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House of Commons
Thursday 7 June 1990
The House met at half-past Two o'clock
PRAYERS
[Mr. Speaker-- in the Chair ]
PRIVATE BUSINESS
Birmingham City Council
(No. 2) Bill-- (By Order) Order read for resuming adjourned debate on Question proposed [26 February],
That the Bill be now considered.
Debate further adjourned till Thursday 14 June.
British Railways (No. 2) Bill
(By Order)
Medway Tunnel Bill
[Lords] (By Order)
Orders for consideration, as amended, read.
To be considered on Thursday 14 June.
Mr. Speaker : As all the private Bills set down for Second Reading have blocking motions, with the leave of the House I shall put them as a single group.
Cattewater Reclamation Bill
(By Order)
Shard Bridge Bill
(By Order)
Vale of Glamorgan (Barry Harbour) Bill
[Lords] (By Order)
London Underground Bill
(By Order)
Orders for Second Reading read.
To be read a Second time on Thursday 14 June.
Exmouth Docks Bill
(By Order)
Order read for resuming adjourned debate on Question proposed [29 March],
That the Bill be now read a Second time.
Debate further adjourned till Thursday 14 June.
Great Yarmouth Port Authority Bill
[Lords] (By Order)
Heathrow Express Railway Bill
[Lords](By Order) Orders for Second Reading read.
To be read a Second time on Thursday 14 June.
London Regional Transport (Penalty Fares) Bill
(By Order) Order read for resuming adjourned debate on Questions proposed [10 May],
That the Bill be now read a Second time.
Debate further adjourned till Thursday 14 June.
Southampton Rapid Transit Bill
[Lords](By Order)
Port of Tyne Bill
[Lords] (By Order)
Orders for Second Reading read.
To be read a Second time on Thursday 14 June.
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Oral Answers to Questions
NATIONAL FINANCE
Personal Equity Plans
1. Mr. French : To ask the Chancellor of the Exchequer what representations he has received on his proposals to change PEPs.
The Financial Secretary to the Treasury (Mr. Peter Lilley) : The improvements in PEPs, which my right hon. Friend the Chancellor announced in his Budget statement, have been widely welcomed.
Mr. French : Does my hon. Friend agree that some of the financial institutions that at one time had deep reservations about the effectiveness of PEPs now welcome them as a most essential, important and attractive component of the savings market? Does he foresee, in respect of either PEPs or TESSAs, the possibility of a similar conversion on the part of the Labour party?
Mr. Lilley : My hon. Friend is absolutely right that the institutions have put their whole weight behind PEPs, and that is why they are now going extremely well. I am afraid that confused messages are coming from the Opposition about such matters. Some Opposition Members say that they are in favour and some say that they are against. I do not foresee any conversion and certainly there is no uniformity of view among the Opposition.
Sir William Clark : Does my hon. Friend agree that the encouragement to small savers since the Government came to office has meant that they have increased in number from 2.75 million to 11 million today?
Mr. Lilley : I am not sure how my hon. Friend defines small savers, but he is perfectly correct that there has been a big increase in their number. As regards personal equity plans, in the first quarter of this year the number of new plans issued was a quarter higher than in the whole of 1988. That is excellent news.
Income Tax
2. Mr. Riddick : To ask the Chancellor of the Exchequer by how much the basic rate of income tax has been reduced since 1979 ; and what are his future plans for the rates of income tax.
The Chancellor of the Exchequer (Mr. John Major) : The basic rate of income tax has been reduced from 33 per cent. in 1979 to 25 per cent. in 1990. Moreover, the borrowing requirement, which was a deferred tax liability, has given way in the past three years to a Budget surplus. It is our objective to reduce the basic rate of tax to 20p in the pound, but only as soon as it is prudent and sensible to do so.
Mr. Riddick : Will my right hon. Friend confirm that every time the Government have reduced the basic rate of income tax, the Labour Opposition and the Liberal Democrats have bitterly opposed the reduction? Is not it the case that had Labour still been in power we would still have a basic rate of 33p in the pound? Will my right hon. Friend confirm that, were he to adopt the policies and
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commitments in the Labour party's policy review document, the basic rate of income tax would have to be massively increased for everyone? Has not the Labour party always been the high-tax party and will not it always be?Mr. Major : My hon. Friend makes his point entirely clearly. I am not sure that is wholly true to say that the Liberal Democrats have invariably opposed the tax decreases. I think that there was an occasion when they chose not to do so. My hon. Friend is being generous when he suggests that if a Labour Government were in power at the moment we should have a tax rate of 33p in the pound. It might well be noticeably higher. When, in due course, we get round to the detailed costing that Phillips and Drew has already attempted, we may be able to illustrate that it would be higher.
