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We then come to the question of the prime lending rate, which affects the whole of our industry and our citizens. Last week, we were 14 per cent., West Germany 7 per cent. and Japan 3.38 per cent. Why can we not have an economy run with similar figures? [Interruption.] There is no answer to that.
Then there is the rate of consumer price inflation.
The latest figures, in 1988, showed that the United Kingdom had a rate of inflation of 6.8 per cent. and my right hon. Friend the Chancellor has said that that will go up to 8 per cent. West Germany is 1.6 per cent. and Japan is 0.9 per cent., with very low interest rates. On the question of trade, if we take the current balances as a percentage of GDP, we have a deficit of 3.26 per cent., West Germany has a plus of 3.09 per cent. and Japan has a plus of 2.76 per cent.-- [Interruption.]
Mr. Gow rose --
Mr. Gow : My right hon. Friend accused my right hon. Friend the Chancellor of a lack of compassion in having put up the interest rates. Does my right hon. Friend believe that he showed more compassion by failing to abate inflation or that my right hon. Friend the Chancellor is showing true compassion by trying to abate inflation?
Mr. Heath : I did not accuse the Chancellor of a lack of compassion. I said that those who so constantly deal in interest rates as a solution to economic problems do it from a purely intellectual approach, without realising the human consequences, and I stick absolutely by that view.
We did not have to deal with interest rates of that kind, and I believe that we were-- [Interruption.] The Chancellor was one of the advisers. We were dealing with the problems of infrastructure and of housing on an infinitely bigger scale than the Government have been doing in the past 10 years. However, it will all be in the memoirs. The question is why, after 45 years, we cannot do the same as those industrial countries. We must address ourselves to that. It means that, instead of going on a purely monetary dogma, a balance must be struck between those matters which emphasise inflation, those which require a reduction of interest rates, a lower pound to get a better balance on trade-- Mr. Lawson indicated dissent.
Mr. Heath : The Chancellor always shakes his head about this. He knows that it is right, but he is not allowed to do it. He knows that the pound is too high for our exporters. He knows that it is far too high for our exports to Europe.
If we are to give our exporters a chance, the pound must be dealt with. It is always a question of keeping the balance.
Mr. Neil Hamilton (Tatton) : My right hon. Friend made great play of exchange rates stopping us exporting, but is he aware that in the past two years the yen has appreciated against the dollar by virtually 100 per cent., yet the Japanese trade surplus is increasing? Does that not show that there is not necessarily a connection between the two?
Mr. Heath : I am not saying that there is a necessary connection, but our business men recognise that they lose many exports because of the rate of the pound. If we consider Germany from Erhard's time onwards, it is true that he was able step by step to improve the value of the deutschmark and at the same time encourage the exporters to increase their exports. That is right, but that has not happened here.
I am asking the Chancellor and the Government to strike a balance between the different factors involved and gradually to adjust them--with such a crisis, they have not much time--so that exports can be increased and the adverse balance of trade reduced. They could, therefore, do more for the infrastructure and for housing and, above all, they could start thinking about an overall education system for technology and management that is not improvised from Government to Government but becomes part of our internal education system in exactly the same way as it did in Germany in the 19th century and as it is in Japan at the end of the 20th century. That can be the only answer. We must face the facts and not just engage in inter-party squabbles about whose figures were right and whose went up the most. We must look at the real basis of the situation and then start dealing with it.
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Mr. Paddy Ashdown (Yeovil) : It is a pleasure to follow the right hon. Member for Old Bexley and Sidcup (Mr. Heath), who said so much with which I would agree, little with which I would disagree and some of which I shall mention later. I hope, nevertheless, that he will understand if I say that the pleasure of his speeches comes not just from listening to them but from their visual impact. We have a unique advantage that is denied to those who read the right hon. Gentleman's speeches afterwards--that of watching the miserable, downcast, scowling looks on the faces of all those on the Treasury Bench as the right hon. Gentleman's speech proceeds. At no stage did I see anything other than a deep scowl from the Chancellor. I look forward to the coming of television to the House so that the rest of the British public can enjoy the spectacle.
