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House of Commons
Thursday 27 June 1991
The House met at half-past Two o'clock
PRAYERS
[Mr. Speaker-- in the Chair ]
PRIVATE BUSINESS
Aire and Calder Navigation Bill
Read the Third time, and passed.
Midland Metro Bill
(By Order)
Order for Third reading read.
To be read the Third time on Thursday 4 July.
British Railways Bill
(By Order)
Order for consideration, as amended, read.
To be considered on Tuesday 2 July.
King's Cross Railways Bill
(By Order)
Order for consideration, as amended, read.
To be considered on Thursday 4 July.
London Underground (King's Cross) Bill
(By Order) Read a Second time, and referred to the Examiners of Petitions for Private Bills.
East Coast Main Line (Safety) Bill
(By Order) Order read for resuming adjourned debate on Question [13 May]. That the Bill be now read a Second time.
Debate further adjourned till Thursday 4 July.
Mr. Speaker : As the next two Bills have blocking motions, with the leave of the House I shall put them together.
London Regional Transport (Penalty Fares) Bill
(By Order)
British Railways
(No. 3) Bill-- [Lords] (By Order) Orders for Second Reading read.
To be read a Second time on Thursday 4 July.
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Oral Answers to Questions
NATIONAL FINANCE
Institute of Directors
1. Sir Marcus Fox : To ask the Chancellor of the Exchequer what representations about economic policy he has received from the Institute of Directors.
12. Mr. Tim Smith : To ask the Chancellor of the Exchequer what representations about economic policy he has received from the Institute of Directors.
The Chief Secretary to the Treasury (Mr. David Mellor) : None, but I have seen the May Institute of Directors survey which reported a sharp rise in business confidence and in optimism about the economy in general.
Sir Marcus Fox : Without being derogatory to the Confederation of British Industry, which largely represents the bigger companies in the United Kingdom, is not it important to recieve from the Institute of Directors, which represents smaller and medium-sized businesses, this encouraging news? Just as important is the fact that it agrees with the step-by-step approach in lowering interest rates. Will my right hon. and learned Friend resist the siren voices of the Opposition who say that we should reduce interest rates every week?
Mr. Mellor : I entirely agree with my hon. Friend. The best way to build the steady and sustained recovery that we believe will occur is by the policies that my right hon. Friend the Chancellor of the Exchequer is now pursuing.
Mr. Tim Smith : When my right hon. and learned Friend meets the Institute of Directors, will he point out the hopeless inconsistency of those who, at every possible opportunity, call for a reduction in interest rates while claiming to support sterling's position within the exchange rate mechanism? Will he condemn the Labour party for that outrageous irresponsibility?
Mr. Mellor : Yes. What the Labour party has never been able to explain is why it says that this recession is made in Downing street and why it blames the Government for the fact that interest rates were too low in 1988 when it was then calling, as it usually does, for them to be 1 per cent. lower. It is also clear that it is entirely inconsistent with our obligations within the ERM to pursue the interest rate policy that Labour suggests. Labour Members need to explain that and why their substitute for the Government's interest rate policy is credit controls, which would do nothing but seriously damage the British economy.
Mr. Douglas : What overtures has the Minister made to the Institute of Directors and to other directors about the excessive salary increases that directors of certain establishments have given themselves? If the cure for inflation is a price worth paying, why is that price not being paid by those who are in charge of major British companies and corporations?
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Mr. Mellor : I suspect that the reason why some of the increases have hit the headlines is that they are the exception rather than the rule. Some directors have taken reductions--
Mr. Mellor : A top executive of British Airways, for one. That is the position which prudent directors will want to adopt so as not to undermine the important message to the work force that pay increases should be affordable and should not damage their company's competitive position.
Mrs. Beckett : When the Chief Secretary meets representatives of the Institute of Directors, will he discuss with them their report "Continuing Tax Reform", in which they advocate the same tax policies as the Government --cuts in the rate of income and corporation tax and in capital taxes and increases in value added tax--and identify as the inevitable and logical consequence the disappearance of state pensions and benefits, the health service and the education service, apart from a fallback scheme for the destitute? Are they wrong, or just more honest than the Government?