Mr. Beith : Will the Chancellor explain what he meant when he said that it was not prudent to achieve his objective of an income tax rate of 20p in the pound this year? Is he admitting that he is using the level of income tax as a tool of economic and fiscal management? Will not all Governments have to do that?
Mr. Major : The answer to the hon. Gentleman is that of course I am, as we have done and as I shall continue to do.
Mr. Arbuthnot : Is not it right that the Government have greatly increased personal allowances, so taking out of tax many people at the bottom of the income scale? Does not that give the lie to Opposition parties, which suggest that they are the only people who care about those on lower incomes?
Mr. Major : That is entirely true. By almost any measure--there are a variety that one can use--there has been a considerable increase in personal allowances at the bottom end of the tax scale. That is desirable. It is a deliberate act of policy and, of course, it has kept many people out of tax who otherwise would have been in the tax net.
Mr. Nicholas Brown : This question seems to have been tabled as a direct attack on the Chief Secretary to the Treasury and I hope that the Chancellor will repudiate it. He will recall the Chief Secretary saying on BBC's "On the Record" on 13 May that the prospect of tax cuts at the moment does not look very good, that these things are always uncertain, but there is very little room for manoeuvre. Will the Chancellor explain to the House why, after 10 years of Conservative Government--a Government who have declared that a further reduction in income tax is their main objective-- there is now very little room for manoeuvre? Will he confirm to the House that it is highly unlikely that there ever will be enough room for manoeuvre to enable 24 out of 25 taxpayers to pay income tax at a basic rate of 20p in the pound?
Mr. Major : Whatever else may happen in this Session of Parliament, the hon. Gentleman just won the palm for brass-necked cheek in his comments of the past few moments. There is no dislocation whatever between the comments of my right hon. Friend the Chief Secretary and those that I made at the Dispatch Box a few moments ago. One significant difference that is reflected in what the hon. Gentleman chooses to call the tax burden is that this Government tax honestly for their expenditure and do not
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tax for some, borrow for the rest and leave later generations to repay. When the borrowing requirement of the hon. Gentleman's party is taken into account, the tax burden in 1979 was sharply higher than it is today.Mr. Irvine : Does my right hon. Friend agree that the Government have shown in the past that reductions in income tax stimulate economic growth and lead to an increase in overall revenue? Will my right hon. Friend take that very much into account when making his tax plans for the future?
Mr. Major : I can assure my hon. Friend that it is ever close to my mind that that virtuous relationship exists. As he may know, the top 5 per cent. of taxpayers will pay 30 per cent. of total income tax this year compared with 24 per cent. in 1978-79 when the top rate of tax could have been as high as 98 per cent.
European Monetary System
3. Dr. Moonie : To ask the Chancellor of the Exchequer if he will make a statement on progress on the Madrid conditions for joining the exchange rate mechanism.
8. Mr. Wallace : To ask the Chancellor of the Exchequer which of the Madrid conditions concerning the United Kingdom entry into the exchange rate mechanism of the European monetary system have yet to be fulfilled.
17. Mr. Bell : To ask the Chancellor of the Exchequer when he expects that the conditions for the pound sterling's participation in the exchange rate mechanism of the European monetary system will be fulfilled.
Mr. Major : A good deal of progress has been made in a number of conditions for membership of the exchange rate mechanism, but they have not yet all been met.
Dr. Moonie : Will the Chancellor tell us which condition is likely to be satisfied first : a satisfactory reduction in our underlying rate of inflation or the achievement of a level playing field through the abandonment of subsidies by our European competitors?
Mr. Major : Significant progress has been made in recent months on a number of the external elements that we require before joining the exchange rate mechanism. We have made our position on domestic inflation perfectly clear and I stand by that.
Mr. Wallace : At a recent press conference the Chancellor seemed to suggest that our underlying rate of inflation was much closer to Community averages than a proper statistical approach would reveal. Was he using that figure to try to persuade the Prime Minister that we really should be joining the exchange rate mechanism, and on those grounds should Opposition Members keep quiet about the statistical flaws in his figures?