I am sure that I speak for many other hon. Members in wishing the hon. Member for Dagenham (Mr. Gould) an early recovery. That is no reflection on the speech made by the hon. Member for Norwich, South (Mr. Garrett), but we always look forward to the speeches of the hon. Member for Dagenham and we always listen attentively. We shall miss him in this debate.
This Budget has been described as "the boring Budget" and no doubt that is an apt description, but the apparent torpor of the Budget should not be allowed to hide the basic realities of the situation in which the British economy finds itself. The realities which should be addressed by the Budget include a structural trade deficit, declining competitiveness, an unacceptable rate of unemployment and rising underlying inflation. Nor should this boring Budget be allowed to hide the injustices contained in the Government's strategy, which have been touched upon by the right hon. Member for Old Bexley and Sidcup.
This was certainly not a Budget for the low paid as more of them will now pay tax. It was not a Budget for those on benefit, nor was it a Budget for families. Those who have seen child benefit effectively cut again will recognise that only too powerfully. The changes to the pensioners' earnings rule and to national insurance contributions are welcome--the Secretary of State for Employment touched upon them--but they do not go far enough. It was depressing to read recent newspaper reports of the Chancellor saying that he had finished reforming and cutting national insurance contributions. Much more could be done in that regard to relieve the poverty trap and make a substantial contribution towards the proper integration of the tax and benefit system.
Despite a boring Budget, we still have a gambling Chancellor who is prepared to gamble our long-term prospects to leave himself enough room for tax cuts in the run-up to the next general election. It is perfectly clear that that is the purpose of the Budget. As the right hon. Member for Old Bexley and Sidcup said, the Chancellor is prepared to gamble with the quality of our life, preferring to satisfy a narrow materalism today rather than to prepare Britain for tomorrow.
I believe that it was the Chief Secretary who said last week that living standards were the final arbiter of economic performance, and no doubt they rightly have a part to play. The rapid rises in domestic consumption are clearly a key ingredient in the Government's electoral calculations, but the Government will soon have to change their tune because the notion that there is more to life than
Column 757personal material acquisition is not an attractive one to a growing number of people. Many of those who have done best out of Treasury policies now realise that they have to look for something more from Ministers and they are looking for policies which will bring our people together rather than sadly and tragically divide them. They are looking for policies which will correct the dog-eared, down-at- heel nature of public Britain and provide a base for the public goods and services which are essential to the enjoyment of our future prosperity. They are looking for policies which invest in the future because they know that today's tax cuts and consumption become tomorrow's debt burden and trade deficit.
Mr. Ashdown : The hon. Gentleman fails to recognise what has happened since last year. The tax cuts and the increase in consumption, which was deliberately encouraged by the Government, have plunged many families into debt. The reason is perfectly clear. The hon. Gentleman will have had a stream of leaflets coming through his door from one bank after another, all saying exactly the same thing--"For goodness sake, don't worry --extend yourself ; we will offer you as much credit as you like." That is the reality facing people today.
Mr. Tim Janman (Thurrock) rose--
Mr. Ashdown : No, I shall not give way as I need to make some progress. The hon. Member for High Peak (Mr. Hawkins) has failed to recognise the way in which the 1988 Budget inflated the burden of debt and the burden of public consumption in Britain.
The Government are now hemmed in on the one hand by last year's folly and on the other by their own inflexible ideology. After the rhetoric is stripped away we find an economy that is peculiarly vulnerable and weak. It gives me no pleasure to remind the House of our fundamental economic condition, just as my hon. Friend the Member for Berwick-upon-Tweed (Mr. Beith) did after the 1988 Budget. The Government's refusal to face up to our trade deficit demands that we press the matter vigorously.
