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Mr. Lawson : They are windy--they do not want to give us a hearing. The Labour party does not know, and what is more it knows that it does not know. The Leader of the Opposition blathers about controlling this, that and the other--he cannot even control himself. So far from running the economy, he could not even run a kebab stall. Despite all the packaging and all the razzamatazz, despite the 88 pages of fine print, despite what must have been hours of careful coaching by his minders, the right hon. Member for Islwyn (Mr. Kinnock) and his party are no more fit to govern now than they were in 1979, 1983 and 1987. Labour Members know it, and so does the country.
Mr. A. J. Beith (Berwick-upon-Tweed) : I suppose that it is of the essence of these debates that Chancellors are not expected to add to the known facts about Government policy in the course of their remarks lest they cause further runs on the pound or further misinterpretations. But the Chancellor gave one or two things away. For example, he said that the rate of inflation will go higher even than he has most recently predicted and that by the end of the summer it should--he merely said "should" and not "would"--start to fall. With our climate, the end of the summer is a conveniently variable feast. Whether the Chancellor's forecast will be fulfilled remains a question.
The Chancellor also made great play of the fact that the markets had misinterpreted what his right hon. Friend the Prime Minister had said, which gave rise to the run on the pound and to the current interest rates. What they misinterpreted was the Prime Minister saying that she thought that the Chancellor's policies were working. I presume that she will say that again on a number of occasions. I am sure that the Chancellor hopes that expressions of confidence in his policy will be made from time to time. Will they have the same effect every time that they are uttered? If so, will we see a rise in interest rates as an automatic consequence?
The right hon. and learned Member for Monklands, East (Mr. Smith) set out accurately and amusingly the key defects of the Government's policy. Bearing in mind Mr. Speaker's injunction, I do not want to go over the ground that the right hon. and learned Gentleman covered. We must concentrate on certain key elements. One is the Government's failure to tackle inflation. For some years the Government had a stock of excuses which they brought out to explain the inflation that was around in the system. One excuse was that it was due to previous failure to control the money supply. Now they claim that they have the money supply under control. Then it was oil prices. Despite some recent increases, oil prices present nothing like the problem that they presented in the early years of this Government, or of the previous Government.
Sometimes the Government blamed the trade unions. Now they reckon that they have the trade unions under control. Sometimes they blamed the Labour Government. When they were not doing that, they blamed the right hon.
Column 267Member for Old Bexley and Sidcup (Mr. Heath) and his Government, of which some of them were members. Incidentally, when the right hon. Gentleman was last heard of, he was supporting the Conservative Euro- candidate in Inverness. Whether it is a case of him being fed to the Free Presbyterians I do not know, but nothing seems to have been heard of him since.
The Government have produced a new set of excuses for inflation. First, it was a blip. As inflation began to rise from the slumber induced by 3 million unemployed, what was their reaction? They said that it was just another blip. It is clearly a far worse problem, and putting up interest rates has not made it go away. Then the Government said that it was a sign of success and an indication that their policies were working, but that we had slightly over-performed and gone a little too far in the right direction. No one can remember Japan or Germany suffering from over- performance that produced such inflation rates. If that was success, it almost made failure seem tempting.
The latest excuse is that inflation is increasing the world over. If our competitors were suffering from inflation rates of nearly 8 per cent., we might have reason to attach importance to that argument but with rates like 3.6 per cent., 3 per cent., 2.4 per cent. and 1 per cent., that argument can hardly be taken seriously.
Inflation must be tackled more seriously and more effectively. The Chancellor talked about exorcising the spectre of inflation. My rather low- Church views make me no expert on exorcism but I always thought that it required bell, book and candle--in other words, a whole series of measures, not just one. The Chancellor is an inefficient exorcist, insufficiently trained and equipped for the task. He must recognise that a broader strategy will be needed. The measures that he has taken, confined as they are mainly to interest rates, run the risk of inducing recession. Unless he broadens them, we will get the worst of that recession sooner or later.
It is difficult to imagine in what direction the Chancellor will move when there is fundamental disunity within the Government even about what the basic economic indicators are and mean. One understands that the Chancellor does not attach much importance any more to M0 as a monetary indicator, but the Prime Minister's principal adviser thinks that it is the only important monetary indicator. The Chancellor does not think that broad money indicators are important either. Perhaps that is because they are so far from their target rates that he does not want to refer to them. The Prime Minister may not want to buck the market, but the Chancellor is engaged in the task of bucking the market. That is what his policy is all about. It is about trying to buck a market that does not believe that our economy and our currency are worth what we say they are worth. Therefore, we have to keep putting up interest rates to convince the market otherwise.
