House of Commons Hansard Debates for 6 Dec 1990

Hansard

House of Commons

Thursday 6 December 1990

The House met at half-past Two o'clock

PRAYERS

[Mr. Speaker-- in the Chair ]

ROYAL ASSENT

Mr. Speaker : I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified Her Royal Assent to the following Act :

Import and Export Control Act 1990.

PRIVATE BUSINESS

British Railways

(No. 2) Bill-- (By Order) Order for consideration, as amended, read.

To be considered on Thursday 13 December 1990.

Heathrow Express Railway Bill

[Lords] (By Order) Order for Second Reading read.

To be read a Second time on Thursday 13 December 1990.

Oral Answers to Questions

NATIONAL FINANCE

Inflation

1. Mr. John Evans : To ask the Chancellor of the Exchequer when he expects inflation to fall below 5 per cent.

The Chancellor of the Exchequer (Mr. Norman Lamont) : The all-items RPI inflation is expected to fall to 5 per cent. by the fourth quarter of 1991. The Government's firm financial framework will ensure that inflation continues on a downward path.

Mr. Evans : I congratulate the right hon. Gentleman on having been elevated to one of the highest offices in the land and I suppose that we must hope that his economic forecasts will prove more successful than those of his two predecessors, who generally got it wrong. More seriously, does the Chancellor agree that if he succeeds in reducing the rate of inflation, he will do so through a policy of punishing interest rates which will deepen the current recession and create further unemployment? Will he give my constituents an assurance that unemployment will not rise above 2 million next year?

Mr. Lamont : I thank the hon. Gentleman for the first part of that supplementary question. The answer to the second part is that there is no painless or easy way to reduce inflation, although that is an illusion peddled by the Labour party. The costs and pain of reducing inflation

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now will be as nothing compared with the pain and costs that we had in reducing the inflation that we inherited in 1980-81.

Sir William Clark : Is my right hon. Friend aware that Conservative Members join in congratulating him on his promotion to Chancellor of the Exchequer and we are absolutely certain that he will continue with the same economic policy as his predecessor? If public expenditure were increased to implement the various promises that Labour Members are putting forward, what effect does he think that that would have not only on the inflation rate but on the budget deficit?

Mr. Lamont : I thank my right hon. Friend for his kind remarks and I assure him that economic policy continues to be the same. I also assure him that I shall take no risks either with inflation or with the exchange rate. Bearing down on inflation is, and will remain, the Government's top priority. My right hon. Friend is right to point to the extravagant plans for public expenditure put forward by the Labour party, which could have only two consequences--even higher interest rates and accelerating inflation.

Mr. John Smith : May I add my congratulations to the right hon. Gentleman on his appointment as Chancellor of the Exchequer? Will he now answer the question put to him by my hon. Friend the Member for St. Helens, North (Mr. Evans) about unemployment? If the recession continues, as it is clearly doing, causing a downturn in economic activity, the collapse of companies and a rise in unemployment, what action will the Government take to combat those deplorable results?

Mr. Lamont : I thank the right hon. and learned Gentleman for his first remarks. There are many pleasures in holding my present office, one of which is having the right hon. and learned Gentleman opposite me. We intend to make the reduction of inflation our top priority. We do not intend to boost output by adjusting fiscal policy. In the past that has been a counter-productive policy and has brought no benefits in terms of reducing inflation. The benefits to output will come when inflation is reduced. The experience of previous cycles has been that once we make marked progress in reducing inflation, output begins to recover.

Mr. Butterfill : Does my right hon. Friend agree that our present predicament stems largely from the mistaken decision to relax monetary policy at the end of 1987? That is clear with the benefit of hindsight. Will my right hon. Friend confirm, however, that Labour Members were urging us to go still further and that what they advocate today shows that they have learnt nothing since then?

Mr. Lamont : My hon. Friend is absolutely right. I am confident that we shall make progress in lowering inflation as a result of the tough and difficult decisions taken by my predecessor. The success that we shall have owes nothing to any encouragement from Labour Members, who have done nothing but oppose every policy designed to lower inflation.

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Balance of Payments

2. Mr. Matthew Taylor : To ask the Chancellor of the Exchequer if he will make a statement on the balance of payment figures.

