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Mr. Win Griffiths (Bridgend) : I continue to be amazed at the gullibility of the Conservative Members, because most of them appear to listen with reverence to another edition of the tales of the babes of Dorneywood from this latter-day member of the family of the Brothers Grimm.
When we look at the Autumn Statement and the various forecasts that the Chancellor has made in the past year or two, we must admit that in every case he has been a failure. He promised us that inflation would be running at 4 per cent. and it is more than 6 per cent. and rising ; and that the balance of payments deficit would be £4 billion, but it will probably be more in the region of £14 billion this financial year. The Chancellor thought that imports would increase by about 6.5 per cent., but we know already that the increase will be more like 13 per cent.-plus. He thought exports would increase at the rate of 3 per cent., but we know that we shall be lucky to obtain 1.5 per cent. He thought that interest rates would remain stable, but we know that they have virtually doubled--from 7.5 per cent. to 13 per cent., and who knows where they might go in future? The Chancellor thought that the money supply would range somewhere between 1 and 5 per cent. and already we know that it is more like 8 per cent. When forecasting for every major item in the Budget, and for expenditure, the Chancellor got it wrong. It is no wonder, therefore, that the Government are in a state of some panic about using high interest rates as virtually their only policy in this sector and are concerned about the problems caused to them by the agony and the pain felt by some people, which the hon. Member for Wolverhampton, South-West (Mr. Budgen) graphically explained.
I was staggered, too, by the way in which the Chancellor almost rushed to remove the cost of mortgages from the retail prices index. The Chancellor must be living in cloud cuckoo land with Rupert Bear and Algy, if he believes that the home owner regards an extra payment on the mortgage as something not to be counted in his or her spending in any particular month. There is no way that we can avoid responsibility by not including mortgage rate repayments in the RPI. Another matter which struck me was the massive complacency of the Chancellor, which appears to be echoed by most of other hon. Members who have spoken, about the great economic miracle which has been performed in the past decade. That miracle can only be seen by looking down a telescope, with a long set of blinkers on the end of it, focused somewhere in the London area. The figures for the number of jobs in all of the standard planning regions, the moment one moves beyond a line from the Severn to the northern side of the
Column 1057Wash, tell a story of dismal failure. Conservative Members could do themselves a good turn if they studied those figures, which I shall now give them.
I shall begin with Wales, because I believe we should start with the most important part of the United Kingdom and the one which has suffered most. In Wales, there are 130,000 fewer jobs than there were in 1979 ; in Scotland 173,000 fewer jobs ; in the north of England 107,000 fewer jobs ; in the north-west of England 337,000 fewer jobs ; in Yorkshire and Humberside 77,000 fewer jobs ; and in the west midlands 70,000 fewer jobs. That is a grand total of 894,000 fewer jobs now than in 1979. A total of 234,000 of the extra jobs that have been created in the regions which I have mentioned are part-time jobs for women. The state of the British economy, in by far the greater part of the country, is a sad tale of woe and failure.
It is true that more jobs have been created in the south-east, East Anglia, the south-west and the east midlands, but that is because the Government have almost completely ignored the needs of the northern and western regions of the United Kingdom. I have left out Northern Ireland deliberately, because I accept that the problems of that area are far greater than any damage that the Chancellor is doing to the economy.
The Chancellor likes to talk of the success of the British economy and the wonderful way in which it is working compared with other economies. On the latest figures available, inflation in the United Kingdom is 6.4 per cent. compared with 3 per cent. in France, 1.4 per cent. in Germany, 4.8 per cent. in Italy, 4.2 per cent. in the United States, 4.1 per cent. in Canada and 0.5 per cent. in Japan. All those figures relate to the end of last year and show that Britain is at the bottom of the league of major industrialised countries. Short-term interest rates are 13 per cent. in Britain, compared with 8 per cent. in France, 4.8 per cent. in Germany, 12 per cent. in Italy, 8.3 per cent. in the United States of America and 4.4 per cent. in Japan. The figures for Canada are not available. Again, which economy is the worst? Why, it is the British economy. Although we are not at the bottom of the ladder for unemployment figures, we are near it. According to the Organisation for Economic Co-operation and Development figures for the end of last year, unemployment in Japan is 2.5 per cent., in Canada 7.8 per cent., in the United States 5.3 per cent., in Germany 6.4 per cent., in France 10.4 per cent. and in Britain 8.4 per cent. Again Britain is doing badly. It is only because of the distorted nature of the British economy that Conservative Members can comfort themselves in the apparent success of the Chancellor's policies.
The truth is that we have had a decade of neglect which has not been in the interests of creating a balanced and prosperous nation. [Laughter.] We have a divided nation. The hon. Member for Beaconsfield (Mr. Smith) may laugh, but if he cared to come to Wales or to visit the north of England or Scotland, he would see a different picture. It may be hard for him to admit that some areas have high unemployment and that those who earn there gain poor wages. He may like to come with me one weekend and see the poverty and deprivation that the Government have caused by deliberately taking money from pensioners and
Column 1058the long-term unemployed and by reducing spending on the regions by two thirds. No wonder we no longer have those jobs.