What has been lacking from the debate so far has been any clear indication of alternative policies that would meet the need. There are some alternative policies in the Opposition motion to which I can give strong support and which I believe are genuinely necessary, such as greater investment in training, tackling the skill shortage and greater investment in research and development and in
Column 268regional policy. All those are necessary to tackle inflation in the long term. Indeed, they are necessary if we are to have a fair and more just society, but they will not exert much influence on inflation in the short term.
The weakness of the motion is that it does not say much about what we should do now. There is confusion about whether the Labour party wants import controls or credit controls. Perhaps the reference to import controls was the result of the Leader of the Opposition being nonplussed in an interview. My picture of the interview is like the similarly blue-suited and white-collared figure in the famous painting who was being questioned by a harsh interrogator. The little boy was asked, "When did you last see your father?" I have in mind a picture of the Leader of the Opposition standing there, appalled that he should be asked such an unfair question as, "What would you do?" The little boy in the painting emerged from the exchange with more dignity than the Leader of the Opposition.
Mr. Hind rose --
Mr. Beith : Perhaps the hon. Gentleman would let me proceed a little further into what I think the Government should be doing. If he feels that there are omissions in what I say, I shall give him the opportunity to speak.
Mr. Hind : The hon. Gentleman has rightly pointed to the message that the right hon. and learned Member for Monklands, East (Mr. Smith) has given the House about what Labour would do. Does the hon. Gentleman agree that no policy has been put forward by the Labour party to deal with inflation? The Labour party has given no idea of its interest rate policy or its tax policy. All that we have had are fuzzy, supposed panaceas that amount to nothing. We want something more specific.
First, I want to say why I do not think credit controls are an effective mechanism. I do not think that the Labour party has come to terms with the real world if it imagines that the imposition of credit controls on a system of free capital movement would have a significant impact on the economy and on the rate of borrowing. I do not want to create a society in which credit controls are the stock in trade of Government policy. I do not want our citizens to have to encounter the Government every time that they go into a shop to buy a commodity. That is not the kind of society that I want to create. I think that it is an admission of failure if we even have to attempt to return to that kind of world.
We have to make our position clearer on other policies that are relevant to tackling inflation. One is the exchange rate mechanism of the European monetary system. It is a reputable argument that if we had been in the exchange rate mechanism for a reasonable time, say, two or three years, we would not have the rate of inflation or the interest rates that we now have. Indeed, a powerful discipline would have been exercised on monetary policy in a period when it is recognised, even by the Chancellor, that monetary policy was too lax. Yet the Government intend
Column 269to join the system only when the time is right. We all know that that time will not be so long as the right hon. Lady is in charge. The Labour party still has not committed itself. It says in its policy review :
"substantial change would be required before we could take sterling into the Exchange Rate Mechanism."
The Labour party does not specify what that substantial change is and it remains a reluctant potential convert to British membership of that system. Indeed, the hon. Member for Dagenham (Mr. Gould) has long been a resolute opponent of it.
There are a number of measures that we have already argued are relevant in such a situation. One on which I know the Labour party agrees is that the public sector price increases in water and electricity, for example, which arise directly out of privatisation, should not be taking place. They are Government-induced inflation and are not a response to cost pressures. They arise directly out of the attempt to make the industries saleable, and the Government could have acted on that already.
Secondly, the Government could do more to promote savings. The measures that they have taken in the Budget are not sufficient to induce savings from new savers--from people who are currently not saving. The Chancellor has the opportunity to act on that. Thirdly, I was interested in the Chancellor's comments on funding policy. The Chancellor delivered a criticism of the idea that we should change policies on funding, as though somebody in the course of the debate had already suggested that. I wondered to whom the Chancellor's remarks were directed. They could not have been directed towards the right hon. and learned Member for Monklands, East because he did not suggest such a change. They must have been directed
Mr. Beith : I certainly do not believe that the Chancellor was anticipating what I was going to say. Clearly, his remarks must have been directed at the Prime Minister's advisers. However, the mere fact that Professor Alan Walters suggests something is no reason for not taking it seriously. The fact that there is an area of policy which both monetarists and Keynesians consider to have some prospect of having a beneficial effect on anti-inflation policy is sufficiently surprising in itself to make one think that it should be taken seriously.