The right hon. Member for Old Bexley and Sidcup was right to say that we should look at the whole picture. It is clear that since 1979 the growth of manufacturing output has been the slowest for any similar period since the war. Import penetration has soared and our share of world trade has continued to decline, at times dramatically. Net investment in manufacturing has also fallen. The record under the present Government compares unfavourably with any similar period under their predecessors in the 1960s and the 1970s, never mind with the level of achievement for which we need to aim if we are to compete effectively in the world markets of the 1990s.
The astonishing fact is that the economic problems now facing the Government look remarkably familiar to anyone who remembers the 1950s and 1960s. We are faced with wage rises that are too high, a quality of goods that is too low, under-investment in people and under-achievement in world markets. All those old familiar symptoms of the British disease remain unconquered. The major, age-old weaknesses of the British economy are revealed as having remained uncorrected by the so-called "Thatcher miracle". In some cases they have got far worse.
Column 758Those deficiencies are now covered in the gloss of spurious economic theory and dismissed as irrelevant or as a blip. They are rationalised away by this most intellectually agile of Chancellors and by the flexible use of forecasting, but hon. Members should study the Red Book. The fulfilment of the Chancellor's strategy and cosy predictions requires a trust in his forecasting skill which, in view of his record, amounts to little less than a mystical act of faith. This is a complacency that home-owners and businesses are paying for every day in higher interest rates and rising prices.
To fulfil the Red Book predictions, we are required to believe in a dramatic fall in the growth rate of non-oil imports from 14.5 per cent. to 4.5 per cent. At the same time, we are required to believe that the growth of non-oil exports will rise from 3 per cent. to 7.5 per cent. at a time when demand is falling. Even this ambitious target, incidentally, would still leave the United Kingdom with a declining share of world trade.
I wonder whether the Treasury is, even yet, ready to acknowledge the seriousness of the balance of payments problem. For a time, we were told that it did not matter, and the propaganda fed to us was that such things correct themselves in the modern world. Now all the evidence points to a massive, long-term structural problem which is being reflected in the record deficits.
I wish Ministers had listened more to the 1985 report from the Select Committee in the other place under Lord Aldington, which looked at these long-term problems of overseas trade. I recall that the Chancellor used some fairly unpleasant and sometimes hysterical comments to damage and dismiss that report. It is a matter of record, however, that their Lordships' forecasts have fared a good deal better than those of the Chancellor.
Mr. Marlow : The right hon. Gentleman is saying that he is much gloomier than my right hon. Friend the Chancellor. He implies that demand is still too high and that he wants to spend more on services. Therefore, he must want to increase Government expenditure. What does the right hon. Gentleman think of the Budget judgment? Does he feel that my right hon. Friend has been too generous in cutting national insurance or does he feel that taxes should be higher? Would he like Government expenditure to be higher? What would he have done? Will he let the House know because he is inconsistent at the moment?
Mr. Ashdown : Clearly the hon. Gentleman has not listened to the submissions which my party has made. We have made a perfectly clear statement about this. The Government are doing much to increase inflation by raising utility prices. We believe that that money could be used much more effectively in different ways. To give the hon. Member for Northampton, North (Mr. Marlow) a straight answer, there is a case for selective and careful investment, as the right hon. Member for Old Bexley and Sidcup said, which would require expenditure but whose inflationary impact would be minimal in comparison with the utility price rises which have stimulated inflation.
The question now is how long will the exchange dealers be persuaded by short-term, hot, high interest rates to ignore the long-term underlying weaknesses in the economy? As the trade deficit mounts inexorably, month after month, how long will short-term high interest rates maintain confidence on the foreign exchanges? As
Column 759numerous commentators have pointed out, there must be a real danger of a sterling crisis at some point in the not too distant future with all the attendant inflationary problems and a crisis of confidence. In the Red Book we are told that interest rates rise only because of the behaviour of narrow money. Everyone knows that that is nonsense. Interest rates rise when the markets are alerted to our real economic state by the trade figures and also when the Government and the Chancellor feel under pressure.