When he replies, perhaps the Minister can tell us exactly what judgment the Chancellor has made of the amount that demand will need to slow down for him either to reduce interest rates or at least ensure that they do not climb higher. I must admit that, in view of his previous forecasts, it may not be worth while getting an answer to that question, but I should like one. How long will the agony continue?
Mr. Tim Smith (Beaconsfield) : One of the most interesting things about our economic debates is that most of the debate these days takes place on the Conservative side of the House. After having listened to such a pedestrian speech packed full of tedious statistics, I should like to return to the Autumn Statement and to public spending with which it is principally concerned.
The Government's objective on public spending has been changed twice during the past 10 years. The objective was first to reduce it in absolute terms and then to hold it constant ; now it is to ensure that it falls as a proportion of GDP. I make no complaint about that, because, with the growth in the economy, that is something that we can reasonably afford to do, but I am worried about the projections for the next three years.
Although the achievement on this front, as shown in table 1.1 of the Autumn Statement, is impressive, as the trend is moving in the right direction, I remain worried that the target is not as ambitious as it might be. We should press on to return to the levels shown at the top of the table--for example 36 per cent. of GDP in 1964-65. My second point, which was raised by the Treasury and Civil Service Select Committee, is whether that is a sensible way to control the overall level of spending. I agree with what my hon. Friend the Member for Bridlington (Mr. Townend) said and I do not share the view of the Select Committee that this is not a sensible way to proceed. It has the virtue of simplicity, it is intelligible and it does not make sense to include transfer payments.
However, I do not agree with what my hon. Friend said about the Committee's recommendation on the need for a public sector balance sheet. I know that this is a difficult area. My right hon. Friend the Chief Secretary told the Select Committee that it would be difficult to get a market value for a prison. Of course that is true, but as a member of the Public Accounts Committee I have been shocked at the number of witnesses who have been unable to say what assets they are responsible for. For example, the Crown Estate Commissioners appeared before the Committee recently ; they, who are the equivalent of a property company, produced a balance sheet for the first time only in the past 12 months. There is tremendous scope for improvement. Departments of State should know what assets are under their control. One way of doing that is to require them to produce a balance sheet. That would have the advantage that we would then know what additions had been made and what the total level of capital spending was. That information in the Autumn Statement is deficient and I hope that, when the public expenditure
Column 1059White Paper is published, we shall have the table that appeared last year which showed the Government's total capital spending. Such a balance sheet would also show capital receipts satisfactorily, which does not happen at present. Privatisation proceeds are deducted from total Government spending and the proceeds from the sale of council houses are deducted from total spending on council housing, so there is room for improvement. The production of a public sector balance sheet would be a good idea.
We have had a good deal of discussion about inflation. Every Conservative Member subscribes to the principal objective of the Government's economic policy, which is trying to defeat inflation by monetary rather than fiscal means. I have two worries, one of which was mentioned by a Labour member of the Select Committee and is referred to in the report. The Government's goal is always being moved one year out, so that the goal of 3 per cent. inflation always seems to be 3 per cent. away. We need to try to set targets to which we can adhere or people will not believe the targets that the Treasury sets itself.
Secondly, it is not widely recognised that if, instead of analysing the RPI in the normal way, which is between different items of spending, one analyses it as Christopher Fildes did in an article in The Spectator in December, which was between the public sector elements and the private sector elements of the RPI, one sees that the Government are responsible for a considerable amount of the inflation from which we are now suffering.
According to the October figures, inflation measured by the RPI was 6.4 per cent, whereas public sector inflation was 7.8 per cent. If mortgage payments were included, it would be 13.8 per cent. On the other hand, private sector inflation was 4.8 per cent. That discrepancy was due to the fact that nationalised industry prices were rising at 7.5 per cent., local authority rents were rising at 7.5 per cent. and rates were rising at 8.5 per cent. Part of the solution to the present problem of inflation lies in the hands of the Government and certainly in the hands of local government, because those prices are fixed by the Government and local government. We can expect to see an improvement when some of those figures come nearer to the general level of price inflation.
The Committee also examined the official statistics. I very much agree with the view that we must have statistics on which we can reasonably rely. Much doubt has been expressed about the balance of payments statistics. It is a well-known fact that, if we add up all the balance of payments statistics throughout the world, we end up with a large deficit, which suggests that something is wrong somewhere. We see regular adjustments to the United Kingdom balance of payments figures, which are usually favourable for the Government, because the deficit is normally reduced as a result of subsequent adjustments. I hope that the balance of payments figures will form part of the Government's inquiry, because it is important that we should have statistics upon which we can rely.
We have heard a great deal in the debate about forecasts. The Treasury has been criticised for the forecasts that it made in the Red Book at the time of the Budget, but if we consider almost every other forecast made at that time about the balance of payments, we find that the forecasts were all around £3 billion, £4 billion, £5 billion or £6 billion. No one forecast a figure near the real outturn.
Column 1060There is a lemming-like quality about economic forecasters who have a tendency to assume that things will continue as they are today. I am not so pessimistic.