The Chief Secretary to the Treasury (Mr. David Mellor) : In the latest three months, the current account deficit was £3.1 billion-- roughly half the peak recorded in the third quarter of 1989. It is likely to continue to fall as domestic demand pressures ease further.

Mr. Taylor : Does the Treasury team think that the former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson) was, and is, correct in believing that the deficit is self-correcting and not a matter for Government action, or do they agree with the new Prime Minister that the deficit is a problem and, if so, what do they intend to do to reduce it further?

Mr. Mellor : I do not think that there is any great divide between my two right hon. Friends. On the contrary, it has been a commonplace of Government policy for a long time, and continues to be, that the deficit must be reduced, which it is being. We are confident that we shall meet the targets that we set.

Mr. John Townend : I congratulate my right hon. and learned Friend on his promotion and I trust that he will bring his undoubted enthusiasm to keeping Government expenditure under control. What effect do Britain's contributions to the EC, overseas aid and the cost of the Rhine Army have on the balance of payments, and what plans do the Government have to reduce that burden on the British taxpayer and reduce the balance of payments deficit?

Mr. Mellor : I am most grateful to my hon. Friend for his kind remarks. The three policy issues that he identifies are ones to which the Government have commitments, which will be honoured.

Mr. Madden : Will the Chief Secretary confirm that a large chunk of Britain's trade deficit is made up of imported textiles and clothing? Does he appreciate that there will be an explosion of anger from the men and women whose livelihoods depend on the British textile and clothing industry if today, in a desperate effort to salvage the general agreement on tariffs and trade talks, their jobs are traded off and British industry is sold down the river?

Mr. Mellor : I understand what the hon. Gentleman says. A balance has to be struck between the interests of industry and those of the consumer. I see no reason why the livelihoods of the people about whom the hon. Gentleman is quite properly concerned should be put at risk by the discussions. There are some encouraging signs that the level of imports is no greater now than 12 months ago and exports, particularly manufacturing exports, have been keeping up well, with an increase of about 7.5 per cent. this year. That suggests that there is no reason for doom and gloom in the textile and clothing industry or any other.

Mr. Marlow : Would my right hon. and learned Friend be kind enough to explain what is meant by the "balancing item." Apparently, the published balance of trade figures are nothing like so bad as they were set out to be because of this thing called the balancing item. What is the reality?

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Mr. Mellor : The balancing item is where the figures cannot be reconciled-- [Interruption.] That is what they tell me. If I may be permitted to do so, I was about to display further erudition. The balancing item probably reflects the problems of monitoring capital inflows when, in today's world, capital inflows flow in and out without the regulations of yesterday. That is almost certainly the case, but the right hon. and learned Member for Monklands, East (Mr. Smith) will correct me if I am wrong.

Departments (Expenditure)

3. Mr. Steinberg : To ask the Chancellor of the Exchequer which Departments are planned to have less money in real terms in 1993-94 than their planned expenditure for 1991-92

Mr. Mellor : I refer the hon. Gentleman to table 1A.10 of the 1990 autumn statement.

Mr. Steinberg : Does the Chief Secretary agree that the Government plan to spend less in real terms on education in 1983-84 than in the previous year? If so, was not it a hollow promise for the Prime Minister to claim that he was interested in education and attached priority to it? Will the right hon. and learned Gentleman ensure that extra resources are put into the education budget, if only to save the face of the Prime Minister?

Mr. Mellor : I think that the hon. Gentleman meant 1993-94-- Mr. Steinberg indicated assent.

Mr. Mellor : I say that just to show that I was listening. A substantial increase for education for next year was announced in the autumn statement. The final figures for the third year are always considered in the public expenditure survey negotiations immediately preceding the autumn statement of the November before April 1993, so we must see what the circumstances are then.

One of the points that need to be borne in mind about education in recent times is the fall in the number of school age pupils. The key indicator is expenditure per pupil, which under this Government has increased by 50 per cent. in real terms for secondary school pupils, and that trend is set to continue.

Mr. Ian Taylor : Does my right hon. and learned Friend agree that the two Departments that have done well out of the autumn statement are the Department of Health and the Department of Education and Science, and that that shows the Government's commitment to helping people in the community who most need assistance when inflation is running at current levels? Is not that a sign of a caring Government?

