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Oral Answers To Questions

Volume 113: debated on Tuesday 26 May 1987

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National Finance

Interest Rates

1.

asked the Chancellor of the Exchequer what representations he has received about interest rates; and whether he will make a statement.

13.

asked the Chancellor of the Exchequer what representations he has received about interest rates; and whether he will make a statement.

16.

asked the Chancellor of the Exchequer what representations he has received about interest rates; and whether he will make a statement.

Bank base rates are now 10 per cent. and a 1 per cent. reduction in most mortgage rates has been announced.

I congratulate my right hon. Friend on his Budget and on the consequences of it. As each percentage point change in interest rates represents about £80 million to the British agriculture industry, does my right hon. Friend accept that farmers and other small business men would welcome the further fall in interest rates that would be likely to flow from membership of the European monetary system?

I note my hon. Friend's support for British entry into the exchange rate mechanism of the EMS. I am sure that farmers and small business men will widely welcome the fall in interest rates that has taken place, as home owners will welcome the fall in mortgage rate announced from 1 May. I am sorry that the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) is not here to learn the good news. He has certainly not apologised or informed me that he will be back late from one of his well-known lunches.

Does my right hon. Friend agree that the Budget was especially welcome because a large reduction in borrowing led to lower interest rates and lower mortgage rates? Is he aware that the average family with a mortgage will be £5 per week better off, in stark contrast with Opposition policy, which would penalise that family through higher taxes and higher mortgage rates?

My hon. Friend is right. A contributory factor which has enabled interest rates to come down has been that we have managed to bring the public sector borrowing rate down to 1 per cent. of GDP, a figure reached only twice previously since 1950. Another major influence has been the enormous increase in world confidence in the British economy. As soon as the right hon. Member for Sparkbrook forecasts a crisis, the markets know that everything will come right.

Is my right hon. Friend aware of how well his Budget has been received in the City, where there is still confidence and considered optimism even a week later? Does he agree that the fall in interest rates before and after the Budget are the consequence of the prudent measures that he has taken in reducing Government borrowing to 1 per cent. of GDP?

I am grateful to my hon. Friend for his remarks about the Budget, which has been well received not just in the City, but throughout the country. I noticed that the MORI poll in The Sunday Times gave it the most favourable rating of any Budget since 1979. Even more important, as a result of the successive Budgets that I and my predecessors have introduced since 1979 the British economy is more sound than it has been at any time since the war.

Why has the cut in interest rates taken so long? Is the Chancellor aware that it will not be lost on the British people that he and his predecessors have presided over double figure interest rates for the entire seven-anda-half-year period? That has not been true of any other Government since the second world war. Is the Chancellor aware that the British people also recall that when the Government managed to bring interest rates down temporarily in 1983 they put them up again as soon as the election was over?

Interest rates today are lower than they were when we took over from the Labour Government in 1979. However, if by any mischance Labour were returned to office, interest rates and inflation would go sky-high again.

Does my right hon. Friend accept that it is considered, not only by those on the Government Benches, but by many other informed people, that his Budget is the best since 1979? Does he also accept that many of us think that his important action was to help interest rates to come down and that the Bank of England should follow his excellent lead, particularly bearing in mind today's trade figures?

For as long as I have known him, my hon. Friend has consistently stressed the importance of interest rates. I am glad that he now welcomes the fact that they have come down a bit. He is also right to point to today's excellent current account of the balance of payments figures, which shows a surplus so far this year of £½billion.

As the explosion in private sector borrowing, which is now running at more than 10 per cent. of GDP, was identified in the Chancellor's Red Book as the major upward pressure on interest rates, why is the Chancellor doing nothing to restrain that, and succumbing instead to his obsession with the public sector borrowing requirement? Is that not another example of political prejudice overriding the needs of the economy?

As usual, the hon. Gentleman is entirely mistaken. The chart in the Red Book shows that, while public sector borrowing has declined as a proportion of GDP, private sector borrowing has indeed increased. The totality of borrowing has, however, declined slightly. The big increase in private sector borrowing is a result of the tremendous increase in people buying their own homes on mortgage. We all know that Labour Members are opposed to home ownership, as that last intervention showed.

Glasshouses (Expenditure)

2.

asked the Chancellor of the Exchequer if he will estimate the cost to the revenue in a full year of treating expenditure on glasshouses as plant and machinery rather than agricultural buildings.

I regret that a precise figure is not available, but the cost is likely to be small.

I accept that it is reasonable to write off normal agricultural buildings over 25 years, but does my right hon. Friend accept that to remain competitive with overseas growers—especially the Dutch—British growers must replace their glasshouses every seven to 10 years? As so much of the cost of a modern glasshouse could be decribed as plant and machinery, will my right hon. Friend consider changing the tax rules so that glasshouses can be dealt with as plant and machinery?