There is good reason to believe that if the Government--to put it in a simpler way than some of the commentators have--overfund, borrowing more than they need to do at a time of substantial public sector surplus, it could have the effect, among others, of raising the longer-term interest rate. There are fears about the consequences of that, but the Chancellor's current policy is based on the assumption that high interest rates will ensure that the rest of the economy responds to those high rates and that inflation will not take off. He should know full well that high interest rates bear most heavily on the domestic borrower and on small businesses, not on large companies.
Generally, the larger companies are able to borrow long term and have been insulated from the effect of high interest rates. That means that it is often small and innovative businesses which are struggling hard with high interest rates. The Chancellor says that they have got to suffer this to drive inflation out of the system, but he will
Column 270not drive inflation out of the system if the effect is confined to that sector and does not extend to the large firm sector, which is benefiting from the much lower long-term interest rates. The gap between long-term and short-term interest rates does not seem to be a sensible part of economic policy. We all want to see the short-term interest rate brought down, but the current disparity between the two has an element of unreality about it.
The Chancellor was far too ready to dismiss one measure which, as an almost unarmed Chancellor, he could reasonably consider, which is the use of funding policy to exercise some effect on inflation. Whether he wants to believe in that policy as a monetarist, believing, as some monetarists do, that such a policy exercises restraint on the money supply, or as a Keynesian, viewing it as something that would have an effect on the yield curve and on long-term interest rates, either way it is likely to have some short-term impact on inflation. Surely we are looking for short-term measures at present which can have some beneficial effect. We have argued that the Chancellor should add some measures to his armoury and that is another that could be added to that list.
Clearly, some of the problems that the Government have faced have been problems of market perception of Government policy or market misunderstanding, as the Chancellor would say. We still have no clear explanation of the balance of power in the Government's economic policy. In a small way, it is like trying to weigh up what is happening within the power structure in Peking. We do not know who is in charge. As long as that is the case, the market will take cognisance of the fact and it will lead to short-term pressures, which will give rise to further increases in interest rates. There are short-term disadvantages and dangers in the Government's present disunity, but there are also long-term dangers. That disunity also relates to Britain's role in Europe, Britain's place in the European monetary system and the extent to which Britain will become involved in the development of European currency and a European central bank. The danger of the Government's present attitude of hostility in varying degrees is that Britain will exclude itself from developments that it should be leading.
Our long-term economic prospects will be severely damaged both in general terms and because London will not be able to take its place as the natural financial centre of Europe. On many European issues, Britain is not merely missing the train, but throwing away the ticket at the same time. In the long term, that is as damaging for Britain as is much of the short-term damage which is being caused by the disunity between the Prime Minister and the Chancellor.
Mr. Cranley Onslow (Woking) : I want to make a short speech, so I shall make no reference to the opening speech of the right hon. and learned Member for Monklands, East (Mr. Smith) other than to say that, although it contained some amusing bits, that did not conceal the fact that it was fundamentally shallow and unconvincing. Most of my hon. Friends feel the same way about it.
Column 271I want to refer briefly to one other Opposition Member. The performance of the Leader of the Opposition was just as we have learnt to expect. As my right hon. Friend the Chancellor said, he is a man who could not control inflation because he cannot control himself and we saw that demonstrated again today in the way in which he clowned it up in a sedentary position on the Front Bench. Reflecting on the reports of his interview and the episodes that did not reach the microphone, I noted that the hon. Member for Dagenham (Mr. Gould) said of his right hon. Friend the Member for Islwyn (Mr. Kinnock) that he was a man of immense self-discipline. For a man to make such a statement with a straight face, as I presume he did, tells us more about himself than about anyone else. The hon. Member for Dagenham does not make a very percipient judgment on some of his colleagues.
I want to test the credentials--
Mr. Onslow : I will tell the hon. Gentleman what I want to do. I want to test the credentials of the right hon. Gentleman's leadership and his party. I hope that he will not mind my doing so and I am sure that he will not be sensitive about that. I want to ask some questions that I hope the hon. Member for Dagenham will be prepared to answer and that many of us hoped that the right hon. and learned Member for Monklands, East would have answered in his opening speech.
