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National Debt
3. Mr. Spellar: To ask the Chancellor of the Exchequer what is his latest estimate of the net national debt. [310]
The Chief Secretary to the Treasury (Mr. William Waldegrave): The provisional estimate of net public sector debt at end-March 1996 is £323 billion--some 45 per cent. of gross domestic product.
Mr. Spellar: Can the Minister explain how, in spite of having receipts from North sea oil and privatisation, in the five years since the Prime Minister came to office--when the national debt was £155 billion--the Government have managed to double it?
Mr. Waldegrave: There is something rather preposterous about the Labour party complaining about the national debt. The average public sector borrowing requirement under the Conservative Government has been 2¾ per cent. of GDP. Under the previous Labour Government, it was 6¾ per cent.--even with the help of the International Monetary Fund. It is reasonable to say
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that, had Labour stayed in power, the Government would have continued to borrow at the same level. That would have produced a national debt of about £650 billion, or 90 per cent. of GDP. That is not an unlikely figure, as a number of countries in Europe that have had the disbenefit of social democratic governments have such debts.
Mr. Redwood: Will the Chief Secretary confirm that Britain is one of only three countries beneath the reference level for the stock of debt necessary to enter the single currency? Will he further confirm that the 12 countries that have already borrowed too much and are outside the terms of the treaty will not be eligible to join, and that Britain will try to prevent them?
Mr. Waldegrave: My right hon. Friend is perfectly right, and Britain is in a strong position on the stock of debt. In addition, all the other major European countries have had large increases in total debt, and most of them have been run for at least part of the time by socialist governments. We have not, and that is a major achievement. The final decision on who is eligible for EMU among those countries that want to join will be for the Heads of Government in due course, but some countries will have some explaining to do.
Mr. Malcolm Bruce: Does the Minister acknowledge that, in some areas, it is the Government who have some explaining to do--in particular, on the current PSBR forecast and our inflation targets, both of which put us outside the qualification criteria? Will the Government ensure that they maintain their commitment to bringing down the PSBR forecast to meet the criteria? Will both he and his right hon. and learned Friend the Chancellor resist the rumours that the Government will announce at the start of the general election campaign that they will not proceed to enter monetary union, and consequently will not be disciplined by the need to meet the Maastricht criteria?
Mr. Waldegrave: My right hon. and learned Friend and I--and all our colleagues--are reducing the public debt for the good of the British economy, and we will continue to do that.
Sir Peter Tapsell: When those member states of the EU that wish to join a single currency come to submit their statistics to show whether they have satisfied the economic criteria of the Maastricht treaty, will those countries with unfunded public sector pension obligations have to attribute that unfunded commitment as part of their national debt? If not, how will it be treated?
Mr. Waldegrave: That is not one of the criteria set out in the Maastricht treaty. Britain has a strong position in the short, medium and long term compared to some other countries that do not have properly funded pensions. Those countries will find that they must either cut pension entitlements--as some are currently trying to do, causing trouble in the streets--or increase taxes. I am happy to say that there is no question of our paying any part of that cost.
Mr. Darling: On the question of putting up taxes, the Chief Secretary will be aware that the Chancellor's former adviser has suggested that value added tax ought to be
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increased to reduce national debt and borrowing. Is it still the Chancellor's view that in principle the scope of VAT ought to be extended?
Mr. Waldegrave: I know that this is the Labour soundbite for this week. The hon. Gentleman read it out in a rather dreary way. We had it yesterday and my right hon. and learned Friend the Chancellor answered it. I advise the hon. Gentleman to read Hansard.
Industrial Output
4. Mr. Amess: To ask the Chancellor of the Exchequer what economic factors he expects to improve industrial output over the next 12 months. [311]
The Chancellor of the Exchequer (Mr. Kenneth Clarke): Industry will benefit from the most favourable combination of economic circumstances for decades--living standards are rising, business and consumer confidence are high, United Kingdom firms are highly profitable and are competitive in overseas markets, investment is rising, inflation is low and the public finances are under firm control.
Mr. Amess: Does my right hon. and learned Friend agree that Britain's strike record last year was the best since records began and that statutory recognition of trade unions, as proposed by the Labour party--a power that unions have never been given in the past--would pose a new danger to Britain's industrial output, particularly in Basildon and Southend, West?
