three months later the peso collapsed, the economy went into crisis and the International Monetary Fund was called in to stump up the biggest loan in its history. Perhaps the Mexicans, like the British, appreciate today's silence, the absence of forecasts and of any serious economic commentary by the hon. Gentleman.

However, the hon. Member for Dunfermline, East is capable of being clear about some things. In September 1994, he entirely dismissed his political party's principles and past. He said: 978 The Old Labour Language—tax, spend and borrow, nationalisation, state planning, isolation, full-time jobs for life for men while women stay at home—are equally inappropriate to the demands of the future as they were to the needs of the past". So much for the 1983 manifesto, on which the hon. Gentleman and the present leader of the Labour party were first elected to the House.

New Labour language is all platitudes and gobbledegook, and it is no longer I alone who says that. On the Order Paper there is an alternative amendment, tabled by the right hon. Member for Chesterfield (Mr. Benn) and 15 other Labour Members. They have set out an alternative Labour party economic policy. [Interruption.] I am sure that that amendment can be spoken to later within the rules of order. It talks about the gap between rich and poor …and the damage being done …under capitalism". It says that we are controlled by market forces which transfer power from the electors and their governments to unaccountable bankers and speculators", and calls for … the maintenance of universal benefits at a dignified level, and reforms to restore the rights of local authorities and trade unionists and to liberate the people"—

Mr. Deputy Speaker

Order. That amendment is not the amendment that we are to debate.

Mr. Clarke

I accept your judgment, Mr. Deputy Speaker, but that amendment has a lot more content than the one that we shall debate.

Mr. Tony Benn (Chesterfield)

rose—

Mr. Clarke

I shall give way in a moment— [Interruption.] I usually describe Labour Members in the House as sitting in baffled silence like stuffed ducks behind the hon. Member for Dunfermline, East, but now some of the ducks are quacking, and they are setting off in different directions.

I shall give way to the right hon. Member for Chesterfield; he and I are conviction politicians in our different ways. Labour Back Benchers and I agree on one thing: new Labour is a hollow sham—empty, vacuous and devoid of any principle or purpose. Hon. Members on both sides of the House want to hear no more lists of strategies and no more endogenous growth theory. They wish to know what is the economic policy of a party that wants to form a Government.

Mr. Benn

rose—

Mr. Clarke

I give way to the right hon. Gentleman, with his distinctive views on the matter.

Mr. Benn

If the Chancellor of the Exchequer reads the book that Harold Macmillan published in 1938, he will find that Macmillan called for a planned economy to deal with unemployment. It is a sign of the change in the Tory party that it should have abandoned some of those principles that drew it in with the Labour party behind the idea of full employment, a national health service and a huge house-building programme after the war. The Chancellor should look at his own past and find out how far he has moved from it.

Mr. Clarke

I have read "The Middle Way" by Harold Macmillan, and I know that what the right hon. 979 Gentleman says about it is true. But between 1938 and 1995, the Conservative party has evolved its policies. At the moment, a modern industrial economy is best managed as we are managing it, producing growth, falling unemployment, rising employment and low inflation.

The right hon. Gentleman's party has also evolved since 1938, but not in the same way. He would not espouse all the positions held by the Labour party in 1938, but at least he has a core of conviction and principle behind his policies. He saw those policies evolve all the way to the late 1980s, when suddenly they stopped. The people elected with him on the 1983 manifesto now spend their time denouncing those principles to academic audiences. The right hon. Gentleman and I agree that what is before us now is a public relations creation with absolutely no content.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my right hon. and learned Friend give way?

Mr. Clarke

No, I shall press on for the moment, before I am in danger of being brought back to the single European currency. I do not believe that the hon. Member for Dunfermline, East has ever expressed any views on that, either, but he may have some; there may be more hope for him there than I thought.

The hon. Member for Dunfermline, East knows perfectly well what my questions to him are. Are interest rates too high or too low? Is the Government's inflation target too high or too low? Is public spending too high or too low? Are public borrowing and taxation too high or too low? Those are my questions, and we cannot have a serious debate with such a formidable Opposition unless they answer them. Until the hon. Gentleman can answer any of those questions, his party has no official policy on the economy and is not fit to be regarded as an alternative Government.

It may help the hon. Gentleman if I set out some of the basic principles behind the Government's economic policy, upon which the recovery so far has been based. First, we are the only party in the House that believes in the economic benefits of being a low-taxation economy. We also know that low taxation depends on firm control of public spending and borrowing. In my two Budgets, public spending projections have been reduced by about £45 billion, and as a result the budget deficits are on a clear downward path.

When we can afford it and when the economic conditions are right, we shall return to our tax-cutting agenda. The hon. Member for Dunfermline, East has no right to criticise our tax history when he opposed all the spending reductions that I have described.

Secondly, we believe that firm control of public borrowing is essential because public borrowing is actually taxation deferred. Under the Labour Government, the public sector borrowing requirement reached 9.4 per cent. of gross domestic product, and averaged almost 7 per cent. of GDP every year between 1974 and 1979. Since 1979, the PSBR has averaged 2.5 per cent. of GDP and, as I said, it remains back on course to move back towards balance over the medium term.

Thirdly, low inflation is necessary for growth to be sustained. Last week, the Labour leader made a speech marking the 50th anniversary of the Attlee Government. 980 Today I shall make a brief reference to inflation, to mark the 20th anniversary of the time when inflation reached 26.9 per cent. under the last Labour Government.

The hon. Member for Dunfermline, East claims to be committed to low inflation, and says that a Labour Government would set an inflation target—he simply is not minded to say what that target is. He refuses to say whether he agrees with the Government's inflation target. I write to him—he will not speak to me—but he has still not replied to my letters of 12 May and 14 June, which asked him for his views on interest rates and inflation.