Mr. Major : It is always a distinct help to the Government if Opposition Members keep quiet, whichever part of the Opposition they may represent. In the remarks to which the hon. Gentleman referred, I was drawing attention to the fact that the British rate of inflation appears misleadingly unreasonable compared with those of our European partners simply because we contain within our inflation rate that which other countries
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do not, and it was in response to a question about that matter that I made the remarks to which the hon. Gentleman refers.Mr. Bell : When we enter the exchange rate mechanism, as the Chancellor of the Exchequer proposes to do in the summer, will he go in on the tight band of 2 per cent. or on the broader band of 6 per cent? Will he share his views on that with the House?
Mr. Major : I can neither confirm the date that the hon. Gentleman surreptitiously slipped into his question as an assumption, nor enlighten him on his substantive point.
Mr. Ian Stewart : Will my right hon. Friend assure us that, regardless of the specific matters spelt out in the Madrid conditions, he will not contemplate the entry of sterling into the exchange rate mechanism until he regards it as fully compatible with the needs of domestic monetary policy and, in particular, that he will not do so at any time when it might mean that interest rates would have to be lowered more or more quickly than is necessary for the proper control of monetary conditions and the reduction of inflation?
Mr. Major : I am acutely conscious of the point to which my right hon. Friend rightly draws attention. The aim of joining the exchange rate mechanism is to support the policy to reduce inflation, not to damage it, and from that, my right hon. Friend will be aware of our policy.
Mr. Budgen : Will my right hon. Friend confirm that entry into the exchange rate mechanism is stage one of the Delors proposals? The Delors proposals are supported by all the Commission's bureaucrats and by all the nation states of Europe, with the exception of ourselves. Paragraph 39 asserts that entry into the first stage shall be taken as acceptance of all subsequent stages.
Mr. Major : My hon. Friend has made assertions about what the purpose of stage one might be and about the extent to which that falls within the Delors plan. The fact that the proposal is supported by what he calls the bureaucrats in Brussels does not in itself make it wrong. We have a series of sound economic reasons for joining the exchange rate mechanism. The Government set out the policy that they would join the exchange rate mechanism when certain conditions were met. That remains the policy and it will be in the interests of this country.
Mr. Tim Smith : Now that United Kingdom membership of the exchange rate mechanism has become the fig leaf behind which the Labour party has chosen to hide the private and unpleasant parts of its economic policy, would not we be better advised to join sooner rather than later so that those inadequacies can be exposed to the public for all to see?
Mr. Major : If, as my hon. Friend suggests, the exchange rate mechanism will hide the shortcomings of Labour policies, it will need to be a good deal larger than a fig leaf. It is perfectly clear that the conditions that the Labour party has set out under which it would join the exchange rate mechanism make that pledge--
Mr. Skinner : Not all of us in the Labour party.
Mr. Major : The hon. Member for Bolsover (Mr. Skinner) is correct. The conditions set out by the Labour Front Bench, without the support of the Labour Back
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Benches, for joining the exchange rate mechanism are essentially bogus, for the conditions mean that the Labour Front Bench could not enter.Mr. John Smith : In the context of possible entry into the exchange rate mechanism, will the Chancellor tell us whether the sufficiency of any reduction in inflation will be assessed according to the retail prices index or according to the so-called "underlying" rate of inflation? May I have a direct answer, please?
Mr. Major : The direct answer, as I have often said, is that the rate of inflation will be assessed on the proximate rate of inflation, which means--
Mr. John Smith : The retail prices index or the underlying rate?
Mr. Major : I am coming precisely to the point. The rate of inflation will be assessed not on the RPI, but on a comparative basis to the measure in which European nations themselves assess inflation. I have repeatedly made that point clear for a long time.
Mr. Nelson : Does my right hon. Friend recall that when there were recent rumours that this country was about to become a full member of the exchange rate mechanism, the immediate effect was that the stock market rose, the exchange value of sterling became firmer and money market interest rates fell? In view of that positive response, which should have warmed my right hon. Friend's heart towards the idea of joining the exchange rate mechanism immediately, will he bear it in mind that if he felt it necessary to take an executive decision, even while the Prime Minister is abroad, to embark on that, he would earn the recognition of a grateful nation?