For example, I am inclined to agree with my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) that the savings ratio problem is beginning to resolve itself. One of the principal reasons why the ratio has fallen so low is, as we can see from a table in the Autumn Statement, the close correlation between the movement of the savings ratio over a number of years and the movement of inflation. As inflation comes down rapidly, people feel the need to save far less. There is far more confidence in the economy, so they feel less need to save for the future.
That has now changed. All the evidence shows that there is more uncertainty. There will be less borrowing, which is an important element because we are dealing with a net figure. The problem is therefore already starting to resolve itself. If we were to have a Monory proposal, I doubt whether it could be introduced by the Treasury as early as June, as my hon. Friend the Member for Wolverhampton, South-West suggested. The PEP scheme did not come in until 1 January following the Budget, so I agree with my hon. Friend that the problem would have started to resolve itself before we could even tackle it.
My right hon. Friend the Chancellor of the Exchequer should cut income tax further in the Budget. With such a large public sector debt repayment, I see no reason why another 1p should not be cut off income tax or why thresholds should not be increased by more than the rate of inflation. I should like to see something done about the national insurance contributions made by the lower paid. That matter is mentioned in the submission of the Institute of Directors. I do not have time to develop the point, but I am sure that my hon. Friends will be aware of the point to which I refer. There is a poverty trap when one first comes to make these payments, and again when the rates increase. I should also like to see something done about capital gains tax in relation to investments in unquoted companies, a matter which has been raised by the Conservative Back -Bench small business committee.
I fully support the economic strategy in the Autumn Statement. We have every reason to be confident about the future of the United Kingdom economy.
Ms. Joyce Quin (Gateshead, East) : The widespread reaction to the Chancellor of the Exchequer's Autumn Statement and his recent pronouncements on the economic situation in Britain shows clearly that many people, including those whom the Chancellor might normally think of as supporters, believe that he has got it badly wrong. The hon. Member for Beaconsfield (Mr. Smith) appeared not to like statistics, particularly when they show the Government in a bad light, but none the less, it is clear that the forecasts were very wrong, particularly those on inflation, but also those relating to the balance of payments and trade deficit which is three times greater than the original prediction.
The serious economic developments that we have seen in recent months are very much related to last year's Budget in which, again, the Chancellor got it disastrously wrong. Many of us reacted strongly to that Budget for what we felt were the immoral giveaways to the richest in
Column 1061society, but it is now clear that the Budget was also economically very foolhardy and wholly inappropriate to the economic situation in which Britain found itself. The Chancellor was warned at the time, particularly by Labour Members, that the Budget would lead to a boom in imports and that it would mean a serious trade deficit given the great weakness of the British manufacturing sector.
We are now given the Chancellor's forecast for trade recovery and how the balance of payments is supposed to improve over the next year, but is this forecast also to be disastrously wrong? The only cure that appears to be given is that of raising interest rates, but, in that sense, the Chancellor appears to remind us of 18th-century doctors who prescribed leeches for every ailment. The problem was that so many of the patients never recovered.
Let me cite some of the reactions to the Chancellor's Autumn Statement and his economic policies. The Confederation of British Industry reported that many exporters appeared to be gloomy about the future. The Engineering Employers Federation felt that the Chancellor was misguided in the way that he thought that action on interest rates would do much to cure our trade deficit. There was widespread hostile reaction in many national newspapers and there was an encouraging headline in the Daily Mail which read :
"Has Nigel blown the next election?"
The Bank of England has also warned the Chancellor against tax cuts in the forthcoming Budget. Organisations such as the National Federation of Self- Employed and Small Businesses say that the interest rate increases are affecting detrimentally the fastest growing firms in the country. The chairman of Ferranti International is quoted in one newspaper as saying that, because of the interest rate increases, the company will look hard at its investment programme. Last but not least, the OECD report produced last December predicted a growing trade deficit for the United Kingdom which was in very worrying contrast with the Treasury's predictions. All that adds up to a strong weight of opinion against the Chancellor and Government economic policies.
The Civil Service and Treasury Select Committee, of which I am a member, has produced a worthwhile report, which, although often worded in a restrained and sometimes even coded manner, makes many telling criticisms of the Chancellor's policy and of the defects, as we see them, in the Autumn Statement. In particular, it points out inconsistencies in the Chancellor's exchange rate policies. Only last March, he was telling us that an exchange rate of DM3 to the pound was an anchor against inflation, but, by the end of the year, he had changed his tune, particularly as the exchange rate with the deutschmark was then 3.22. He was not so certain about what the anchor against inflation would be for the future. That is another worrying sign.
In the remaining time, I should like to highlight two issues which are of particular concern to me and will be worrying factors in the coming months and years. The regional effects of the Chancellor's policy have already been referred to. Like my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins), I come from the northern region of England which has, at best, seen only a partial economic recovery. We learn that, before an
Column 1062economic recovery can take place there, it will feel the recessionary effects of the measures to cure overheating in the south-east.
