House Of Commons
Tuesday 23 October 1990
The House met at half-past Two o'clock
Prayers
[MR. SPEAKER in the Chair]
Death Of A Member
I regret to have to inform the House of the death of Norman Findlay Buchan esquire, Member for Paisley, South and I desire, on behalf of the House, to express our sense of the loss we have sustained and our sympathy with the relatives of the hon. Member.
Private Business
City Of Dundee District Council Order Confirmation Bill
Zetland Masonic Sick And Widows And Orphans Fund Order Confirmation Bill
Considered; to be read the Third time.
Oral Answers To Questions
Education And Science
Teachers
1.
To ask the Secretary of State for Education and Science what new proposals he will be putting forward to improve the pay and general standing of teachers.
The remit that I gave to the interim advisory committee on 14 September as regards teachers' pay and conditions in 1991–92 invites the committee to build on the far-reaching improvements introduced in teachers' pay following its excellent report of last year. I announced on 23 July my intention to introduce legislation at the earliest opportunity with a view to restoring teachers' negotiating rights in time for the 1992–93 settlement.
Is not it a little shaming that local education authorities like Bexley have to recruit teachers from abroad due to the lack of the home-grown variety? Will my right hon. Friend make it crystal clear that teachers are a special case and that if we are to look after their recruitment, retention and general standing in the community, they must have a significant pay increase?
My hon. Friend knows that the position was greatly improved this year in areas where there were previously shortages. Only a handful of schools have vacancies this year. The number of teachers recruited from overseas was very small and in most cases was for special purposes. There has been a big improvement and that is due both to the increases in teacher supply which we are bringing about and to the general increase and improvement in teachers' pay and conditions.
The Secretary of State will know that many of those teachers recruited from abroad are already leaving schools because they are disillusioned. Will not he admit, that despite his valiant efforts on pay last year, teachers' salaries over the past three years are still lagging behind inflation? Will he now commit himself to ensuring that in this year's pay settlement teachers will receive an award that, at the very least, will keep pace with this year's inflation, if not improve on it? Until that is achieved, teachers, who are facing many extra burdens as a result of the national curriculum, will not teach with any enthusiasm in our schools.
The hon. Gentleman made several points and I will deal with one or two of them quickly. I repeat that the number of teachers recruited from overseas is very small in relation to the total teacher supply. Indeed, there are advantages in such recruitment and that practice has always been followed. On average, teachers have had an increase of 50 per cent. in their pay since 1986 and it is well up in real terms over the past 10 years. The hon. Gentleman will be aware that there is much greater flexibility in the teaching salary structure now and many teachers in particular shortage areas are receiving well above the average. There has been a substantial improvement and I indicated in my remit to the interim advisory committee the general shape of what I hope the teachers' pay settlement will be next year.
Does my right hon. Friend accept that the general standing of teachers would be helped greatly if teachers and leading teachers in our schools were consulted more often than are administrators, politicians and others? May I congratulate my right hon. Friend on his recent decision on single sciences, which was reached according to the very principle that I have just described? That is good for the recruitment of teachers. Let the advice of good teachers be taken more often.
I am grateful to my hon. Friend. He will know that I talk to an awful lot of teachers, not just to my advisory bodies, as I go round the country, and that they come to see me. The single science decision—I am grateful for my hon. Friend's comments on it—in part reflected that. My hon. Friend will recognise also that, with the introduction of local management of schools and with decisions being taken much more at school level, it is much easier now for governing bodies and heads to consult teachers in their schools.
Why does the Secretary of State continue to mislead teachers and the public by making wholly untrue claims about the increases that teachers have enjoyed over the past four years, when the only increase that they have had in real terms was between 1986 and 1987? As the Select Committee report and the Secretary of State's own teachers' pay committee make clear, teachers' pay in real terms has been cut in each of the past three years. What kind of improvement in teachers' morale does the right hon. Gentleman think can be achieved when he and his colleagues have cut teachers' pay for each of the past three years? If he wants to improve matters, will he here and now give a categorical assurance that he will fully fund any increase in teachers' pay recommended by the interim advisory committee?
The hon. Gentleman must take into account the fact that there is now much greater flexibility in the teachers' salary structure system. Therefore, a considerable number of teachers will have had substantial increases in the past few years. In the period of this Government, teachers' pay on average has increased by 30 per cent. in real terms; that compares with an average increase of 6 per cent. under the previous Labour Government. I shall be making further comments about teachers' pay for next year. At present, of course, the interim advisory committee has hardly embarked on its work. I shall make comments at the appropriate time when the education part of local authority total standard spending is announced. I noticed that, in the Walden interview, the hon. Gentleman was all over the shop when asked about Labour's commitment to extra spending. It was not going to come from extra taxation; it was not going to come from extra borrowing; it was not going to come from anywhere.
Teacher Shortages
2.
To ask the Secretary of State for Education and Science what further initiatives are currently being considered by his Department to help relieve the problems of teacher shortages in particular subjects in the south-east.
We already have in place a range of measures that are helping to relieve teacher supply difficulties in the south-east.
Our September count of vacancies revealed that all local education authorities, including those in London and the south-east, had succeeded in filling the great majority of the posts that were vacant at the beginning of the summer.I congratulate my hon. Friend the Minister of State, welcome him to his debut with chalk and blackboard in the House and wish him a long and successful stay in his position.
In Surrey, the problem is becoming quite serious. The readvertisement of jobs for primary school teachers is running at about 27 per cent., and for secondary school teachers it is now 31 per cent. Will my hon. Friend assure the House that the measures that have been announced will be brought in as soon as possible so that local pay bargaining can increase the potential for giving bursaries to teachers in special subjects, in particular maths, modern languages and science? Will he also make sure that local management of schools provides even greater flexibility so that Surrey and other counties in the south-east can fill their vacancies?My hon. Friend will reflect upon the need for his own county council to consider whether local funding is appropriate at some time in the future. Surrey has taken advantage of a scheme run by my Department, that has enabled the setting up of courses specifically for women returners who have experience in teaching modern languages. As a result of one course alone, Surrey was able to recruit 22 modern language teachers.
Does the Minister of State realise that the Select Committee would never have published its report on teacher supply, which took nearly two years to complete, unless the position was deadly serious? Does he realise also that talking about being able to put a body in front of every class, whether it be in the south-east or elsewhere, is nonsense? The number of applications for major teaching posts has fallen catastrophically. Whereas there used to be 20 or 30 applications, the number has now dropped to one, two or three, and the people who are employed are not necessarily the people who are wanted? As the problem is more serious than that, will the Minister please treat it as being more serious and settle it once and for all?
The hon. Gentleman appears not to be aware that the overwhelming majority of classes have permanent teachers who teach children on a well-established basis. The level of teacher vacancies in our schools is almost exactly the same as it was 10 years ago when the Labour party left government. Those are the facts. It is no good the hon. Gentleman exaggerating the position.
Does my hon. Friend accept that the only way to eliminate teacher shortages in the south-east is to abolish national pay scales and to move to a system of regional pay with school-centred pay bargaining? The second thing that could be done to improve teacher morale in the south-east would be to ask the hon. Member for Blackburn (Mr. Straw) to keep his mouth shut for at least a year.
I am sure that the hon. Member for Blackburn (Mr. Straw) will pay attention to the advice given by my hon. Friend. We should all benefit from that advice being followed.
Pupils (Testing)
3.
To ask the Secretary of State for Education and Science if he will make a statement on his deliberations about standardised testing for seven-year-olds.
5.
To ask the Secretary of State for Education and Science what is his policy on the testing of children at the ages of seven and 11 years as a means of monitoring standards in schools.
I made an oral statement to the House on 18 October and published the specification for the first standard assessment tasks to assess seven-year-olds in 1991. Copies of the specification have been placed in the Library and the Vote Office.
The formal assessment of seven and 11-year-olds is a key part of the national curriculum and will contribute enormously to the effective monitoring and raising of educational standards in schools.Will the Minister think back to when he and his friends took the 11-plus and remember how some of his friends were labelled a success while others were labelled a failure? Will the right hon. Gentleman reassure the House that the results of the testing for seven-year-olds will not be made public?
The assessment, or testing, of seven-year-olds is designed to enable teachers and pupils in all schools to be aware on a systematic basis of the level that has been reached by individual pupils so that their strengths can be built on and their weaknesses tackled. Reporting will be to the parent. We have not proposed statutory obligatory reporting of the overall school results for seven-year-olds, but I hope that schools will publish aggregate figures and I shall encourage them to do so.
Does my right hon. Friend agree that what parents really want is to know what their children are being taught and that they will therefore warmly welcome the tests that he has introduced? Does he further agree that, far from tests creating failure,s, the absence of testing would create failure, because no one would have any idea of what is being taught in some of our schools, especially in Labour authorities?
I agree with my hon. Friend on both points, but I would go further. I believe that through the standard external—tests—not just the assessments by teachers-parents want to know how their children are progressing with the basics, such as reading, arithmetic, writing and basic scientific skills. That is what the tests concentrate on, because that is what parents and most teachers want.
What standards are being set for, and what lessons are being learnt by the primary school children at St. Paul's school in Staffordshire, whose parents were told a couple of weeks ago to bring in not only their own pens, pencils, rubbers and hand towels, but—[Interruption.]
Order.
but their own toilet rolls? Is not it a fact that not one education—[Interruption.]
Order. The hon. Gentleman must be given a chance to put his question.
Is not it a fact that not one Education Minister on that Front Bench would allow any of his children to learn a lesson like that about the inadequacies of the education provision in this country? Why should our children have to learn that lesson?
I do not see what that has to do with the testing of seven-year-olds. The matter that the hon. Gentleman raised is for the local education authority. I believe that there was some misunderstanding of what was said at that time. It has nothing to do with the testing of seven-year-olds or with raising standards.
My right hon. Friend will have noted that the general public invariably dismiss what politicians say but like to listen to what royalty and religious figures say. Will he endorse the comments made today by Her Royal Highness Princess Anne, a leading mother in Britain, who said exactly what we say—that we should get back to basics with standardised testing?
Order. It is out of order to bring the royal family into our arguments.
The standard test brings us back to the three Rs—reading, writing and arithmetic—so that children, parents and teachers know what children should learn. Is not it despicable that many educationists who talk about the decline in education are the very people who are against testing?
The vast majority of parents welcome what we propose to do next summer on testing seven-year-olds. As my hon. Friend says, the external testing will concentrate on the basics, which are the fundamental parts of education for all children. I am sure that it is right to do so at the age of seven.
The Secretary of State recognises that the real role of testing at that early age is to aid children's learning and identify their strengths and weaknesses. How can teachers work on those weaknesses and give parents the confidence that problems that have been identified will be worked on without the additional support and encouragement which Surrey county council has costed at about £400,000 a year?
The hon. Lady will know that we have increased the spending per pupil in all schools across the board, not just primary schools, by over 40 per cent. after inflation. It is absolutely typical and it does not surprise me, but it is tedious to hear Labour Members pretend that they would be willing to spend more on education. They know perfectly well that they always include the phrase, "as resources allow". It was perfectly obvious from the comments made by the hon. Member for Blackburn ( Mr. Straw) on television recently that the Labour party will not increase spending more than we are doing. It is a bit rich of the hon. Lady to put forward that argument. We are increasing spending per pupil.
My right hon. Friend will be aware of the anxiety felt by many at a report published at the beginning of September that showed that in 10 local education authorities reading standards have declined during the past 10 years. Does he agree that it is important that an assessment at the age of seven takes into account not only the standards achieved by individual children but the methods used by teachers to ensure that children can read properly? Does he also agree that parents are interested as much in how their children are doing in relation to other children as in how they are doing in an absolute sense?