Equipment within glasshouses can qualify for the 25 per cent. allowance. Moreover, because of the balancing adjustment system introduced in 1986, if the building itself is demolished or disposed of, the rest of the value that has not been written off can be written off. My hon. Friend made a comparison with Holland. The rate of tax for small companies here is 27 per cent., compared with 42 per cent. in that country. I am not convinced that all the advantages are against the British producers.

Value Added Tax

3.

asked the Chancellor of the Exchequer what recent representations he has received about Her Majesty's Customs and Excise consultation paper "Value Added Tax: Small Business Review".

The consultation paper on VAT was widely welcomed. My right hon. Friend announced in his Budget statement that most of the proposals would be implemented, including cash accounting, with the turnover limit raised from £100,000 to £250,000.

Is my hon. Friend aware of the delight in the small business community at the changes in accounting which the Chancellor of the Exchequer introduced in the Budget and which will improve the tax position of about half of all registered traders? Does he agree that this will lead to the further promotion of more small businesses and more jobs in this vital sector?

I agree that this is a most important measure for small businesses. As my hon. and learned Friend rightly said, the £250,000 threshold for cash accounting covers about 840,000 traders — more than half of all traders who are registered for VAT. It was interesting to note that when the Budget resolutions were voted upon, on a Liberal and SDP initiative, the Opposition parties voted against the very resolution which enables cash accounting to be introduced.

Does my hon. Friend accept that the prompt action on the Customs and Excise review has been well received by all those who want to encourage small firms and the self-employed? Does he also accept that the change to a cash accounting basis will give a welcome boost to cash flows, which in the past have often caused great problems to such firms? Will my hon. Friend address himself to another aspect—raising the VAT threshold for smaller firms from £21,000 to £50,000? Will he continue working to get European agreement on that, because that would also be a great help?

I note what my hon. Friend says about the threshold for registration. As he will know, we have raised that in the Budget in accordance with inflation. There is a proposal in the European Community for 35,000 ecu, which is the equivalent of £26,000. In addition, the cash flow for small companies will be benefited not only by the measures that my right hon. Friend has announced in respect of VAT, but by the 27 per cent. corporation tax for small companies. That will be helpful to their investment.

When can we hope for VAT to return to the 8 per cent. that it was under Labour?

The Labour Government also had a 12½ per cent. rate for VAT. I should have thought that the fact that the Labour party is complaining about excessive consumer expenditure is hardly an argument for reducing the VAT rate.

Living Standards

4.

asked the Chancellor of the Exchequer what information he has on the rise in living standards of (a) a married man on average earnings and (b) pensioners since 1979.

15.

asked the Chancellor of the Exchequer what is the latest information he has on the change in living standards of a married man on average earnings and of pensioners since 1979.

The real take-home pay of a married man on average earnings will have risen by 2·2 per cent. a year between 1978–79 and 1987–88. The latest available information is that the average net income of pensioners rose by 2·7 per cent. a year in real terms between 1979 and 1985. The Budget will help to maintain that improvement.

I thank my right hon. Friend for that reply. Does he agree that it is good news that under this Government pensioners' incomes have risen at an even faster rate than those of the working population? Will he contrast that with what happened during the Liberal-Labour hung Parliament of the old days, when pensioners' living standards and incomes were destroyed by hyper inflation?

My hon. Friend is right. Pensioners' incomes under the Labour Government grew by 0·6 per cent. per annum. That is a sorry contrast with what has happened under this Government. I am sure that pensioners will welcome the reduction in basic rate, which will be worth £1·85 to the average pensioner couple. In addition, 2·8 million pensioners over the age of 65 will have the benefit of tax cuts in the Budget. I am sure that they will also welcome the increase in the age allowance which will bring it to its highest ever level in real terms.

Is my hon. Friend aware that the average married pensioner now has a weekly income of more than twice the value of the state pension? Is he worried that that message has not come across as widely as it should have done? Does he agree that if any additional benefits are to be given they should be concentrated on those who are most in need?

My hon. Friend makes an extremely important point. Some 51 per cent. of pensioners have an occupational pension and 71 per cent. have some investment income, which is why the taxation policies and the policies that would encourage a rise in the rate of inflation — the policies espoused by the Opposition — would be damaging to the interests of pensioners.

Before the Minister and his hon. Friends boast about these rather niggardly improvements in the pension arrangements, may I ask whether he accepts that Britain's pensioners are far worse off and receive much lower pensions than pensioners in all the other EEC states?