The Government seem to have no regional strategy or economic policy to deal with the undoubted regional division. The reaction in the northern region to the Chancellor's rise in interest rates was particularly unfavourable. Mr. Paul Torday, the regional director of the Northern CBI, said that he felt that Government policy was concentrating on the south and that there appeared to be an absence of any thought about how to deal with regional variations. The chambers of commerce in Tyne and Wear and on Teesside also expressed concern. However, when I raised these points with the Chancellor in the Treasury and Civil Service Select Committee, he said more or less, "Well, they would say those things wouldn't they? They feel that they've got to say them." He dismissed real and genuine concern as ritualistic mutterings.
The Chancellor's contempt for the region was also clear from his earlier remarks when he referred to Labour party policy to regenerate the regions as the "Yugoslav solution". Perhaps he should have considered West Germany, where there is a great deal of regional economic autonomy and no clear regional division or disparity of wealth such as exists in this country. Both inflation and unemployment are lower in West Germany.
The Chancellor's policy is undoubtedly bad news for the regions. There seems to be no regional measure to offset the negative effects of the Chancellor's policy. A recent report by Cambridge and Northern Ireland economic forecasters stated that there will be an ever-widening gap between the regions in Britain if present policies are pursued.
I am also concerned about the effect on Britain of the moves towards the creation of the single European market in 1992. The Chancellor's economic policies bode ill for Britain in the run-up to 1992. A recent article in The Guardian asked whether 1989 would be the year that Europe invaded Britain. I am worried that the bids and mergers from Europe mean that much of our industry appears to be ripe for takeover while in return we have no alternative strategy or a policy to defend our industries, particularly in the regions. I am worried that, if we follow the present course we will become the poor relation of the EEC between now and 1992. The Chancellor's policies have contributed greatly to inequalities in Britain. Perhaps they are set now to contribute to inequalities on a Europeanwide scale where inequalities between rich and poor regions are already much wider than in America.
A Conservative Member who may or may not wish to admit to the remark now, said that the jury was out on the Chancellor. On the evidence available, the only verdict possible that the jury could return is one of guilty. The Autumn Statement is an autumn indictment of the Chancellor's policy failures.
Mr. Andrew Mitchell (Gedling) : I subscribe fully to the comments made by my hon. Friends the Members for Wolverhampton, South-West (Mr. Budgen) and for Beaconsfield (Mr. Smith) who referred to the importance of fiscal neutrality and the need to avoid a British loi
Column 1063Monory. Many Conservative Members in favour of fiscal neutrality accept the fact that mortgage interest relief is the exception that proves the rule.
I invite the hon. Member for Vauxhall (Mr. Holland)--who is not in the Chamber at the moment--to enlighten us on some points when he replies to the debate for the Opposition. He is said to be possessed of a remarkable intellect as an economist and to have invented a new form of economics. I hope that he will spell out specifically what measures the Labour party would take to control credit expansion instead of using the interest rate mechanism. We have heard a lot of non-specific talk from Opposition Members, but I hope that the hon. Member for Vauxhall will tell us specifically how he would handle that.
I do not deny that high interest rates are unpopular, although many elderly people with savings and no debt have seen a welcome rise in their income. High interest rates on mortgages have a radical effect on disposable income. Those of us with large mortgages feel the effect keenly. My hon. Friend the Member for Wolverhampton, South-West did not exaggerate when he spoke of the agony that is felt in some quarters in that respect.
I have received a pretty clear message from my constituents. They have told me that high mortgage rates are unpleasant and unwelcome. However, high inflation is a worse enemy and an ever-present threat. Many people take a longer and less staccato view than the Labour party on this issue. If there are economic squalls--it is naive to suggest that they will not occur--it is far better to have the hand of this experienced Treasury team on the tiller who will take the necessary tough decisions than the old-fashioned and confused Socialist remedies from the Labour party, some of which we have heard again today.
As my hon. Friend the Member for Beaconsfield said, the medicine may be working more quickly than was expected. It is hardly surprising, when monetary policy is tightened, for conflicting signals to occur. The inclusion of mortgage interest in the retail prices index masks the fact that the underlying level of inflation has stayed broadly static since last July.
High interest rates have already reduced demand in the economy and the growth in house prices is declining. According to the Royal Institution of Chartered Surveyors, that trend continues to spread. Mortgage lending has fallen, and recent figures show that retail sales are slowing. One of the beneficial effects of the present policy is that it reaches directly to consumer spending rather than corporate and industrial spending and investment.
As the Chancellor said earlier, at the beginning of the decade the gearing ratio of British companies averaged out at about 45 per cent. The comparable figure now is little more than half that. Investment in the United Kingdom has increased over the past year by at least 12 per cent. That cannot be dismissed as a temporary trend, as it has clearly been the pattern for the past five years.
I do not disguise the fact that high interest rates will adversely affect some businesses, particularly smaller ones. However, for companies and individuals, rising inflation is a worse and more potent enemy.