The evidence from reports on some reading tests is not clear. That is why I have asked for testing to be done much more nationally. We shall have the results by Christmas. It is important to stress that that evidence is not clear. The educational psychologists who compiled a report said that it provided only prima facie evidence. However, one thing is clear. If, in any school, there is a decline in reading standards, it is to do not with resources, but, as those same educational psychologists said, with teaching methods. It is from that point of view that I shall consider the evidence. My hon. Friend is entirely right. The whole point of the national curriculum and of testing at seven is not only to make comparisons but to ensure that we have national information about reacting standards compiled on a comparable basis.
Student Loans
4.
To ask the Secretary of State for Education and Science if he will make a statement on the operation of the student loans scheme and access funds.
The loans scheme is up and running and the access funds are in place. The Student Loans Company opened for business last month and I am delighted to tell the House that, as of yesterday, 14,500 students have already applied. The company is operating very efficiently, as I saw when I recently visited it.
If the student loans scheme is so good, why have only 14,500 students applied for it? Why are the Government spending £1 million on advertising the scheme, especially when, yesterday, Edinburgh university announced a freeze on all staff recruitment because of its dire financial position? Do the Government accept that money should be spent on funding our university education, or are they happy for it to fall further and further behind as the rest of Europe races ahead?
The hon. Gentleman overlooks the fact that funding in real terms has increased by some 9 per cent. during the period of this Government and, last year, in cash terms, an additional 10 per cent. was made available. During the three years of the present survey about £1 billion will be added to higher education expenditure for all purposes. Universities, far from being deprived of funding by the Government, have had a significant increase in funding and, correspondingly, are increasing the opportunities available to students in higher education.
Will my hon. Friend take this opportunity to give the House an idea of the impact of the introduction of student loans on applications for student places this year?
I am extremely encouraged, as is the House, I hope, that 14,500 applications have already been made to the scheme. In response to the first point of the hon. Member for Edinburgh, Central (Mr. Darling), I believe that that is an encouraging start to the scheme, especially considering that universities and polytechnics returned for the new academic year only in the past fortnight.
May I welcome the Minister to his new responsibilities? I should point out, however, that the 14,500 applications that he has just mentioned represent less than 2·5 per cent. of the Government's target of take-up. Is not that an abject failure? Does he believe that the student loans scheme offers the means by which students can pay supplementary fees for courses?
Supplementary fees are not under discussion. The student loans scheme is designed to support student maintenance. The hon. Gentleman should not ignore the central fact that our new system of student support means more money for students. The uprated grant and the new loan represent an increase of 25 per cent. on last year's grant. There is no question but that it is welcome to students and all the indications are that this autumn enrolments have again risen substantially.
Does the Minister accept that although there has been an increase in university funding, the Committee of Vice-Chancellors and Principals believes that the money spent on advertising the loans scheme could have been better spent on better direct grants to students and on funding colleges?
It is absolutely right that the scheme should have been publicised to students—the higher education institutions asked the Student Loans Company to undertake a publicity campaign. It must be right that students should be helped to be aware of the new entitlement to a loan, and students are finding it attractive. The higher education institutions have been thoroughly briefed on the procedures and students have been made aware of the opportunity available to them. We have already witnessed an encouraging number of applications for loans in the first fortnight of the new academic year and all the signs are that the scheme will be a great success.
Is not it true that Opposition Members and representatives of the National Union of Students spent a lot of time during the passage of the student loans Bill trying to frighten students away from applying to higher education institutions in order to make out their case that student loans would deter such applications? Will my hon. Friend confirm that applications for university and other higher education institutions this year verify the continual upward trend of students going into higher education? Does he agree that the student loans Bill made no difference at all?
My hon. Friend is right to suggest that there has been a politically motivated campaign to discredit a scheme which is intended to work for the benefit of students. The only achievement of the NUS in its campaign against student loans was to cause a large traffic jam on one occasion in London. It has had to accept that students are welcoming this new opportunity and I was pleased to note that, recently, it advocated that its members should take advantage of the scheme.
Rural Schools
6.
To ask the secretary of State for Education and Science what assessment he has made of the effect local management of schools is having on small schools in rural areas; and if he will make a statement.
We have said that we shall monitor the effect of local management of schools carefully. LMS was introduced for the benefit of all schools. We expect small rural schools to share in those benefits.
Does the Minister recognise that small rural schools have particular problems arising from LMS? Will he see that local education authorities are able to continue to give the support necessary to ensure a balanced and fair education in those schools, or do the Government intend to put a nail in the coffin of small rural schools?
There is ample scope for protecting small schools through the formula. Local education authorities may take account of the higher unit costs of delivering the curriculum in small schools and the salary costs in schools with fewer than 10 teachers. Lancashire does both.
I am grateful to my hon. Friend for what he has just said about small rural schools and for the written answers that he has given me in the past two days about the way in which LMS will apply to such matters as school meals and the recruitment of rising-fives. Will he confirm that if parents at a school agree to support, and are prepared to pay the cost-effective price for, a proper school meals system, LMS will help that process?
I agree with my hon. Friend that there is much scope for further delegation of the current costs of supporting schools and of a number of services.
Does the Minister agree that local management of schools would be better performed if the management were thoroughly representative of all shades of opinion in the community? Is he aware, for example, that in my authority, every secondary school governor is a Labour councillor and that not one Conservative or Liberal Democrat councillor has been elected to the board of a secondary school in the whole constituency? Do the Government have any plans to ensure that in future, local management is more representative of the whole community?
We have no further plans, although I sympathise with the hon. Gentleman. We have already ensured that a larger number of governors are parent governors and that there is a representative on the governing body from the business community.
I congratulate my hon. Friend on his appointment to his new post after two years' enforced silence in the Whips Office. Does he draw any conclusions from the fact that Labour authorities have kept back more of schools' budgets from the schools than have Conservative authorities? Does he agree that it is part of Labour's continuing negative and destructive attitude to education? Labour is against any form of reform, be it city technology colleges, grant-maintained schools, assisted places or the local management of schools.
Only about 60 per cent. of the education work force is teaching. There are innumerable advisers and bureaucrats—an army of suede shoes—and, for example, Iancashire holds back about 23 per cent. of its schools budget, about £78 million, or £110,000 per average Lancashire school.
Scottish Education
7.
To ask the Secretary of State for Education and Science if he will make a statement on the number of Scottish students entering Scottish universities for 1990–91.
Reliable figures for admissions to universities this autumn are not yet available. The number of Scottish-domiciled first year students entering Scottish universities last year was more than 5 per cent. higher than in 1988.
May I crave your indulgence, Mr. Speaker, and that of the House, before putting my supplementary question, to say how sad hon. Members in all parts of the House must have been to hear of the death of Norman Buchan, the hon. Member for Paisley, South? He had enormous interest in the topic of education hut, moreover, enormous interest in freedom of thought and expression. No matter how much one might disagree with Norman, one could always be absolutely sure that he would defend one's right to make one's point here, as much as he would want to have his point of view expressed. It is with great sadness that I rise to put this supplementary question, although he would be among the first to recognise that democracy in this form in the House must go on.
May I ask the Minister to say what stresses and strains are being put on Scottish students at university, in particular through the loss of certain benefits and through the harassment that they are experiencing as a result of the threat of arresting their tuition fees to pay the poll tax?The House will have heard with great respect and sympathy the tribute of the hon. Member for Dunfermline, West (Mr. Douglas) for his friend the hon. Member for Paisley, South (Mr. Buchan), and we all share those sentiments.
With respect to the matter that the hon. Member for Dunfermline, West raised in his supplementary question, he should recognise that more resources are now available to support students. We calculate that the average claim for benefit made by students would have been £327 in the current year. As the value of the loan outside London is £420 and there are, in addition, access funds, it is clear that most students are better off. The access funds are there to assist any students who may be found to be in genuine financial difficulty. As to what the hon. Gentleman referred to as harassment, I hope that he will accept that students have a responsibility to meet their community charge. Equally, local authorities have a responsibility to take any steps available to them to recover arrears. Arrestment of payment due to, or on behalf of, individuals is one such step. The exercise of the powers of local authorities and any challenge to them is a matter for the courts.May I associate myself with the tribute to the late Norman Buchan, who was a constituency neighbour?
Will my hon. Friend the Minister confirm that a higher proportion of school leavers in Scotland enter higher education than in England? Is not it also the case in Scotland that all school leavers who are qualified and wish to do so receive places in higher education, either in Scottish universities or in the central institutions such as colleges of technology, which have expanded a great deal under the Government?The quality of Scottish education has always been much respected south of the border, both at school and university level. It is noteworthy that rather more than a quarter of students in Scottish universities come from south of the border, which is a measure of the respect given to and attractiveness of Scottish university courses.
Does not the Under-Secretary understand that he stands condemned by his own words for his inability to understand the particular problems facing students? Does he really say to the House that any steps to recoup the poll tax are acceptable? In Scotland, tuition fees are being pursued by regional councillors so that students will have their poll tax deducted. Is that acceptable at a time when students are being denied access to social security benefits, when the grant system has been undercut and when there have been rising costs in accommodation, whether in the private or public sector? What will the Minister do to ensure that our students have a fair deal?
As I said just now, the exercise of their powers by local education authorities in that regard is a matter for the courts. It would not be appropriate for me to comment on the rights and wrongs of what they are doing. The hon. Lady also ignores the increase in resources available to the vast majority of students and the fact that access funds worth £25 million have been made available to universities and colleges so that they can use them to ensure that students are not in need. Beyond that, I trust that the hon. Lady is not implying that it would be in any way right for students to refuse to pay their community charge.
Schools-Industry Links
8.
To ask the Secretary of State for Education and Science what recent initiatives have been taken by his Department to develop closer links between schools and industry; and what resources have been committed for 1990–91 to help foster such links.
The Department collaborates closely with other Government Departments in a range of activities including, in particular, an initiative to stimulate and support local education-business partnerships. We are also co-funding the new Foundation for Education Business Partnerships. This year, we expect to spend some £250,000 in direct grants to school-industry links; that is in addition to the considerable resources devoted to that purpose by local education authorities.
May I congratulate my hon. Friend on his consistent support for closer relationships between industrialists and educationists, because it is important that local education and training is directly tailored to the needs of the local community? What progress is being made by the education-business partnerships initiative recently announced by the Department of Education and Science?
The partnerships initiative is making good progress. Already, about 90 per cent. of secondary schools have links with industry, as have more than half of all primary schools, but there is still more to be done.
Such initiatives are clearly desirable, but would the Minister care to tell us how we can further pursue them in my constituency, since, if the level of present central support and rate capping persists next year, we seem bound to lose up to six teachers in every secondary school? Does he realise that teachers who would be involved in the initiative cannot be sure that they will retain their employment and thus take part in the initiative that the Government are eager to sponsor and applaud but quite unwilling to fund?
The Department provides a considerable amount of money to help fund the initiatives and many heads, governors and teachers are co-operating closely with their local industries.
Does my hon. Friend agree that one of the difficulties is the apparent reluctance of some of our well-known industrial leaders to speak on this subject on radio, television or directly to schools and to point out the satisfaction, scope and challenge of a career in industry?
I agree with my hon. Friend. The object of school-industry links is to improve young people's readiness to cope with the opportunities, responsibilities and experience of working life, and to give them proper understanding of the enterprise culture and the importance of wealth creation.
Graduates
9.
To ask the Secretary of State for Education and Science what representations he has received from Sir David Smith FRS, principal of Edinburgh university, on the subject of graduates using degrees for public service rather than making money for themselves.
None, Sir, although the hon. Gentleman has kindly sent me a copy of Sir David's speech.
Whose fault is it that the world-ranking university of Edinburgh yesterday had to freeze staff appointments?
Responsibility for financial matters rests with the university. The Universities Funding Council is available to provide advice and help to the university, if it is asked to do so. In his speech, which the hon. Gentleman sent to me, Sir David pointed out that Scotland benefited from the system of GB-wide higher education funding to the tune of some £30 million to £40 million, according to Sir David's calculations.