The first question is that if we suppose that the Opposition had the opportunity to deal with this situation, what would they do? Where would the money come from? It is fair to put that question on the basis of some points that others have already managed to squeeze out of the Labour party's reluctant spokesmen. It is fair to ask what the basic rate of income tax would be under a Labour Government. We know from a reply by the right hon. and learned Member for Monklands, East to a question from Jonathan Dimbleby on 12 February that there would be changes in the basic rate of income tax paid by 95 per cent. of the taxpaying public. The right hon. Gentleman went so far as to say :
"some will pay less, some will pay more, some will pay the same." We and the public would like to know how many of that 95 per cent. will pay more and how much more they will have to pay. It is not unfair to put the questions in those terms.
My second detailed question is whether the right hon. Gentleman and his colleagues have made any estimate of how many pensioners would be made worse off as a result of Labour's proposals to impose an investment income surcharge. The Labour party is committed to that, so it seems fair to ask on behalf of the taxpaying public and pensioners, in particular, who have some savings, how many of them would be hit by such a proposal if, by some misfortune, it was ever possible for it to be implemented.
I have asked where the money would come from because the Labour party has a clear commitment to spend a great deal more money if it were in government. In its policy review, there are numerous spending pledges. Does any Labour Member have any idea what those pledges add up to in cost terms? If so, may we please be told? If not,
Column 272may we please be told? In an economic debate, a party that wishes to be taken seriously should be able to cost its proposals. By how many billion pounds--not million pounds--would a Labour Government intend to increase public sector investment, and hence demand? In asking that question, I am placing the Labour party in some difficulty because it defines its terms in a way that suits it rather than in a way that adds to general understanding. I recognise that, in using the word "investment", the Labour party rules out the factor that many of us consider important--the profitability of such investment. Experience has shown that the Labour party tends to equate expenditure with investment. I imagine that it admits that an increase in expenditure, even if it is called investment, must increase demand. Will some Labour Member please tell us what effect that will have on inflation? Presumably, increasing demand is likely to increase inflationary pressure. To say that the Labour party is concerned only with manufacturing industry begs more questions, and that does not strengthen its case.
I shall ask another question, to which I suppose I will not get an answer, but I will ask it just the same. Does the Labour party want the exchange rate to remain at its current level or does it want it to be lower? Has the Labour party made an estimate of the increase in consumer credit that would result from its proposal to reduce interest rates? I understand from the speech of the right hon. and learned Member for Monklands, East that he does not wish to rely on higher interest rates alone, so presumably he intends that interest rates should be reduced--in spite of the wise advice that the right hon. Member for Llanelli (Mr. Davies) has given.
If there are to be credit controls under a Labour Government--if that ever comes about--what sort will they be? How will they be administered? To what will they apply? May we be told more about them? May we please be told more about the import controls to which the Leader of the Opposition apparently committed his colleagues in that celebrated non-interview? To what will they apply? How will they be administered? How will they be reconciled with our international obligations? How long will it be before we are back to price controls? There is already a sign in the Labour party's policy review that under a Labour Government there will be price controls on water and electricity. What else is to be subject to price control? Finally, if I may put this indelicately, will the hon. Member for Dagenham define what he means by the "real economy"? Having heard what the Opposition have said on this and many other occasions, Conservative Members have little doubt, as I think have people outside, that the real Socialist economy is one of controls, strikes, runaway inflation and national disaster.
Mr. Norman Hogg (Cumbernauld and Kilsyth) : I am grateful for the opportunity to contribute to this important debate. I certainly support the official Opposition motion because it identifies the problems in the economy and sets out in general terms the steps that are required to rectify weaknesses. I want to relate my remarks particularly to the Scottish economy and I hope that hon. Members will forgive me for doing so. There are important differences between the economy in Scotland and the
Column 273eonomy in the rest of the United Kingdom. I am sorry that representatives of the Scottish National party have vanished from the Chamber. One short intervention during the Chancellor's speech is not a contribution from a party that claims to speak for Scotland. The absence of SNP Members from the Chamber is deplorable.
The problems faced by the Scottish economy are the direct result of the Government's policies. The Government hope that many small businesses will be set up in Scotland and that those small businesses employing small numbers of people will take the place of the traditional industries that have vanished over the past decade. The Government seem to put their faith in electronics, in light engineering, in engineering in support of the electronics industry and in service industries. In my constituency, there has been some success in attracting such industries. OKI, a high-technology industry, recently opened, and low-technology firms such as Hinari, which manufactures televisions, have started operations. The success in bringing such firms to Scotland has been due to the work of Locate in Scotland and the development agencies which operate in the five new towns. The big push has been for small businesses, but they have been badly affected by a 14 per cent. interest rate.