Mr. Major : I have had some attractive offers in my time. I am not entirely sure to what extent my hon. Friend's offer ranks among them.
I have made it entirely clear to the House now and on previous occasions that I have reached the judgment that, when the conditions that we have set out are met, it will be right for us to join the exchange rate mechanism. We must be aware of the point to which my right hon. Friend the Member for Hertfordshire, North (Mr. Stewart), drew attention some time ago, that the balance of advantage in due course is clearly to enter the exchange rate mechanism, and in due course that is what we shall do.
European Bank for Reconstruction and Development
4. Mr. John P. Smith : To ask the Chancellor of the Exchequer what position was taken by the United Kingdom Government in discussions on the European bank for reconstruction and development, in relation to the environmental consequences of any development undertaken.
The Economic Secretary to the Treasury (Mr. Richard Ryder) : The United Kingdom, like all other potential members of the European bank for reconstruction and development, supports the promotion of economically sound and environmentally sustainable development in the full range of its activities.
Mr. Smith : The Chancellor and the Economic Secretary to the Treasury will be aware that Mr. Nicholas Brady from the United States Treasury and other European
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Finance Ministers have taken the lead in calling for environmental objectives to be built into the role of the development bank. May we assume from the Minister's answer that the British Government will support them enthusiastically? Does he agree that there is a big difference between a lot of talk on green issues and practical proposals such as this, which will clean up eastern Europe?Mr. Ryder : That is already taken care of in article 2 of the EBRD's constitution.
Mr. Adley : Does my hon. Friend agree that it is not only the recipients of the bank's funds who need to co-ordinate the environmental input into their investment decisions but the industrialised countries of western Europe, which, of course, are the providers of the funds? Is my hon. Friend aware, for example, that the Department of Transport seems to have no accurate comparisons between the environmental input allocated by, say, West Germany or France, as opposed to the environmental input in this country, on transport investment decisions? Would he be so kind as to conduct research within the Finance Ministries of the EEC to see what is actually going on as to the allocation of environmental input in public sector investment decisions?
Mr. Ryder : In so far as that question affects the EBRD, I shall of course ensure that Mr. Attali, when he gets down to his job in London shortly, is made aware of the points that my hon. Friend raises.
Mr. Chris Smith : The Economic Secretary will be aware that article 2 of the bank's constitution contains a general provision "to promote in the full range of its activities environmentally sound and sustainable development."
He will also be aware that that provision is due to the leadership and insistence of the United States, not that of the British Government. What practical steps, rather than words, do the British Government intend to take to ensure that that objective is carried out?
Mr. Ryder : If the hon. Gentleman is not satisfied with article 2 of the EBRD's constitution, he should be aware that the EBRD must report annually on the environmental implications of all its policies.
Taxes
5. Mr. Hague : To ask the Chancellor of the Exchequer how many taxes have been abolished since 1979.
The Chief Secretary to the Treasury (Mr. Norman Lamont) : Five : the investment income surcharge, the national insurance surcharge, development land tax, tax on lifetime gifts and capital duty. Moreover, in his 1990 Budget, my right hon. Friend announced the abolition of stamp duty on share transactions from late 1991-92 and the abolition of composite rate tax.
Mr. Hague : Does my right hon. Friend accept that that fine achievement is still incomplete? Will he undertake to abolish in the next Parliament as many as possible of the taxes remaining in this Parliament? I suggest for early inclusion stamp duty on house purchase and inheritance tax.
Mr. Lamont : It remains the Government's objective to find taxes that can be abolished and certainly to simplify the tax system. My hon. Friend might also have noticed
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that, whereas we have abolished five taxes, in its policy document the Labour party proposes the addition of five brand new taxes.Mr. Ashton : Is not there one tax that the Government have brought in which should be abolished--the poll tax? Is not it a fact that, for every tax that he has abolished, the Chancellor has abolished many benefits, many jobs and all the other things that go with public expenditure that Labour supported?
Mr. Lamont : The hon. Gentleman should recognise that we have dramatically cut the burden of income tax and that that has gone alongside a considerable improvement in living standards, which have increased dramatically during the past decade.
Mr. John Townend : I congratulate my right hon. Friend on his excellent record, but is he aware of the disappointment among my hon. Friends that he has not been able to abolish inheritance tax, especially for small businesses? In view of the tremendous contribution that small businesses make to the economy in general, and to employment in particular, if my right hon. Friend cannot abolish inheritance tax, will he at least ease its quite unjustified burden?