Does my hon. Friend agree that it is high time that academics became more businesslike in the use of the substantial amounts of public money that they receive?
There is always a need for all higher education and other education institutions to think carefully about how they deploy their resources. Much progress has been made in the higher and further education sectors, but more remains to be done.
In universities such as Edinburgh, with a distinguished record of scientific research, the greatest discouragement falls upon those whose public service lies in such research. Is the Minister aware that the practical effect is that an increasing proportion of postgraduate students now come from abroad?
It is right that there is a great deal of interchange of postgraduates among universities throughout the world. That is an increasing trend in all developed countries, and I am sure that the hon. Gentleman welcomes it. We need to continue to increase our scientific research. A great deal has been done and we have a fine record in scientific research in this country.
Will my hon. Friend remind the hon. Members for Linlithgow (Mr. Dalyell) and for Motherwell, South (Dr. Bray) that graduates who go into the private sector help to create the wealth to pay for those who go into the public sector?
Graduates make a major contribution to our country, whether they go into the private or the public sector. I readily accept my hon. Friend's point that if successful graduates did not go into the private sector, we should not create the wealth that enables us to fund universities.
On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the Minister's reply, I beg to give notice that I shall seek to raise the matter on the Adjournment.
Student Accommodation
10.
To ask the Secretary of State for Education and Science if he will make a statement on student accommodation.
Higher education institutions are autonomous bodies, and it is for them to decide what accommodation to provide for their students. Approximately half of the students in higher education are accommodated by their institution or live at home with their parents.
Why have the Government done nothing to tackle the serious problem of accommodation for students, and left students in Edinburgh and elsewhere sleeping on camp beds in common rooms and using staff accommodation in hospitals? Is not it time that they conducted an inquiry and took effective action to make adequate accommodation available?
The hon. Gentleman completely fails to understand that Britain provides far more accommodation for students than any other country. Some 37 per cent. of students in higher education in Britain are accommodated by their institutions. That is a much higher percentage than elsewhere. In France and Germany, it is about 10 per cent. and in other European Community countries it is as low as 3 per cent. The hon. Gentleman overlooks the fact that during the period of office of the previous Labour Government it was decided that accommodation matters were not part of the University Grants Committee remit and that student accommodation should not receive a public subsidy. We have provided £25 million in access funds to enable institutions to help students who are in need. I pay tribute to accommodation officers in all universities for their successful efforts to ensure that students are accommodated.
Prime Minister
Engagements
Q1.
To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
This morning I had meetings with ministerial colleagues and others, including one with the Emir of Kuwait. I also attended the arrival of the President of the Italian Republic, President Cossiga. In addition to my duties in the House, I shall be having further meetings later today. This evening, I shall be attending the state banquet given by Her Majesty the Queen in honour of President Cossiga.
Will the Prime Minister make her next instruction to a Minister one to the Chancellor of the Exchequer telling him to end the tax dodgers charter that was created by her and is used by her super-rich friends at a cost to the country of some £1 billion a year?
My right hon. Friends, successive Chancellors of the Exchequer. have reduced tax right across the income range, greatly to the benefit of all people. Perhaps the hon. Gentleman will remember that when we took over, the level of income tax was up to 83 per cent. on earnings. It is now down to 40 per cent. on both earnings and savings.
Has my right hon. Friend had a chance to see the reports in this morning's newspapers that the Saudi Defence Minister, Prince Sultan, is reported to have said that he sees no harm in an Arab country giving to its Arab sister a site, Iand or a position on the sea? Will my right hon. Friend confirm her understanding that that represents no change in the position of Saudi Arabia that Saddam Hussein must not gain from his aggression? Secondly, will she confirm her understanding that it is imperative that no signals are sent to Saddam Hussein that the world coalition against him is losing its nerve?
I totally agree with my right hon. Friend. We were in touch this morning and our ambassador in Saudi Arabia was given a formal assurance that Saudi policy had not changed, that Prince Sultan had been misquoted, that Saddam Hussein must totally withdraw from Kuwait, the legitimate Government must be restored and that compensation must be paid for the damage. Then we shall have to deal with problems such as chemical, biological and nuclear weapons so that this matter does not ever arise again.
Will the Prime Minister say today that she is completely against the freezing of child benefit?
Our policy on child benefit was set out in the last manifesto. We have honoured it and shall continue to do so.
Since the Prime Minister is now the Minister in charge of child benefit, will she say whether she agrees with one of her Ministers who said yesterday that she wanted an end to the freezing of child benefit and that her "personal view" was that
Is that the Prime Minister's personal view as well?"improving Child Benefit is preferable to bringing in a Tax Allowance as a Tax Allowance would not hit the right target."
The right hon. Gentleman must await a statement from my right hon. Friend the Secretary of State for Social Security on his annual review of social security benefits. Our family policy has increased payments to the family. Indeed—[Interruption.] Whereas Labour cut—[Interruption.] They hate facts, Mr. Speaker. [Interruption.]
Order. The Prime Minister has been asked a question; she must be given a chance to reply.
Let me compare our family policy with that of our Labour predecessor. Labour cut family support by 7 per cent.; under the present Government it has increased by 27 per cent. more than inflation, and for families with young children our support is among the most generous in the EC. Has the right hon. Gentleman got it? His Government cut support for the family by 7 per cent.; we have increased it by 27 per cent. more than inflation.
Surely, in her new role as the person in charge of child benefit, the Prime Minister does not expect us to wait for a statement from the Secretary of State. She could tell us herself exactly what is going on—or is it possible that she is starting to make a bit of a habit of dodging responsibility?
I am very pleased that the Government whom I lead can boast that they have increased family support by 27 per cent. more than inflation. Despite his meaningless words, the right hon. Gentleman's Government cut it by 7 per cent. Furthermore, by means of family credit we have helped poorer families in particular: they now receive three times as much over and above inflation as they used to receive under Labour.
I do not wonder that the right hon. Gentleman is forced to go for trivia: his record is so bad. [Interruption.]Order.
rose—[Interruption.]
Order. Mr. Riddick—come on. [Interruption.]
Mr. Speaker—[Interruption.]
Order. Come on, let us settle down.
Would my right hon. Friend care to join me in condemning the free riders—many of them Opposition Members—who are refusing to pay their community charge, and who expect everyone else to pay for the local services that they receive? Does my right hon. Friend agree that there is now a case for turning the poll tax into exactly that—for taking the vote away from people who have not paid their community charge, and giving it back to them only when they have done so?
Mr. Speaker—[Interruption.]
Order. If we continue at this rate, we shall make very slow progress.
People who do not pay their community charge must be dealt with by the law. The House passes the law; the law courts uphold it. Those who pass the law in the House must be prepared to set an example by upholding it as well.
Those who, by an act of will, do not pay their community charge are expecting to receive all the services themselves and to pass on the cost to their neighbours and constituents. That is most reprehensible.The Prime Minister has said that she will not accept the imposition of a single European currency. Does that mean that she will never accept such a currency, whatever the conditions?
A single European currency would mean a form of economic and monetary union under which the House gave up control of economic and monetary policy. Is the right hon. Gentleman's policy to come into the House only to denude it of its powers?
Is my right hon. Friend aware that many people believe that the A-level examinations are now the only true benchmark of academic achievement in our schools? Will she assure the House that there are no plans to alter or undermine those examinations?
I know of no plans to undermine the most excellent A-level examinations. When our young people go to university, they provide the basis for one of the highest rates of achievement in degrees anywhere in the world.
Q2.
To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
I refer the hon. Gentleman to the reply that I gave some moments ago.
When the Secretary of State for the Environment was in Tokyo last month, he promised to inject some £3 billion into the north-west economy should Manchester win the bid for the 1996 Olympic games. Is the Prime Minister aware that many organisations as diverse as chambers of trade, chambers of commerce, trade unions, investment agencies and local authorities insist that that sort of investment must be made in any case, if the infrastructure of the north-west is not to be in danger of collapse? Olympic games or not, will she back the north-west and give it the money that it deserves?
The Manchester Olympics committee is an excellent organisation. The Duke of Westminster is in charge of it—[Laughter.]—and he has great faith in the infrastructure—[Interruption.]
Order.
One reason why Manchester's bid was so excellent is that the road and air services to Manchester are extremely good and there is excellent hotel accommodation within easy reach. The infrastructure is first class, and the committee has given me to understand that it is obtaining any necessary finance from the private sector. We firmly backed the bid, but we made it clear that no public sector money would be forthcoming.
Q3.
To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
I refer my hon. Friend to the reply that I gave some moments ago.
Is my right hon. Friend aware that this country is the first in the world to carry out commercial field trials for the new ozone-friendly refrigerant gas R134A? Will she ensure that the Government follow that private sector lead? Should not the Opposition realise that voluntary measures work best?
I am aware that my hon. Friend has first-hand knowledge of that matter. I know that the new gases have been produced, and I understand that ICI is to set up the first commercial plant for the production of ozone-friendly refrigerant gases. That is excellent news for the country and for the environment.
Q4.
To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
I refer the right hon. Gentleman to the reply that I gave some moments ago.
How can the Prime Minister reconcile the statement made by the Secretary of State for Employment on Sunday that the Government now have an incomes policy, especially in the public sector, of about 7 per cent., with the fact that chairmen, managing directors and chief executives are having pay rises of 30 per cent? Is not it outrageous that this country is being robbed of £5 billion a year through tax evasion? Are not the low-paid having to pay for the Government's disastrous policies?
The Government do not have an incomes policy for the public sector of 7 per cent. or any other figure. Each settlement must be negotiated separately. My recollection is that a figure of 7 per cent. was given in evidence as the then underlying inflationary pressure—I think that it related to nurses' pay—and it has no more relevance than that. We negotiate each pay claim in accordance with the need to retain and various other factors, including, of course, what the taxpayer can afford to pay.
Is my right hon. Friend happy with the slow progress on competitive tendering being made by socialist authorities such as York? Does she agree that either inefficiency or corruption is behind such slowness, and that the community charge in such authorities is unnecessarily high as a result?
I agree with my hon. Friend. Competitive tendering leads to more efficient services at lower cost and, therefore, to a lower community charge. It should be followed by all who are interested in keeping their community charge down and their efficiency up.
Q5.
To ask the Prime Minister if she will list her official engagements for Tuesday 23 October.
I refer the hon. Lady to the reply that I gave some moments ago.
Does the Prime Minister recall that her last words at the world summit for children were:
If she really believes that, will she today announce the restoration of the full value of child benefit, or does she regard that as trivia?"We will go away from here knowing that it is what we do that will count"?
The trivia was attempting to say that I was in charge of everything. [Interruption.]
Order. The House wants to hear the answer.
The Leader of the Opposition and the hon. Lady refuse to turn their attention to the Government's excellent record on family support. The children's summit was more concerned with children overseas and the amount of help that they need and, as the hon. Lady knows, the Government's record on overseas aid to children in need is very good indeed. Let me give the hon. Lady some additional statistics. We have given extra help to poor families on income support or family credit, which is now worth £350 million a year, and the average family credit payment is now £30 a week—three times what it was under Labour, even taking inflation into account.
New Member
3.32 pm
The following Member took and subscribed the Oath:
David Frank Bellotti Esq., for Eastbourne.
Secretary Of State For Foreign And Commonwealth Affairs
3.33 pm
On a point of order, Mr. Speaker. The Foreign Secretary returned from a long visit to the middle east on Friday—I know that he was in Luxembourg yesterday. Does he intend to make a statement to the House? Some of us wonder whether the Government's position on occupations, be they in the west bank and Gaza or Kuwait, are an example of double standards.
I have not been told that a statement is to be made today.