The fact is that the hon. Gentleman has nothing to say at all on the substance of monetary policy. He has no view on inflation, so he has no view on interest rates. I cannot recall any shadow Chancellor expressing no opinion on interest rates. That is quite an important subject, but I have not heard him express an opinion upon it for at least six months.

I am anxious to make our monetary framework and anti-inflationary policy one of the most open and transparent in the world. The hon. Gentleman is now saying that he agrees with my changes in procedure and openness. His only suggestion is to form a committee to which he will appoint all the members as, he claims, that will somehow reduce the political influence on the Bank of England. I do not quite understand that.

As a result of my changes, the hon. Gentleman now has all the information he requires. He has the minutes of a meeting that I had a few weeks ago, at which I had a difference in judgment with the Governor of the Bank of England. It was a matter of finely balanced judgment. The Governor and I have no difference in aim, and we share a strong personal commitment to making the British economy a low-inflation economy. The Governor and I must weigh the balance between the activity data on one hand and price pressures on the other. The Governor inclined one way; I inclined another. I decided that there would be no interest rate rise that day.

The shadow Chancellor has had weeks to study all the data that were before the Governor and me when we took that decision. He has even been able to read the minutes, see the arguments and read and consider the Governor's advice. He even has the benefit of hindsight, and he can look back now and say what his opinion might have been. Can this aspirant to high Government office say today whether he agrees or disagrees with my decision? The hon. Gentleman may be a slow decision maker, but if he is posing as a would-be Chancellor, he must show that he is capable of making a decision or having an opinion. But he is not capable. The hon. Gentleman does not have a view at all.

Let us hear it. Interest rates—too high or too low? What about my judgment on interest rates? The hon. Gentleman is meant to shadow my decisions. He is meant to say when he agrees with me and criticise me when he does not. He is a tartan Trappist monk with nothing to say on the key features of economic policy.

Most importantly, we believe that businesses, and not Government, create prosperity and jobs. The supply side reforms that the Government have put in place in the past 16 years have transformed the British economy for the better. All those reforms were opposed by the Labour and trade union movement when it held to its old principles.

981 During the 1980s, Britain moved from the bottom to the top of the international league table for growth. There are now 50 per cent. more active businesses in Britain than in Labour's last year in office. Last year and the year before that, Britain had the fastest-growing major economy in Europe, and this year we look set for a repeat performance.

The hon. Gentleman and his party are still wedded to some old-fashioned approaches that would saddle British business with Government-imposed costs and make it more expensive to create jobs in this country. The minimum wage would cost thousands of jobs and would add billions of pounds to businesses' costs. The social chapter would destroy Britain's reputation—a reputation that matters to us—as the best place in Europe in which to invest and do business in the European single market.

The Government have set out clear objectives for our economic policy. We have an inflation target, a public borrowing target, clear plans for public spending and a longer-term commitment to reduce the basic rate of income tax to 20 per cent. Those are clear and decisive policies that are delivering the goods, and a forecast today shows that the economy is in the best shape for decades.

The British public want an economic recovery which lasts, which is for keeps and on which they can rely to bring rising living standards to them and their families to the end of the decade and beyond. Only modern Conservative economics can deliver that goal, and the summer forecast shows that, between now and the next general election, we can take the message of growth and hope from house to house and town to town in this country. Ours is a clear message, a Conservative message, and a message that is succeeding in making Britain an economic success story again, and I commend it to the House.

Mr. Gordon Brown (Dunfermline, East)

I beg to move, To leave out from "House" to the end of the Question and to add instead thereof: 'notes not only the Government's forecasts but the recent White Paper on competitiveness showing Britain lagging behind its major competitors in its preparations for the challenges of the future; regrets that living standards are still falling for millions of people as a result of the biggest tax rises in Britain's history and the recent rise in the costs of being a home owner; deplores the levels of long-term unemployment and youth unemployment still prevalent in Britain today; calls for an end to complacency over the levels of investment in technology, employment, training and skills and a recognition of the importance of higher levels of investment in new employment opportunities and in long term sustainable growth consistent with low inflation; and calls for a fairer Britain, including immediate Government action to tackle the excesses in the boardrooms of the privatised utilities.'. Let me begin by welcoming the three new members of the Chancellor's Treasury team, and congratulating the Chancellor of the Exchequer on—how should I put it— holding on to his job. He is now confirmed as the Chancellor of the Exchequer; one of the second Secretaries of State.

The starting point of the debate is that the country needs real policy changes to prepare it for the great technological, global and financial changes that were barely mentioned in the Chancellor's speech. To bridge the investment and prosperity gap with our competitors, we need these changes.

982 First, we need detailed measures for new investment in the economy and for stability, including the new monetary framework that I have set out. Secondly, we need measures to ensure that there is a revolution in skills, with new policies—not just a new Department—for education, training and employment. Thirdly, we need measures to tackle long-term youth unemployment and to encourage a fiscal regime and policy with rewards and incentives that are fair and seen to be fair, and that means tackling many of the abuses in the privatised utilities.

We are faced with those great new challenges, and we are faced also today with unacceptably low levels of investment in the economy. The Government's own competitiveness White Paper said only a few weeks ago that an enormous task was yet to be faced, and there were more reports this morning of difficulty in the housing market and the labour market, and a report that manufacturing output is down yet again.

Given all that, the complacency of the Chancellor's speech—and, indeed, his whole attitude and approach— is breathtaking. It is remarkable that the Conservatives talk to the country about change when they are trying to occupy Labour's ground. They talk of intervention in training and education, and suggest that they will act to stem boardroom pay abuses.