The Treasury and the Civil Service Select Committee, in reviewing public expenditure and our debt profile, has made sensible comments about the need to enhance public debate through a comprehensive public sector balance sheet. Many of my constituents were appalled at the huge level of Government debt which characterised the 1960s
Column 1064and 1970s. However, they are deeply impressed with and support an economic policy which yields significant increases in public expenditure while achieving such a dramatic public sector debt repayment during this financial year. I agree with my colleagues that that is a signal achievement and a complete change from the previous pattern. It is one which our constituents note and respect greatly. The Select Committee also referred to the level of expenditure on the National Health Service. In a year when the NHS has been the subject of a major review, it should not be forgotten that the review is set against a background of the largest injection of funding that the NHS has ever received. In other words, the review takes place against a position of confidence and strength. That is very different from the other great NHS review conducted by the previous Labour Government, which took place against a background of a desperate need to find savings and make cuts in NHS provision. Those cuts emasculated the NHS building programme, which we have restored fully and increased significantly. The Nottingham health authority benefited from that increasing expenditure. Under RAWP, we hope, and need, to do better--we are still 5 per cent. short of our target. Next year, as the Select Committee makes clear, there will be an overall 9.5 per cent. increase in cash in the NHS which is a growth rate of 4.5 per cent. in real terms. I am grateful to the Select Committee for making clear how that figure was reached. It is a fine achievement. The purpose of the Prime Minister's National Health Service review is to ensure that that significant expenditure increase will be directly translated into similar increases in the quality and quantity of patient care. That is how we in Nottinghamshire will judge the review.
I was surprised not to find more in the report about the Government's programme of Third-world aid. I am not entirely in agreement with my right hon. Friend the Member for Tonbridge and Malling (Sir J. Stanley). One must recognise the quality of the United Kingdom aid programme, which is acknowledged by the OECD's development assistance committee, and is well illustrated by the high priority it gives to the development of renewable natural resources. The increased budget announced this year means that our aid programme will increase by 18 per cent. over the next three years. Included in that figure is the expected cost of the Chancellor's widely praised sub-Saharan debt initiative. We have already set an example by writing off £300 million in loans to 14 African countries, and ours was the first country to subscribe in full to the World bank's general capital increase.
I turn briefly to four tangential points that I hope my right hon. Friend will consider in the run-up to his next Budget. The first concerns employee share ownership schemes--this is an important subject and one with which the Finance Bill Standing Committee wrestled last year. My hon. Friend the Member for Esher (Mr. Taylor) spoke eloquently on that subject. If we are serious about spreading share ownership more widely throughout society, we must consider the role that such schemes can play in enhancing and augmenting that objective, as well as motivating and improving the supply side of our economy. Share ownership schemes can help break down ancient barriers. They also clearly offer an additional savings benefit.
Column 1065Secondly, there are in my constituency families who, faced with a competitive mortgage market, have changed their mortgagee. The effect of such a move--in which, technically, a new mortgage is drawn down, repaying the old one--is that any portion of the first mortgage that financed a home improvement, perhaps even 15 years ago, becomes ineligible for mortgage interest relief.
I cannot see how that can be fair, and I hope that my right hon. Friend will see whether anything can be done to clarify this point. At the very least, building societies and banks have a duty to make that situation clear to customers seeking to roll over their mortgages and who risk being caught in that way.
Thirdly, I refer to the Inland Revenue's consultation document on the taxation of non-domiciled individuals. Action rightly needs to be taken against various abuses, but I hope that care will be taken before changing the rules in respect of those whose arrangements with the United Kingdom authorities have already been made on the basis of the existing law on domicile. Valuable inward investment into the United Kingdom may be jeopardised by the current uncertainty. I note from a recent publication that some concern is felt by the DTI on that point. In any event, an early announcement by my right hon. Friend will be welcome.
Fourthly, the next Budget will be the right one in which to lift as many of the lower paid out of the tax net as possible. I urge my right hon. Friends to make that direct contribution to helping to defeat the poverty and employment trap, and to seize the opportunity to effect this great and important change.
I have strayed from the debate's main theme, but the essential facts remain. Our economy is strong. Inevitable economic difficulties are being courageously dealt with. The Opposition are unable to put forward any coherent alternative medicine--although we wait with interest for their wind-up speech. The country continues to trust my right hon. Friend's judgment, and that of his colleagues on the Treasury Bench.
Mr. D. N. Campbell-Savours (Workington) : The strategy outlined by the hon. Member for Gedling (Mr. Mitchell) applies to the south, and not to the north and to the part of the country from which I come. I intended speaking about interest rates, but about one and a half hours ago I received a telephone call from my constituency concerning a company whose progress I have followed in detail over many years and which tonight has made 90 people redundant. It is in that context that I shall comment on the Autumn Statement.
The company to which I refer, Miller Footwear of Cockermouth, has a good export record but has experienced certain difficulties over the past few years. It competes directly with South Korea and a number of other countries in the far east on their manufactures, which have in recent years been dependent on the value of sterling in international markets. With the fall in the value of the dollar over the past couple of years, the South Koreans and other far east nations producing footwear decided that, instead of exporting, for example, their Union Jack-clad "Reebok" footwear to America, they would move out of that market, because the price of their prodcts
Column 1066there was increasing as the value of the dollar fell. They redirected their exports to European markets, where exchange rates have moved more in parallel with far east currencies.