I was interested to hear what the Chancellor said about the success in attracting small businesses to Scotland, but he did not say how a 14 per cent. interest rate would facilitate their development. Those small firms often operate to small margins. The margin for reinvestment is very much smaller, given their nature, than it is for larger firms. Initially, under- investment is often a feature. I worry greatly what is happening to small firms in Scotland. I do not believe that the statistics cited earlier this afternoon will hold up much longer.
Companies are disappearing because of the difficulties with which they are faced. Estimates in Scotland show that a one percentage point increase in interest rates can cost industry as much as £20 million or £25 million. Extra costs also fall on those who run small businesses. Often they are home owners in those places where industries and businesses are being set up. The average mortgage in Scotland is £45,000, which means that home owners have had to find an extra £100 per month because of increased interest rates. Often they are the young, high-flyer managers who are so necessary for the success of small businesses. The position will not improve in the short-term. If the building societies follow the bank interest rate increase with an increase in their rates, the position will become very worrying.
Sir Nicholas Fairbairn (Perth and Kinross) : Before the hon. Gentleman bleeds his heart blue, will he remind us of the number of small businesses in Scotland that we lost under his Government and of the increased number under our Government? Will he remember that, thanks to our fiscal policies, the number of small businesses in Scotland has mushroomed? That is all thanks to our reversal of his Government's policies, which, whatever they are wrapped in, a future Labour Government would put back to destroy small businesses again. Will the hon. Gentleman give the Government a pat on the back because big business, namely, Ravenscraig, is safe and healthy, thanks to our economic policies?
Column 274years of the decade of Conservative Government my constituency lost 2,000 jobs, which was precisely the number created by the Labour Government during the preceding four years. [Interruptions.] The hon. and learned Gentleman should pay attention to what I am saying before he interrupts me because I paid tribute to the work of Locate in Scotland and the development agencies in the five new towns, which have been responsible for 70 per cent. of all inward investment to Scotland since the second world war. The Government know that they must protect Ravenscraig because if it were lost, that would end any Conservative changes in Scotland. The Government's position in Scotland is parlous enough without threatening the future of Ravenscraig.
Before I was interrupted, I was talking about interest rates. I had hoped that the Chancellor would give some encouragement to home owners, but he said nothing on that matter. I had hoped that he would announce a freeze on mortgage interest rates, by agreement with the building societies, but he did not do so. I am afraid that that is the hallmark of the Treasury Bench and its inflexible approach to the economy.
Mr. Hind : The hon. Gentleman said that he was surprised that my right hon. Friend the Chancellor had not agreed a freeze on mortgage interest rates with the building societies. If building societies lost money as a consequence of uncompetitive rates compared with the banks, how would the loss be made up to them so that they could continue to lend, especially to first-time buyers, the money that is much needed for mortgages?
Mr. Hogg : Any such freeze would be short term. If the hon. Gentleman had any confidence in the Government's economic strategy he would accept that a short-term policy would not result in the difficulties to which he referred. If he is confident that the Government are right, I do not understand why he does not support the call for a mortgage freeze.
In addition to interest rate difficulties, inflation is now running at 8 per cent., with every possibility of rising further. That eats into our standard of living and is a disincentive to companies to invest. There is also a balance of payments deficit which, on a year-on basis, could run as high as £17 billion. The danger is that the country will be caught in a pincer movement between an industrial slump and price inflation.
The Chancellor's policy is not working in Scotland, unless its aim is to curb spending on Scottish products and investment in plant and machinery. When interest rates are used to bolster the pound, firms lose their competitive edge in export markets. Scotland is being asked to help to cool down the over-heated south-east. There is no boom in Scotland, despite what the hon. and learned Member for Perth and Kinross (Sir N. Fairbairn) said, but it is being asked--
The Economic Secretary to the Treasury (Mr. Peter Lilley) : The principal Scottish forecasting body, the Fraser of Allander Institute, records that the Scottish economy grew last year more rapidly than that of the remainder of the United Kingdom and forecasts that it will do so again in the coming year.