The Chancellor was incapable of bringing anything new to his speech. He did not even have scant recognition of all the implications for his economic policy of his new next-door neighbour at No. 10a Downing street.

Sir Peter Hordern (Horsham)

The hon. Gentleman has mentioned a matter to which he has referred in a number of his sound bites—investment in training and education. That will require more money. Will the hon. Gentleman now say whether that money will be raised through higher taxes or through higher borrowing? If, as is inevitable under all Labour Governments, it is through higher borrowing, in what way will the hon. Gentleman's Government differ from the experiences of every Labour Government since the war—borrowing too much, spending too much and finally collapsing into the arms of the IMF in abject surrender?

Mr. Brown

First, I would stop talking about new initiatives for training and education while cutting the budgets of training and enterprise councils, as the Government have done, in such a way as to downgrade the importance of training. Secondly, I would say yes, we need a statutory framework for training—not the voluntaristic approach adopted by the Government—and yes, I do believe that employers will have to contribute more to the training of the work force if we are to have a successful economy in the future.

The whole theme of the Chancellor's speech—if I heard him correctly—was that we have the best prospects that he has seen in 30 years. He said that we have "excellent prospects—the best in a generation." Tell that to the millions of home owners in the country; tell that to thousands of small business men who are worried about what is happening in the retail market; tell that to the construction industry, which reported only yesterday that it is in its worst position for three years in terms of new orders; tell that even to some members of the Conservative party, such as a well-known Tory fund-raiser who has lent the Tories thousands of pounds. 983 He has not said that we have the best prospects for 30 years—he has said that conditions are as tough as anything he has experienced in 26 years of business.

If the Chancellor wants to give home owners better prospects, having forced up their bills by 20 per cent. by cutting mortgage tax relief, why does he not agree that on Monday he will withdraw the proposal that will remove help for homeowners on income support when they are unemployed?

Sir Teddy Taylor (Southend, East)

I appreciate the brilliant speeches that we have heard, but will the hon. Gentleman give some guidance to the people of Britain who want to know whether it is the basic aim of the Government, and the Opposition as an alternative Government, to seek to rejoin fixed exchange rates? May we have a brief answer to that question from the Government and the Opposition, as it would be of immense value and help to people outside?

Mr. Brown

We have no such proposal. The Government talk about a strong pound, but they should consider what has happened since 1979. Set against the deutschmark, the pound is now worth half what it was in 1979. The Chancellor told the Treasury Select Committee that economic conditions were bound to be reflected in what was likely to happen to the pound over time. It is a sad indictment of Government policy that the pound is now worth half what it was when the Conservative party came to office.

The Chancellor says that we face the best outlook for 30 years and that prospects are the best for a generation. I recall another statement that he made: We face the best economic outlook that most people of today's working generation have ever faced in their lifetime."—[Official Report, 20 March 1986; Vol. 94, c. 424.] Today he makes the same claims with the same confidence, complacency and certainty, but when he made it in 1986, it was just before the Conservative party let inflation get out of control and interest rates rise, causing the worst recession for 60 years.

The Chancellor asks whether growth will last, and answers by telling us that this time of all times it will. Does he recall telling the Welsh Conservative party conference: There is no doubt we are now enjoying quite extraordinary growth. The real question is: will it last? "Yes," he said, "it can last." That was in 1988, just before the Conservatives drove the economy into recession. He praised, not the current Prime Minister but the work of Lady Thatcher, for all those achievements. Inside a year, that growth was to develop into a recession.

We have heard all the Chancellor's predictions and statements before. They are familiar boasts. The reason why they do not make sense is that the Chancellor and his colleagues have failed to tackle the underlying weakness of the economy.

Mr. Kenneth Clarke

We were enjoying a strong recovery in 1986–88, of a kind that was utterly unprecedented, as it was a recovery from the Labour years. Monetary policy and inflation went wrong in the late 1980s and the whole recovery was brought to an end.

I am now taking interest rate decisions to ensure that this recovery is combined with low inflation and that it lasts. Does the hon. Gentleman agree that monetary policy 984 is crucial to that? Does that therefore mean that interest rates are crucial? What are his opinions on the interest rate decisions that I have taken in recent weeks?

Mr. Brown

It is because we think that monetary policy is important that we have made proposals for a new approach to monetary policy. Does the Chancellor support, as we do, the creation of a monetary policy committee within the Bank of England? Does he support, as we do, strengthening the Bank of England's advisory function? Does he support opening up the Bank of England to greater scrutiny of the advice that it gives, as many Conservative Members do? I see that the majority of Conservative Back Benchers present in the Chamber are supporters of the right hon. Member for Wokingham (Mr. Redwood), so the Chancellor should listen.

Does the Chancellor support, as we do, widening the scope of the group of independent advisers to the Treasury? Does he support the changes in monetary policy that would make it far more stable and consistent and end the uncertainty that occurs every time he meets the Governor of the Bank of England, which creates an unstable framework for the future of monetary policy?

While he is answering my questions, will he say which is his inflation target: 2.5 per cent.; 3 per cent., which he said is a triumph; or 1 to 4 per cent., which he announces to the public? Or would he, as he said to Conservative Back Benchers, reach 1 to 4 per cent. only on some but not on all occasions? Which is the Government's inflation objective?

Mr. Kenneth Clarke

It is no good the hon. Gentleman appointing a committee of his friends and cronies with the idea that that will tell him what to do about monetary policy. He says that I must make advice from the Bank of England more open. I have made it more open. The hon. Gentleman can read the advice of the Governor of the Bank of England. Were the hon. Gentleman ever Chancellor, he would have to decide whether he agreed with it. My inflation target is 2.5 per cent. or less. I set policy month by month to deliver that target until the end of this Parliament and beyond.