I do not accept that. As has been pointed out in the House before, the proportion of gross national product that is spent on pensions in Britain compares well with most countries in the EEC. The point made by my hon. Friend the Member for Mid-Worcestershire (Mr. Forth) about the income of pensioners coming from several different sources — increasingly from occupational pensions and the state pension—representing 40 per cent. of the average pension income is an important fact that the Opposition still have to take on board.

Given that such a high proportion of pensioners now have an increase in income which is liable to tax, is not the introduction in the Budget of an increased age allowance for the over-80s a particularly welcome measure?

My hon. and learned Friend is right. Pensioners have also benefited from the considerable increases in the basic thresholds, which have taken more and more people out of tax. That has benefited a lot of pensioners as well.

Is the Minister proud of the fact that those on the highest incomes in the country have had the highest increase in wealth and income in the last eight years, while the poorest, whom he failed to mention — pensioners and the unemployed — have enjoyed a tiny increase in income? Will he also confirm that the overall burden of family taxation is up significantly on the levels of 1979?

The hon. Gentleman says that the poorest —the pensioners and the unemployed—have enjoyed a tiny inrease in living standards. As I have already demonstrated, living standards are considerably in excess of those that they enjoyed under the Labour Government. What has happened to people on higher incomes is irrelevant to that point. What matters is the absolute increase in the living standards of the pensioners and the poor, and they have been much better under this Government than under the Labour Government.

Order. The hon. Member for Bolsover (Mr. Skinner) must not have private conversations. It is difficult to hear at this end of the Chamber.

Budget

5.

asked the Chancellor of the Exchequer what representations he has received about the Budget.

6.

asked the Chancellor of the Exchequer what representations he has received about his Budget; and if he will make a statement.

8.

asked the Chancellor of the Exchequer what representations he has received about his Budget statement.

17.

asked the Chancellor of the Exchequer what representations he has received about the Budget.

Will my right hon. Friend note the accurate headline in The Economist of 21 March, which simply said.:

"Luck had nothing to do with it."?
Does my right hon. Friend recall that when the Labour party was in power the only time that it cut taxation was when the IMF demanded it? Furthermore, does he recall that the alliance would impose penal taxation for increased pay, which would take away people's negotiating rights to wages and salaries, including those of the teachers?

My hon. Friend makes a number of good points. As to luck, I would not wish to quarrel with the verdict of The Economist on this occasion.

It is perfectly true that of the three or four parties which are chiefly represented in the House, one party, on this side of the House, is in favour of bringing taxes down and is doing so, and the three parties on the other side of the House are in favour of putting taxes up.

Recalling the budgets of former Socialist Chancellors, such as the absent right hon. Member for Glasgow, Hillhead, (Mr. Jenkins) and the absent right hon. Member for Leeds, East (Mr. Healey), is not a measure of the Government's success that their Budgets were approached with trepidation, fear of higher taxation and cuts in public expenditure, while the Budget of my right hon. Friend has been welcomed and centres on the debate on the distribution of increased national wealth?

Having said that, is my right hon. Friend not being unfair to the Opposition parties? Is it not dreadful to give them so little to criticise that they have to threaten to increase taxation at the same time as unemployment is falling and the initials "IMF" have gone out of general circulation in the language of the country? Does my right hon. Friend think that he is being fair to the Opposition parties?

I always do my best to he fair, as my hon. Friend knows, but I am grateful to him for trying to keep me up to the mark in that respect. It is perfectly true that one of the problems that I had in advance of the Budget was that expectations of a good Budget ran so high that there was a great danger of disappointing people. There were never such expectations when Labour Chancellors were in office.

It is also perfectly true that the only short breathing space of sound finance in which the Labour Government ever indulged was when they were under the iron heel of the International Monetary Fund.

Is my right hon. Friend aware of the warm welcome that his Budget has received, in particular from small business men? Does he agree that small business men are an important force in job creation? Does he also agree that if the Government are really serious about curing unemployment, everything possible should be done to secure the future of small businesses?

My hon. Friend is right. Indeed, that has been the Government's consistent policy. The net growth in the formation of new businesses, even after deducting those which have shut down, has been running at about 500 a week, which is far more than in any previous postwar period. That is a very hopeful note for the future. That is one reason why not only have the number of people in work risen by about 1 million since the general election, but unemployment is now falling and has fallen for the past seven months and will continue to fall.

Does my right hon. Friend agree that the decision of the Labour, Liberal and Social Democratic parties to vote against tax cuts is likely to prove as popular as the similar stand by American presidential candidate Walter Mondale, who subsequently just carried only one state.