In the European market, the problem arises that, whereas many of our European competitors introduced import controls that single out far east products, the British Government failed to do so. The result is that exports of footwear from South Korea in particular have been directed mainly towards the United Kingdom. Its market share has been enhanced still further by the authorities' decision to raise interest rates. With the upward movement in sterling, South Korean footwear has become more competitively priced in the United Kingdom, and our markets are increasingly being crowded out by footwear imported from the far east whose manufacturers take advantage of an increasingly favourable sterling exchange rate.
That places in context what happens in the real world when the Government decide, in order to resolve, as I see it, a uniquely southern problem, to increase interest rates, inflate sterling's value, and draw in imports-- leading to 90 people working for a footwear company in my constituency being placed in the dole queue. Although there is a great shortage of skilled labour in the south and in certain sectors of industry in west Cumberland, many of those who have been made unemployed will find that the only jobs available to them are in industries whose capitalisation is low in terms of plant and equipment. The reason for that was outlined by the hon. Member for Gedling when he spoke about gearing in the sense of lending to assets. Companies that have failed to invest as a result of high interest rates but are willing to offer employment are invariably labour- intensive. Because they are not highly capitalised, they have to compete with low-wage economies overseas. That forces down the wages available to my constituents.
The product of the Government's strategy is a sucking in of imports, which become more competitive, driving people out of home industries into those that are either under-capitalised or should be more highly capitalised, with a higher degree of automation. The overall result is lower wages. Such companies tend to resist trade unionism. Employers in the region then adopt a brutal and ruthless approach. My hon. Friend the Member for Gateshead, East (Ms. Quin) has had the same experience as I have, particularly over the past few months. There has been an increasing incidence of what I can only regard as brutal employers who almost but not quite flout the law, who reject trade unionism, who refuse to recognise trade unions in their plants and whose only intention is to secure the cheapest labour in conditions of high unemployment in areas such as mine.
As a result of that, while unemployment in west Cumberland has gone down over the past few years, we have seen the development of non-union, low- wage industry which, when we are playing around with exchange rates and interest rates in the way that we are today in Britain, can only lead to the creation of sensitive industries which can be wiped out in the cool breeze of international recession. On the one hand, I can accept that the Government's policy has led to an increase in employment in west Cumberland, but it has come about in
Column 1067industries that are geared to that strategy, which is a southern strategy for resolving problems and difficulties in the south. We cannot continue on that basis.
Finally, let me deal with the specific problem which, although it affects all the United Kingdom, affects the south of England in a disproportionate way, and that is property price inflation. I want to leave the Government and those on the Government Benches with a thought that they would do well to consider.
I never believed that it was the miners who brought down the Government of the right hon. Member for Old Bexley and Sidcup (Mr. Heath) in 1974. I had a theory at that time that the Government were brought down because of the collapse in property prices that took place after the high inflationary period for property in the early 1970s which we all remember. The hon. Member for Wokingham (Mr. Redwood) shakes his head. He may have been in Downing street at the time. Perhaps he was an adviser to the right hon. Member for Old Bexley and Sidcup. The levels of property price inflation in 1971, 1972 and early 1973 were just as high as they are today, and the gearing of earnings to house prices was as precariously balanced then as it is now. That was a major contributory factor to the fall of the Conservative Government in 1974. In the same way that the bubble burst then, it will burst again. When it bursts, it will burst with a vengeance and it will be reflected in the ballot box.
Mr. John Watts (Slough) : The Treasury and Civil Service Select Committee report refers towards the end to the unsatisfactory state of official statistics. During the evidence sessions I compared them to driving in the dark without headlights.
There is concern about trends in inflation, the current account of the balance of payments, and the rate of growth of GDP, which most commentators believe to be at an unsustainably high level. But at best, we have to rely on informed hunches to know the position of any of those key economic factors. Official statistics do not provide us with the basic information on which judgments can be made. The Autumn Statement provides a wide range of choice on most of the key economic indicators. At the time of the Budget my right hon. Friend the Chancellor forecast a £4 billion deficit in the balance of payments current account. The Autumn Statement revises that upwards to £13 billion and the latest figures show that that total has already been exceeded before the year end.
But tucked away on page 50 of the Autumn Statement in the annexe to chapter two, we find described in paragraph 2A.7 the large overseas balancing item in the first half of 1988 of about £7 billion or, annualised, an amount equal to the forecast deficit for the whole year. The note goes on to explain most helpfully that that shows that
"there were either unrecorded net credits on the current account or unrecorded net capital inflows or, most likely, both."
On the most favourable assumption, the whole of that balancing item could be unrecorded visible or invisible exports, in which case there would be no deficit on current account this year. That is not likely, but it is equally improbable that no part of that balancing item is represented by unrecorded overseas earnings. It seems likely that the true deficit will prove to be less than the
Column 1068Autumn Statement forecast of £13 billion for the year. But we do not know, and we should know with greater accuracy.