What is the hon. Gentleman's inflation target? He does not have one. His list of procedural changes is vacuous rubbish to try to cover the fact that he has no policy. He has just conceded on the critical policy judgment at the end of the 1980s.

Mr. Brown

The Chancellor has not answered my questions: what is the status of the 1 to 4 per cent. range? What is the status of the paper that he sent to Conservative Back Benchers saying that 1 to 4 per cent. was applicable most of the time but not all the time? What is the status of his statement that 3 per cent. would be a triumph? What is the Governor's advice on whether the Chancellor will meet the inflation target of 2.5 per cent.?

Mr. Kenneth Clarke

The target is 2.5 per cent. or less. As my speech made clear, it is not possible in the real world to hit the same figure month by month, because inevitable variations take place, so setting policy at 2.5 per cent. or less will in practice lead to inflation of between 1 and 4 per cent. The Governor and I agree on pursuing that target, which is set by the Government, and he advises me on monetary decisions that I must take to deliver it. That could not be clearer. It is ridiculous for the hon. Gentleman to make comments based on getting hold of a central office brief, which is perfectly open, and then to 985 say that that somehow alters the absolutely clear text of the speech that I had made, which the document simply purports to describe.

My inflation target is clear. What is the hon. Gentleman's? What is his current policy? How dare he come here and talk about monetary policy and interest rates when he has not a serious word to say on the subject?

Several hon. Members

rose—

Mr. Brown

I shall deal with interventions from both sides of the Conservative party in a moment.

The Chancellor says that he is setting policy to reach an inflation target of 2.5 per cent. He has refused to answer my question as to what advice the Governor has given him.

Mr. Kenneth Clarke

The hon. Gentleman can read the Governor's advice for himself. Thanks to the changes that I have made, the Governor's opinions on this matter will appear at monthly intervals, but the hon. Gentleman will say nothing in response. He can read the minutes that I have published. [HON. MEMBERS: "Where are they?"] I do not have them with me, but hon. Members can read them. One can take a horse to water but one cannot make it drink. For the guidance of Opposition Members, I have published an accurate account of the Governor's advice. What does the hon. Gentleman do but come along and ask me what it is? He should go away and read it and then tell me whether he agrees with it.

Mr. Brown

The Chancellor will not tell us what the Governor's advice, is because the Governor has said that he will not meet the Chancellor's inflation target of 2.5 per cent. The reason he will not meet his inflation target is because the Chancellor has not addressed the underlying weaknesses of the British economy.

Mr. Budgen

Will the hon. Gentleman explain a little further his proposals for extra committees within the Bank of England? Is he really proposing that there should be some form of independence in the Bank of England, or is that just a bit of window dressing? Does he agree with the Government that, ultimately, any Government must take political responsibility for interest rates and be responsible to the House for them?

Mr. Brown

No, I do not propose independence for the Bank of England. But the demerits of the personalised system of the Chancellor meeting the Governor, which is the basis of setting monetary policy, without strengthening the advice to both the Chancellor and the Governor, has been exposed this afternoon by the Chancellor's failure even to remember what the Governor said to him.

Mr. Kenneth Clarke

Let us have a little clarity and common sense. The hon. Gentleman has just said that he believes that the Governor does not think that we shall hit our target and has implied that he agrees with the Governor. That means, I take it, that he would have put interest rates up.

Mr. Brown

What I said was that, under existing policies, the Chancellor would not meet his target. The reason that I said that he would not make his target—and the Chancellor should not try to misrepresent what I 986 said—is that the Government have not tackled the underlying weaknesses of the economy, which are the barrier to long-term sustainable growth.

If the Chancellor—[Interruption.] Every time that is mentioned, the Chancellor laughs, but investment in manufacturing is 25 per cent. less than it was in 1989. Investment in the real economy is 10 per cent. less than it was in 1979. The Chancellor says that we are making an excellent recovery from the recession, but investment has increased by only 3 per cent. in the first years of what he calls a recovery, whereas it increased by 30 per cent. in the 1970s and by 20 per cent. in the 1980s.

We have a lower increase in investment out of recession than even in the 1930s. What some countries achieve by way of investment in a recession, we cannot even achieve in this country in a recovery. The failure to tackle the underlying weakness of manufacturing and general investment in the economy is the reason why, every time we expand as an economy, we run into inflationary pressures, we have to increase the amount of imports and interest rates have to be raised; and we are reaching that point at an earlier stage of the economic cycle than previously.

The idea, therefore, that the Government can offer the country the best prospects for 30 years based on a failure even to acknowledge the underlying weaknesses of under-investment in the economy is a myth that will be exposed cruelly as events take their course in the next few years.

Mr. Nigel Forman (Carshalton and Wallington)

rose—

Mr. Peter Ainsworth (Surrey, East)

rose—

Mr. Brown

I give way to the hon. Member for Carshalton and Wallington (Mr. Forman), after which I shall move on.

Mr. Forman

I seem to remember, having attended several of these debates in which the hon. Gentleman has sought to make these rather vacuous speeches, that his policy rests essentially on increasing public investment in education and training and other forms of human capital. Indeed, the Labour party waxes lyrical about that. The hon. Gentleman goes on to say—he said that last year and he said it recently—that he would finance that by increasing public borrowing. How can he possibly come to the House and claim that he would increase public borrowing without taking a risk on interest rates and the likelihood that, under Labour, interest rates would be higher?

Mr. Brown

It is the Chancellor who has increased the amount of borrowing in his forecasts, from £21 billion to £23 billion—from £12 billion to £15 billion next year— and still tells us that he will achieve tax cuts. I want borrowing to be cut, and the first way to cut borrowing is to cut unemployment in the national economy.