If the Opposition parties choose to wear the mantle of Mondale, that is their business. Far more important than the Opposition parties is what is happening to British business and industry. We saw only this week the most optimistic survey from the CBI on manufacturing industry since the figures were first collected in the latest form.

The Chancellor of the Exchequer seems to be going round the country telling all the people of his economic success. If he is so successful, why has he done nothing about retirement pensions, and why has he done nothing about family poverty by increasing child benefit? Why have we between 3 million and 4 million unemployed, and why is there a division between north and south? What sort of success is that?

The right hon. Gentleman is slightly mistaken. It is not me who goes round the country speaking of the economic success; it is the country that is telling me of the economic success. The CBI report on Monday or Tuesday of this week is merely the latest manifestation of that.

The right hon. Gentleman talked about the division between north and south. I was particularly interested in an important speech made by my hon. Friend the Member for Darlington (Mr. Fallon) on the economy in the northeast earlier this week, when he pointed out how many new businesses have now been set up in the north-east. He quoted from the Northern Echo, which recently published a survey entitled, "North on way back."

The Government have played fair with the pensioners, which the Labour party never did when it was in office. The answers of my hon. Friend the Economic Secretary to questions earlier today have supplied chapter and verse.

Does the Chancellor really believe that spending a third of public expenditure this year—over £40 billion—on social security, in many cases to keep people out of work, is a sensible way to invest public expenditure? Would it not be better, for very little more money, to create more opportunities for work and to put into work some of the 40 per cent. who have been in the dole queue for over a year who are now long-term unemployed? Does he not recognise that public opinion is in favour of spending more money to create jobs for the unemployed, of doing something about the less prosperous parts of the country and for those on fixed incomes, and not giving the resources away in tax cuts?

The hon. Gentleman has asked a bizarre question and is suggesting that all the money spent on social security is paid to keep people out of work. The vast majority is going on pensioners. I have just been asked about that. There is a need for public expenditure in particular areas. In the autumn statement for 1987–88 I announced an increase in public expenditure on the priority areas of £4¾ billion. On top of that I announced in the Budget a reduction in taxation of over £2½ billion and a reduction in public sector borrowing requirement, above what was set out in the medium term financial strategy, of £3 billion. I believe that even the hon. Gentleman should applaud that balance.

What response has the Chancellor had to the Budget proposals from our nurses? As the right hon. Gentleman is claiming such a success for the policies of the past seven years, will he give an assurance that the Government will accept, without qualification and in full, the recommendations of the pay review body on nurses' pay when it reports to the Government in the next week or so?

I am not quite sure what that has to do with the question, but that matter will be addressed in due course. In any event, it has not come before the Cabinet yet. As for the question of nurses and the Budget, if the hon. Gentleman wants a link, nurses will benefit considerably from the reduction of 2p in the basic rate of income tax.

Has my right hon. Friend received any representations since the announcement that the Government will not proceed immediately with the Green Paper proposals on the reform of personal taxation? Does my right hon. Friend accept that one of the main reasons for the low level of response is that the main beneficiaries of transferable allowances are married women and they do not have a pressure group to represent them?

I believe that my hon. Friend makes a valid point. It has always been difficult with such consultation exercises introduced by Green Papers, because one gets responses from various pressure groups and lobbies, but remarkably few from the public. However, very often it is the opinion of the public that is of great importance in such matters, rather than the views of particular interest groups. I have noted what my hon. Friend said.

If the post-Budget prospects for employment are as good as the Chancellor makes out, why did the Government write to the EEC to say that, on present strategies, there will be no serious inroads into the level of unemployment in Great Britain?

Manufacturing Industry

7.

asked the Chancellor of the Exchequer if he will estimate the effect of his Budget on manufacturing industry.

Manufacturing industry will continue to benefit from the Government's policies, which have seen inflation fall to levels not experienced in this country for almost two decades and created a stable and encouraging environment in which businesses can plan and invest. The Budget continues them and we expect manufacturing output to increase by a further 4 per cent. this coming year.

Does the Chief Secretary share the widespread concern, felt on both sides of the House, about the effect of trade barriers in Japan that are operating with great discrimination against British manufacturing industry and to which there has been no reference whatsoever in the Budget debates? If the right hon. Gentleman shares our concern, can he say what action the Government intend to take to deal with Japan, other than bleating about unanswered letters?

Yes, I share that concern. Yesterday my hon. Friend the Minister for Trade made clear what action the Government were taking.

Does my right hon. Friend agree that the one thing that manufacturing needs is certainty? The Budget has given the certainty of low inflation, and therefore businesses can plan ahead without devastating effects on their cash flow. Therefore, their plans have the chance of coming to fruition.