Mr. Mellor : I shall be happy to discuss a number of matters with representatives of the Institute of Directors including, certainly, any views that they may have on taxation. The Institute of Directors and a number of other responsible bodies believe that entrepreneurial activity will be best advanced in a society that has competitive tax rates. That is something which the Institute of Directors could well discuss with the hon. Lady, as is the view recently expressed by the director, Mr. Morgan, that Labour party policy amounts to fudge and that fudge is no solution.
Mr. Oppenheim : Will my right hon. and learned Friend discuss with the IOD whether it is possible to square the continual pledges by the hon. Member for Derby, South (Mrs. Beckett) that a future Labour Government will be careful with public spending with the procession of pledges by Labour spokesmen that, under any future Labour Government, their Department will be a priority? Is not the truth of the matter that Labour Members are up to their old game of trying to be all things to all men and does not this illustrate that no amount of sharp suits or tacky red plastic roses can hide how little Labour has really changed?
Mr. Mellor : It is certainly true that even the best tailor cannot cover the figure of £35 billion. There is absolutely no doubt that the Labour party will at some point have to answer the charge carefully levelled against it. Precise words are used in Labour's policy document-- words plainly honed by the Labour party and intended to be words of commitment. It will have to tell us whether these are real commitments-- and, if they are, what the tax implications will be--or whether they are just empty words designed to cajole interest groups into supporting the Labour party.
Mr. Speaker : I understand that question 2 is not to be taken, so in the interests of balance, I shall call one more Opposition Member.
Several Hon. Members rose--
Mr. Speaker : Which is it to be? Mr Campbell-Savours.
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Mr. Campbell-Savours : Will the Chief Secretary answer the question that my hon. Friend the Member for Derby, South (Mrs. Beckett) asked? If Tory policy is to cut taxes--we are told, by 5p in the pound--how will it be paid for? Does it mean that universities will close, schools will close [ Hon. Members-- : "No"], health centres will close [ Hon. Members-- : "No"], hospitals will close [ Hon. Members-- "No"], roads will not be built--
Mr. Campbell-Savours : When Labour has control-- [Interruption.]
Mr. Speaker : Order. I think the hon. Gentleman has gone a bit far.
Mr. Mellor : All the hon. Gentleman needs is a puff of green smoke. [ Hon. Members-- : "Answer"."] I will answer the hon. Gentleman's question by telling him that it will happen in the future precisely as it happened in the past.
Mr. Campbell-Savours : Where will the money come from?
Mr. Mellor : Over the past 12 years, there has been a 17 per cent. increase in real terms in public expenditure--as against a fall under the last Labour Government--coupled with cuts in tax rates for both individuals and companies.
Mr. Campbell-Savours : Where will the money come from?
Mr. Mellor : If the hon. Gentleman will shut up and stop saying, "Where will the money come from?", I will tell him. [Interruption.] Have you done?
Mr. Mellor : The money comes from creating the kind of dynamic entrepreneurial economy that we had in the 1980s.
Earnings
3. Mr. Pawsey : To ask the Chancellor of the Exchequer what was the increase in real take-home pay for a married man with two children on average earnings between 1979 and 1990.
The Minister of State, Treasury (Mrs. Gillian Shephard) : Real take- home pay for a married man with two children on average earnings has risen by more than a third under this Government.
Mr. Pawsey : I thank my hon. Friend for that extremely helpful reply. Clearly there is a lot of good news there for the average family on average wages. However, what impact would an extra £35 billion worth of spending have on an average family on average earnings?
Mrs. Shephard : Sadly for the average family, Labour's plans for an additional £35 billion of extra spending would increase the tax bill for the average taxpayer by £20 a week.
Dr. Marek : Will the hon. Lady nevertheless admit that taxation as a proportion of gross domestic product is still at a much higher percentage? Even though the take-home pay of the average person might have gone up, his or her tax rates have increased even more. The percentage of
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taxation as a proportion of GDP was much higher in the 1980s than it was in the 1970s. The hon. Lady is no charlatan, so will she give an honest answer and admit that the Tory party is the party of high taxation?Mrs. Shephard : I am being urged to be a charlatan. However, I will adhere to my normal practice and say that real take-home pay is what matters for the living standards of real people. The tax burdens are lower now at all multiples of average earnings than they would have been if they had been indexed at the tax regime left by the last Labour Government.
Pay Policy
4. Mr. Foulkes : To ask the Chancellor of the Exchequer when he last met the Governor of the Bank of England to discuss the Government's policy on pay.