Bill Presented
Medical Acr 1983 (Amendment)
Mr. Nigel Spearing, supported by Sir Anthony Grant and Mr. Sam Galbraith, presented a Bill to amend section 36 of the Medical Act 1983 to enable the Professional Conduct Committee of the General Medical Council to exercise greater discretion in respect of conduct which they judge cannot be regarded as acceptable professional conduct; And the same was read the First time; and ordered to be read a Second time on Friday 14 December and to be printed. [Bill 203.]
Animals (Welfare In Transit)
3.34 pm
I beg to move,
The House will be aware that until now United Kingdom law has been sufficient to provide significantly for the welfare of farm animals transported alive. Right hon. and hon. Members will know also that EEC regulations will shortly take the place of our own legislation, which will have enormous consequences for exported animals—unless the Commission and Council of Ministers can be persuaded to adopt a more humane approach. That approach should be based on practices recommended by the Royal Society for the Prevention of Cruelty to Animals. By 1 January 1993, frontier controls between member states of the Community will be lifted and it will become a free trade area. The directive on international transport will be replaced by new legislation covering the transportation in Europe of all animals, whether within national boundaries or between one member state and another. The new regulations impose requirements relating to the transport of all animals. Instead of customs checks, inspections of animals and of vehicles will take place at markets, staging, transfer and assembly points and slaughterhouses rather than at the point of departure. Random checks will also be made by the competent authorities on vehicles in transit. Under the previous European regulations, veterinary inspection of all animals was required prior to their transportation from one member state to another. Such inspections will in future be required only if the animals are to travel for a longer time than is specified before they must be rested, fed and watered. In the case of cattle, sheep, pigs and horses, that will be 24 hours. There is growing concern about the impact that 1992 and the abolition of tariff barriers between EEC member states will have on the live food animals export trade. There are fears that the creation of a free market will result in diminishing standards of welfare for all the animals caught up in that trade. The worry is that new European transport regulations will not only take the place of existing directives but supersede national legislation so that trade between member states will no longer be known as exporting or importing. The transportation of live sheep over long distances to slaughterhouses in France, Italy, Germany and other member states is of particular concern. As I said, many journeys can take more than 24 hours, and one can have little confidence that other member states will enforce transport legislation as strictly as does the United Kingdom. Under present United Kingdom law, animals that are being transported must be fed and watered every 12 hours unless the journey can completed within 15 hours. That legislation will disappear, so theoretically it will be possible for sheep to be bought at market in Scotland and transported to Dover and then over the channel into France—but one must doubt whether feeding and watering will take place when it should, because of the French Government's known inability properly to enforce transport regulations. Who will ever forget the disgraceful images on our television screens this summer of French farmers abusing innocent animals in such a scandalous and uncivilised way? Despite the regulations, was that not a uniquely French form of protection, and will not it arise again in other forms after 1992? Foremost in the campaign to secure post-1992 standards compatible with those of the United Kingdom is the RSPCA. Through its European organisation, Eurogroup for Animal Welfare, it is attempting to ensure that the new regulation, which has yet to be finally agreed by the Council of Ministers, is as detailed and as strict as possible. It has also been trying to ensure that the provision is properly implemented and enforced throughout the Community. The campaign has been based on the policy that food animals should be slaughtered as near as possible to the point of production. The recent problems caused by French farmers—to which I have already referred—and their willingness to perpetrate outrages on lorry loads of live sheep coming from the United Kingdom and other countries have shown, yet again, that it is impossible properly to protect the welfare of live animals being transported through the Community. Moreover, I would argue that there is absolutely no need to transport animals long distances to slaughterhouses. British farmers get the same price for their lamb whether the sheep are taken to a slaughterhouse in the United Kingdom and the carcases transported to France or to other markets or are transported live to a French slaughterhouse. One consequence of an increasing trade in live animals being transported to slaughterhouses on the continent would be the loss of business in abattoirs in the United Kingdom. It seems logical, therefore. that the distances that animals travel to slaughterhouses should be limited in the new European legislation and that we should follow the principle that United Kingdom animals should be slaughtered in United Kingdom slaughterhouses, French animals in French slaughterhouses, and so on. To that end, we should insist on the introduction of a provision in the new transport regulations that would limit to a maximum of eight hours the journey times of animals destined for slaughter. That is a practical and logical proposal, as it would allow farmers the choice of several suitable abattoirs as well as reducing the possibility that animals will suffer unnecessarily. The regulations will also apply to animals originating in France, Germany, Holland and so on, which will all have to limit the journey time to eight hours. The fact that the amendments have been passed by the European Parliament does not guarantee that they will be accepted by the Commission or the Council of Ministers. The Commission has stated that it is prepared to accept the principle of limiting the journey time of animals destined for slaughter, but so far it has not suggested that the journey time should be anything other than the period after which feeding and watering are due, which is 24 hours. We in the House and our colleagues in Europe must therefore bring pressure to bear on Ministers of Agriculture to accept the eight-hour limit on the journey time of animals going to slaughter. Such a rule would go a long way towards dissuading people from re-establishing the trade to the continent in live horses for meat. Many people have been worried about that, because the United Kingdom is having to drop its existing legislation prohibiting trade in live horses and ponies. An eight-hour limit on the journey time of animals going to slaughter will not harm British farmers in any way. It will assist the United Kingdom slaughtering industry and, more important, it will be of great benefit to the animals. It seems illogical that we can export sheep to a slaughterhouse in the south of France, which will then make a profit on that transportation, only to export the majority of the carcases to Italy. Why cannot British sheep be slaughtered close to the point at which they were reared and why cannot the carcases then undertake the long journey from the United Kingdom to Italy? There is already a substantial trade in meat—in lamb, beef and pig carcases—from this country to other member states. At present, for every live sheep that is exported, seven lamb carcases travel the same route. It does not seem such a big step to make that eight carcases and no live sheep. I fully recognise the unfortunate balance of power problem in this matter between the United Kingdom Government and the European Community, but I believe that the passage of my Bill—I hope, with Ministers' blessing—will serve to demonstrate our determination to prevent the dilution of our more humane procedures.That leave be given to bring in a Bill to provide for the welfare of animals being exported alive from the United Kingdom; to require adequate periods of rest, sufficient food and water, and regular veterinary inspection during transit; and for connected purposes.
Question put and agreed to.
Bill ordered to be brought in by Mr. Terry Lewis, M r. Don Dixon, Mr. Harry Cohen, Mr. Ron Davies, Mr. Peter Hardy, Sir David Steel, Dame Janet Fookes, Mr. Nigel Spearing, Mr. Simon Hughes, Mr. Roger Gale, Mr. Tony Banks, Mr. Alan Meale and Mr. Doug Hoyle.
Animals (Welfare In Transit)
Mr. Terry Lewis accordingly presented a Bill to provide for the welfare of animals being exported alive from the United Kingdom; to require adequate periods of rest, sufficient food and water, and regular veterinary inspection during transit; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 26 October and to be printed. [Bill 204.]
Exchange Rate Mechanism
[Relevant document: Minutes of Evidence taken before the Treasury and Civil Service Committee on 25th July 1990 on Economic and Monetary Union (House of Commons Paper No. 620)]
I have selected the amendment in the name of the Leader of the Opposition. Furthermore, as 39 right hon. and hon. Members have already submitted an application to speak, I propose to place a 10-minute limit on speeches between 6 pm and 8 pm. I am afraid that that may mean that some Privy Councillors will be called within that 10-minute period. In fairness to all, I hope that right hon. and hon. Members who are called will bear that limit broadly in mind.
3.45 pm
I beg to move,
Sterling's entry into the exchange rate mechanism is undoubtedly an important economic event and, moreover, an event which has long had the general support of the House, industry, commerce, the City and most, although inevitably not all, economic commentators. This debate is a welcome opportunity to set out the rationale for entry; the potential advantages and constraints that it brings with it; and to consider also the effects of standing aloof from membership. I wish also to address the details of entry: the rate; the timing; the bands; and the necessary discipline of membership. And, of course, I shall touch also upon how entry affects the wider question of economic and monetary union, which is, I know, of great concern to the House. It is now 12 years since the European monetary system and the exchange rate mechanism were established. At the outset, in 1978, the last Labour Government decided not to join the exchange rate mechanism. Since then the question whether and, if so, when we should join has been an important and contentious issue at the very centre of political and economic debate. Two years ago my right hon. Friend the Prime Minister set out our commitment to join the mechanism and the conditions in which we would do so. On the free movement of capital, the single market, competition policy, and the liberalisation of financial services those important conditions have effectively been met for some time. It is possible to quibble about them only if excuses are being sought not to enter the ERM. For some months the key remaining condition has been that domestic conditions—and our inflation performance in particular—should enable us to accept the exchange rate discipline. In economic terms, what mattered for that was not what happened in the months leading up to membership, nor was it the distortions in comparative inflation performance caused by different methods of measuring inflation. The important factor was that our inflation performance would enable us to converge and thus enable us to compete at the chosen exchange rate. It was for that reason that we did not join the mechanism until we were absolutely sure that our tight monetary policies were having their intended effect and inflationary pressures were easing. That is now the position. The evidence that this has now happened comes first from the monetary aggregates. The growth of narrow money, M0, has fallen in each of the last five months and is now back well within the target range I set for this year. M4 growth—broad money—has fallen steadily throughout 1990 and currently stands at its lowest point for nearly three and a half years. Bank lending has also decelerated sharply. In the real economy the picture is the same. The indicators show that the economy is slowing, as indeed it must if inflation is to fall. That is clear in the high street, it is clear in the housing market, it is clear in the figures for car sales, and it is clear in activity generally. It is clear also in the gradual and welcome recovery in the savings ratio, which hit its low point of 4·9 per cent. in the third quarter of 1988 and has now risen again to 7·7 per cent. It was those conditions—that amalgam of conditions which are now clear—which prompted me to cut interest rates by I per cent. at the same time as entry. Some external commentators claim that it was too early; others claim that it was too late. I am confident that events will justify the timing of that reduction in interest rates. If I had cut interest rates before joining the exchange rate mechanism, I believe that it would have been viewed by the markets and by commentators as driving the exchange rate down before entry or, alternatively, as a signal that entry was to be delayed. Both of those were wrong and both would have weakened the exchange rate and thus our anti-inflationary position. It was for those reasons that I announced both those steps at the same time to ensure that the markets were fully aware of our position as we entered the mechanism and were fully aware of what the immediate prospect was for monetary policy.That this House congratulates the Government on joining the Exchange Rate Mechanism of the European Monetary System; notes the clear evidence that the Government's tight monetary and fiscal policies are reducing inflationary pressures in the economy; and believes Exchange Rate Mechanism membership will reinforce the Government's counter-inflationary strategy and help to strengthen the framework for a sustained improvement in economic performance.
On timing, in so far as it is quite clear from a series of parliamentary questions given to me by Ministers that people in the Bank of England, senior civil servants and some Ministers knew of the Chancellor's intention to make his statement at 4 o'clock on that Friday, and in so far as it is also known that Ministers and civil servants may well have met people in City institutions in the five days prior to that Friday, why cannot we now have a leak inquiry into how three separate markets in the City rose substantially in the 90 minutes before 4 o'clock, in conditions in which some people made millions of pounds in capital gains in a few minutes? Why cannot we have a leak inquiry into that? Let us have the truth.
If the hon. Gentleman has any information whatsoever to suggest that there was advance knowledge of entry into the exchange rate mechanism—[Interruption.] Perhaps the hon. Gentleman would do me the courtesy of listening. If he will give that evidence to me, I shall ensure that it is placed before the proper authorities and that the appropriate action is taken. Unsubstantiated allegations do not help. If the hon. Gentleman really believes that there was a leak, he should provide the information so that it can be properly examined and not make widespread scatter-gun allegations for which at the moment he has provided no evidence.
