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Mr. Doug Hoyle (Warrington, North) : One of the problems we face in this debate is not knowing how long the Chancellor will be in his job. We do not know when that dreaded knock will come and he will be ushered into No. 10 and told that he is on his way. It is difficult to propose any long- term solutions to a person who may have only a short-term contract.

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The Chancellor and the Prime Minister both have strong views on keeping inflation down, but we hear nothing these days of zero inflation. It is no longer bedtime reading for the young in every Conservative household. It has disappeared out of the window. When the Minister replies, I shall be pleased to hear when that target will be achieved.

We do know that inflation is higher in this country than any other in the EEC except Greece and Portugal. There seems to be some complacency about our record by comparison with the rest of the Community, with the Government saying that all is right, but this country is paying a very high price for having the Government in office. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) was right to point out that the failure to invest on the supply side is now catching us out. British industry continues to lag behind because of failure to invest. It also faces high interest charges and rising costs as a consequence of gas privatisation and the proposed privatisation of the power industry. British industry costs are far higher than those of its competitors in Germany or France, which makes domestic companies even more uncompetitive than they were.

The Department of Trade and Industry and even the noble Lord the Secretary of State himself talk only of a venture economy. We get from them tinsel rather than substance. To hear Conservative Back Benchers, one would think that Labour was in office, because Government Members spend all their time attacking Labour policies while not one of them gives an iota of information about what they would do.

We are heading for a record Community trade deficit of £18 billion, yet the Government's only response is to raise the interest rate time and time again. It now stands at 14 per cent. and all the signs are that it will rise to 15 per cent., which will make a bad situation even worse. Britain's metal industries are falling into deficit, and we shall shortly be left with only aerospace. When a Labour Government were in power, our engineering industry was in the black. Today, the trade deficit in engineering products has deteriorated by 30 per cent., rising from a deficit of £8.9 billion in 1988 to £11.6 billion in 1989.

In the years 1985 to 1988, for which the hon. Member for Dover (Mr. Shaw) claimed a special degree of Government success, the deficit increased by 600 per cent. Does he call that a success story? Our trade deficit with West Germany is a calamity. Last year it totalled £845 million, which is the biggest deficit with any of our trading partners. The deficit trebled between 1979 and 1988, yet Conservative Members have the cheek and impudence to speak of that as a success story. I should not like to experience a Conservative failure. Another Government ploy, particularly from 1979 onwards, was to say, "It does not matter much about the metal- bashing industries because the sunrise industries such as information technology will be our saviour." Information technology was the in thing which would save us all, but our IT trade deficit is rising year by year. I sit on a Committee that has just produced a report on information technology. Its advice to the Department of Trade and Industry was ignored because it would have interfered with the market. As long as we rely on market forces alone, we shall never recover from our IT trade deficit or have any hope that information technology will be our saviour. The situation will only get worse.

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Whenever we spell out to the Government what ought to be done, they make no response and refuse to face the facts. I do not know where the hon. Member for Dover gets his figures about motor vehicles. Last year, we imported from the Common Market £6 billion more in motor vehicles that we exported.

Mr. David Shaw : I was making the point that we enjoyed a surplus in 1976 but suffered a small deficit in 1979. I do not deny that the deficit increased, but for the first time the trend is reversing. That has been shown up in the Oxford Economic Forecasting studies. By the mid-1990s, we may return to a trade surplus on motor vehicles as a consequence of the new efficiency that will come with Nissan and Toyota. That Government achievement cannot be denied.

Mr. Hoyle : I just wonder where the hon. Gentleman lives. I think his problem is that he gazes out to the Channel without looking at the mainland behind him. It is remarkable that the hon. Gentleman can make such a statement. I repeat that we suffered a record £6 billion deficit in our trade with the EEC.

Mr. Calum Macdonald (Western Isles) : The hon. Member for Dover (Mr. Shaw) is really saying that after 10 years of pandering to British management, the Government have given up on it and now rely upon foreign management to get Britain out of the mess that it is in.

Mr. Hoyle : Absolutely. The Government's problem is that they have no faith in Britain. It does not matter who owns our industries. They just hope that the Japanese will capture the European market for Britain and rescue our record £6 billion trade deficit with the EEC that the Government created.

It is nonsense for the Government to continue to claim a success story. One of the consequences of the Government's present policy will be that unemployment will rise again, especially in the areas represented by Opposition Members. Barclay's Economic Review estimates that there will be a 200,000 rise in unemployment, but, I think that that estimate is probably rather low.