Mrs. Gillian Shephard : My right hon. Friend the Chancellor meets the Governor of the Bank of England from time to time to discuss a variety of matters.
Mr. Foulkes : Is the Minister aware that the Governor's 17 per cent. wage increase on an already large salary has been overtaken by the rise for the boss of British Telecom, who received 43 per cent., for the boss of National Power, who received 58 per cent. and for the boss of British Gas, who received 66 per cent. in what has become a fat cat greed race? In yet another pathetic answer on Tuesday, the Prime Minister said that he deplored it, but he was not going to do anything about it. Why not?
Mrs. Shephard : The salary of the Governor of the Bank of England-- that is the point of the question--is determined under the bank's 1946 charter by non-executive members of the court of directors. It is not for the Government to approve the pay of the Governor or the bank's staff.
Sir Anthony Grant : Although I recognise that it is important that company chairmen should set an example in the present economic climate, has my hon. Friend heard of any examples of a reduction in income for some of the very rich people who seem to be seeking jobs in a future Labour Government? I am thinking of people like Mr. John Mortimer and Mr. Melvyn Bragg. Have they set an example?
Mrs. Shephard : I do not think that I can answer that, given the names mentioned by my hon. Friend. However, the Government's pay policy is clear : pay awards should be negotiated on their merits according to the needs of recruitment, retention and affordability. People at the top of large industries and concerns have been appointed for their acumen. They should be sensitive to the needs of the times. I do not know whether the people who have been approached by the Labour party have such sensitivity, but I doubt it.
Ms. Abbott : Does the Minister agree that although the Chief Secretary to the Treasury said earlier that big pay rises were the exception rather than the rule, a recent survey commissioned by the CBI shows that pay rises for top directors are on average running above inflation? How will unit labour costs be reduced when bosses are setting that sort of example?
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Mrs. Shephard : I repeat that the Government would expect pay awards to be negotiated on their merits. The Government have repeatedly emphasised the need for general moderation in pay settlement levels. That really should apply from top to bottom.
Sir John Stokes : Am I alone in getting rather tired of the politics of envy? If I were employed by a firm, I would want the firm to do well and make money and I would want my boss to be properly paid.
Mrs. Shephard : I am not sure whether that is a question, but I must say that it is an admirable expression of my hon. Friend's sentiments.
Inflation
5. Mr. Carrington : To ask the Chancellor of the Exchequer what are the latest estimates for the rate of inflation in the first quarter of 1992.
The Chancellor of the Exchequer (Mr. Norman Lamont) : No forecast has been published for the first quarter of 1992 ; the Budget forecast was for RPI inflation to fall to 4 per cent. in the fourth quarter of 1991 and to 3 per cent. in the second quarter of 1992.
Mr. Carrington : I am grateful to my right hon. Friend for that answer. Are not those low inflation figures a great tribute to and justification for my right hon. Friend's low inflation policy? Will my right hon. Friend confirm that it is his intention and that of the Government to continue that policy to make Britain a low-inflation country? Will he comment also on the effect on inflation of an increase in public expenditure of £35 billion a year?
Mr. Lamont : It is absolutely clear that, whatever measure one looks at, inflation is reducing. The headline rate is now down 5 per cent. from the peak, the headline rate minus mortgage interest payments is now 2.9 per cent. down from its peak, and producer prices have also declined by 1 per cent. in the past four months. Encouragingly, too, the rate of increase in earnings in manufacturing industry has fallen by 1 per cent. in the past four months. That is very good news for British industry and very good news for the economy. My hon. Friend is absolutely right. Opposition Members are not remotely interested in the fight against inflation.
Mr. Winnick : As the Chancellor is concerned about earnings and so on, does not he have some responsibility to restrain the exorbitant increases that have been given to people who were on very high incomes in the first place? Is not it absolutely sickening and hypocritical that the very people who are receiving such exorbitant increases--66 per cent. and even more in some instances--are preaching to their work forces about moderating wage claims? Is not it time that we ended such hypocrisy?
Mr. Lamont : My right hon. Friend the Prime Minister has made his views absolutely clear. Although Conservative Members have frequently argued that there is an international market for management, we take the view that some of the recent increases in industry are excessive and are unjustified. I do not believe that it is the purpose or function of government to interfere by rule of law in those matters.
