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6.54 pm
Mr. Barry Legg (Milton Keynes, South-West): I congratulate the hon. Member for Barnsley, East (Mr. Ennis) on his maiden speech. Delivering a maiden speech is always a great ordeal, and I think that the hon. Gentleman coped with it admirably. I am sure that he has been much encouraged by the high turn-out of his colleagues to support him. I am sure also that hon. Members on both sides of the House fully endorse his remarks about his predecessor, Terry Patchett, a man who was held in high esteem in this place. The hon. Gentleman has told us about Terry Patchett's local reputation.
The hon. Gentleman's speech was brief and to the point. He will be well advised to remember that for the remainder of his parliamentary career. His speech
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This is probably the last general economic debate that we shall have in this Parliament. During our proceedings so far we have dealt with a number of general economic matters and contentions. I shall begin by welcoming some of the detailed provisions of the Bill. I am especially pleased that the amendments that I suggested in Committee last year in respect of charities are contained in clause 65. I am grateful to Treasury Ministers for taking up my suggestions and in so doing easing the tax burden on charities.
In taking evidence on the Budget and producing a report as a member of the Select Committee on the Treasury, I was conscious that we now have a much more manageable and sustainable financial position. However, the hon. Members for Edinburgh, Central (Mr. Darling) and for Gordon (Mr. Bruce) argued today that the level of national debt is too high. The hon. Member for Edinburgh, Central derided this Administration's record on the level of national debt.
There is only one sensible way to evaluate the national debt, and that is in terms of its proportion to the nation's wealth. If the hon. Gentleman had read the Red Book--especially table 4.3--he would know that net public sector debt as a percentage of gross domestic product is running at about 45.5 per cent. If he had bothered to study economic records for this century he would have learnt that no Labour Government have ever managed to reduce national debt to that level as a proportion of GDP. We have a sustainable level of debt, and one that reflects the prudent financial management that we have experienced in recent years.
The report of the Select Committee on the Treasury contained some criticisms relating only to matters of detail. The hon. Member for Gordon referred to the GDP deflator, which has been set at 2 per cent. for future years. The balance of opinion within the Select Committee was that the deflator might be on the low side. We are talking, however, about much more sustainable figures. We are considering possibly a 2 or 3 per cent. rate of inflation in future. If the projection of a 2 per cent. GDP deflator is wrong and it turns out to be 3 per cent., the magnitude of error is quite small. We would be talking about an extra £3 billion of public expenditure. Our finances are now much more manageable.
As a whole, the Select Committee agreed with the fiscal stance of the Treasury and my right hon. and learned Friend the Chancellor of the Exchequer. Most commentators have applauded that stance. As for the report of the wise men before the Budget, four out of six stated that the Chancellor should take a neutral fiscal stance, and that is what he did. There is not much scope for criticising the Chancellor on that front.
The Treasury Select Committee was concerned that present conditions may require monetary policy to be tightened. The Chancellor has told the House that he wants to stay ahead of the game on monetary policy: he has a good record of making the right judgments on monetary policy. The Chancellor will meet the Governor of the Bank of England tomorrow. Some hon. Members are concerned that he should make an upward move in interest rates.
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The Chancellor may be considering an increase in interest rates in the order of magnitude of 0.25 per cent. to 0.5 per cent. That clearly shows the difference between the present economic conditions and those of the past 30 years.
Mr. Malcolm Bruce:
The hon. Gentleman makes a fair point, but does he accept that we should compare ourselves with our trading partners? Long-term interest rates on government bonds in the United Kingdom are higher than those in any other country in the European Union, with the sole exception of Greece. Our inflation figure is the third worst in the European Union. Although there has been a considerable improvement compared with the past, we must be more disciplined to reach even the EU average, never mind to be at the top end.
Mr. Legg:
I am grateful to the hon. Gentleman for his comments. We have the potential to achieve a much lower peak in the interest rate cycle than at any time in the past 30 years. Previous peaks in our interest rate cycle have been anything from 12 per cent. to 17 per cent. This Administration has made tremendous strides to get inflation and monetary policy well under control. The markets show that the peak of the present inflation cycle may require an interest rate of only 7 per cent. That is a considerable achievement, and it enables British business and industry to plan for the future.
There is currently a great deal of distortion in the marketplace on long-term interest rates. The reductions in long-term interest rates in some European Union countries--for example, Spain and Italy--suggest a false market in government bonds based on speculation that those countries will join the single currency and will have lower, long-term interest rates. I do not believe that those countries will be allowed to join the euro, but if they were to do so, the long-term interest rate of the euro would move up to the higher levels experienced in the Mediterranean countries. As long-term interest rates have come down in Italy and Spain, they have gone up in Germany with the prospect of monetary union between countries that do not have the same stable economic background. That is the other side of the picture.
The Government have done well on monetary policy, and the peak of the interest rate cycle looks as if it will be much lower than in recent memory. That is all to the good of the British economy.
Hon. Members may have seen The Guardian last week, which unusually listed some Conservative achievements on its front page. It pointed out that since 1992 unemployment has fallen from 2.7 million to 1.9 million, interest rates have come down from 10.5 per cent. to 6 per cent., inflation has come down from 3.7 per cent. to 2.7 per cent. and hospital waiting lists of over one year have come down from 155,000 to 15,000. There is an awful lot of good news on the economy, and that reflects the Government's achievements. Even The Guardian is prepared to put such good news on its front page.
There is a growing appreciation of the Government's soundly based economic policies. The main reason why we will not detect such a strong feel-good factor as in previous years is the changing relationships in the housing market. In 1988, the ratio of mortgage debt to the value of housing stock was 20 per cent. Today, that ratio is 34 per cent. Most people will not immediately experience the feel-good factor that they may have experienced in the
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Mr. Miller:
Given the figures that the hon. Gentleman has just cited, does he accept that there is greater pressure on housing association and local authority stock? Does he also accept that the Government have done very little--nothing, in fact--to assist that sector?
Mr. Legg:
I do not agree with the hon. Gentleman's comments.
Mr. Miller:
They are the Library's figures.
Mr. Legg:
I do not agree with the comment about housing associations. Housing association development has been strong in my constituency and across the country, not only because of the public money that the Government have put into it, but because of the greater freedom that they have given housing associations to borrow on the markets. The hon. Gentleman's argument is not valid.
I shall return to the wider comments that I was making about the structure of wealth in this country. House values are tangible to individuals, but one of our problems is that wider wealth is not so tangible. Most people's pension assets--which will provide for them in their old age--have considerably increased in value in the past three or four years. Most of those assets are not transparent to the people who will benefit from them. Occupational pension schemes have done very well, and people have the prospect of much more wealth behind their pension entitlements and a much more prosperous old age. Many forms of institutional investment lack transparency, so individuals are not fully aware of the appreciation in their wealth.
My hon. Friend the Member for Havant (Mr. Willetts) advocated reforming capital gains tax. Hon. Members will probably recall that I tabled a series of amendments to last year's Finance Bill to achieve that. This is an important matter, because in the next Parliament we must extend the concept of a property-owning democracy into other asset categories. We should not only consider institutional investments and investments that are not transparent, but encourage people to build up investments in their own name and have a wide stock of wealth behind them. That will be one of the priorities for the next Parliament. I hope that the simplification of capital taxes advocated by my hon. Friends the Members for Havant and for Bournemouth, East (Mr. Atkinson) will be high on the Government's agenda.
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