Column 275Scotland is being asked to accept the medicine being dished out to the south-east although it does not suffer from the same problems. The latest figures--not from the Fraser of Allander Institute, but from the Scottish Office--show a fall of 3 per cent. in manufacturing output for the last two quarters of 1988--the largest fall in five years and a consequence of earlier rate rises. The boom is being nipped in the bud and the threat of recession once again looms over the Scottish economy.
While output fell in Scotland by 3 per cent., it rose in the remainder of the United Kingdom by 0.7 per cent. We heard a great deal about total output in the Chancellor's speech. The Scottish construction industry's output fell by 8.7 per cent. while that of the remainder of the United Kingdom rose by 2.6 per cent. The electrical instrument engineering industry, so important to Scotland, suffered a fall of 12 per cent. against a United Kingdom rise of 2 per cent. There was a fall in investment goods of 9.6 per cent. against a United Kingdom rise of 1.7 per cent. If there is cheer for Scotland in all that, what is the Treasury's prediction for Scotland for the next 12 months? What is the future for the Scottish economy? The Fraser of Allander Institute is certainly not a friend of the Labour party. I readily accept that and understand why the Minister is so quick to pray in aid anything that it might say. However, even that institute has identified pessimism among manufacturers as worse now than at any time since the oil price collapse in 1986. It says that the decline in manufacturing must soon filter through to the labour market. What is the Government's prediction for unemployment levels in Scotland during the next 12 to 18 months? There is a loss of confidence in Scottish industry that is directly attributable to the Government's policies.
Where does all that leave Scotland as it faces the advent of 1992? Professor Neil Hood, who has close connections with the Scottish Development Agency and with Locate in Scotland, said that Scotland is insufficiently prepared for 1992. My constituency is industrial--the sort of place about which the Government are fond of saying, "This is where success lies." However, as I go around my constituency I find confirmation of what Professor Hood said and, indeed, of what the Fraser of Allander Institute said about pessimism among manufacturers. In addition to all those problems the Channel tunnel will not help the northern or Scottish economies.
The Government's record in Scotland shows a decline in manufacturing and a fall in the number of employees in manufacturing as high as 34 per cent. Regional grants have fallen from £289 million in 1978-79 to £95 million in 1989-90. The Government can account for only 30,000 jobs created in Scotland between 1983 and 1986, yet 700, 000 were created in the south- east during the same period. Scotland has no confidence in the Government's policies and that will be reflected in the European election results a week on Thursday and in the Glasgow, Central by-election on the same day. The Government came second in that constituency at the last election and it will be interesting to note where they come this time. Judged by any indicator, the economy is in trouble, and the position is much worse north of the border. The Government have failed to support the Scottish economy, failed in education and training and failed in investment.
Column 276They have not failed, however, in their record of low support for their policies. In all the years that I have been active in politics, I cannot recall a time when the Government had such low support among the Scottish people. They are in for a severe shock in the European elections and the Glasgow, Central by-election. I am confident that the Labour party will gain the seats because it is clear in Scotland that that is where the future lies. There will be a Labour Government ; that is coming soon, and the sooner the better.
Mr. Tim Smith (Beaconsfield) : The hon. Member for Cumbernauld and Kilsyth (Mr. Hogg) argued that the economic situation in Scotland was somehow different from that of the rest of the United Kingdom because, he said, there was no overheating in the Scottish economy. In a telling intervention, the Economic Secretary said that in a recent period Scotland had enjoyed a higher rate of growth than had the rest of the country. Inflation is a problem wherever we find it in our economy. It is as much a problem for Scottish businesses as it is for any other British businesses, and the hon. Gentleman admitted that inflation was a disincentive to invest.
That is precisely what it is. If small businesses must choose--it is not a pleasant choice to have to make--between high interest rates and getting inflation down, they must accept that it is in their interest to reduce inflation as quickly as possible, and high interest rates will achieve that end.
The Chancellor announced that the net growth of small businesses in the United Kingdom has been higher than ever before. I have a simple message for the Chancellor. I urge him to stick to his guns, to persist with his policy and to continue to concentrate on getting inflation down. That must be our top economic priority.
There has been much talk in the debate about short-term measures. For example, the hon. Member for Berwick-upon-Tweed (Mr. Beith) said what he would do in the short term, although he rightly rejected the possibility of credit controls. He spoke of over-funding, and the Chancellor explained why that would not be effective.