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Mr. Wells : Does my right hon. Friend agree that those who price themselves out of the market, whether they be the chairman of a company or the lowest-paid employee, will lose their jobs?Mr. Lamont : My hon. Friend is absolutely right. That is why I referred to the decline in the rate of increase in manufacturing earnings, which is good news for jobs and for output.
Bank of England Governor
6. Mr. Lofthouse : To ask the Chancellor of the Exchequer when he last met the Governor of the Bank of England to discuss economic matters.
Mr. Mellor : As the House has already been advised. My right hon. Friend the Chancellor meets the Governor of the Bank of England from time to time to discuss a variety of matters.
Mr. Lofthouse : In view of the Chancellor's claim today to the Tory ladies that Britain is on its way to a low-inflation economy, what level of inflation does the Chief Secretary to the Treasury think will be safe before we can reduce interest rates to a level that will restore the confidence of manufacturing industry, the CBI and others?
Mr. Mellor : That question is entirely inconsistent with the commitment of the Labour party to be in the ERM.
Mr. Campbell-Savours : Just answer it.
Mr. Mellor : I am answering the question. The level of interest rates is reduced as is consistent with bearing down on inflation and retaining our position in the ERM. Once again, that question exposes the Labour party's desire to be all things to all men--on the one hand, ever so European and ever so committed to the ERM, but, on the other, every Opposition Back Bencher and some Opposition Front Benchers making claims that are entirely inconsistent with that commitment.
Sir Ian Stewart : Have my right hon. and learned Friend and the Governor of the Bank of England done any calculations to see what would happen if the Government spent £35 billion extra in public expenditure and could not finance it out of taxation? What would be the effect on interest rates and funding if such a programme were followed?
Mr. Mellor : My right hon. Friend is absolutely right. If extra expenditure on that scale was incurred--we await the Labour party's statement about which of its pledges it wishes to disown--and was put not on to taxation, but on to borrowing, not only would that inevitably drive up interest rates, but it would add to public expenditure because of the amount of debt interest that would be incurred. We took no account of debt interest in our £35 billion calculation. At least one City analyst has said that that would add £5 billion to public expenditure in the last year of Parliament.
Mr. Sheldon : Yesterday the right hon. Member for Finchley (Mrs. Thatcher) said that she still agreed with the decision to enter the exchange rate mechanism but thought that the width of the band should not be reduced from 6 per cent. Does the right hon. and learned Gentleman agree?
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Mr. Mellor : I can only reiterate that it is the Government's policy to narrow the band when the time is right.
Mr. Wilkinson : When my right hon. and learned Friend last met the Governor of the Bank of England, did he express any anxiety about the level of pay settlements in the public sector and the effects that they could have on public expenditure at a time of negative economic growth, or was his insouciance over his own salary matched by his public attitude to the matter? Does he have any feelings about the exorbitant and grotesque level of settlements in the public monopolistic utilities?
Mr. Mellor : There is no doubt that sensible levels of pay settlements in the public sector are crucial, especially at a time of recession and rising unemployment, when job security in the public sector should count for a great deal and when people should have regard to job security issues when deciding what would be a fair increase in their remuneration.
Mr. John Smith : No doubt the Chief Secretary is aware of the research, funded by the Bank of England and carried out by Shelter, which has revealed that a staggering number of home purchase mortgages--790,000 or one in 12 of the total--are now in arrears and that repossessions have jumped from 20,000 to nearly 48,000. He will also be aware that many people fear that rising unemployment will make the problem even worse. Does he think that that is a price well worth paying for Tory economic policies?
Mr. Mellor : Those figures deal with short-term mortgage debts--with arrears over two months. High interest rates are, of course, uncomfortable for those who pay mortgages. That is one reason why we wish to return to conditions of sustained low inflation, which bring with them lower interest rates and lower mortgage rates. The right hon. and learned Gentleman still has to explain how he would manage to achieve that. He keeps advocating the fact that there is a pain-free solution to the problems of high unemployment, but when he was last a member of the Cabinet, he presided over rates of inflation and mortgage interest rates that were certainly nothing to be proud of.
Interest Rates
7. Mr. Austin Mitchell : To ask the Chancellor of the Exchequer what is his estimate of current interest rates in Britain and other EC countries and the margins charged by banks to small businesses.