I agree with my hon. Friend. It is not only the Budget, but the certainty and stability of the economic policies of the past seven years that have produced results. Since the last election manufacturing industry output has gone up by 10 per cent., productivity by nearly 16 per cent., export volume by nearly 30 per cent., investment by 21 per cent., and profitability in manufacturing industry is the highest since 1973. I believe that the continuation of those policies is best for industry and, indeed, industry has recognised that.

Will the Chief Secretary elaborate on the action which he says has been taken about Japan? Those of us who listened to the Minister for Trade yesterday gained the impression that nothing was happening except that letters had been written to the Prime Minister of Japan to which he had not even bothered to reply.

The Government will continue to pursue the issue that was dealt with in the letters. The Government continue to take action on the problem, within the EEC and in other ways.

Has my right hon. Friend received any representations from the hon. Member for Dagenham (Mr. Gould)? If so, have the representations shed any light on the fact that the hon. Gentleman is now apparently against tax cuts, whereas in 1983, in a Fabian tract or pamphlet, he was calling for a Labour Government to implement such cuts so that

"we can buy our way back into full employment?"

I have received no representations from the hon. Gentleman apart from his contribution to the Budget debate, to which I listened. It is clear that the policies that he is putting forward to the country include higher interest rates, higher taxation and higher inflation that are the reverse of what manufacturing industry now requires.

Is the Minister aware that the problem of Japanese trade is not entirely new, and that in November 1986 the Prime Minister was saying that what happened in Japan should happen in Britain and vice versa, and that competition was a two-way street? When the Prime Minister of Japan does not even reply to the right hon. Lady's letters, what action will the right hon. Gentleman take to translate the Government's rhetoric into reality?

I am sure that if the hon. Gentleman cares to put the question about my right hon. Friend"s letters to my right hon. Friend he will get a clear answer.

Budget Proposals

12.

asked the Chancellor of the Exchequer if he will estimate the effect of his Budget on the balance of payments.

14.

asked the Chancellor of the Exchequer what assessement he has made of the implications for the balance of trade for 1987–88 of his Budget proposals.

The current account may show a modest deficit this year as the full effects of last year's exchange rate adjustment take time to work through. But export volumes are already growing strongly and in the three months to February, excluding oil and erratics, they were 11 per cent. higher than a year earlier.

The Chief Secretary will be aware that the £2 billion forecast deterioration in the balance of trade is vulnerable to further movements in the exchange rate. Is the assumption that the exchange rate will remain broadly at its present level an adequate assurance to industry, which has to make plans for the future? What will the Chancellor of the Exchequer do if the exchange rate deviates?

My right hon. Friend the Chancellor of the Exchequer has made it clear that he believes that the current exchange rate is broadly satisfactory. Obviously he will bear the matter in mind as the year progresses. I am sure the hon. Gentleman has observed that we have had extremely good trade it figures for February, which have just been announced. I am sure he will be pleased that the manufacturing trade deficit is down by nearly £800 million in the three months to February compared with the previous three months.

Is the Minister saying that the forecast deficit in manufactured goods of £8 billion will be less in the event of the figure that we have been given? In any event, is he happy about the size that it will be? He seems to be unduly complacent today.

It is too early to say what the position will be for the remainder of the year, and I would not wish to change the forecast now. I hope the hon. Gentleman will agree that there has been a good start to the year. He will know that since 1981 the United Kingdom's volume share of developed country's exports of manufactured goods has held steady after decades of decline. The past three months figures are extremely encouraging.

The question refers to the balance of payments. Does my right hon. Friend agree that one of the positive factors of our balance of payments, as a consequence of the Government's policies, is that it has been possible to secure considerable earnings from overseas assets? Is it not likely that this will continue as North sea oil declines?

My hon. Friend is entirely right. There has been a large increase in overseas assets and we expect about £110 billion at the end of 1986. These assets have grown up very much over the past seven years, and, as my hon. Friend has said, they make a major contribution to our overseas earnings, and a permanent one. The current figure is about £4 billion.

Does my right hon. Friend agree that criticism of the prospects for our balance of payments comes from a rather extraordinary quarter—from parties whose policies are likely to increase substantially any deficit that will occur?

I entirely agree. I shall pick up one example from the many that I could choose. It is a near certainty that the Opposition's policies would greatly increase inflation. That would most seriously and adversely affect Britain's competitiveness, and, therefore, have a serious impact on the trade figures.

Does the right hon. Gentleman agree with the annual EC economic report, which the Government have accepted, which states that the modest recovery in investment in manufacturing is insufficient to reverse the continuing decline in manufacturing jobs and the fact that we always have more manufactured imports than exports?