In the 1950s and 1960s, we had stop-go Tory Chancellors. In the 1970s, Tony Barber was the cut-and-run Chancellor. We now have the handout-and-hike Chancellor who hands out tax cuts one year and hikes up interest rates the next.
Our balance of payments deficit will more than likely grow even larger than the Government have suggested. In a recent editorial the Financial Times stated :
"It is easy to envisage a current account deficit not far short of £20 billion, in both this year and next."
However, the Government lack the policy instruments or the political will to tackle those problems.
The Chancellor wants to fiddle the figures by removing mortgage interest rates from the retail price index. He will be remembered as the Chancellor of dearer mortgages and cheaper cigarettes. The manipulation of the RPI through the Chancellor's new policy on excise duties, amounting to a 0.4 per cent. reduction in the RPI brought about by what amounts to a tax cut of more than £1 billion in those duties, will cut little ice, but it will undermine the Health Service.
Inflation is predicted to be 8 per cent. That is already higher than in any of our major competitor countries in the European monetary system, or in the United States or Japan. Despite all the apparent emphasis on defeating inflation, there are abundant signs of yet more complacency. Last November the Government announced a new policy of "bearing down on inflation". Since then, they have been responsible for its inexorable rise.
The Red Book states :
"It is the Government's policy not to accommodate inflationary impulses."
Instead, the are busy adding to them by deliberately raising utility prices to fatten the calves for privatisation. That is policy-making gone crazy. The value of our money has halved since the Conservative party came to office. Under the Tories, prices have risen by 100 per cent. Over the same period, prices have risen by 68 per cent. in the United States, by 30 per cent. in West Germany and by 25 per cent. in Japan. We have an extra zero on inflation, but it is a zero at the wrong end of the number. It is 100 per cent. The Chancellor has claimed that inflation is the judge and jury of economic policy. If that is so, he stands in the dock, with the verdict passed, awaiting sentence.
Mr. Ashdown : The Chancellor has refused to take advantage of closer European economic and monetary integration. That should be a central question facing our economic policy. The Chancellor has indicated his support of our membership of the EMS. He should have the courage of his convictions and battle it out with the Prime Minister. Membership of the EMS would be a far more effective discipline against inflation than any of the monetary routes down which he now seeks to take us.
The British economic problem can be summed up partly in terms of inflation and of the crippling use of high interest rates to keep the currency buoyant. However, we must also consider the impact of the Government's long -term and systematic starvation of the supply side of our economy. The Conservatives now preside over what is becoming a second-class industrial nation which is in danger of drifting down even further to third class status. If we are not careful and are not prepared to act quickly, the opportunities of oil and of world growth may disappear for the foreseeable future.
The forecast figures in the Budget are an admission of the defeat of the supply side miracle of the Prime Minister's years even as we approach 1992 and the single market. The Department of Trade and Industry's slogan was "Europe Open for Business". It might have been better as "Britain Open for Imports".
This year we needed a Budget for industry. If we are to have the right products and services of the highest quality marketed effectively across the world, the Government must work with industry and commerce, not against it. It takes something to provoke the Confederation of British Industry into talking about the "locust years". That something was the disastrous state of our supply-side policies. That is why my hon. Friends and I recommended a package of careful and prudent investment in Britain's future.
It is about time that the Government realised that a supply-side agenda that consists only of cutting taxes and bashing the unions has run its course. The new supply-side agenda for Britain must concentrate on training, regional policy, research and development, involvement and shared communication in British companies, improving standards of quality and safety and developing the new technologies. Taken together, those require a new approach from the Government, which the Conservatives seem incapable of realising.
We are lagging way behind our competitor nations in training. To match France and Japan, we should be training an extra 50,000 skilled engineers a year. To match Germany, we should be training 80,000. Far too many companies in Britain are currently looking to move their operations elsewhere in Europe because the skills that they need are not available in sufficient numbers in this country. Human talent is our value-added asset and by this standard Britain is still going backwards in comparison with the rest of the world. A supply-side strategy is required to fill that vacuum.