The reason that the Conservatives cannot solve those long-term problems of an economy that generates inflation as it expands and of an economy that requires higher interest rates as it moves forward is that they have not tackled those underlying weaknesses, which require an investment-led recovery. That is what the people of the country need.

987 Nothing has changed under the Government. Nothing has changed since the Prime Minister said that he had to have his re-election guaranteed by his party. Nothing has changed in the policies for education and training, for manufacturing, for investment and for the infrastructure of the economy. All that has changed is that we have the Prime Minister's announcement of what he calls a reconstruction of personnel in his Government.

It is not a reshuffle. It is not the refreshing of the Cabinet that took place last year, although the two members that he brought in then—the Chief Secretary and the Conservative party chairman—have now gone. It is what he advertised as a reconstruction of his Cabinet—a reconstruction, I suspect, only in the crudest motor trade sense, an attempt to salvage one passable vehicle from the wreckage of two.

What does that reconstruction add up to?

Mr. Quentin Davies (Stamford and Spalding)

rose—

Mr. Peter Ainsworth

rose—

Mr. Brown

I am not giving way again.

It adds up to a new Minister in charge of presentation, a new Minister in charge of information, a new Minister in charge of competitiveness—and those are only a few of the titles that the deputy Prime Minister has insisted on for himself.

What is that new job of Deputy Prime Minister all about, and what is its connection with the economic policies that the Chancellor must now make? How will the new Deputy Prime Minister define the purpose of his job? What will be his rallying call at the Conservative party conference in October in the new slot that must be taken away from the Chancellor for the Deputy Prime Minister?

Remember that famous conference speech that followed his ascent to the presidency, when he promised that he would intervene and intervene and intervene? When he stands up at Blackpool this year, will he echo that famous speech with a new promise of his purpose more in keeping with his new role, a new pledge to delegates of what he will personally do—interviews before breakfast on the "Today" programme, interviews before lunch on "The World at One", interviews before tea on "PM", interviews before dinner, and get up next morning and start all over again on an interview on the "Today" programme, complaining about bias against the Conservative party by the BBC? In spite of all the new titles that he has, the most important of his new responsibilities is as the Minister for keeping up appearances.

The Deputy Prime Minister is the new man at No. 10a and, to the Chancellor, Downing street looks a bit more crowded this week. We have that great new triumvirate of neighbours in Downing street, at Nos. 10, 10a and 11; the most powerful men in the country forming the new Downing street residents association.

There are some difficulties for the Chancellor and a distinct risk to his position in what is happening at No. 10a. Look at the remit for the work of the new man at No. 10a. He now chairs the Cabinet Ministerial Sub-Committee on Public Sector Pay—it sounds as though that should be the Chancellor's job. He chairs the Civil Service Employers Group—it sounds like the Chancellor's job. He chairs the Senior Civil Service 988 Group—it sounds like the Chancellor's job. When Professor Peter Hennessy said that the Deputy Prime Minister would reach for the parts that no previous deputy had managed to reach, he presumably meant encroaching on the Chancellor's job at No. 11.

Mr. Peter Butler (Milton Keynes, North-East)

On a point of order, Mr. Deputy Speaker. I am as happy as anyone else to enjoy a joke for a minute or two, but may I invite you to consider whether this has anything at all to do with the motion?

Mr. Deputy Speaker

That is a bogus point of order, and the hon. Gentleman knows it. If it had been out of order, it would have been ruled out of order.

Mr. Brown

I am talking about the conduct of economic policy and the way in which it will be managed in future.

I know that the Chancellor did not read works as trivial as the Maastricht treaty, but perhaps he should read the book that was written by the new Deputy Prime Minister entitled "Where There's a Will"—his clearly stated ambitions laid out as early as 1987—for the First Secretary is now doing everything that he signalled in that book.

The new Deputy Prime Minister said in his book that his ambition was to preside over what he now calls a transgovernmental machinery, chaired, naturally, by himself. What are the tasks? The promotion of Britain's strategic wealth-creating interests—it sounds remarkably like the Chancellor's job to me. The flow of incentives— it sounds a bit like the Chancellor's job to me. In his book he then says: This committee must also deal with another important issue— the tax system. It sounds remarkably like the Chancellor's job again. What is the Deputy Prime Minister trying to do? It sounds remarkably like the Chancellor's job to me.

Indeed, if the book is pursued, the criticisms of what has gone wrong in the British economy are laid at one door by the Deputy Prime Minister—the door of the Treasury. He says: The weakness is that there is not sufficient challenge to Treasury judgments", which may frustrate the strategic industrial objectives of the Government. Therefore one may expect some action in Downing street about that.

Of the Treasury, he says: What is interesting is how often the Treasury can fail to see the big defect in its conduct of affairs". Is that not a formula that the Prime Minister has invented for serious conflict—indeed disorder? Already this morning, we had the divergence of opinions on executive pay.

What can we expect during the summer and the autumn? How will things settle down? What can we expect from this new Downing street residents association? Let me draw the Chancellor's attention to some of the problems that his new neighbour is likely to bring; the new hazards that threaten the once respectable residential cul-de-sac and have just been dumped on his neighbourhood.

Is the Chancellor prepared to put up with a neighbour giving loud radio and television interviews at all hours of the day and night? Is he aware of his neighbour's 989 insatiable ambitions, which he is showing already, for home improvements, with a succession of new extensions at No. 10a encroaching on No. 10 and No. 11?

How will the Chancellor feel when he looks nervously out of his back window each morning and sees yet another unannounced Portakabin, so much so that the Downing street garden is at risk of being so encroached on that there will be standing room only for the press the next time that the Prime Minister resigns as Conservative leader?