I wish to make it quite clear that the report to which the hon. Lady refers is the Commission's report.

I am sure that she will be as pleased as anyone to recognise that manufacturing investment is expected to rise this year and that we have an exremely good CBI March survey on that score. Manufacturing investment has been well up since 1983, and we want that to continue.

Does the right hon. Gentleman agree that one way in which British exports and manufacturing industry could be helped would be immediately to enter the European monetary system exchange rate mechanism? That would help by stimulating lower interest rates and bringing the continuity to the exchange rate that is so badly lacking, as is demonstrated by the present fluctuations.

The prudence shown in the Budget is clearly helping with lower interest rates. There are many other aspects of the Budget, including reductions in basic rate tax, which will help by putting downward pressure on wage increases, which will help industry's competitiveness and costs as well. Those measures are the best way in which to help manufacturing industry.

As regards the European monetary system, I have nothing to add to what my right hon. Friend the Chancellor has often said in the House.

Gross Domestic Product

18.

asked the Chancellor of the Exchequer what is the latest information he has about growth of gross domestic product in the United Kingdom compared with the rest of the European Economic Community during the 1960s, 1970s and 1980s.

During the 1960s, and again during the 1970s, the United Kingdom rate of economic growth was the slowest of all the major EEC economies. During the 1980s we have had the fastest rate of economic growth of all the major EEC economies.

Will my right hon. Friend confirm that, as far as growth and productivity in manufacturing industry are concerned, Britain's performance in the 1980s has outstripped even that of Japan? Does that, perhaps, account for the reluctance of the Japanese to allow British exporters access to their market on fair terms?

On the first point, it is true that during the 1980s as a whole our manufacturing productivity has grown fastest of all the G7 countries — the major industrialised countries that go to the annual economic summit. In the 1960s and 1970s, however, our rate of growth of manufacturing productivity was the lowest.

As for the most recent Japanese conduct in particular, we have yet to get a final decision, but the apparent shutting out of Cable and Wireless from an important contract in Japan is unacceptable.

Consumer Spending

19.

asked the Chancellor of the Exchequer if he will make a statement concerning the current level of consumer spending.

Consumers' expenditure is forecast to grow at around 4 per cent. in real terms in 1987.

Bearing in mind that the increase in consumer expenditure has been boosted by an increase in the use of credit cards, what is the precise relationship between that increase and the velocity of circulation?

That is a topic which the hon. Gentleman might raise in the Treasury and Civil Service Select Committee rather than at Question Time.

As Opposition Members are always grumbling, and as many of us are concerned about unemployment, why on earth are they concerned about consumer spending, which reduces unemployment?

My hon. Friend is absolutely right, but it is only one of many contradictions in the Opposition's approach to economic policy at present.

Public Sector Borrowing Requirement

20.

asked the Chancellor of the Exchequer what is his latest estimate of the public sector borrowing requirement for 1986–87.

My latest estimate for the public sector borrowing requirement in 1986–87 is £4·1 billion, which is around 1 per cent. of gross domestic product. This represents the lowest that the PSBR has been as a percentage of GDP for 17 years.

Does my right hon. Friend agree that it is a very remarkable achievement to have cut the borrowing requirement to this extent in a year in which there have also been substantial cuts in taxation, and, in the autumn statement, a very substantial increase in public spending? Is this not just the kind of triple crown which, unfortunately, has eluded the English rugby team this year?

My hon. Friend is right, and, of course, this is the result of sound policies consistently pursued over a number of years, which have strengthened the economy to the point where this is possible. That, indeed, is what would be jeopardised were there to be any change, by any mischance, in the policies that have been pursued.

Prime Minister

Engagements

Q1.

asked the Prime Minister if she will list her official engagements for Thursday 26 March 1987.

This morning I presided at a meeting of the Cabinet and had meetings with ministerial colleagues and others. In addition to my duties in this House, I shall be having further meetings later today. This evening I shall attend a state banquet given by King Fand of Saudi Arabia.

Is my right hon. Friend aware that when she goes to Moscow next week and raises human rights issues, with all-party support in this House, Britain's case will not have been helped by the extraordinary article in the Soviet press attacking Britian's record on human rights written by the right hon. Member for Chesterfield (Mr. Benn)? Would it not help if those remarks were immediately disowned by the Deputy Leader of the Opposition?

I agree that it would, but if the right hon. Gentleman, who has used so extensively the liberties of this country over many years, finds that he can no longer tolerate them, I should be delighted to ask Mr. Gorbachev, on his behalf, for a resident's permit in the Soviet Union.