Mr. Mellor : My hon. Friend is right. I have already made the point about education and I should like to add that the budget for health for next year was increased in the autumn statement by about £3 billion, which means an increase over two years of £6 billion. I am not sure what the right hon. and learned Member for Monklands, East (Mr. Smith) and his colleagues will find to complain about in that.

Mrs. Beckett : I, too, congratulate the new Chief Secretary on his appointment. We were also pleased to

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learn that the new Chancellor told the Treasury and Civil Service Select Committee that he thinks that the Government should look after manufacturing industry. How do the Government reconcile that with the fact that their spending plans show that over the planning period, as my hon. Friend the Member for City of Durham (Mr. Steinberg) said, the Government intend to cut spending in real terms not only on education but on the work of the Department of Trade and Industry, on research and development, and even on training to reduce the skill shortages that are feeding inflation? Or is it just that there is no relationship between what the Government say and what they do?

Mr. Mellor : I think that the hon. Lady's problem is more fundamental. She seems to think that the only way to assist manufacturers is to spend Government money on them, when it is the framework in which manufacturing industry has to operate which is the key. It was the improvement in that framework which led to massive increases in productivity and manufacturing output in the 1980s, and the same improvement will ensure that manufacturing comes through the present difficult period and goes on to further success.

The hon. Lady will be aware that it is no freak occurrence--although it did not occur at all under Labour Governments--that under this Government our share of world trade is increasing.

Mr. John Marshall : I thank my right hon. and learned Friend for the massive increases proposed for transport, particularly for London Regional Transport. May I look forward to the day when that beneficence expands to include improving the Northern line?

Mr. Mellor : I am grateful to my hon. Friend. He recognises that about £700 million has been made available for rail and underground improvements to benefit major parts of London's network. I will ensure that his views on the Northern line are passed on to London Regional Transport. It is a great myth that there is under-investment, as British Rail and London Underground will be spending about £750 million in the next three years on safety alone. That shows just how much investment is going into public transport.

Supply Side Policies

4. Mr. Fraser : To ask the Chancellor of the Exchequer what measures were announced in the autumn statement to help improve the supply side of the United Kingdom economy.

The Economic Secretary to the Treasury (Mr. John Maples) : The Government's supply side policies are designed to improve the performance of the economy by removing barriers and creating incentives.

Mr. Fraser : Given that unemployment is rising rapidly, that we continue to have a horrific deficit in trade in manufactured goods and that industrial investment is still only at the same level as it was in 1979, are not those measures wholly inadequate to enable us to produce from our own resources the things that people in this country need?

Mr. Maples : That is absolutely wrong. It completely ignores the fact that during the 1980s the United Kingdom

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was top of the league for productivity, top of the league for growth, top of the league for investment and created 2 million more jobs, so we must have been doing something right.

Mr. David Shaw : Does my hon. Friend agree that the improvements in the supply side of the economy have been most satisfactory under the Government? Does he further agree that the low rates of direct taxation have contributed towards making sure that the labour market has settled down and fewer strikes have helped to free productivity and improve the supply side of the economy?

Mr. Maples : My hon. Friend is quite right. Our supply side policies have been designed to improve competition, remove barriers and improve incentives. We have done that by cutting tax, deregulating the economy, improving competition and reforming the labour market. To me, and to many of my hon. Friends, it is laughable to suggest that there is such a thing as supply side socialism.

Mr. Robert Sheldon : As the latest figures show a serious financial deficit among large companies in Britain and it is therefore plain that those companies will reduce investment, will the Minister further consider an increase in capital allowances, possibly a short-term one, to encourage continued investment?

Mr. Maples : On the first part of the right hon. Gentleman's question, many companies have substantial debts because they have been investing on an unprecedented scale in the past few years. The right hon. Gentleman also asked about depreciation and capital allowances. As he knows, we reformed corporation tax in 1984. There is now a generous system for depreciation and capital allowances and the accumulation of those 25 per cent. allowances over the past few years has meant that many companies are protected from a large amount of what would otherwise be corporation tax liability.

Mr. Batiste : Will my hon. Friend confirm the Government's commitment to encouraging further savings so that investment in industry can expand in the 1990s in the same way as it expanded in the 1980s under the Government's policies?