As we have seen repeatedly throughout the past 30 years or so, inflation is always one of the last measures in the economy to register that the growth of demand is falling away; and the rise in oil prices in the past few months has complicated the picture this time and, conceivably, may yet push up the headline total further. But I now have no doubt that we shall see inflation falling substantially throughout next year. It will do so particularly quickly from next April, and for two reasons: the underlying rate will improve and some of the unusual adverse factors that have artificially boosted the headline rate will drop out next year. Our inflation performance will improve therefore both in absolute terms, and, just as importantly for entry into the mechanism, relative to those of our European competitors. I shall make a detailed forecast in the autumn statement in due course. There was, therefore, no reason for further delay in meeting our long-standing commitment to join the ERM. There is a further point of some importance. The persistent market rumours of entry and non-entry were damaging to stability and created uncertainty for industry. Week after week some chance remark, some speculation, some unsubstantiated rumour changed the value of sterling. I wished therefore to end the damaging uncertainty at the earliest possible moment, and I believe it was right to do so.rose——
Perhaps the hon. Gentleman will forgive me if I do not give way for a moment.
The House will remember that I answered questions on this matter for an hour a week ago. I shall be here at the Dispatch Box on Thursday and a vast number of hon. Members—[Interruption.] Perhaps hon. Members would listen for a moment. A vast number of hon. Members wish to speak today. I shall give way to a small number, but perhaps not as generously as I sometimes do.I am grateful to the Chancellor for giving way. If the right hon. Gentleman is pleading that the reason that he took this country into the exchange rate mechanism was to get rid of all the rumours about whether we would or would not join, is not that the fault on the one hand of the Prime Minister, who constantly said that we would not join, and of the Chancellor himself on the other hand, who constantly said that we would join? Which of the two of them was the City and the country to believe?
The hon. Gentleman will do well tomorrow to read my speech in Hansard. He will then see that I made it perfectly clear that we entered because I thought that the conditions were right for our entry. I set that out plainly. I also set out a subsidiary matter that weighed on my mind—that the essential reason for entry was that the market conditions were met and the preconditions that we had set out were now right for sterling to enter the mechanism.
The belief that we should end the uncertainty and that we should enter early was also held by others. We got a great deal of advice. In June we were told:That was not an overenthusiastic Member of the European Parliament speaking—it was the Opposition Front Bench in the persona of the hon. Member for Islington, South and Finsbury (Mr. Smith). Nor was that an isolated comment. In August the hon. Gentleman was strongly supported in that view by his right hon. and learned Friend the Member for Monklands, East (Mr. Smith), who said:"We do not urge the Government to wait until some unspecified rate of inflation or fulfilment of the Madrid conditions is attained. We urge them to commence discussions now."—[Official Report, 15 June 1990; Vol. 174, c. 636.]
That is what I have done and the reason why Opposition Members attack us is that they know that we have taken the right decision and they do not want to acknowledge it. They want to hide the fact that their party is split asunder on the issue. [Interruption.] Oh yes. Of course, Opposition Members want it both ways. If we had delayed they would have questioned our intention of going in. They would have said that my right hon. Friend the Prime Minister was preventing us. Now that we have gone in they question our motives and claim that my right hon. Friend has been pushed. The simple truth is that my right hon. Friend first stated our commitment to entry during stage 1—over two years ago. She and I have been discussing possible dates for months. Four months after the start of stage 1 we found an appropriate date and honoured our promise. That is what Opposition Members cannot stomach. Their attitude is the typical triumph of expediency over conviction—[HON. MEMBERS: "Your attitude."] That is their attitude. Now that we are in the ERM we need to be entirely clear about what it means. First, maintaining the exchange rate will be an important discipline. Tight monetary conditions will have to be sustained to put continued downward pressure on inflation. Joining the ERM in no way replaces the need for a tight monetary policy; it reinforces it. Indeed, making a success of the ERM means making a success of our own domestic monetary policy, not abandoning it. That is why joining the ERM is in no sense a soft option or a short-term one. The euphoria with which some people greeted the news of our entry seemed to me mistaken; and the argument that entry has short-term advantages and a long-term cost is wholly misleading. In fact, it is a complete misunderstanding of the ERM. In the short term, membership will require tough action to ensure that we achieve low inflation thereafter. The rewards are long term with that very low rate of inflation. That does mean making no further reductions in interest rates until it is prudent to do so."I don't think there is ever going to be a perfect time for Britain to enter the ERM, and I think therefore that we should take the opportunity to do so at the earliest time."
My right hon. Friend has referred to the prospect of reductions in interest rates. Is not it probable that, if we were within the narrower band of fluctuations within the ERM, as certain other European countries are, we would enjoy lower rates of interest, as they currently do? As it is a matter of enormous interest to millions of mortgage payers and others in Britain, can my right hon. Friend say a little about the conditions that must be precedent upon our becoming part of the narrower bands of the ERM?
I shall turn shortly to the question of the narrow band.
In case there was any misunderstanding a moment or so ago, I was saying clearly that membership means that we shall be in a position to make no further reductions in interest rates until it is prudent to do so. I hope that that point is fully taken on board. I shall turn to my hon. Friend's specific point in a second or so. What we have undertaken is an express obligation to keep sterling within the bands around our central rate of DM2·95. We take that obligation seriously and we intend to meet it. We decided to enter the mechanism with wide 6 per cent. margins to give sterling an opportunity to settle down. It is a widely traded currency and it is necessary to give the markets some time to assess the implications for entry and the domestic response to it. But when conditions permit, and only then, we will move into the narrow 21 per cent. band to which my hon. Friend the Member for Chichester (Mr. Nelson) referred. I want to add a word about fiscal policy. Throughout the 1980s my two predecessors have successfully used fiscal policy to buttress monetary policy. That is precisely what we shall continue to do in future. But what we shall not do is to resort to fiscal fine tuning, the effects of which tend to be unpredictable and, in many cases, unworkable. I have no intention of returning to the era of mini-Budgets, but we will keep to our policy of a balanced budget over the medium term.rose——
If the hon. Gentleman will forgive me, I shall make a little more progress in the interests of several other hon. Members who wish to speak.
It is clear that membership of the ERM will impose an extra discipline on the Government's conduct of economic policy. But, equally, membership of the mechanism requires businesses and industry to take tough decisions of their own. Companies must understand the need to contain their costs—principally, but not, of course, exclusively, their wage costs. For them, joining the ERM means that devaluing our currency to bail out uncompetitive firms is no longer an option. It was never an attractive one and now it has gone. It is ruled out by our commitment to maintain a broadly stable exchange rate. If the costs of British companies rise, inevitably orders will be lost, profits will be squeezed, jobs will be shed, and companies will put their futures at risk. That has always been true, but ERM membership will make it even more apparent, for the devaluation option is no longer there. For business, staying competitive means relating wage rises to what is realistic and justifiable. That means what can be afforded by the individual company facing tight competition in the international market with no help from a falling exchange rate.On that point, does my right hon. Friend agree that the necessary exhortations to pay restraint would be very much helped if senior leading industrialists who are on performance-related pay related their pay to not only the profits but the losses that they sometimes sustain?
I share that view strongly. Leadership in this matter must come from the top, and I hope that it will do so.
Is not the truth of the matter that the exchange rate mechanism is another name for a Common Market incomes policy? Why should people who work for a living, the real wealth creators, have a wages or incomes policy stuffed down their throats by the Government when the bosses got increases of 28 per cent. the year before last and 33 per cent. last year? In the past 10 years the wealthiest 1 per cent. in Britain have received cumulatively £26·2 billion in tax cuts; now they are calling upon the workers to bail out this Government, but they have no intention of doing so. Everyone who is fighting to get a living wage needs the support of Opposition Members to sustain that living wage.
Well, so much for unity on the Opposition Benches about joining the ERM.
On the substantive point that the hon. Gentleman makes, he will be aware that I have said before—I reiterated my remarks to my hon. Friend the Member for Cambridgeshire, South-West (Sir A. Grant)—that I share his view that the sacrifices that may need to be made on wages must apply to those at the top of industry as well as those elsewhere. The hon. Member for Bolsover (Mr. Skinner) should be aware, however, of the consequences of taking his theory a stage further. The consequences for people not obeying that necessary discipline will be lost jobs. I cannot compel people to negotiate sensibly, but I have an obligation to make it absolutely clear to people what the effect of not negotiating sensibly will be. That I am seeking to do, and that I am prepared to do; and I share the hon. Gentleman's view that that applies to all people in industry and commerce and not just to those on the shop floor. What does that mean? It means negotiating what can be afforded by the individual company facing the international competition in the market. In essence, it is that which will determine our performance. There can be no more negotiating around the benchmark of the retail prices index as though that represented the minimum increase it was reasonable to expect. I know that that kind of inflationary psychology is deeply embedded in the consciousness of British industry. I believe that, over the years, it has damaged us greatly, and, if it continues, it will cost us jobs in the future. I do not for a second underestimate the cultural change that that will mean for many wage negotiators, but the sooner they make the change the better. That psychology needs to be shaken out of the system, for the Government cannot keep companies competitive—they can only warn them of the dangers that they face. Their fate is in their hands—the hands of those on each side of the negotiating table who will determine the future of their companies and their work forces in the next few years.I am grateful to the Chancellor for telling the House that the Government cannot bail out companies that persist in using the RPI as a benchmark for wage increases. If the Opposition accept that, will the right hon. Gentleman accept that he should not allow his Ministers to use the RPI as a benchmark for price increases in former nationalised industries now in private ownership? The electricity industry has not yet been privatised, but its prices are set to rise every year by an RPI-related formula. Is the right hon. Gentleman prepared to instruct the Secretaries of State for Energy and for Trade and Industry to give up that practice, which is applied to British Telecom, water and gas charges?
Some of those increases are less than the retail prices index and many of the others are far more specifically related to investment performance than to anything else.
Those are the constraints and restraints which management and work forces will need to accept if we are to make a success of membership of the exchange rate mechanism. I know that they are not easy, but I believe that they are worth while because they will help us to achieve lower inflation by reinforcing existing policies. I am delighted that, fully understanding those points, the CBI has given such a warm welcome to our decision to enter the ERM. In recent years, the average inflation performance of the countries participating in the ERM has been significantly better than that of all those outside the mechanism. Between 1979 and July 1990, inflation in countries within the mechanism fell by nearly two thirds; in European countries outside the ERM, by one sixth; and in OECD countries outside the mechanism, by two fifths. As inflation in member countries has come down, the prospects for steady, sustainable economic growth have improved, and that is the prize to be achieved. The growth rates in Germany, France, Italy and a number of smaller mechanism countries have increased in the last few years and the prospects for growth continuing at favourable rates in the future appear good. I believe strongly that that is a goal worth pursuing by us as well.rose——
I hope that the hon. Gentleman will forgive me if I do not give way. I have given way on a number of occasions, and I am conscious of the number of hon. Members who wish to take part in the debate.