The Economic Secretary to the Treasury (Mr. John Maples) : Three- month sterling inter-bank rates today are 11 per cent. Broadly comparable rates in other EC countries vary from 9 to 19 per cent. The margins charged by banks to small businesses vary widely.
Mr. Mitchell : It is clear that British interest rates are insanely high for a country that is in the depths of a recession, but it is also clear that, despite the Chancellor's friendly chats with the bank directors, nothing much will happen about margins until interest rates fall substantially. Why does not the Chancellor admit the truth and say that he cannot do anything about interest rates because the Prime Minister took us into the exchange rate mechanism at an overvalued rate last October? When he is accused of
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GBH on the British economy, he can plead either "guilty but insane", or "not guilty because the Governor of the Bank of England is running the country".Mr. Maples : I hope that the hon. Gentleman's colleagues on the Opposition Front Bench were listening to that because sitting behind them is the authentic voice of the Labour party, which always has been and probably always will be in favour of devaluation.
Mr. John Townend : Is my hon. Friend aware of the extent of the pain suffered by small businesses due to lack of demand and high interest rates? Is he aware that many industries are still as flat as a pancake? Does he agree that the Treasury forecast that there will be economic recovery in the second half of this year is beginning to look over-optimistic and that any recovery will be slow and weak and will not help much before the beginning of next year? In view of the Government's success in reducing inflation, which perversely increases real interest rates, is there not a window of opportunity for reducing interest rates quickly and giving some benefit to small businesses?
Mr. Maples : My hon. Friend the Member for Bridlington (Mr. Townend) has always been an advocate of sound money, and I am sure that he agrees with and understands the Government's priority for getting on top of inflation. That is why we have had to keep interest rates high. However, interest rates have been reduced substantially in the past few months. There are signs that the recession is coming to an end and I see no reason to alter our forecast that there will be a recovery in the second half of the year.
Mr. Beith : What precisely was the outcome of the Chancellor's chats with the chairmen of banks? Has he, for example, persuaded them to show the rates of interest charged to small businesses on their bank statements? Does the Minister recognise that the root of the problem is that the banks do not face sufficient competition in their dealings with small businesses in the way that they do in the personal sector?
Mr. Maples : There may well be a lot in what the hon. Gentleman says. As he knows, we all regard the way in which small businesses are treated by the banks as a matter of great concern. My right hon. Friend has asked Treasury officials and the Bank of England to look into the matter and investigate the facts. We are still waiting for the results of that inquiry.
Inward Investment
8. Mr. Ian Taylor : To ask the Chancellor of the Exchequer what proportion of inward investment in the EC during 1990 was in the United Kingdom.
Mr. Mellor : Latest available estimates, based on a study by the European Community, show that between 1984 and 1988 the United Kingdom received about one third of all inward direct investment to the EC, which was higher than any other member state. The United Kingdom received 34 per cent., France received 18 per cent., and Germany received 2 per cent.
Mr. Taylor : Those figures are extremely encouraging. Could I add to them the announcement made yesterday by the Invest in Britain Bureau that in the 12 months to March this year it recorded 350 new projects set up by
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foreign companies in Britain? That is because under the Conservative Government we have had enterprise, sensible taxation policies and the ability to train people in new skills. Does my right hon. and learned Friend agree that that means that we need continuity of Conservative government in Britain and demonstrates the importance of not closing off any options in the discussions on economic and monetary union and of ensuring that Britain is not isolated?Mr. Mellor : Plainly, the current level of investment reflects international confidence in the government of the United Kingdom. Inward investment in 1988 was £10 billion. In 1990 it was £19 billion. It will be of significance to those who are anxious to see regional development that between 1987 and 1990 50 per cent. of the jobs created through foreign inward investment were in Scotland, Wales and the north- east. Although those regions are responsible for only 20 per cent. of our gross domestic product, they received 50 per cent. of the extra jobs. That is a sign of the benefit to the regions of international confidence in the Government.
Mr. Wigley : On that very point, the Chief Secretary is clearly aware that some 15 to 20 per cent. of inward investment has come to Wales in the past two to three years. Does he accept that that illustrates not only the advantageous position of Wales as a location for new investment, but the importance of regional policy and especially of institutions such as the Welsh Office and the Welsh Development Agency? Will he give a commitment that the Government appreciate the importance of those institutions and will allow them to develop and flourish?
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