Mr. Clarke: I never fail to point out to our European partners that not only do we not have the social chapter but, because we have adopted more flexible labour market practices at a local level, we have the best industrial relations record we have had this century and a very much better record than anywhere on the continent. I agree with my hon. Friend that it is extraordinary that new Labour has put forward proposals on trade union recognition and the dismissal of strikers which go far beyond anything that old Labour tried to do in the 1970s, and that that poses a great threat in Basildon and elsewhere.
Mr. Sheldon: Is the Chancellor aware that there is widespread disappointment in industry at his decision to increase interest rates? The result has been the greatest degree of uncompetitiveness in the pound sterling with, as a consequence, declining exports and problems for the balance of payments. That is a pure consequence of what happened yesterday.
Mr. Clarke: The decision taken yesterday received a much better reception from most people than it has done from the right hon. Gentleman. Most people in British industry know that the key thing now is to keep in place for the next few years the combination of circumstances that I have just described and not to throw it away by allowing inflationary pressures to build up and threaten our progress.
The right hon. Gentleman should be in a better position than most of us to point out the lessons of the past. When he was a Treasury Minister, we were used to double-figure interest rates and double-figure inflation. We lost control and threw away any advantages that
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Mr. Nicholas Winterton:
Although I share to an extent the view of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) that a rise in interest rates is not helpful, I appreciate why my right hon. and learned Friend has done that and I hope that he is proved right. Does my right hon. and learned Friend accept that one way in which he could ensure that industrial output improved would be to avoid any further cut in infrastructure expenditure, which is so important to industrial efficiency, and that he and his Department should encourage investment in industry further by considering an improvement in capital allowances?
Mr. Clarke:
Of course I accept that an increase in interest rates is in itself never welcome news for those in manufacturing industry, with whom my hon. Friend is so concerned. However, people in manufacturing industry all realise that monetary policy has to be adjusted to protect against inflation. They have seen from what happened the last time I increased interest rates that, if one acts in good time on a modest scale, inflationary pressures are snuffed out and interest rates move within a narrow band while inflation generally stays low. That is the best assurance for the future.
I take on board my hon. Friend's representations about the importance of infrastructure investment. That is right. We should sustain the necessary level of investment in infrastructure for our long-term good, and my hon. Friend the Financial Secretary's replies on the private finance initiative show that there are new and better ways of delivering better-quality infrastructure products at better value for money for the country.
Mr. Milburn:
Given all the claims that the Chancellor has just made about industrial output and the rosy picture that he painted of the British economy, will he explain why national income per head is higher in Germany and France in a downturn than in Britain today? Will he also explain why, far from being the enterprise centre of Europe, Britain is ninth out of 15 in the European prosperity league? After 17 years of failure, will not the British people rightly conclude that enough is enough?
Mr. Clarke:
I welcome the hon. Gentleman to his position on the Opposition Front Bench. He, too, is making his debut--like my hon. Friend the Exchequer Secretary. My hon. Friend, unlike the hon. Gentleman, has chosen the right moment in our economic performance to join the Front Bench. I commiserate with the hon. Gentleman--it was bad luck to become a Treasury spokesman for an Opposition party when the economy is doing so well. I hope that a fresh face will produce fresh league tables--that may come later.
Of course, Germany and France are currently showing higher incomes per head than we are--they have done so for years and years. But we are now outperforming them; we have faster growth than they have and our unemployment is falling from a level that was already below theirs. We are catching up and we shall overtake them. We shall double living standards in this country in
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Sir David Madel:
Does my right hon. and learned Friend agree that, with continuing low inflation, three-year wage deals should become the norm in industry and should also be extended where the Government are the employer?
Mr. Clarke:
I find that proposition attractive, but each individual case must be addressed on its merits and all cases must be subject to the usual discussions that take place over wage settlements. My hon. Friend highlights one aspect of becoming used to being a low inflation country. People are still getting used to the apparently low levels of their pay settlements. People receive a 3 per cent. pay settlement, which makes them better off, but some still hanker after a 10 per cent. settlement, which actually made them poorer when we were a high-inflation country. The annual wage round, annual bidding and the expectation of an annual pay change go back to the days when we first encountered hyper-inflation and Governments had pay policies--that was when the ritual got under way.
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