We knew when the policy was introduced that it would take time to work through, and it will. He must think back a couple of years, to the events of late 1987 and black Monday ; it is fair to date recent events from that time. The right hon. and learned Member for Monklands, East (Mr. Smith) wanted the Chancellor to go further at that time in reducing interest rates. The fear in late 1987 and early 1988 was of a recession because nobody knew how the real economy would respond to the sudden collapse of the financial markets. Industrialists today wonder why politicians and ecomomists were so concerned at that time. They say, "Our businesses were going well and we were doing good business. What did a sudden collapse in the stock market matter?" They were unconcerned, and so far from having a recession in 1988, we had high growth stimulated by low interest rates, though it was higher than we could ultimately sustain. The policies of the right hon. and learned Gentleman would merely have exacerbated the problem.
The policy, if mistaken, was right at the time, but we must now put matters right. It will take time for that to
Column 277happen and for the Chancellor's policies to work through. Patience is required, and I appreciate how difficult that is for an owner-occupier whose monthly mortgage payments have gone up substantially in the last 12 months. People in that position are bound to be impatient. They want the interest rate to fall so that their monthly payments can fall.
I am convinced, however, that when the situation is explained properly to people, they appreciate that the present measures are necessary if we are to avoid a repeat of the inflationary trends of the last 20 or 30 years. That is why our top priority must be to get inflation down.
I fear that there could be a danger of over-reacting. I was disappointed at the recent rise in interest rates. I felt that it had been at 13 per cent. for quite a time, and it seemed that the policy was working. I remain convinced that it is working. I hope that it will not be necessary for the Chancellor to raise interest rates again, although I support him when he says that he will maintain interest rates at their present levels until he is satisfied that inflation is on a downward path and that, if necessary, he will raise them further.
I read with interest an article in the CBI magazine by the confederation's director-general headed :
"Danger : Scribblers in the dark."
It appears that the director-general, John Banham, is as unhappy about some scribblers as is the Chancellor. Mr. Banham complained about information that sometimes appeared in press stories concerning the economy. He wrote :
"Recent headlines have blared bad news which was just plain wrong."
For example, although one headline said Export slump in February" Mr. Banham wrote :
"in fact, seasonally adjusted, exports were 9.5 per cent. in volume up on the same period last year."
Another headline declared :
" Import surge continues'--yet imports of consumer goods in the three months to the end of March were down, in volume terms, compared with the preceding three months."
Later in the article, Mr. Banham wrote--and he should know, representing a huge proportion of British industry--that the Government's policy was working. He said :
"Consumer spending has slowed right down. This was clear from the CBI's Distributive Trades Survey as early as last autumn The slowdown will affect other sectors of the economy as we move through the year. Distributors' stocks have built up and this means less orders--for importers as well as United Kingdom producers Investment is, at present, holding up well Capacity utilisation is easing." There is plenty of evidence to show that the Chancellor's policy is working, and that is why we must stick to our guns. Then we will see, as the year progresses, that the figures start to come right. Other people have more confidence in the British economy than some of our commentators, and I have details of a number of recent examples of people putting their money where their mouths are and investing in the British economy. On successive days in April there were announcements to that effect. The first came from Toyota, with news of a large investment in Derbyshire. Then Bosch announced a large investment in south Wales.
I was particularly pleased that Robert Bosch Ltd decided to invest in Britain because the company has its United Kingdom head office in my constituency. Up to now the company has been importing everything that it sold in this country. Now it is to establish a car component factory in south Wales which will eventually employ 1,200
Column 278people and create another 1,500 jobs. The investment will total £100 million and I am told that 80 per cent. of the output will be exported.
There are many other examples of inward investment, and we have heard about the success of the Scottish development agency in attracting overseas investment to Scotland. It is clear, therefore, that this type of investment is occurring throughout the country. Many overseas investors are coming here in preference to other countries. When I discussed with Robert Bosch why it had chosen the United Kingdom--remembering that there is great competition throughout the European Community for this type of investment ; Bosch already has a large investment in Spain, where it employs 6,000 people--I was told that the company had confidence in our economy, that it believed that the United Kingdom was a stable area in which to invest, that prospects here were good, that industrial and labour relations were good and that manufacturing productivity had risen substantially. Foreign companies have confidence in our economy. My hon. Friends and I have confidence in my right hon. Friend's policies. I am sure that, given time, they will succeed.
Several Hon. Members rose --