How will the Chancellor feel when he walks out, that November day, with his Budget red box and finds his parking space blocked by the Deputy Prime Minister's Jaguar, and his own car cannot come in because the entrance is blocked by the media because the First Secretary is giving yet another interview in front of the cameras?

It is the familiar formula for trouble on the street—the build-up of tensions, noise, pushy and aggressive behaviour, territorial disputes, the long hot summer ahead in Downing street and aggressive men with not enough to do, men whose future employment prospects are bleak, with no long-term stake in society. Even the constant police presence will not provide reassurance. Appeals from senior community leaders, such as the right hon. Member for Old Bexley and Sidcup (Sir E. Heath), Lord Archer or the chairman of the 1922 Committee, will not be able to restore calm. As the Chancellor will discover in Downing street, two's company and three's none. By the autumn, he will become a convert to Labour's new solutions for curbing persistently anti-social neighbours.

I am glad that the Deputy Prime Minister is now in post, because the former President of the Board of Trade was far less complacent and he had a far greater appreciation of what is fundamentally and structurally wrong with the economy. The Chancellor will know that, in his previous works, the Deputy Prime Minister proposed a statutory approach to training—about which I was asked this afternoon—development agencies for England, which the Conservative party brief now criticises; signing the social chapter; new monopolies and merger legislation; and an industrial policy for the country.

The Government cannot implement those policies— even though they are right for the country—because they are so divided, from top to bottom, between right and left, about what must be done that there is paralysis at the centre of Government. They cannot adopt the industrial policy because the right oppose it; they cannot privatise the Post Office because the left oppose it; they cannot reform the City because Lord Hanson has threatened to withdraw his money; and they cannot stop the mad policy to privatise the railways because of the right wing.

People will remember that the big case made in support of the Prime Minister only a few days ago was not that he could lead the country and prepare us for the future, but that he was the only person who could unite the Conservative party. He was the least worst option, as the Minister of State for Transport said when putting his case. The Prime Minister has not introduced any new policies except for the one revealed by the Chancellor this afternoon when he failed to answer properly the question that I put to him.

990 The Prime Minister issued a manifesto, in that desperate period between wobbly Monday and wobbly Tuesday when he returned from Cannes, which is simply a group of uncosted spending promises. That is what the Conservative party has been reduced to in order to encourage its members to vote for the Prime Minister. The abolition of capital gains tax—one of the Prime Minister's objectives, as stated in a fax to the Evening Standard when it carried an article listing what the Prime Minister believed in—will create £1.6 billion, rising to £3 billion. The Chancellor should know that 50 per cent. of that will go to only 2,000 people in this country. It is a straight handout from people who are poor to people who are very rich.

Another aim of the Prime Minister is the abolition of inheritance tax. The Chancellor will know that, while there is a strong case for raising the threshold, the abolition of inheritance tax will create £1.4 billion, of which 50 per cent. will go to only 2,000 estates in the country. I can well understand that the Prime Minister is embarrassed. At the last election, he promised to do something about inheritance tax, but he never did. He broke his promises not only to the living, but also to the dead; such was the Government's failure to honour their tax promises from the election campaign.

There are other uncosted spending promises, such as the promise of tax relief for home owners—which has been signalled today in the press—and the promise of tax relief for community care. The Conservative party made £11 billion of uncosted spending promises in 11 days— that is £1 billion a day just to secure the Prime Minister's re-election as leader of the Conservative party. That is not a failure of Government; it is a failure of opposition. As the Chancellor prepares for opposition, he will have to learn the importance of not making uncosted spending promises.

The Prime Minister's proposals are targeted: they will target all the wealth on a privileged few. When a choice must be made about spending priorities in this country, it should not be in favour of tax cuts that are geared to the very wealthy, based on the abolition of inheritance tax and capital gains tax. If any Government are to be serious about justice and fairness, they must deal with the problems of education, health and our public services, while providing a proper tax deal for middle and lower income Britain.

The Chancellor must also realise that the case for taxing executive share options as income—the one proposal that the Prime Minister did not mention, but which is apparently favoured by the Deputy Prime Minister— should be accepted now. When everyone else pays income tax on all their income, apart from personal allowances, how can the Chancellor justify top executives in privatised utilities having the privilege of escaping paying income tax on their earnings and simply paying capital gains tax? How can the Chancellor justify the millions of pounds that have been lost to this country through his refusal to implement our policy in the past few years?

The Government have broken their promises on tax and on spending. They have broken all the promises that they made at the last election. The Conservatives said that they were committed to the biggest investment in transport infrastructure in our history; that promise was broken. They promised to invest in the railways, but that promise was broken. They promised to invest in housing, but that 991 promise was broken. They promised to invest in law and order and environmental protection, but those promises were broken.

The Government promised substantial assistance in the area of heritage, but instead they cut 5 per cent. from the budget. They promised to invest in the railways, but they cut the railway investment budget. They are now having to subsidise the franchise companies, not to improve the rail stock, but in order to make them saleable. The Conservatives have betrayed their promises on tax and spending, and this afternoon they betrayed their promise of a balanced budget.

Despite the Prime Minister's claim in 1988 that the Government would balance the Budget, the Chancellor cannot tell us the year in which he will do that. The Conservatives promised an economic miracle and they did not deliver it. They promised us zero inflation and they failed. They promised that the pound would replace the deutschmark, but that did not happen. They have broken promises everywhere.