The Government are producing slogans instead of remedies. As has been said, the problem is that the Government are running a casino economy. They are like gamblers who are drunk on the roulette wheel. All they are doing is throwing chip after chip into the casino. We can no longer afford the luxury of this Government, nor can we afford their incompetence.

Several Hon. Members rose--

Mr. Deputy Speaker (Sir Paul Dean) : Order. I am very grateful to those hon. Members who have co-operated so well in observing the 10-minute limit on speeches. The wind-up speeches are expected to begin at 9.20 pm and five hon. Members still wish to speak. If my mathematics is correct, that means that I can now relax the 10-minute limit on speeches, but I hope that hon. Members will bear in mind that five hon. Members hope to speak between now and 9.20 pm.

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8.11 pm

Mr. Kenneth Hind (Lancashire, West) : The hon. Member for Warrington, North (Mr. Hoyle) said that Conservative Members have criticised the Opposition. I join in those criticisms. The Opposition introduced the debate to criticise Government policy. National politics today is essentially a two-horse race. The Conservative and Labour parties agree that the centre parties are a broken force : therefore the public look to the two major parties for policies for the future. It does not come well from the Opposition simply to ask what the Government will do when recently they have produced a detailed document for public examination setting out what they would do if they were in power. Therefore, it is fair for us to say to the Opposition that we accept that there are problems in the economy, but we and the public are entitled to know what they would do if they were in power. We have repeatedly asked that question in today's debate.

The right hon. and learned Member for Monklands, East (Mr. Smith) opened the debate by making a number of points that revealed the weakness of the Opposition. But what are the strengths of the Government's present position? In the past four years, unemployment has fallen by 1 million. Since 1982, more jobs have been created in Britain than in the rest of Europe put together. Inflation has fallen to an average of 5 per cent. per year, there have been major reductions in taxation and an average annual growth in industry of 3.4 per cent. We have the highest productivity growth in the OECD except Japan. The growth in small businesses has mushroomed, creating 1,300 new businesses a week. Company profits are higher than they have been for 20 years. Despite the criticisms from the Opposition, manufacturing industry has grown by 7 per cent. in the past two years-- twice the growth in the economy. That is a major achievement. The right hon. and learned Member for Monklands, East leads the Opposition charge and states that what is required is new investment in training, research and development and new machinery. I agree with him. We all agree on that, but we recognise that to close the gap between our imports and exports we need to increase the capacity of British industry. Our industrial base has to grow. My right hon. Friend the Chancellor of the Exchequer has encouraged that. In 1988-89, the last year for which detailed figures are available, there was a 14.5 per cent. increase in investment in British industry and we are now witnessing record levels of investment, achieving precisely what the right hon. and learned Member for Monklands, East wants us to achieve.

A large proportion of our trade deficit is created by new machinery which is imported only to increase the British industrial base to close the gap between imports and our exports. In 1987 half our trade deficit was made up of imports of machinery into the United Kingdom. British industry has the confidence to expand and to create jobs, and that is a major achievement.

Mr. Worthington : I wish to ask the hon. Gentleman a simple question. Why is capital machinery being imported?

Mr. Hind : We have to go back a fair number of years. I regret that much of our manufacturing industry was killed off in the 1960s and 1970s and cannot easily be replaced. Anyone who knows anything about economics knows that, at the first sign of an upswing in any economy,

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the manufacturers of machinery benefit first. However, we do not have as big a machinery industry as we should like, so we have to import machinery, but we have the beginning of the upswing and the about-turn that will help to close our trade gap.

The major enemy that the Government face is inflation. I fully support the line taken by my right hon. Friend the Chancellor of the Exchequer when he put that at the top of the problems that we face. He is right to attack that problem as his first priority. There is pressure on the pound at the moment because of the improvement in the American economy and external pressure. There is an increase in inflation across the board in the G7 countries. It is no good Opposition Members saying that it is not happening elsewhere. Of course it is happening elsewhere and that is recognised, but unfortunately we in Britain have a greater dose of the disease than we should like, but we know that the cure lies in introducing higher interest rates to suppress demand and reduce inflation.

No one should think that the Conservative party likes high interest rates. No one who has worked in any industry wants high interest rates. We can see the damage that they do and I am sure that my right hon. and hon. Friends agree that they are a short-term measure which will improve our financial performance and help to close our trade gap, dampen down demand and reduce imports. That solution is working now. Mortgage inflation is beginning to reduce.

The Opposition suggested introducing credit controls, particularly for credit cards, but that is such a small part of the problem, representing less than 5 per cent. of debt, that it will not tackle the problem. It will take time, but the economy is stronger than it has been for many years and that has been shown by the winds that it has faced in the past few years-- black Monday, the crash in the world markets, the fall in the value of sterling a few years ago and various problems created in the economy by the fall in oil prices. The British economy has been strong enough to weather those storms and will be strong enough to weather the problems that we are facing at present.