When did the Prme Minister first become aware of the Health Education Council's report — [Interruption.] —"The Health Divide: Inequalities in Health in the 1980s", which the chairman of that council attempted to suppress on Tuesday?

I first became aware of it when I read the newspapers this morning. As the right hon. Gentleman is aware, the report has not yet been endorsed by the chairman of the Health Education Council or by its members. The Government have not attempted in any way to prevent publication. The chairman of the council has emphasised that at no time did Ministers intervene.

I should have realised that the Prime Minister would be more interested in the political machinations than in the content of the report. Let me ask her about that. How does she justify the fact that, during her eight years in office, health inequalities have so increased and the health of the lower paid and unemployed has so deteriorated that the life expectancy of these people has been reduced?

I have indicated to the right hon. Gentleman that at no time did Ministers intervene to prevent the publication of that report. I do not know whether he has read it in full. I have not read it in full, but in view of what is in the newspapers this morning I had a quick look at it. Overall, health in the United Kingdom has improved steadily. Life expectancy continues to rise, infant mortality has fallen by one third since 1979, and the study found that every country experiences to a greater or lesser extent differences in health between regional, occupational and income groups.

I am not suggesting that Ministers wrote or even read the report. I am suggesting that they are responsible for the circumstances that the report reveals. Does the right hon. Lady understand that that report proves conclusively that there is a lower life expectation for men and women in the lower income groups than there was eight years ago, and that is the result of their deteriorating health prospects? In the light of that report, how can the right hon. Lady justify a system that does not concentrate resources on pensioners, on child benefit and on reducing unemployment? In the light of that report, how does the right hon. Lady justify a policy which, over eight years, has cut taxes by £50 a day for the best paid and will not provide £5 a week for the pensioners?

The Government have vastly increased support for the National Health Service—the right hon. Gentleman chooses to ignore this—from £7½ billion in the year when I went into No. 10 Downing street to £20 billion next year. Moreover, this Government have attempted to deal with regional health problems by a policy which was started by the last Government—the policy of re-allocation of National Health Service resources to those areas in greatest need. We London Members have occasion to learn that what we have given up has benefited the other regions.

Has my right hon. Friend seen the renewed reports that the Japanese Government intend to squeeze Cable and Wireless out of its planned investment in the Japanese telecommunications industry? What do the Government intend to do about that deplorable situation?

As my hon. Friend is aware, I wrote to Mr. Nakasone, the Prime Minister of Japan, on 4 March to express our interest in the Cable and Wireless bid. I have not yet had a reply—[Interruption.]

Order. Those hon. Members who were in the House yesterday will know that this is a matter of grave concern.

We see this as a test case of how open the Japanese market really is. I remind the House that we shall shortly have more powers. When, for example, the powers under the Financial Services Act 1986 and the Banking Bill become available, we shall be able to take action in cases where other countries do not offer the same full access to financial services as we do.

Will the right hon. Lady, on her visit to Moscow, on which we wish her well, raise three questions? First, on the comprehensive test ban treaty, in which we are a direct participant in the negotiations, will she explore the possibility of an interim agreement for a reduced number of tests at a much lower threshold? Secondly, on the 1977 treaty on the prevention of accidental use of nuclear weapons, will she build on article 4 and improve the direct communications between Downing street and Moscow? Thirdly, will the right hon. Lady raise with the Soviet Union the serious problems of the danger to shipping in the Straits of Hormuz, on which there should be united action and on which Soviet assistance in saying that the Iranian threat to shipping will be reduced internationally would be very helpful?

On the first matter, I have already made clear our view that there should be a step-by-step approach. I do not think that there is anything further to report. With regard to the 1977 treaty, it is possible that my right hon. and learned Friend the Foreign Secretary will deal with that matter with the Soviet Foreign Minister. On shipping, we are already very active in the Security Council of the United Nations. There must be no question ever of closing that sea highway to international shipping. We are already very much concerned to see what we can do. As for the other matters, I think that the right hon. Gentleman realises that there are even more important matters to raise in Moscow than those to which he has referred.

I wish my right hon. Friend well on her visit to the Soviet Union. If she raises the issue of human rights with Mr. Gorbachev, she will undoubtedly be told that that is an internal matter for the Soviet Union. Will the Prime Minister then make it clear to Mr. Gorbachev that to us in the West matters of human rights are the foundations of democracy, and that if he wants to deal with us he must understand that once and for all?

Yes. We will raise matters of human rights. I have had a tremendous number of names and personal cases submitted to me, but it is not only an internal matter. Ever since the Helsinki accords were signed we have had standing to inquire into these matters. If we are to get the reductions in nuclear weapons and other weapons that we seek and would wish to have, we will be able to have full confidence and trust in the Soviet Union only if we feel that the she treats her people more like we treat ours than is the case now.