Mr. Maples : I can assure my hon. Friend of that. Both of the last two Budgets have contained measures designed to encourage savings. They have been very successful, and we hope that they will enable industry to continue to fund the kind of investment programmes that it has funded for the past few years when, as I have said, we saw record growth in business investment.

Taxes and National Insurance

5. Dr. Moonie : To ask the Chancellor of the Exchequer what proportion of gross earnings a married couple with one earner on 75 per cent. of average earnings, with two children, paid in all taxes and national insurance, including local taxes and treating child benefit as negative income tax, in 1978-79 and 1989-90.

The Minister of State, Treasury (Mrs. Gillian Shephard) : Approximately 31 per cent. and 33 per cent., respectively ; over the same period, measured at 1990 prices, the same family has enjoyed an increase in real net income of nearly £43 per week.

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Dr. Moonie : I welcome the hon. Lady to her new job. We have crossed swords before in Select Committees and in various other places, and I am sure that we shall do so again. I am glad that she has confirmed the figures. Will she confirm that the net result of the Government's taxation policy over the past 11 years has been to reduce taxes for the rich and to increase them for the poor?

Mrs. Shephard : What counts for families are real earnings. The total tax burden in all cases is now lower than it would have been if Labour's tax regime had simply been indexed for inflation. That same family which has enjoyed a rise of £43 per week under this Government would have had a measly £3.20 under Labour.

Mr. Oppenheim : Is not one of the most pernicious barriers--the trade barrier--equally damaging to the rich and to the poor? Does my hon. Friend agree that even if we get a 30 per cent. cut in food subsidies under the GATT round, every family in Britain will pay more in increased food prices as a result of trade barriers than they pay in the poll tax? [Interruption.] My hon. Friend should also bear in mind the extra costs caused by trade barriers in relation to cars and consumer electronics. Is it not time that the Government started to take those issues seriously?

Mrs. Shephard : It was a touch difficult to hear the whole of my hon. Friend's question, but I assure him that the issues that he raises about the GATT round are taken very seriously by the Government.

Mr. Nicholas Brown : I welcome the hon. Lady to her new job and invite her to win the support of the House by repudiating the policy adopted by her predecessor of refusing to give the House the figures for the distributional effect of the poll tax on the tax burden. Does the hon. Lady understand that such a refusal completely undermines the initiative taken by the Secretary of State for the Environment yesterday? The Treasury team can take campaigning against that right hon. Gentleman a little too far. Is not the truth of the matter that the Treasury has the figures and is concealing them because their effect is deeply embarrassing to the Government?

Mrs. Shephard : I thank both the hon. Gentleman and the hon. Member for Kirkcaldy (Dr. Moonie) for their kind welcome. I remind the hon. Gentleman that nothing is ruled out and nothing is ruled in. The figures are not available. The increased burden on families from the community charge has been the result of Labour-controlled local authorities spending well in excess of appropriate levels. I remind him that at least 10 million people get help through community charge benefit.

Mr. Conway : It is delightful to see my hon. Friend at the Dispatch Box today in that capacity. She is there because of her ability and not because of her gender. [Interruption.] Labour Members should listen to this--they might enjoy it. Is not it the case that four out of five families with children of school age pay direct taxation? Does my hon. Friend think that they would be happier to have the high spending plans and taxation policies of the Labour party?

Mrs. Shephard : I am not sure whether to thank my hon. Friend for his obviously well-intentioned welcome to the Dispatch Box. I will make no comment on the gender-oriented remark. Of course people prefer to have a cut in direct taxation.

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Hard Ecu

6. Mr. Beith : To ask the Chancellor of the Exchequer whether he has any plans to modify his hard ecu scheme.

Mr. Norman Lamont : The United Kingdom proposals for a hard ecu have been widely welcomed as a positive contribution to the ongoing debate on EMU. The ideas first put forward by my right hon. Friend the Prime Minister will continue to be developed and discussed with European Community colleagues.

Mr. Beith : I congratulate the Chancellor on his appointment and remind him that one of his first tasks will be to convince the Rome conference that there is still life in the hard ecu scheme. Does he agree that he will have to satisfy two conditions to do that? He will have to demonstrate, first, that the scheme can lead directly to single currency and then that the institution running the currency will not be subject to political interference in its responsibility for price stability. Are those conditions acceptable to the Chancellor and to the Prime Minister?