Moreover, maintaining a broadly stable exchange rate will assist British companies to plan ahead and to invest with greater certainty about the future. Since the mechanism has been in operation, there have been a few changes of parities, but there has been no substantive realignment since the beginning of 1987. That stability will enable firms to develop their business strategies in Europe and be well placed for the opportunities of the single market. They will no longer face the problems of exchange rate movements disrupting their plans by imposing on them unexpected cost increases or pricing their goods out of the European market. It will mean, in my judgment, that Britain will prove still more attractive to inward investors. We already attract more direct investment from abroad than any other Community country. Membership of the ERM can only add to that. During my statement last week, a number of hon. Members expressed concern at the exchange rate at which we had entered. For some of them the argument was a surrogate for outright opposition to entry at any exchange rate. But others are concerned lest the rate we have chosen is too high. That reflects a longstanding argument over whether devaluation is required for economic success. It is a legitimate argument which has a long political pedigree, but I believe that it is wholly wrong. I believe that our central rate can be sustained, and I will explain why. Some hon. Members fear that the exchange rate will damage exports and encourage imports. But experience in recent years suggests that other factors are more important. The volume of our exports, excluding oil and erratic items, is up 8 per cent. on last year, and our share of world trade in manufactures increased in 1989 and is likely to rise again this year. Japan and Germany, with the firmest exchange rates over the last decade, also have the best current account performance. The rate that we have chosen is also sterling's recent market rate and the average real exchange rate over recent years after making adjustment for differential inflation performance. Other subsidiary information suggests that we have not put sterling at a competitive disadvantage. Independent analyses suggests that DM2·95 is sustainable. Indeed, a report by CBI economists only recently advocated entry into the mechanism at around the bands that we have chosen. Some comments that I have read have focused on the dollar. I would only make the point that our membership of the ERM does not in any way determine the sterling dollar exchange rate.The inflation-adjusted real exchange rate of DM2·95, or the right hon. Gentleman's choice of that rate, is 20 per cent. higher—that is, an appreciation of sterling against the mark—than it was in the first half of 1987, which was the last time we were in current account balance with the rest of the world. We are now disastrously in deficit. We are going in at an exchange rate 20 per cent. higher against the mark than it was when we were last in balance. What does the right hon. Gentleman say about that?
We are in deficit because of the growth of demand, which is self-evident from the change in our position during the past year as sterling has appreciated and the trade gap has begun closing. Therefore, there is no reason why British companies should not compete successfully in Europe at present exchange rates, and, in the medium term, with lower inflation, they will compete even more successfully.
Although entry to the mechanism is part of our commitment to stage I of economic monetary union and the single market, it in no sense commits us to the Delors approach for stages 2 or 3. I assure the House that there has been no shift, no weakening in our opposition to the imposition of a single currency and a single monetary authority. We remain opposed to that, and I believe that our opposition has the overwhelming support of the House. That does not mean that we shall play a wrecking role at the intergovernmental conference—the IGC. We have no intention of doing that. We shall continue to advocate our plans for the development of the hard ecu. We believe that our proposals are practical, evolutionary and based on markets and choice. They offer a realistic solution that would enable the 12 to move forward together without risking damaging rifts in the Community. They leave open the possibility of the hard ecu evolving towards a parallel currency and then a single currency, but only if that were the wish of Governments and peoples. That is subject for ever to the check of the House of Commons.The House will have made particular note of the right hon. Gentleman's use of the word "evolutionary". The matter that isolates Britain in Europe, divides the Conservative party and splits the Cabinet is whether his hard ecu is to be regarded as the ultimate, final position or is a transition to a future European single currency. If in due course, his hard ecu proposals were to be used as a transition mechanism to a single European currency, would the Chancellor oppose that?
If the right hon. Gentleman reads what I have just said, he will have his answer.
Our proposals are those that I have set out on a number of occasions and are subject to the check of the House of Commons at future stages.While I fully understand the Chancellor's reluctance to have anything to do with the date of 1994 proposed by the German Chancellor, cannot he say that if everyone were prepared to go ahead with the hard ecu in 1994 we should be happy to go along with them?
We must wait and see how the IGC develops. But the only way in which this country could proceed would be on the basis of the hard ecu, for in my judgment there is no will in the House or country to surrender the use of sterling as our currency.
During the past half an hour or so, I have set out in some detail what I believe will be the effect of membership of the exchange rate mechanism and our policies. I hope that in the next few minutes the right hon. Member for Islwyn (Mr. Kinnock) will set out his views with equal clarity. Judged by what he has said, there is more agreement between us than he may imagine. He shares my view that entry is not an alternative to the economic realities—he has said so—can work to the advantage of the British people—he has said so—and can help in securing stability—he has said so, and I agree with him about that. I hope, therefore, that as I have done, the right hon. Gentleman will set out his party's policy precisely—on rates, bands, timing, and fiscal policy. He committed himself to entry some years ago, so he has had ample time to consider the implications. If he does not do so, the suspicion will arise that Labour's commitment to enter the mechanism has been nothing more than a device—a clever device but a device none the less—which was intended to hide the fact that there is no real determination to tackle inflation at the heart of the Labour party's policies. The conditions that they devised for entry into the mechanism are frankly incredible. They involve fundamentally subverting the whole purpose and structure of the EMS. The main reason why many people on all sides of the political spectrum have come to appreciate the benefits of the mechanism is that it provides a buttress and an anchor against inflation. That is precisely the feature of the mechanism which the Labour party planned to ditch. That could not have been clearer from the remarks made by the Opposition in the House last week. Time and again they made it plain that their inclination would always be to take the easy option and to go for devaluation. When the right hon. Gentleman replies, will he tell the House: would he devalue or would he fight inflation? He cannot do both, and if he is to be credible he must tell us which he would do. I noted with interest that the Opposition's amendment commends credit controls similar to those in other exchange rate mechanism countries. I wonder which countries he has in mind, for France had credit controls, but abandoned them at the end of 1987, Italy had bank loan ceilings, which were last used in 1988, the Netherlands had an informal corset—it lapsed some months ago. Germany has never used credit controls proper, although it uses a reserve asset ratio, as we use Treasury bills. In Europe, only Spain, Greece and Portugal have credit controls. Perhaps the right hon. Gentleman can tell us whether he equates our economy to theirs, and what sort of credit controls he plans to introduce. Under a Labour Government no doubt that is the sort of economy that we might move to. The truth is that membership of the exchange rate mechanism involves maintaining an agreed range for the exchange rate and it requires tight monetary discipline to counter inflation. In short, it involves all the things that the Labour party has set its mind against. For us, the ERM stands for stability—for effective, reliable management; it stands for low inflation—for an end to ruining money. For the Opposition it means credit controls—and excessive restrictions on mortgages. It stands for all its old policies of expropriation, renationalisation and meddling. I commend our policy to the House.4.23 pm
I beg to move, to leave out from "House" to the end of the Question and to add instead thereof:
May I begin by saying how grateful we are to the Government for providing the time for this debate on their decision to take sterling into the exchange rate mechanism of the European monetary system on 8 October. As the Chancellor said, that was a decision of immense importance; it will have effects on every person, family and business in Britain; it will have significant influence on shaping all future economic policy and very obviously, it can have major implications for the constitutional future of our country and of the European Community. There can be no one in the House or outside who does not regard the decision to enter the exchange rate mechanism as being truly worthy of the adjective "momentous", and since that is self-evidently true, it is all the more difficult for us and the British people to understand the refusal by the Head of the Government who made that decision to participate in the debate. [Interruption.] Let the Prime Minister speak for herself. It appears that the Prime Minister has chosen this significant occasion, of all occasions, to become untypically reticent, to embrace a previously undisclosed shyness, to become—how shall I put it—a sort of crypto-Trappist. Today and on previous occasions since entry to the ERM, the Chancellor has made a characteristically suave presentation of the circumstances in which the decision to put the pound into the ERM took place. We heard a repetition today of the way in which he put it at the Mansion house last Thursday. There is nothing wrong with that at all. It is one way of demonstrating total consistency, but it is causing some problems on the Government Front Bench."while recognising the potential opportunities for economic stability afforded by the inclusion of sterling in the Exchange Rate Mechanism, notes the failure of the Government to achieve the reduction in inflation repeatedly stipulated by the Prime Minister to be the essential condition to be satisfied before entry; considers that political expediency rather than economic considerations prompted the Government's decision to participate in the Mechanism from 8th October; regards the Government's continuing refusal to use credit controls similar to those employed in other Exchange Rate Mechanism countries as imprudent; deplores the fact that the task of achieving economic success within the Single Market and the Exchange Rate Mechanism has been made immensely more difficult by Government policies which have resulted in the United Kingdom experiencing a large and persistent current account deficit, 10·9 per cent. inflation, rising unemployment and losses in domestic and world manufacturing market share; again urges Her Majesty's Government to adopt policies that are essential to the achievement of a productive and competitive economy, particularly those required for improvements in the quality of and opportunities for education and training, for the development of a modern economic infrastructure, including an adequate transport system, for the promotion of sustained investment in civilian research and development and for the instituting of a vigorous regional policy; and concludes that if such policies, long advocated by Her Majesty's Opposition and long resisted by Her Majesty's Government, are not adopted, producers in Britain will continue to work at considerable disadvantage by comparison with those in other Exchange Rate Mechanism member countries and the nation will continue to lag behind the standards of economic success and social progress achieved in other European Community countries.'.
The right hon. Gentleman should take a look at his lot.
I look at my lot with great pleasure.
In the Mansion house on Thursday the Chancellor said that inflation was definitely coming down. He said:It was a smooth and soothing explanation—and absolutely unconvincing to everybody concerned. Hardly anyone believed the Chancellor. In the markets and in the newspapers the general and justifiable feeling has been that his action was far more political than economic. Mr. Robin Marshall, chief economist at Chase Manhattan, said:"There was therefore no further reason for delay in entering the mechanism. And it was, of course, those very same conditions that indicated that a reduction in interest rates was now appropriate. I decided, therefore, to announce the two moves at once."
Mr. Peter Spencer, chief economist at Shearson Lehman, said:"Major comes out of this looking like Mrs Thatcher's poodle."
I can see from the friends that they have in the City that Conservative Members are hearing exactly the same thing. Those economists were only two of many people in similar positions who put the view that agreement to ERM entry was nothing more or less than the price paid by the Prime Minister for the 1 per cent. cut in interest rates that she needed to take to the Tory party conference. Never has so much been done that affects so many to please so few. [Interruption.]"The base rate cut was clearly dictated by No. 10".
Order.
Of course, those accusations of political rather than economic motivations are serious and they could have serious consequences. They call into question the credibility of the Government's commitment to the ERM. In spite of that seriousness, the witness whose testimony is essential simply refuses to be called. At the Dispatch Box where, on this momentous issue, the Prime Minister should speak we have merely a question mark. The reason for the Prime Minister's unwillingness to speak is quite obvious. The right hon. Lady has been saying since 1985 that we will go into the ERM only "when the time is ripe" and she could hardly say in this debate, "Inflation is 10·9 per cent., we have a huge balance of payments deficit, the economic consequences of the Gulf crisis are unknown, output and investment are down, so the time is not ripe. In fact, it's pretty rotten—but we have entered the ERM in any case, regardless of everything that I have ever said before."
Does the right hon. Gentleman himself think that the time was pretty rotten? Or have his conditions been satisfied? Can he conceive that his condition that the ERM should be accompanied by a Europewide reflation will ever be satisfied?
Our case was never made in the way in which the hon. Gentleman professes that it was made. Our argument has been, and remains, that when, from time to time, Europe is faced with the threat of Eurosclerosis—the hon. Gentleman will be familiar with the term—the case for joint growth strategies exists and is widely accepted. [Interruption.] I realise that Conservative Members are very reluctant to allow any answer to be given to a Liberal Democrat on this particular day: there is a certain Eastbourne sensitivity about. None the less, I shall reply to the hon. Member for Berwick-upon-Tweed (Mr. Beith)—[Interruption.]
Order. We shall make very slow progress at this rate. The Chancellor of the Exchequer was heard in relative silence; I ask for the same treatment for the Leader of the Opposition.
Thank you, Mr. Speaker. A different order of decency and discipline applies on this side of the House.
rose——
I will respond to the hon. Member for Amber Valley (Mr. Oppenheim) if he will first permit me to reply to the hon. Member for Berwick-upon-Tweed.
It is true that my right hon. and hon. Friends and I have been making the case for entry into the exchange rate mechanism, because of its basic attractiveness, to which the Chancellor referred. It gives the British economy the necessary stability, allowing us—together with other policies—to secure an advance in productivity and competitiveness. That is still our case for entry: for that reason we welcomed Britain's entry on the date on which it took place, and will continue to argue that ERM membership is right. That stability, however, is put in jeopardy if the Government's commitment and the sincerity of the Prime Minister are not even evidenced by the right hon. Lady's willingness to come to the Dispatch Box. I am sure that the Government will have noted the reactions to the circumstances in which Britain entered the ERM, and the excuses that they presented for their timing. The fact remains that our ERM membership is legitimate, valid and to be worked on to the advantage of our country.rose——
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I will give way to the Chancellor, by all means.