Examining the GDP statistics, we find that in the first half of 1988 GDP grew by 6 per cent. on the output measure, but by only 2.5 per cent. on the expenditure measure. The Autumn Statement follows the normal practice of averaging the various measures to arrive at a likely growth rate of around 4.5 per cent. But which, if either, of those measures is correct makes a great deal of difference to judgments about whether GDP growth is unsustainably high. Growth of over 6 per cent. is almost certainly more than the economy can sustain, but 2.5 per cent. is just as certainly not unsustainable. It is a serious situation when the difference between those two measures for the current year is almost equal to the total growth of GDP during the period of the previous Labour Government. On the other hand, the measurement of inflation is perhaps subject to less uncertainty than the other statistics, particularly if the short-term distortions created by changes in mortgage interest rates are stripped out. For example, inflation as measured by the GDP deflator has proved stubbornly stable at between 4.5 and 5.5 per cent. between 1983 and 1987, as my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made clear, showing that perhaps rather too little attention has been paid to the measures necessary to exert that steady downward pressure on inflation which is claimed by my right hon. Friend the Chancellor to be the cornerstone of his policy.
It can be said that statistics do not matter. The chief economic adviser refuted my suggestion that great policy decisions were taken on the basis of rather unreliable statistics. My right hon. Friend the Chancellor has made it clear that he places little reliance on statistics. To an extent, that is comforting and reassuring, given the deplorable and unreliable state of those statistics. But there are others who operate in the financial markets at home and abroad who take the official statistics rather more seriously than Ministers do. Confidence in sterling and in the performance of the economy can be seriously undermined by false signals from official economic statistics.
Furthermore, statistics have some direct influence on Minister's decisions in the management of the economy. When I asked my right hon. Friend the Chancellor whether his fiscal judgment would have been different if the information available to him at the time of the Budget had given him a rather more accurate reflection of the likely growth of GDP, he replied that his fiscal judgment would have remained the same, but :
"Had I had the greater knowledge which you posit, then what we would have had is a tighter monetary policy, a tighter monetary stance, and indeed a tighter monetary stance at an earlier date, even before the Budget."
I interpret that as meaning that if official statistics had shown my right hon. Friend how strongly GDP was growing last spring and summer we would not have seen reductions in interest rates during the summer to the low point of 7.5 per cent. Without that unnecessary and perverse relaxation of monetary policy, we might have avoided the need for interest rates to go as high as the current level of 13 per cent. That provides an additional
Column 1069and powerful reason for the Government to give a rather higher priority to improving the quality of the official statistics, as we urged in our report that they should.
My right hon. Friend the Chancellor has explained that interest rates are the most effective short-term economic regulator and that fiscal policy should be set to achieve longer-term objectives. In that he is right. He should not be deflected from his policy of continuing to reduce the burden of direct taxation and of moving towards a reduction in the standard rate of income tax from 25p to 20p in the pound. Clearly, the public finances would enable him to achieve that in this year's Budget and still achieve a substantial Budget surplus, but my right hon. Friend's policy has always been to make further reductions in the standard rate when it is prudent to do so. With the continuing and unexpectedly strong performance of the economy, it clearly needs no further stimulus now. So I do not urge my right hon. Friend to make further reductions in the rates of income tax this year.
However, as my right hon. Friend the Member for Worthing (Mr. Higgins) pointed out, if the Chancellor made no changes in income tax there would be a significant and automatic tightening of an already tight fiscal stance. So there should be scope for over-indexation of personal allowances. The opportunity should be taken, as my hon. Friend the Member for Gedling (Mr. Mitchell) suggested, to remove more people on low incomes from the tax net to increase the advantages of taking employment as against drawing benefit. These measures aside, I believe that most of our constituents would prefer further improvement in their disposable income by means of prudent reductions in interest rates when conditions permit rather than through reductions in income tax in the immediate future. Those reductions can wait to be enjoyed in future years.
The last Labour Government would have loved to face the problems arising from over-rapid economic growth that this Government face. That Labour Government faced the problems of economic failure and decline. The Government now face the problems that come from economic success. The strength of the economy and of the public finances ensure that the problems of the inflation blip and the increased import bill can be ridden out. The Labour party must face up to the fact that we shall be able to hit the target of a 20p standard rate of income tax before the next general election, after which that party will still be in opposition.
Mr. Pat Wall (Bradford, North) : At the end of November the Chancellor said that the economy was fundamentally very strong. According to The Sunday Times, he went on to say that the rise in interest rates this year would ensure that that continued. Yet a recent MORI poll showed that economic optimism has plunged to a record seven-year low. The last time economic opinion was so pessimistic was in the autumn of 1981. That was a significant date because it marked the depths of the recession of 1979-81, when 20 per cent. of British industry was wasted.
These are two rather different pictures drawn by people who stand in many ways on the same footing. They all use the same statistics and examine the same economic trends.
Column 1070They all support a demand-led, free enterprise, capitalist economy. In the coming months we shall see which of their forecasts is correct.