There must be a change which will make the care of our environment a Government priority. We all understand that the Prime Minister's new enthusiasm for the planet should be given time to show itself in action. However, the Budget was the fairest test of that. Do the Government
Column 761mean what they say about the green agenda? Do they understand what they are saying? Are they prepared to put their money where their mouths are?
The Budget contained only one gesture towards environmental issues, that with regard to unleaded petrol. True to form, it was quickly swallowed by the oil companies. Apart from that, there was nothing. There were no incentives for improvements in waste and pollution controls. No investment in environmental protection, but there were cuts in the energy efficiency office and in insulation grants. There was no investment in relevant research and there was opposition to Community initiatives which would apply energy audits to domestic property.
The Government are brilliant at telling other people what to do, but hopeless at accepting their responsibilities for the environment. An environmental Government would have produced an environmental Budget.
However much Conservative Members might delude themselves, and no matter whether some people have benefited from previous tax cuts, the Thatcher years will not be remembered with affection by the British people in years to come. Those years represent years of under-investment in public transport and years of running down the staff in the public services. They represent years of hostility towards research which led to a brain drain from Britain which the New York Times described last year as the greatest movement of intellectual capital into the United States since the Jewish intellectuals left Germany in the 1930s.
That is what is happening as a result of research cuts in Britain today. At best, it may be said that a certain shabbiness in public goods might be endured for the benefit of some. More likely, people will look back in wonder at our collective failure in the 1980s to take advantage of the unique, oil-led opportunities that we had to build a more sustainable industrial base. They will wonder why it was that obvious, massive public support for investment in health, education and the basic infrastructure was ignored at great cost to industry, to the public and to the future. They will dismiss a Budget that fiddled at the edges of the issues and failed to tackle those that really mattered.
We on these Benches believe in the virtues of competition and in the power of the market. However, we fear that, by refusing to play their part on the supply side, this hands-off Tory Government are turning what should be an economy of invention, excellence and quality into a low-wage and low-skill economy that has a tin-tray industrial base.
Sustainable growth in the future depends on investment in the future now. Excellence in the economy depends upon the excellence of our people. The Budget reveals that the Chancellor has not learnt that lesson after six years. They have been correctly described as the "locust years"--the years in which we failed to invest in the future, to heal the divisions in our country, and to take the steps necessary to protect our environment.
Mr. William Hague (Richmond, Yorks) : I wish to speak briefly on the Budget, as my first and modest contribution to the proceedings of the House. Before I do so, I pay tribute to my predecessor as Member for
Column 762Richmond, Sir Leon Brittan, and will say a few words about the constituency that he represented so well. I am fortunate to be able to do both with uninhibited pleasure.
Most new Members elected at by-elections speak of a predecessor who was distinguished but is sadly deceased, but I am delighted that my predecessor, who made such a major contribution to the House and who was so highly regarded by his constituents, is very much alive and well and is by all accounts doing an extremely good job as a European Commissioner. There is no doubt that he will be sorely missed in Richmond--a constituency that he served with extreme thoroughness and attention to detail. Even when he was Home Secretary, he never missed a weekend surgery and never failed to involve himself in as many aspects as possible of life in north Yorkshire. He set the highest standards of service to his constituency, and I will be doing well if I can live up to them.