Q2.

asked the Prime Minister if she will list her official engagements for Thursday 26 March.

Was the Prime Minister consulted before Austin Rover was instructed to hand over confidential information to Ford during the abortive merger last year, or did the right hon. and learned Member for Richmond, Yorks (Mr. Brittan) feel confident that he already knew the Prime Minister's attitude to this act of industrial sabotage?

I believe that matters were handed over between the two companies on a reciprocal basis.

Burnham Grammar School

Q3.

asked the Prime Minister if she will pay an official visit to Burnham grammar school.

Is my right hon. Friend aware that Burnham grammar school is a school of proven worth and excellence, which is widely supported by the local community and industry? Does she agree that the fact that there are only 150 grammar schools remaining in the country is a matter for considerable regret? Will she, therefore, ask the Secretary of State to think long and hard before approving any further closures?

I agree with my hon. Friend that grammar schools have served our country very well. Hon. Members on both sides of the House have great cause to be very grateful for the education that grammar schools have provided. For many of us they have provided the ladder from the bottom to the top. I will pass on my hon. Friend's views to my right hon. Friend the Secretary of State for Education, but I understand that my right hon. Friend will not approve the closure of a school of quality unless he is satisfied that it is unlikely to be able to sustain that quality or that the alternative is likely to be better.

Engagements

Q4.

asked the Prime Minister if she will list her official engagements for Thursday 26 March.

I refer the hon. Gentleman to the reply I gave some moments ago.

Will you be telling Mr. Gorvachev that you are totally wedded to cruise and Trident missiles—

Will the Prime Minister be telling Mr. Gorbachev that she regards cruise and Trident missiles as inevitable in this country and that she wants to see Britain as a permanent nuclear weapons state? Will not her commitments on this issue hinder the disarmament process? What will be broken—her commitments or the disarmament process?

I will be making it perfectly clear that the nuclear deterrent has deterred not only conventional war but nuclear war. I think it vital that this country retains its independent nuclear deterrent, which is but a very small percentage of the enormous number of intercontinental ballistic missiles that the Soviet Union possesses.

When my right hon. Friend meets Mr. Gorbachev, will she express her utter condemnation of the bombing raids launched from Afghanistan on Pakistan territory this week, which resulted in the death of many innocent civilians, including Afghan refugees? Will she urge him to use his influence to bring a halt to these murderous missions?

Yes, of course the subject of Afghanistan must be raised. Afghanistan is an occupied country, and the only satisfactory conclusion is for the Soviets fully to withdraw their occupying forces and leave Afghanistan to determine her own future and to choose her own Government. The matter will be raised with the Secretary General.

Q5.

asked the Prime Minister if she will list her official engagements for Thursday, 26 March.

Will the Prime Minister reconsider the announcement on Monday that "Lord UB 40" intends to introduce economic conscription on to YTS? Will she also accept the answer given to me on the same day by her Employment Minister, which shows that allowances on YTS have been cut by £18·50 compared with the rise of average earnings over the last nine years? Will she finally recognise that today's lunchtime demonstration of hundreds of London school students will spread like wildfire over the next 10 days unless these proposals for conscription are dropped?

No. We have successfully met our guarantee each year of a place on YTS for all 16-year-olds, and we have extended the guarantee this year to 17-year-olds. We believe that there is no need for anyone under 18 to be unemployed, because everyone has the choice of a place at school, college or on YTS, or a job. I would have hoped that the hon. Gentleman would also recognise that YTS gives an excellent training for young people who would not otherwise have it and will help them to get jobs. I hope that he will welcome that.

Q6.

asked the Prime Minister if she will list her official engagements for Thursday 26 March.

Has my right hon. Friend had a chance to study the international employment figures, which show a general and continuing decline in traditional manufacturing jobs, balanced by increases in other sectors? Does she agree that the constant denigration of service jobs by Opposition Members is resented by the millions of employees in distribution and transport, communications, health and research, who make a vital contribution to the national economy and whose numbers have gone up by well over 1 million since my right hon. Friend took office in 1979?

I agree with my hon. Friend that international figures show that a smaller proportion of working people are employed in manufacturing industry, which, nevertheless, is producing far more in output because of advances in technology. That is a characteristic of all Western industrialised countries. A further characteristic, as my hon. Friend says, is that an increasing number of people are employed in services, which also make a tremendous contribution to our balance of payments surplus. Services are a valuable supplier of jobs in this country and others. I agree with my hon. Friend that the prospects for the future in this country are very healthy, both in manufacturing and in service jobs.