One of the more entertaining aspects of the recent economic debates has been the conflict between the Chancellor and his Treasury team and former members of Conservative Treasury teams, including an ex-Prime Minister. The Chancellor has painted a vivid picture of a booming economy and rising living standards. He has gone further and said that this is an unprecedented boom in our post-war history--a "first time ever".
I hesitate to involve myself in the argument on the Conservative Benches, but it is reasonable to compare this Chancellor's statistics with those of some of his Conservative predecessors. At the height of Reginald Maudling's boom from 1963 to 1964 there was an 11 per cent. growth of the gross domestic product over a two-year period, with an inflation rate of about 2 per cent. At the height of the Barber boom from 1973 to 1974, a 10 per cent. increase in GDP was achieved, with an inflation rate of 4.5 per cent. This Chancellor has equalled Maudling's record on the GDP, but achieved only half the rate of growth in the Barber boom--yet inflation has risen to 6.4 per cent. The Chancellor speaks of an overheated economy. What does that mean? It means that manufacturing industry, which he says is leaner and fitter, is incapable of meeting the demand that has resulted from the consumer-led boom. The reason why industry cannot meet the demand is the lack of investment during the time of this Government. Investment has only just passed the level at which it stood in 1979. In the third quarter of last year manufacturing employment fell by another 18,000.
It is true that output per head has risen by 50 per cent. since 1975, but it has risen from a very low level. According to a Labour research survey, productivity in British industry remained, in 1986, 30 per cent. lower than in American industry and 25 per cent. lower than in European industry. In the three months to October 1988, imports rose by 14 per cent. and exports by only 0.5 per cent. The high cost of borrowing, with nine increases in interest rates since the Budget, will slow down the rate of investment in manufacturing industry and the rate of productivity increases. The over- valued pound will price British goods out of world markets and attract imports on an ever-increasing scale. My hon. Friend the Member for Workington (Mr. Campbell-Savours) was right. Even the increases in productivity have been achieved by the threat of unemployment, by the managerial counter-revolution, by greater exploitation of working people and by attacks on the rights of working people to organise in trade unions. In the next few months there will be rising unemployment, stagnation of the economy and rising inflation, much of it Government-inspired.
We should not forget that the threat of a world trade war has not receded. The row over American meat treated with hormones may be, to mix a metaphor, over peanuts in terms of world trade : it involves about $100 million on each side. That argument may be resolved, but it is a portent for the future. I repeat a point I have made before : America imports 30 per cent. of the rest of the world's exports and exports only 6 per cent. of its own production. Britain and West Germany export one third of all they make, and some European countries export 50 per cent. of what they produce. Given those figures, Europe cannot
Column 1071win any protracted trade war with America-- certainly not Britain, whose economy is under-productive, under-skilled, under-researched, under-trained and not provided with enough investment.
The process has been hidden by the £70 billion of oil revenue, but oil is a finite resource and revenue is declining as world oil prices continue to fall. The process has also been hidden by the billions of pounds that have been taken as a result of this Government's privatisation policies, but most of the family silver has been sold off. Unless the Government can devise methods to privatise the air that we breathe or the pavements on which we walk, those options are fast disappearing. We face a period of stagflation. If a trade war were to break out, it would lead to a recession and a slump. As for the social cost of the Government's programme, the Chancellor says that this first-time-ever boom has led to unparalleled increases in income. But that does not apply to everybody, because 9 million workers receive wages that are lower than the EEC's decency threshold. For the first time in 600 years, shipbuilding is to come to an end on the River Wear, and during the next few months 50,000 jobs are to go in the City of London. Moreover, 3,000 textile jobs have gone in the east midlands, and thousands more in Lancashire and my own west Yorkshire.
The Chancellor had the nerve today to talk about mortgages. The fact is that 8.5 million people are having to pay more now, while the 3 million people whose mortgages are reviewed annually will face a savage increase of up to 25 per cent., in many cases, during the next few weeks. No doubt the notice will be accompanied by a "happy new year" card from the Treasury Bench. House prices are rising four times faster than people's incomes. The building societies admit that there were 23,000 repossessions last year, although there were only 2,500 in 1979. Where will the people who are made homeless go? According to Shelter, there are already 1 million homeless people. Only 29,000 council houses are to be built this year, although as recently as 1975 the figure was 174,000.
The Government talk about the growth of share ownership and democracy, but a survey conducted by The Times of the top 1,000 companies showed that the top 25 companies own 37.3 per cent. of the turnover and 53.6 per cent. of the capital assets, that the top 200 companies dispose of 78.1 per cent. of turnover and own 90.9 per cent. of the capital assets and that the top 1,000 companies are owned by 0.1 per cent. of the population. If their families are taken into account, that is less than 1 per cent. of the population. Those are the people whom this Government represent. They are not concerned about the welfare of the great mass of the British people. When the many poor people who have given up political views face the onslaught, I believe that they will come to realise that politics is important to them and that many middle-class families who are hit by mortgage increases will change their politics and realise that a change of Government is needed. The Government's alternatives are either a demand-led economy or a bureaucratically-dominated economy. I believe in Socialist planning which can be controlled by democratic means. That will bring real benefits to the people of this country.