Mr. Lamont : On the hon. Gentleman's point about how independent a European monetary institution should be, he is not correct. There are a variety of views and not all countries are in favour of fully independent institutions. For example, the French take a different view from the Germans. A number of countries have expressed interest in the hard ecu and the hon. Gentleman may have noticed that the French Finance Minister, Mr. Be re govoy has said that he thinks that the full potential of the hard ecu should be explored as a contribution towards stage 2. We have said that the hard ecu could, in time and if people and markets wish it, evolve towards a single currency, but only on that basis--that individuals chose so to do.

Mr. Dykes : I add my congratulations to my right hon. Friend on his first appearance as Chancellor. Will he confirm that the hard ecu proposals can fit felicitously into the longer-term EMU objectives? Will he remind the House that the European central bank proposals being worked out also include the full involvement of all the national central banks?

Mr. Lamont : My hon. Friend is right on the last point. On Sunday, I discussed those very issues both with other Finance Ministers and with the governors of the banks of Europe. On the first point, I have made the position clear. We see that it could evolve, but this is an approach that is market driven and involves individuals choosing how the monetary system of Europe should develop.

Mr. Chris Smith : Does the Chancellor share the view of his Financial Secretary, who told the House of Lords Select Committee on 9 October that in his view the hard ecu could lead to a single currency even more quickly than the Delors programme, or the view of the Prime Minister, who told the House on 30 October that the hard ecu would not be widely used in any case and therefore could not lead to a single currency? Does the Chancellor back his Minister, or the back-seat driver? What is his view?

Mr. Lamont : In putting that question, the hon. Gentleman shows that he does not understand the hard ecu proposal at all. We have repeatedly made it clear that what the hard ecu would ultimately lead to would depend on what individuals and markets decide. My right hon. Friend the Prime Minister and my hon. Friend the

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Financial Secretary have expressed their views about the speed at which any change might happen and it is perfectly in keeping with the theme of letting people choose the hard ecu that those different views should be expressed.

Mr. Favell : Is my right hon. Friend aware that yesterday the French Finance Minister, whom he has just mentioned, said that the move towards economic and monetary union can be achieved only by the simultaneous erection of an economic Government? Does my right hon. Friend agree?

Mr. Lamont : We have always feared that an imposed single currency and an early imposition of monetary union must lead to a degree of political integration for which I do not believe the people on the continent of Europe are ready.

Intergovernmental Conferences

7. Mr. Sedgemore : To ask the Chancellor of the Exchequer what work he is undertaking in preparing for the intergovernmental conference in December.

Mr. Norman Lamont : My right hon. Friend the Prime Minister put forward proposals for a hard ecu and European Monetary Fund, for which I shall be arguing at the intergovernmental conference on EMU. My right hon. Friend the Foreign Secretary has put forward suggestions for improving the efficiency and effectiveness of the Community in the context of the intergovernmental conference on institutional reform and he is working up those ideas in preparation for that conference.

Mr. Sedgemore : I ask the Chancellor again : does he intend to reaffirm the support that he gave just two weeks ago to the Bruges group of anti-European Tory Members of Parliament or, having no further use for their votes, does he intend to repudiate their views at the intergovernmental conference? Bearing in mind the fact that his Financial Secretary now says that we can move speedily towards the creation of a single European currency through the hard ecu, what will happen to notes in circulation when he abolishes the pound?

Mr. Lamont : I am grateful to the hon. Gentleman for his close study of the speech that I made two weeks ago. He has asked me about it not just today but four times yesterday at the Select Committee. My answer today is no different from my answer yesterday, and that is that the speech that I gave then was in accordance with Government policy and remains so today.

Mr. David Howell : I, too, congratulate my right hon. Friend on his assumption of the high office of Chancellor. He has our very warm support. Is not the point about the hard ecu that it is, unlike the present ecu, a currency that has to be managed and will be managed by a new institution, the European Monetary Fund? Is not it the case, therefore, that once the processes of management develops, it will give markets, customers, individuals and Governments the opportunity to choose whether, in the years ahead, we wish to move to a single currency, enlarging our choice and making it more important?