The debate puts on record the fact that all the Chancellor's central economic promises have been broken, and the electorate will draw their own conclusions. The Conservatives can talk all they want about what the Prime Minister calls "reconstruction", but the trust that has been thrown away with 16 years of broken promises can never be reconstructed. People will never trust the Conservative party again. After 16 years of broken promises, while other countries move ahead and prepare for the future, the Chancellor must recognise that, along with the devaluation of our currency, we have seen a devaluation of the office of Chancellor and the integrity of the Government. The only way to ensure that there are no more broken promises is for the Government to go, and to go soon.

Several hon. Members

rose—

Mr. Deputy Speaker

Order. Before I call the next hon. Member to speak, I remind the House that Madam Speaker has placed a limit of 10 minutes on all speeches by Back Benchers during the debate.

Sir Peter Lloyd (Fareham)

The speech by the hon. Member for Dunfermline, East (Mr. Brown) contained some very good jokes, but the content was extraordinarily thin. At one stage, it seemed that he was about to relaunch Harold Wilson's white-hot technological revolution, but even that went rather cold.

Time is short and many hon. Members wish to speak in the debate, so I shall confine myself to making only one major point. Many of my hon. Friends and some distinguished commentators have urged the Chancellor to make dramatic cuts in the Budget this autumn. They argue that it is essential to provide an extra stimulus to the economy, which, after a period of impressive growth, has recently begun to show some signs of sluggishness. They also believe that the policy would prove popular with electors, who need to be reminded that the Conservatives are on the electors' side when it comes to their take-home pay.

I do not know how much room for manoeuvre the Chancellor will have in November—I do not suppose that he is sure himself yet. However, I hope that he will view the advice about the sure-fire economic and political 992 efficacy of tax cutting with the same shrewd scepticism that he displayed some months ago in response to Mr. Eddie George's recommendations that interest rates should rise.

I hope that the Chancellor will find that he can safely reduce some taxes and, if he does, I hope that he will use the opportunity judiciously, and remove impediments to economic growth and job creation. I hope also that he will remedy particular unfairnesses in the system, rather than spread largesse thinly and promiscuously across the board in an attempt to please everyone. But it does not appear that he will have very much scope for tax reductions in the autumn, unless he finds a way of reducing public spending much more thoroughly and speedily than any of his predecessors ever managed to do.

Public sector borrowing is still too high; what is more, it is higher than my right hon. and learned Friend the Chancellor forecast last year. Some of my hon. Friends might point out that that is because tax and other receipts are lower than forecast. Some of that may be due to lower inflation, but clearly there is an argument that economic activity is less than expected and needs some stimulus.

We have, however, had three years of tax increases, and it is easy to under-estimate the novel and tonic effect on the public of not being hit over the head with another round of tax increases. Unemployment continues to fall, and wage increases are in the pipeline. There are also some building society flotation windfalls that will add to consumer purchasing power.

It seems to me that the chief impediment to consumers actually spending more remains a lack of confidence in the future, and I do not believe that that will be alleviated by tax cuts this year. It will certainly not be by tax cuts trumpeted loudly as a spectacular break with the past three years. With the overshoot in public borrowing last year, this year and next year, I fear that any tax cut, large enough for the Chancellor to boast about it, would rightly undermine confidence in the City and abroad in his consistency and good housekeeping, and would leave taxpayers thoroughly unimpressed to boot.

The latter would no doubt willingly put the money in their pockets; they might even spend some of it, but they would certainly assume that it was a tacit admission that the Government had got it wrong again when they raised taxes last year. They would note that the election was getting closer, and they would ask whether it would not have been easier all round not to have hiked up taxes last year just to lower them this year. They would conclude simply that the Government did not know their own mind.

I believe that that conclusion would be confirmed when interest rates had to go up, as they surely would. Higher interest rates would not be good for investment, and the historically low rate of investment is probably our most persistent economic problem and the greatest threat to economic growth in the longer term.

Higher interest rates would not be good for consumer confidence, which has to be fortified if recovery is to continue. Keeping interest rates as low as possible is the one major piece of assistance that the Chancellor can give home owners who are caught in negative equity and first-time buyers who are keen to take advantage of comparatively low house prices. Avoiding higher interest rates is far more use to them than any of the expensive, 993 ineffectual schemes that are being pressed upon the Treasury. Ill-timed and unjustified tax reductions will do them no service.

The Chancellor is an entertaining and interesting man, but I hope, that when he presents his Budget in November, he will have the courage to be boring. I also hope that his colleagues in government have the nerve and wisdom to support him in that. If he presents a Budget that is consistent with what he said last year and the year before and that is quite clearly not constructed with the next general election in mind, he will do much to sustain the healthy, export-led, low-inflation growth of the economy that we have managed to secure since we were liberated from the ERM. He will also have begun to restore in the public mind the Government's tattered reputation for good economic management, which they will need to recover if they are to win their next election.

Mr. Robert Sheldon (Ashton-under-Lyne)

The last time that the Chancellor debated economic matters before the House was 13 December 1994. It is quite disgraceful that we have just two economic debates a year. [Interruption.] It is no use the Chancellor protesting that it is up to the Opposition. We used to have debates on the Budget and the Queen's Speech, the expenditure debate, the Finance Bill debate and the regulator, as well as the summer forecast. All those debates were in Government time, and it is a scandal that we no longer have them.

Not only can we not question the Chancellor and find out his thinking, but we do not have the benefit of understanding what hon. Members have in mind and their views on economic matters. Many newer Members of Parliament have never made a proper economic speech. It is a major scandal, and it has to be put right by next year.

I start with our obsession with the one-club approach. I am sorry that the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) is not here. He used to advocate the need for having rather more weapons at our disposal than the one club that is now a standard feature of economic policy. In the 1960s, we had the one club of the exchange rate. In the 1970s, we had the one club of sterling M3. Now we have the one club of interest rates. It is peculiar that so many of the cleverest people in the Government and the City have tunnel vision, and seem able to concentrate only on one variable at any one time.