All I can say is that, over the coming months, I shall try to be inspired by Sir Leon's example, rather than being intimidated by it. It would be all too easy for the new Member of Parliament for Richmond to be intimidated by the past. I number among my constituents not only Sir Leon Brittan but his predecessor Sir Timothy Kitson and my noble Friend Lord Tranmire, the former Sir Robin Turton, who sat in this House for 45 years for Thirsk and Malton, part of which is now included in my constituency. Those former Members will be very valuable sources of advice. Some might observe that they will also be rather varied sources of advice. However, the fact that they remain deeply rooted in the area says something about the strong attachment of Members of Parliament to Richmond and its surrounding area, because of both the natural appeal of its countryside and the independent character of its people. It is almost unnecessary for me to tell the House about my constituency, because many right hon. and hon. Members are already surprisingly familiar with it. I am one of the few Members of Parliament, along with those representing constituencies in the east end of London, who has a regular television series about his constituency. Also, many right hon. and hon. Members have spent more time in my constituency in the past few months than I have spent in the House. Right hon. and hon. Members could be forgiven for believing that the right hon. Members for Plymouth, Devonport (Dr. Owen) and for Yeovil (Mr. Ashdown) had taken up permanent residence in my constituency. They certainly provided a valuable off-season boost to the local tourist trade. They will always be welcomed back, though perhaps they are the only two tourists in the whole nation who I hope will spend less money on their next visits than they did on their last.
I hope that all those who visited Richmond during the by-election had an opportunity to enjoy the diverse nature of the region. Although always associated with the magnificent hillside town of Richmond itself and with the splendid dales to the west of it, my constituency embraces a rich breadth of physical geography and human activity--from the hill farmers in the dales and on the edges of the moors, to the lowland arable farmers around Northallerton and Thirsk ; from the 20 industrial estates that have brought a growing sense of enterprise and availability of employment to the area, to the commuters in the north-east who work on Teesside and to the large number of people who come to the area to retire. Richmond's variety defies simple description.
Column 763In addition, my constituency has a huge military presence. The area is proud to host one of the country's largest Army garrisons at Catterick, and now we also have a major air defence base at RAF Leeming. That variety, and the popularity of north Yorkshire as a place to live, means that behind the idyllic image are mounting stresses and strains, both economic and social. Much has been said about the plight of the inner cities in the 1980s, but I fear that much will have to be said in the 1990s about the strains of rural life.
Although my constituency, like the rest of the country, has grown more prosperous in the past 10 years, and although unemployment has fallen by 40 per cent. over the past three years, one must not overlook the depressed incomes of the farming community, the shortage of housing for local people- -ironically coinciding with housing development on a scale that threatens traditional village life--the tendency for younger people to move elsewhere, and the appalling and increasing pollution of some of the nation's most beautiful rivers. Those are not the subjects of today's debate. Nevertheless, I hope to help ensure that they will not go unnoticed or unaddressed in the House.
My constituents are interested in all those matters, but they are interested also in the Budget--despite all the efforts of the media to convince us that it was boring. Like me, my constituents approve of the Budget because of its most obvious characteristic--that my right hon. Friend the Chancellor of the Exchequer used what room for manoeuvre he had to help those people whose efforts were most unfairly penalised by the existing tax structure. I strongly welcome the changes my right hon. Friend made to national insurance contributions and his abolition of the hated pensioners' earnings rule. I believe that right hon. and hon. Members in all parts of the House believe that the Chancellor did the right thing in the circumstances, and they should have the good grace to say so. Much of the debate about the economic situation has been taken up with discussing the direction of and the explanations for inflation, interest rates and the public sector surplus. However, that debate has been concerned mainly with the short term--with this year and next year. When I look at the economic background to the Budget, what I find interesting are some of the other economic indicators whose improvement has been strong and marked over a sufficiently long period to become an established trend.
Today, companies' real rate of return is at its highest since the 1960s. Investment has risen twice as fast as consumption for the past seven years. Labour productivity has risen faster in the 1980s even than in the 1960s. That should bring home to us the fact that, whatever the arguments about last year's or this year's forecast, the fundamental indicators of the economy's future performance and output are better than they have been within the political lifetime of most right hon. and hon. Members, and within the entire lifetime of some of them.
Maintaining that progress requires lower levels of inflation and of short- term interest rates--otherwise, the increased confidence that is at the centre of all those improvements will disappear. However, no one has argued convincingly that there is a better policy for bringing
Column 764inflation down than that which the Chancellor is pursuing. Most criticism has been of the "We wouldn't have started from here" variety, but it is incumbent on those who would do the Chancellor's job for him to say what they would do if they had to start from here.