Mr. Lamont : I am grateful to my right hon. Friend. He is right and expresses the point well. The hard ecu is not a single currency--it is a common currency and it differs, as he says, from the existing ecu in that it is not just a basket

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currency ; it will be a hard counter- inflationary currency, and it will be up to individuals and markets to choose. In that way, the development of monetary union would, if it happened, be entirely evolutionary and in accordance with people's choice.

Mr. Molyneaux : I congratulate the Chancellor on behalf of my right hon. and hon. Friends on this Bench. Now that most of the 11 have started to wriggle out of the commitment to a single currency, will the Chancellor undertake to uphold the freedom and the

decision-making power of the Treasury, over which he now presides?

Mr. Lamont : That is very much our objective.

Mr. Aitken : Will my right hon. Friend, far from repudiating his excellent speech to the Bruges group two weeks ago, take note that the European institutions seem to have read it carefully and moved in his direction--particularly in respect of that part of my right hon. Friend's speech in which he said that economic convergence among member states is a mirage? Does he welcome the apparent change of mood before the forthcoming intergovernmental conferences, at which uniformity will no longer be demanded but instead there will be new emphasis on two-speed or even multi- speed progress towards economic and monetary union?

Mr. Lamont : I am grateful to my hon. Friend. There is a wide variety of growth and inflation rates in the European economy, and a number of member states now acknowledge that one cannot move to a single currency without first achieving much closer convergence than currently exists.

Tax Avoidance

8. Mr. Gareth Wardell : To ask the Chancellor of the Exchequer what steps he is taking to prevent tax avoidance.

Mr. Maples : The Government have introduced several measures to limit the scope for tax avoidance and are prepared to introduce further measures as and when necessary.

Mr. Wardell : What is the estimated total loss of tax revenues to the Exchequer through artful dodgers using offshore trusts as a way of avoiding tax?

Mr. Maples : By the very nature of the tax avoidance mechanism to which the hon. Gentleman refers, it is impossible to make such an estimate. We blocked up some loopholes in the Finance Act 1981, but others remain. All questions of tax avoidance are under constant review. Labour tabled a new clause to this year's Finance Bill that would have dealt with one minor aspect, but it is a complex matter. I am advised that simply to introduce an exit charge on trusts to foreign jurisdictions would involve more than six pages of legislation.

Mr. Hannam : Does my hon. Friend agree that the most effective way of reducing tax avoidance is to lower general taxation, which is something that Labour never understands?

Mr. Maples : My hon. Friend is completely right. One reason why Britain has such a widespread and

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sophisticated tax avoidance industry is the ridiculously high marginal rates that we suffered under a Labour Government.

Small Companies (VAT)

9. Mr. Morley : To ask the Chancellor of the Exchequer what assistance he is providing to small companies for the collection and payment of value added tax.

Mrs. Gillian Shephard : Small businesses are able to take advantage of special facilities for dealing with VAT, including the cash and annual accounting schemes and particular schemes for retailers.

Mr. Morley : What help will the Minister give to well-established and respected firms such as Multiflex in my constituency, which is being surcharged £30,000 at the 25 per cent. rate as a consequence of the problems that it is experiencing in obtaining payments from its customers in the construction industry? The Minister will appreciate that such companies cannot lean on valued customers and that many of their problems have been created by the high interest rates that flow from Government policies. Given the poor state of the economic climate, should not the Government allow more flexibility and help rather than hinder small businesses?

Mrs. Shephard : Some smaller firms dependent on bank borrowing are experiencing difficulties and I greatly regret that. I believe that the hon. Gentleman was referring to the serious misdeclaration penalty. The company that he mentioned can give reasonable excuse to satisfy Customs or the VAT tribunal and I advise the company to take that action.

Mr. Bellingham : I add my congratulations to those already expressed to my hon. Friend on her excellent promotion. She will be aware, as she represents a neighbouring constituency to mine, that firms in west Norfolk are pleased about the recent increase in the VAT threshold. Does she agree that Customs and Excise must show the utmost sensitivity and understanding in erasing arrears incurred by small firms?

Mrs. Shephard : I thank my hon. Friend for his kind welcome. The Government will continue to examine ways in which procedures can be simplified and we shall of course deal sympathetically with companies of the type that he described.

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