In practice, the Chancellor has to balance many claims. Growth, unemployment, the balance of payments, inflation and investment are all important factors. The Bank of England can afford the simplicity of concentrating on one variable, whereas politicians cannot. If the Governor of the Bank of England is proved wrong, he can always say that the position is not yet known. He can say that the jury is out, and that next month will prove him right, or that we will have to wait a few months or even until next year. The jury can stay out until the patient dies, but any Chancellor of the Exchequer has to make a proper decision.

The prime consideration of economic policy cannot be just inflation, inflation, inflation; the prime consideration of any Chancellor of the Exchequer must be growth and the long-term improvement in living standards. Everything else involves the means of bringing that about. 994 Any Chancellor is right in asserting his vision of the requirements of economic policy. In any standoff with the Bank of England, he needs to assert the concern for the accountability of Government, in which we all have an interest.

It is a pity that the Chancellor's meetings with the Bank of England are not copied in meetings with industry. Why does he give such priority to the Bank of England and the view of bankers, without being able to compensate for that view with those of the people who are actually producing the goods and the real wealth of our economy?

Our prime economic task is to rebuild our industrial capital and our manufacturing industry, so much of which was shamefully destroyed in the first dogma-driven years of the Thatcher Administration. The most important means to long-term growth are investment in manufacturing, education and training, which has been put out repeatedly by my hon. Friend the Member for Dunfermline, East (Mr. Brown).

There are differing time lags involved. Investment in plant and machinery is necessary to improve the efficiency and capacity of our industry. That can be encouraged within the lifetime of a Parliament. Training can be achieved on a similar time scale if the will is there. Education, however, is for the longer term.

The need for training and vocational education has been urgent for a long time. We have been down that road repeatedly from the last century, when the skills gap was discerned, to the third tier of the Education Act 1944 and the technical schools that were devised by Rab Butler, to more recent developments. Our weakness is well documented. The education establishment does not like it, and by a long process of inactivity it has repeatedly hijacked proposals to produce technical and engineering skills that other countries regard as normal. So long as we were wealthy, we were able to tolerate that bias against industry. We cannot under-estimate it now.

I note the merger of the Department for Education and the Department of Employment. I very much regret the Government's declining interest in unemployment. We have to do something about that. Meanwhile, in other areas, there is now an opportunity to bring about a coalescence of education and training, where 150 years of effort have produced one of the greatest failures of Government over that long period.

There needs to be a seamless transition from academic to vocational education to training. Vocational training does not mean the nonsense thought up by those who are trying to recreate in technical education the academic theories, which have only a limited role to play.

I am surprised at the decision to have two permanent secretaries as the joint heads of the new Department. Sir Tim Lankester at the Department for Education and Michael Bichard at the Department of Employment are two civil servants who have much impressed the Public Accounts Committee, but we need to take seriously the concern of Sir Geoffrey Holland, a recently retired, most distinguished, public servant who calls for the new Department to be properly integrated.

That is a task that must be undertaken. A Department with two heads will not produce the integration between education and training for which we have waited too long. Having taken the decision, it is essential to get it right.

995 The involvement of Government in industry has similarly been disappointing. From the Department of Economic Affairs under George Brown to the efforts of Denis Healey, we have been faced with failure after failure. Faced with those failures to understand industry rather than the City, Denis Healey appointed within the Treasury Alan Lord, a very able second permanent secretary. He had it in mind to give greater prominence to industrial matters.

Alan Lord left the Treasury somewhat saddened. The ethos of the Treasury was against such involvement. The control of public expenditure is the one area of expertise where the Treasury is, understandably, dominant. Other considerations fall well behind that.

We must have a stronger involvement with industry. The City of London is valuable, but it does not properly represent industry, on which we all ultimately depend. The high profile that is given to discussion with the Governor is not mirrored by discussions with industry, which should have even greater prominence. We cannot solve these matters just by dealing with the Governor on a monthly basis. There are much wider issues than that.

We need to recall what the Labour Government did about investment incentives. I had been a strong supporter of investment grants for plant and machinery, which were introduced later in 1966. I believe that they were a major encouragement to investment. The time may have passed when such measures could be reintroduced, but I am a firm believer in a high level of investment allowances.

At 25 per cent., investment allowances are, in many cases, a disincentive. Plant and machinery is rarely worth 75 per cent. at the end of the first year. As far as the loss to the Revenue is concerned, it is a question only of delayed payment of corporation tax. If we are serious about investment, about replacing the capital stock in our industry, about capacity constraints, clearly some sensible investment incentives need to be introduced.

I look forward to resource accounting, which I strongly support. The PAC has examined progress, and work is proceeding on the expectation that, at the end of the century, it will be in place. Our declining infrastructure is concealed by the failure to take note of the capital depreciation in our national accounts.

It is possible to ignore the deterioration of our roads, our housing stock and part of the railway network by ignoring the depreciation of these fundamental parts of the economy. For the past 50 years and more, we have been living off so much of our capital. These decisions should have been recorded and quantified, and open to everybody to criticise.

On economic and monetary union, I note the vital precondition of convergence of real economic performance of the entire European Community. My own view is that a satisfactory convergence between such disparate countries is unlikely to happen. Countries do have differing customs and different traditions. Attitudes do vary.

I have known politicians who have pointed to the way in which those attitudes should be changed. If someone asked me how I can change attitudes, I would hold up my hands. If one said that billions of pounds are required, then there are certain conditions that might be acceptable. Changing attitudes will be more difficult.

996 If the Chancellor of the Exchequer really wants to make an impact on the future of our economy, he must turn to investment.

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

Order.