Nevertheless, it must be recognised that we face over the next year inflation at a higher level than we would have wished. Some people are less able than others to cope with that inflation, and some are particularly worried about it. Foremost among them are elderly people who are wholly or largely dependent on their basic state pension. The Government have done a great deal to help many pensioners in several ways. The abolition of the earnings rule will help many who are still able to earn, and lower inflation over the lifetime of the Government has helped those with savings.
Last autumn's announcement of an additional increase this year for the oldest pensioners will help those in that category. Huge numbers, however, still depend heavily on the basic state pension. In the coming year, they face a pension increase indexed to, but lagging behind, RPI inflation-- which may in any case understate the inflation that they experience, as their own expenditure is disproportionately weighted towards some large items such as household rates and basic utilities, the cost of which for most people is rising faster than the retail price index.
I hope that in the coming year the Government will have the pensioner in the forefront of their collective mind and, as far as the economy permits, will feel able by some means to help still more pensioners by doing somewhat more than simply indexing their basic pensions to the RPI. If they can do that, they will avoid much dissatisfaction and some genuine hardship.
That is the point that I wanted to make--within the context of strong and whole-hearted support for the economic and budgetary policies of Her Maesty's Government. I thank the House for its indulgence, and hope that there will be many more occasions, Madam Deputy Speaker, on which I may try to catch your eye.
Mr. Robert Sheldon (Ashton-under-Lyne) : The hon. Member for Richmond, Yorks (Mr. Hague) spoke about his predecessor, Sir Leon Brittan, who is continuing to play a prominent role in public life. He spoke well of Sir Leon ; he spoke also of other distinguished former Members of the House whom some of us had forgotten were still his constituents. I urge the hon. Gentleman to remember that when he comes to seek their advice he will be dealing with a two-edged sword, and that he accepts only advice that, after consideration, he considers worth pursuing. He spoke with clarity, and his interesting speech was well received by the House.
Of late there has been a tradition of rather more controversial maiden speeches than we used to hear--a tradition that has extended to the toleration of such speeches. The hon. Member for Richmond, Yorks returned to an earlier and, I think, more acceptable tradition, and perhaps because of that he won greater acceptance today. I am sure that he will come to enjoy the rough and tumble of the House, and I hope that his first contribution will provide an easy entry into it. The most depressing part of the Red Book is the forecast for the balance of payments deficit. The whole
Column 765year is expected to produce yet another devastating £14 billion. That is more serious than any previous balance of payments crisis. We do not now have the large number of manufacturing industries that provided us in the past with the capacity to turn from home trade to export. The main example was the motor car industry, but there have been many others. In my constituency there were many small to medium-sized companies, paying well above the national average, with unemployment below the national average. We lost one third of those skilled firms between 1979 and 1981. They had the capacity to produce for export if they found that the home market was not able to take their goods, but that has now changed considerably.
I have been asked--as, perhaps, have other hon. Members--what is the relationship between the £14 billion public sector debt repayment and the £14 billion balance of payments deficit. The unknowledgeable assumed that there was a strong connection ; others, with a little more understanding, realised that the two had no relationship. Some, with even greater understanding, recognised that there was after all a close relationship between the two : it is the £14 billion deficit that makes it impossible to spend the £14 billion debt repayment sum. The Chancellor of the Exchequer, with money to spend, is unable to spend it because of the external problems that he faces.
The Chancellor can justifiably be criticised for his failure to deal with the economy's long-term prospects. He can fairly be censured for failing to deal not only with the balance of payments but with the problems of manufacturing industry, and the lost advantages of North sea oil, which we are unlikely to regain because we are once more on a level field, with our advantages lost. The Chancellor can also be censured for his failure to control the short term. It is more than six months since fears of a credit explosion--frequently expressed--were finally confirmed. Two years ago, on 10 February 1987, the Financial Times was able to say that more was required of the Chancellor than high interest rates, that monetary policy had flitted from one rationale to another in the past few years like a bee in search of honey, and the task was not helped by continuing to trivialise a major deviation from the Chancellor's own target for the economy. It also said :
"The Department of Trade and Industry said that outstanding consumer credit from finance houses, retailers and credit card companies, totalled £23.7 billion in December 1986."