Mr. Lamont : I note what my hon. Friend says, but I am sure that he will acknowledge that we have dramatically reformed the punitive rates of taxation on businesses in capital transfer tax and that we have greatly increased the reliefs for businesses, which make it much easier for small businesses to be transferred from one generation to another. That has been recognised by the small business lobby, but I note what my hon. Friend has said.
Mrs. Beckett : In pursuit of the objective of honest taxation, which was identified by the Chancellor a few moments ago, will the Chief Secretary now give us the other side of the balance sheet and list the taxes that have been increased under this Government, starting with VAT and national insurance contributions, and finishing with the poll tax?
Mr. Lamont : As I have already pointed out in reply to the main question, although indirect taxes have been increased, they are taken into account when measuring real standards of living--and real standards of living have dramatically increased on a per annum basis far more than ever happened when the Labour party was in power.
Mr. Devlin : Is my right hon. Friend aware that one of the greatest benefits to the regional economies has been abolition of the taxation and bureaucratic burdens that lay upon them? Will he speculate on the damaging effects of a payroll tax and a regional assembly with taxation powers of its own, as proposed by the Labour party?
Mr. Lamont : My hon. Friend is absolutely right. The Labour party is proposing new tax-raising powers for an elected Scottish Assembly. It has also advanced the idea of a training levy, which would be yet another new tax on jobs. We know that when it was in power the Labour party imposed taxes on jobs and destroyed jobs through the tax system.
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Invisibles
6. Mr. Tony Lloyd : To ask the Chancellor of the Exchequer what he forecast for the surplus on invisibles in 1990 in the 1989 autumn statement ; and what is his latest forecast.
Mr. Norman Lamont : A total of £6 billion and £1 billion.
Mr. Lloyd : The Chief Secretary will understand my scepticism about his forecasts, given the Government's bad historic record of forecasting the balance of payments. Does the right hon. Gentleman recall that when Opposition Members have complained about the deficit on manufactures, his Government have frequently told us that we should not worry about that because everything would be made up by the invisibles? Does the right hon. Gentleman agree that it was a mistake so to damage the manufacturing sector that it is incapable of performing in the way that the nation needs? What does he intend to do to ensure that global shortfall in the balance of payments is made up?
Mr. Lamont : On the hon. Gentleman's first point about forecasts, the Government's forecasts on the current account do not differ substantially from those of the vast majority of outside forecasters. Indeed, the right hon. Member for Leeds, East (Mr. Healey) described the forecasts of the Government of which he was a Member as being rather like long-range weather forecasts--better than nothing. We have a higher opinion of our forecasts than that.
The hon. Gentleman also referred to the deterioration on the invisibles account. That is due to a number of factors to which I referred at our previous Question Time, including the timing of EC payments. That is why, despite what happened in the last quarter of last year, we are expecting the position to improve according to the forecasts that I have given to the House.
Mr. Quentin Davies : Will my right hon. Friend give some thought in future to whether, when publishing the invisibles figures, a clearer distinction might be made between interest and dividends received, intergovernmental payments, and the sale of services to non-residents--all of which are conceptually different elements in the national income account, and distinguishing between them might avoid some of the confusion that has given rise to some of the questions this afternoon?
Mr. Lamont : I shall certainly look into the point that my hon. Friend has raised. Several points have been made about the compilation of the invisibles account, including, for example, the fact that appreciation of our overseas assets does not score, although it might be argued that it should count against interest payments and dividends.
Dr. Marek : The Chief Secretary might be squirming, after 10 years, that his Government have achieved the record that the tax burden has increased sharply since 1979. The total tax burden is much higher now.
Dr. Marek : Yes, it is, and the Chancellor of the Exchequer knows it. He also knows that the balance of payment on our visibles is much lower now than it was in 1979. He has achieved the unique record after 10 years of
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his Administration that he managed to wipe out the balance of payments on our invisibles in the last quarter of the last year. Instead of simply telling the House that he expects this shameful state of affairs to improve, will he tell the House precisely why he expects it to do so?Mr. Lamont : I explained carefully to the hon. Member for Stretford (Mr. Lloyd) why we expected an improvement in invisibles. We also expect an improvement on the current account because we expect the economy to slow down as a result of the measures that we have already taken. We have repeated that on many occasions.
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