I am grateful to the right hon. Gentleman for his courtesy.
A moment ago, the right hon. Gentleman had something to say about the interest rate cut and the timing. May I remind him of what he said three days before we entered the ERM? First—at the Labour party conference—he said that the Government should cut the very high interest rate and should be negotiating entry into the exchange rate mechanism of the European monetary system. That is precisely what we did. Why will the right hon. Gentleman not give us unalloyed credit for doing it at the right time and in the right way?The Chancellor negotiated nothing, other than a little deal with the Prime Minister to swap a 1 per cent. interest rate reduction for ERM entry. That was the only bit of negotiation.
If the right hon. Gentleman will permit me, I will correct the misconception in his mind. Uniquely—somewhat to the irritation of our European partners—I told them the terms of entry that we sought before I went to them. We obtained those terms of entry, absolutely and entirely. I think that that is quite a success.
I really do not think that obtaining DM2·95 to the pound in a 6 per cent. band required all that much negotiating skill.
The Chancellor asked me about a speech that I made. Let me tell him precisely what I said. I said not only that we wanted entry to the ERM, and would certainly have brought it about had we been in office, and not only that we wanted a reduction in interest rates, which we would also have introduced, but that we would have accompanied those moves with two other policies essential to the proper working of our economy in an intensely competitive European Community and trading world. First, we should institute exactly the same form of credit controls as those still operated in comparable countries with great success, and which result in much lower interest rates. The Banque de France operated such a policy only last Wednesday, to ensure that France could retain its position within the ERM while lessening the burden of interest rates on the productive sector of its economy. Conservative Members know that that is precisely what happened. Secondly, and most important, we still want a commitment—and I shall again make the case for it this afternoon—to a proper, comprehensive, modern, supply-side policy, something which the Government have never introduced and will never introduce.rose——
I must continue. I gave way to the Chancellor, who asked an interesting question which required a prolonged answer.
The Prime Minister's absence from the Dispatch Box is further explained by the fact that she came to the House in June 1989, from the European Community summit, and told us that she had made it clear that before ERM entry,She told me that"We must first get our inflation down."
of entry"One condition"
It was that"depends on us".
She was saying that repeatedly during all the following 15 months, right up to and including her visit to Switzerland where, on 20 September, she said:"we get inflation well down".
Nothing could be clearer, nothing could be more absolute, nothing could be more implacable than those words from the right hon. Lady—the prima donna of the Madrid conditions. Against that background, the Prime Minister plainly felt that it was beneath her dignity to come to the House today to justify her abandonment of that paramount condition on inflation, while simultaneously standing on her head. That is why she will not speak."The Madrid conditions won't be changed and they include getting inflation near to the European average."
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I must continue. If Conservative Members have any questions, please address them to the Prime Minister—although she never provides any answers.
The Prime Minister felt that she could not say that she knew that the whole Government—[Interruption.] Perhaps I could have some order, Mr. Speaker. She knew—[Interruption.] The people watching this exhibition will pay due regard to the continual interruptions by Conservative Members. They are not making genuine inquiries; they are trying to disrupt the business of the House. Everybody will understand that. The more that I pursue the question of the Prime Minister's motivation, the noisier they are likely to become. The Prime Minister knew that the whole Government had been chanting that cardinal Madrid condition, but, because their policy of high interest rates was throttling the economy, interest rates had to be cut, even though the only way to do that, without sending the pound plummeting, was simultaneously to join the ERM and desert the Madrid conditions. It was not so much a case that the lady was for turning, as a case of the lady twisting in the wind—a wind of looming recession and greatly increasing political unpopularity. Of course, the Prime Minister and the Chancellor tried to make the best of the mess. The Chancellor said that the prospects were good and that the market conditions and the market rate were right. He said that there was an ideal conjunction of events—precisely the right conjunction of events. I note that he has not repeated those phrases in the House today, but I am sure that he will not disown them. The Prime Minister was similarly fulsome. She took out the portable pulpit that she has taken to using in Downing street and announced that it was suddenly possible after all to put sterling into the ERM becauseUnemployment is rising, bankruptcies this year are up by 35 per cent., industrial output is falling, inflation is still rising, the business community is warning that there is recession in several industries and recession threatens the whole economy, but the Prime Minister describes all that as"of the uncontestable signs that the economy is working in the way that we intended it to."
the Government"uncontestable signs that the economy is working in the way that"
Could there be any greater self-condemnation of the Government? Could there be any clearer admission of incompetence and failure over 11 years? The Government could not even clip 1 per cent. off the highest interest rates of all major industrialised countries without joining the ERM—10·9 per cent. inflation and all. What a mess."intended it to".
On behalf of the Labour party and a future Labour Government, the right hon. Gentleman has said that the ERM will help to bring stability. On behalf of the Labour party and future Labour Government, will he give us some idea about what he thinks the ERM will help to stabilise and roughly how he thinks that will be achieved?
The exchange rate. That is the whole purpose of the mechanism. If the hon. Gentleman does not have that basic piece of knowledge, I am not suprised that he takes the view that he does. I am sure that he has. [Interruption.]
Order. It will be impossible to call all those who wish to participate if the Leader of the Opposition is continually interrupted. I notice that the three hon. Members who have recently been rising all wish to speak later.
Inflation is vexatious when it is as high as it is and so largely the result of the Government's policies, but the Chancellor tells us that it is not the actual rate of inflation but the prospective rate of inflation that matters. When he went to the IMF meetings in Washington at the end of September he said
Forecasts have always been important. Obviously they are essential to economic navigation. But now it seems that they have gained unprecedented significance. Not only do they matter more than the actual rate of inflation with which people have to live, but they are important enough to justify the most momentous of economic decisions, such as entry into the ERM. But if the Government have such boundless confidence in forecast inflation rates, I am bound to wonder why sterling was not put into the ERM a year ago. After all, at that time in his Autumn Statement last November the Chancellor told us that the prospective rate of inflation for this quarter of 1990—the period that we are in now—was 5·75 per cent. He was just about 100 per cent. out in his forecast. He tried to correct that in the Budget in March, seven months ago, when he said that his 5·75 per cent. forecast for this quarter of 1990 had been revised upwards to 7·25 per cent. That was only 50 per cent. out on the actual rate of inflation that we are experiencing now. That record hardly fills us with confidence about the Government's judgment, especially when the Treasury had to admit yesterday:"What matters … is less the difference between headline figures which measure what has happened over the last 12 months than the prospective movements in price levels from now on."
That is not much of a crystal ball, especially as an important indicator on which to base a judgment such as the Government's abandonment of the Madrid conditions. But at least one Government forecast will be right. The rate of inflation will come down. If any economy is squeezed hard enough for long enough, and this one certainly has been squeezed hard and for a long time, eventually prices will almost certainly follow demand in a downward direction. But the damage already done to the economy by the high interest rate squeeze, and the damage that will be done to the economy, has pushed Britain back, pushed costs and inflation up and weakened our productive industries in the approach to the single market. What a fine preparation for the coming of the single market at the end of 1992. Even if the crude recessionary slump contrived by the Government brings inflation down, it certainly will not keep inflation down. It cannot, as the Government have already proved. The Conservative party chairman's absence today is notable—it may be because he can count his supporters in the Cabinet on the fingers of one finger—so unfortunately I speak in his absence. A few weeks ago in September he said that the Government's interest rate strategy for bringing down inflation would work because they had done it "twice before". But clearly, if the Government have used the strategy twice before and now have to use it a third time, it is not because it has worked; it is because it has failed. That must be the case. It will go on failing because, in the very act of being applied as an instrument against inflation, recession causes extra living costs, pushes up wage demands and imposes extra borrowing costs that bring bankruptcies, cancelled investment plans, instability and underperformance causing inflation to come back again, as it has. We have had 11 years of repeated use of those policies alternating with pre-election credit sprees, but the Government have not yet learned the error of their ways. The only response that the Government have ever made to a mistake is to repeat it and then call that being resolute. Despite his many charms, the Chancellor of the Exchequer is no exception to that rule. The Chancellor told us last week, and again this afternoon—it was an important point in his speech—that the only real problem afflicting Britain is excess demand. That, he said, is the single evil that causes inflation and the massive trade deficit. He says it with such charming bravura that he would convince anyone who did not know better that he had never been in a Government who had repeatedly generated excess demand for electoral purposes. Unfortunately, about the supply side the Chancellor says next to nothing."Since forecasts of the RPI were first published in 1976 only one year has seen a larger error than the forecasts for 1988 and 1989."
Will the right hon. Gentleman give way?
No, I am sorry. I have given way several times.
I suppose that the Chancellor knows that if he did give real attention to the supply side he might have to do something more than undertake some City deregulation, some trade union legislation and give some tax handouts. If he really was interested in wanting Britain to succeed, he would do much more. If he really wanted to encourage enterprise and combat inflation, he would be doing what other ERM countries do and use more moderate interest rates in combination with credit controls instead of relying so heavily on high interest rates. If the Chancellor and the Government really wanted to attack the rigidities, the bottlenecks, the restraints on the productive economy, they would have followed the example of Governments of other countries in the ERM. Those Governments have ensured proper investment in modern transport. This Government have not. Those Governments have invested more in civil research and development. This Government have not. Those Governments have wisely invested more in education and training. This Government have not.
That is not true. Look at the OECD figures.
I am not so interested in the OECD comparisons. Why does not the hon. Gentleman go to a school or college in Britain and see the results of under-investment?
The whole country knows that the Government have failed to make the necessary investment. To see the results of the difference between both kinds of performance, it is only necessary to compare this country's oil-rich economy after 11 years of Tory Government and those of other ERM countries, whatever the political colour of their national or regional government, and none of which has any oil. The difference is that the Governments of those other countries have enabled a productive economy, whereas the Government of our country have disabled a productive economy. Whatever our future may be in the European Community, that situation must change, so that our industries may have a fair chance under the exchange rate mechanism. Many tough, determined and enterprising people are saying still that they are not enjoying a fair chance by comparison with their competitors in other ERM countries. There is a great deal in what they say. It is not just a matter of the ERM, because attitudes towards the supply side must change as pressures build up within the Community to go beyond the ERM and stage 1 of the goal to which the Chancellor says that he is committed, of economic and monetary union. The Chancellor said also that movement towards a single currency is "not inexorable", and he is absolutely right. That movement is the result of a deliberate decision by free countries. It is not a consequence of faith or of dictatorial imposition. If the Chancellor had said that, with the economy in its present state, monetary union was not in any case acceptable, he would also be right. Given Britain's deficit, inflation rate, inadequate training and substandard transport systems, there is no possibility, without great change, that monetary union could be tolerated. The question that is increasingly posing itself is not whether monetary union is desirable to us but whether it is the ambition of others, including the strongest economies of the Community—with or without the United Kingdom. The plain fact is that monetary union is something to which those other member states aspire, and they are intent on achieving it—if not within the next five years, then not very long after that. That is a certain prospect. The consequence of all that is that our future will be more strongly influenced than ever not only by what we would prefer to do for ourselves but by what others prefer to do for themselves, and which they will do for themselves.rose——
Just a moment.