That was over two years ago ; there is nothing new in it. What is new is the failure to react to it. This was not a blip, and the action that the Chancellor took was inadequate and slow in its effects.
The right hon. Member for Yeovil (Mr. Ashdown) talked about stop-go. At least in the days of stop-go we could be sure of the results. They would be dramatic and immediate : purchase tax or VAT increases, a raising of the tobacco duties, increases in taxes on alcohol, petrol prices raised, spending on roads cut. We can see from the state of the roads today that cuts have been made in good times as well as bad, although North sea oil has been abundant. All those announcements about tobacco, alcohol and petrol took effect at 6 pm on the day of the Chancellor's statement. The result was a highly visible and dramatic appreciation of the change in our economic fortunes. After a few weeks, patterns of spending changed and the economy promptly slowed down. On this occasion, we
Column 766talked about measures in the autumn. The months went past--we had Christmas and the new year, and now we are in March--and still we have not seen any such effect.
I was once a frequent critic of sudden changes, mainly because of the damage done to our manufacturing industry, which took the brunt of such measures. The present position is different. With the decline of our manufacturing base, the burden of immediate measures would be carried rather more by importers and retailers. There was therefore a strong case for action in the autumn. The Chancellor, however, ruled it out, to the disadvantage of industry and house buyers and ensuring that our economic problems would outlast the year. Failing to administer the short sharp shock was, I believe, a tactical error of the worst kind--waiting for something to turn up--and we shall have to live with the consequences.
Of even greater importance than the tactical failure, however, has been the Chancellor's failure to plan for the long term. He had the opportunity to use the breathing space with which North sea oil provided our balance of payments to help industry and promote training, and to equip the nation to deal with the major problems lying ahead. With the startling growth of world populations, we are destined to be just one of a number of smaller countries. Many more have populations in excess of 100 million, and industrialisation is on the increase elsewhere.
In 1979, with the prospect of the cornucopia of North sea oil, our position appeared enviable and compared favourably, if not with that of Germany and Japan, certainly with that of France and Italy. We were the only country in that group with self-sufficiency in oil. We even had an exportable surplus. Our position could hardly have seemed more attractive, but oil in itself is not enough : only if it can be used sensibly is it a real and lasting benefit. Iran and Iraq have used their advantage disgracefully, Mexico has wasted it, and Britain has squandered it. Meanwhile, Japan and Germany strode on without it.
On the other hand, France and Italy almost seem to have benefited from not possessing this valuable mineral. Those two countries have manufacturing sectors that are highly successful, whereas we have turned, traditionally, to our financial sector that produced rewards that were directly contrary, in a number of cases, to the interests of our productive industries.
The high pound that the City smiles benevolently upon and that the Bank of England believes is crucial to our economic well-being is the deadly affliction of those companies that manufacture. The truth is that, in the long term, manufacturing growth is so much more important than North sea oil. This oil produces so many billion pounds a year which, for a given output, even if its price remained high, would not increase with time. If, however, manufacturing industry is nurtured and encouraged, it grows at a compound rate that leads to an accelerating level of prosperity. That cannot be found in any other kind of industry. Furthermore, that prosperity is enjoyed by all employees and in all the different regions of the country. Manufacturing industry, however, has been hit very badly. The fact is that 13 per cent. interest rates and an over-valued exchange rate is the recipe that brought about the disasters of 1979 to 1981. The position is not quite so bad now ; there was a 17 per cent. interest rate then. That ruined the domestic market, and a $2.40 pound ruined the export market. We hear nonsense about there being no problems with an over-valued exchange rate. If we are