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Supply Side

Volume 171: debated on Wednesday 25 April 1990

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To ask the Chancellor of the Exchequer what recent measures he has introduced affecting the supply side of the economy.

The Government have introduced many measures designed to improve the operation of the supply side of the economy, through improved incentives, more open markets, the abolition of unnecessary or obsolete regulations, and the introduction of greater competition to the public sector. The following are among the most recent measures introduced which should have important supply side effects.The successful transfer of the 10 water supply companies to the private sector last December means that since 1979 we have reduced the size of the state-owned sector of industry by almost half. The future privatisation programme includes the sale of the 12 regional electricity distribution companies in England and Wales in the autumn. And, of course, more competition has been introduced into the electricity generating industry with the splitting of the CEGB into National Power and PowerGen, leading up to their intended privatisation early next year. The Scottish electricity industry will also be sold next year.The Employment Act 1989 has continued the Government's process of gradual reform of industrial relations legislation to remove inflexibilities from the labour market and reduce unions' capacity to abuse their market power. Specifically the Act removed the remaining legal protection from all types of closed shop, and from secondary industrial action. The Dock Work Act 1989 repealed the national dock labour scheme, so removing the unneccessary costs imposed by its restrictive labour practices.Last October saw two highly significant reforms: the reform of employees' national insurance contributions which cut contributions for virtually all employees, and removed a major disincentive to the low-paid who previously lost out when their income rose above the two intermediate steps, now abolished; and the abolition of the pensioners' earnings rule which also removed a severe disincentive, allowing a large number of pensioners to work and earn more income without having their pensions abated or eliminated altogether.We have now launched the first training and enterprise councils, or TECs (local enterprise councils in Scotland), which will be charged with developing the quality effectiveness and relevance to local labour markets of the Government's existing training and business assistance programme.The Budget last month included a number of measures of specific help to small businesses, whose general success is vital to the efficient operation of the supply side. These included an increase in the small firms corporation tax threshold, a comprehensive system of relief from VAT on bad debts, simplification of VAT registration rules, and the maximum increase in the VAT registration threshold allowed under EC law.The Budget also gave a further boost to the Government's measures to encourage wider share ownership by increasing the annual limit on investment in a personal equity plan, and providing capital gains tax deferral for sales of shares to employee share ownership plans. In addition, the Chancellor of the Exchequer announced the Government's intention to abolish stamp duty on share transactions. This will reduce the cost of share dealing, improving the competitiveness of the United Kingdom equity market and encouraging the spread of share ownership. This reform will take effect in late 1991–92, to coincide with the introduction of the stock exchange's TAURUS dematerialised (paperless) share register and settlement system.