The European Community has not yet decided on the path to a common currency. There is much that we should and can do in this House and through government to shape the course of events. However, we are not helped much in that by the isolationism of the British Government—or at least that part of it that is controlled by the Prime Minister. Those parts of the Government that owe fealty to the deputy Prime Minister and to the Foreign Secretary are different, but I say to both Governments that, however we might try to influence events, it is imperative to ensure that the British economy is more productive and competitive, less prone to trade deficits and more resistant to inflation than it is now. The Government should be the ally of modern industry in a way that the present Government have never been, nor ever will be. The pre-conditions that I describe have merit at any time, but they are of extra importance now. Only by gaining those strengths can we achieve convergence with the higher performance standards of our neighbours and fellow members of the exchange rate mechanism. That effort of upward convergence represents a sensible strategy, and it is among the aims of the Labour party. Only by improvements in productivity will we be able really to choose between co-existing with monetary union if we choose not to join and thriving economically within currency union if we do decide to join.Would Labour take Britain into monetary union or would it not? Will the right hon. Gentleman show some leadership?
When it comes to leadership, I am rather less susceptible to challenge than the Prime Minister at this precise time, so the hon. Gentleman would do well to keep his own counsel.
Those are the facts of life that we must face. There is no refuge from them, in the blithe hope that our economy can make such a bound forward in competitive performance that Britain will suddenly be able to recapture great swathes of world markets and will thus push the European Community to the periphery of our interests as an important trading nation.Will the right hon. Gentleman give way now?
No, I will not give way, because of time constraints.
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Order. The hon. Member for Wolverhampton, South-West (Mr. Budgen) also has indicated that he wants to participate in the debate later. Perhaps he will get a chance to do so.
The hon. Member for Wolverhampton, South-West (Mr. Budgen) will acknowledge that there were a number of disorderly interruptions earlier, which took up time. I regret that, but I shall respond to the hon. Gentleman on a future occasion.
There is no serious third way out of the stark choices that face us in the form of the Chancellor's proposals for the so-called hard ecu. That is a clever illusionist's trick from the right hon. Gentleman, but it is a trick nevertheless. The Chancellor claims to be against what he calls the imposition of a single currency, so he advocates a multiple currency system. He says that such an arrangement will consist of a hard ecu as a common currency, with all existing currencies used alongside it. However, he knows that the hard ecu, being almost incapable of devaluation, would render just about every other existing currency as redundant as the farthing and about as attractive as bent washers. The Chancellor might have bamboozled the Prime Minister with his hard ecu. He might even enjoy being patronised by others in the European Community. Nevertheless, if the hard ecu is ever adopted, the single currency that the Prime Minister so abhors would arrive not in the long term, as the Chancellor promises, but very quickly. Some members of the Government know that. Right hon. and hon. Members may have read in the Financial Times this morning a report quoting the Financial Secretary to the Treasury, who remarked in relation to the hard ecu:I wonder whether the Prime Minister would say the same, or whether that is again a tale of two Governments. As there is a strong and developing consensus in several other Community countries in favour of currency union, I repeat now what I have told many colleagues in the Community and in the Commission for some years. That community of democracies should never support the creation of a so-called independent central bank. It is no more appropriate for a democratic country or a group of democratic countries to allow monetary policy to be handed over to an independent, unaccountable bank than it would be for fiscal, public expenditure and taxation policies to be given over to such a bank. If the Community seeks to achieve currency union between member states, then, whatever the implications for Britain, it will have to make arrangements for joint growth strategies, fiscal co-ordination and regional policies on an unprecedented scale. The regional policies would, by the very nature of currency union, require transfers between regions of the Community, just as transfers are made now between the German Lander, French departments and Italian regione, within their own national currency units. That is the dimension of the change that would need to occur if monetary union is to work to the advantage of the peoples of the Community. Even the most enthusiastic monetary unionist would recognise the truth of that. Our country has been taken into the exchange rate mechanism by a Government who have been in power 11 years, and who found themselves cornered by the approach of two crucial European summits and boxed in by the expectation that the Government themselves have created that entry into the ERN would occur this autumn. They were a Government trapped by the approach of the Tory party conference, which needed pleasing, and by a looming recession, resulting largely from their own policies. They are a Government who were besieged, and who are besieged, by their own political and economic errors and failures. They are a Government who sought to use a 1 per cent. interest rate cut and ERM entry as a political escape. They have failed in all of that. The interest rate cut is regarded with cynicism even by those people who yearn for relief from the crushing burdens of mortgage payments and business loans. The gush of City euphoria that greeted ERM entry went flat as quickly as the bubbles in the champagne that celebrated it. The Government's decision and the Government's timing are accurately seen as being determined by political expediency and concern for their own status and not by economic judgment made for the sake of the economy or the national welfare. They are a Government who have been found out and, as soon as the British people get the chance, they will be a Government who have been put out."I would argue personally that the next stage of having a single currency could actually happen more quickly going down this path."
5 pm
At the beginning of his speech and on a number of other occasions, the Leader of the Opposition said that we were debating a momentous decision. I entirely agree with him. It is sad, therefore, that his speech could not live up to that momentous decision. When the House is asked to debate what, in the right hon. Gentleman's own words, is a momentous decision, all we get from him is second-rate political knockabout.
This is only the third occasion in the past year on which I have sought to intervene in a debate. The first occasion was when I made my resignation speech. As many hon. Members will recall, I devoted a considerable part of that speech—although not all of it—to arguing the case for British membership of the exchange rate mechanism of the European monetary system. Incidentally, I warned on that occasion that, although I was strongly in favour of entry, and although I believed it to be strongly in the interests of this country, it was certainly no soft option and no panacea. I mention that because others have subsequently seemed to be seeking to take a copyright on the phrase. The second occasion during the past year on which you have been kind enough to call me, Mr. Speaker, was during the Budget debate. Perhaps with a certain monotony, I again devoted a significant part of my speech to arguing that we should join the exchange rate mechanism of the European monetary system sooner rather than later. It is with particular pleasure, therefore, that on this, the third occasion, I can wholeheartedly and most warmly endorse the decision that the Government took to enter the exchange rate mechanism. On the reasons for doing so and the advantages of doing so, I entirely agree with what my right hon. Friend the Chancellor of the Exchequer said in his speech. He set out the advantages and reasons very clearly. I have to say, however, that those reasons and those advantages have been valid for years. They are not reasons and advantages that have suddenly appeared relatively recently. The great thing is, however, that the pound is now in the exchange rate mechanism of the EMS or, as some might put it, we are committed to shadowing the deutschmark at a rate not very far from DM3 to the pound—[Interruption.] In response to hon. Members' sedentary reaction, perhaps I may say a little about that previous occasion, when we were living in sin, as it were, with the ERM, within the overall framework of the Louvre agreement. That period lasted from March 1987 to March 1988—a period, incidentally, during which inflation fell from 4½ to 3½ per cent. The claim that that was the cause of our current inflation is very difficult to sustain. If that were so, it would be difficult to see why we are repeating the arrangement now, albeit in more formal and thus improved circumstances. I know that some people felt that interest rates were reduced too much during that period. That is one of the myths that has been put about. In fact, at the end of that period, interest rates were precisely 1 per cent. below their level at the beginning of that period. That reduction of 1 per cent. was a result of the response to the stock market crash of October 1987—a time, I may say, when, as Chancellor, I was being urged by Opposition Members to cut interest rates far more and to increase public expenditure as well. While on the subject of public expenditure, let me say this. I hope and trust that there will be no slackening whatever in the policy of firm control of public expenditure that the Government have been pursuing year in, year out. The abolition of the public sector borrowing requirement was a most important achievement and it is not something lightly to be thrown away. We have only to look at the United States to see what can happen when public borrowing gets out of hand. By-elections or no by-elections, the firm control of public expenditure remains as vital now as it has ever been. My right hon. Friend the Chancellor referred to the timing of the interest rate cut. In my judgment, he made a completely conclusive argument about why it would have been wholly wrong to have reduced interest rates in advance of the decision to join the ERM. For reasons best known to himself—one could guess at them—my right hon. Friend did not address the other possibility, of joining the ERM before reducing interest rates. I was interested to see the Governor of the Bank of England reported in the Financial Times as saying that he would have been happier had the interest rate cut followed entry into the ERM. I agree with him. This is not a small point because, sadly, the conjunction of the two has led to a degree of cynicism in the financial markets for which we shall have to pay a price. That price will be that the next reduction in interest rates will have to be deferred for longer than would otherwise have been the case.My right hon. Friend will recall that the immediate impact on the markets of our entry into the mechanism pushed the parity of sterling up towards the top of the permissible band under the new system. Had we not reduced interest rates, might it have been impossible to hold sterling within the new bands?
No. My hon. Friend knows perfectly well what happened to sterling shortly after that. There was an initial upward surge which never reached the top of the band. Had it been closer to the top of the band and interest rates had been brought down as a response to that, that would have created conviction in the market place; while what has happened, sadly, has not done that. That conviction will have to be earned. I am sure that it will be earned, but it will have to be earned.
I am quite sure that my right hon. Friend the Chancellor was right initially to join with the wider margins. However, I hope that it will not be very long before we get to the narrower margins to which we are in any case committed under stage 1 of the so-called EMU. I hope that that will be a matter of months, and that when my right hon. Friend the Chancellor introduces his next Budget he will be able to announce that we are moving to the narrower margins. Perhaps more importantly, I believe that it was right to choose a rate of DM2·95. Many people, including Opposition Members, have said that that rate is far too high. However, that is the voice of the perpetual devaluationlists who always find any rate too high, who espouse policies which would lead to rising inflation, and who cannot accept the discipline which membership of the exchange rate mechanism must produce. There is, of course, no such thing as "the right rate". However, there is a range of plausible rates. The economy must adjust to the rate that is chosen. If the chosen rate is somewhat on the high side, although not too high, the economy will adjust to the discipline which is absolutely essential for getting inflation down.What is the right hon. Gentleman's view of the rising monetary aggregates at a time when it might have been sensible to join?
I do not know what particular time the hon. Gentleman is referring to. However, I will return to that point shortly.
A tough discipline is essential. Sadly, the inflexibility of the labour market in this country means that it is all too likely that the reduction in the rate of growth of unit labour costs, which is essential, will be achieved not, certainly initially, by a reduction in wage increases, but by more and more men being laid off. We will see unemployment rising. That is a fault of the rigidity of the labour market in this country and, in particular, because the trade union leaders are far more concerned about those who are in work than about those who are out of work.As the right hon. Gentleman is talking about wage cuts, when is he expected to take a wage cut in his various jobs? As it seems to be a good idea for the workers, and as he has three or four jobs, when is he going to take a wage cut which he believes everyone else should take?
That is the kind of intervention I might have expected from the hon. Gentleman. I can assure him that I do just as much to earn my pay as he does to earn his.
The real tragedy is that we did not join the exchange rate mechanism of the EMS at least five years ago. That was not for want of trying, as a number of my then Cabinet colleagues can testify. In reply to the intervention from the hon. Member for Linlithgow (Mr. Dalyell), let me say that at that time the monetary aggregates were moving in the right direction, inflation was coming down and it was very close to the Community average. If we had joined then, we would not have seen the sharp fall in sterling that occurred in 1986 which then led to the subsequent rise in inflation.Will the right hon. Gentleman give way?
Will the right hon. Gentleman give way to me?
I believe that the right hon. and learned Member for Monklands, East (Mr. Smith) will be replying for the Opposition, so he will have his opportunity to speak then.
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There is another reason why it is a tragedy that we did not join five years ago. [HON. MEMBERS: "Why didn't we join then?"] Not only would it have been economically beneficial, but had we joined five years ago there would have been no danger of confusing the ERM and the EMS with EMU because at that time EMU did not exist; it had died with the Werner plan and the Delors proposals had not even been put on the table.
I entirely agree with my right hon. Friend the Chancellor that there is a world of difference between EMS, which is an aspect of economic management, and EMU, which is essentially political.
On a point of order, Mr. Deputy Speaker. I put to you the constitutional point that people outside this place, when listening to an ex-Chancellor of the Exchequer who was the longest serving Chancellor, will wonder why he tells us what did not happen but will not tell us why it did not happen. People will be utterly bewildered.
That is neither a constitutional point nor a point of order.