The Opposition have offered no solutions. The right hon. Member for Llanelli (Mr. Davies) is on record in The Independent saying that the Opposition have no idea how to deal with inflation. One of the Labour party's advisers was quoted in The Independent as saying that it has no idea what to do about inflation. The Leader of the Opposition admitted in an interview with James Naughtie of the BBC, which has been hidden away in the archives and which we will never hear, that he did not know what to do about it. He said, as have Opposition Members throughout the debate, that the Government are in power, so, "Let us see what they can do about it." The British public are entitled to ask the Labour party what it would do if it were in power.

In an interview this morning, the right hon. and learned Member for Monklands, East ducked a question about control of sterling. He could not speculate on the appropriate level of the pound because he does not have an idea what it should be. The Opposition have no policy to deal with the pound, which is an essential part of managing the economy.

The Labour party has produced a document outlining its policies for the future. It clearly emerges from it that the Labour party is the party of higher taxation. It proposes to return to the old remedies such as raising taxation and renationalisation. The right hon and learned Member for Monklands, East ducked my question when I challenged

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him in an intervention about how new investment will be financed. It will be financed using ratepayers' money, by raising taxes and using that increased taxation to intervene in industry. Higher taxation, intervention and failure to control inflation and the pound will increase inflation and make a bigger mess of the economy than the Labour party has done previously. We all remember what a terrible mess it made of the economy in 1976.

The abolition of the upper earnings limit on national insurance contributions will make anyone earning more than £17,000 a year worse off. The married couple's allowance will gradually be withdrawn, making 12 million couples worse off as they lose indexation. Labour has taken a step backwards from the clear-cut pledge to restore cuts in the basic rate of income tax. It is trying to conceal its intention by talking about an income tax regime of many different rates. The right hon. and learned Member for Monklands, East admitted that any reform of income tax along the lines proposed will make some basic-rate taxpayers worse off.

We have asked the Labour party to cost its programme. It ducks the question because it knows that it will inevitably lead to higher rates of tax, increased inflation and lower standards of living and show that they are not in a fit state to control the economy or run the country.

I should like to mention a matter to which my hon. Friend the Member for Dover (Mr. Shaw) referred. We must consider expert forecasts of the performance of the British economy. The survey by Oxford Economic Forecasting, which was published on 31 May, predicts that manufacturing industry will boom throughout the next decade, generating thousands of new jobs. By 1995, manufacturing output is expected to be 60 per cent. higher than today. Car production is forecast to rise from 1.25 million today to 2 million by 1995, helped by the dramatically improved efficiency and profitability of United Kingdom car plants. Such profitability will run right through the British economy.

The Chancellor of the Exchequer and Conservative Members accept that mistakes have been made in the past, but the right policy to correct the economy is being pursued, despite the criticisms of the Opposition. The Government do and mean what they say. At least we are prepared to say to the public, "This is where we stand, and this is what we shall do," unlike the Opposition, making it clear that we are fit to govern this country and that they are not.

8.25 pm

Mr. Tony Worthington (Clydebank and Milngavie) : I wish to return to the central problem--the fact that Britain is not paying its way. Last year we ran a current account deficit of £14.7 billion, and it seems that this year's deficit will be £18 billion to £20 billion. I treat the problem seriously because the Chancellor has always done so with other countries. A few years ago he lectured the Americans about a deficit of 3 per cent. of gross domestic product, but our deficit is now 3.2 per cent. of GDP. The Chancellor lectured debtor nations, whether they were developing or developed countries, when they were in deficit. He never visits Japan or Germany and says, "How weak your economy is--it is in surplus." Strangely, our economy is supposed to be the only strong economy with a record deficit.

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It is difficult to find a part of the world with which we are not running a deficit. We are not running a deficit with north America, but the surplus is falling. We are not in deficit on oil, but that surplus is also falling. The reason why we are in deficit is that after 10 years of Tory Government we cannot compete effectively with other countries. When Tory history books are written, the chapter on the period between 1979 and 1981 is always missing.

Absurd reliance has been placed on service industries. When Labour Members said that we needed manufacturing industry to survive, we were criticised by the Financial Secretary to the Treasury and others for concentrating only on that sector. The chickens are coming home to roost and what we have been saying for many years about the Government's neglect of manufacturing industry is being proved correct. My hon. Friend the Member for Workington (Mr.

Campbell-Savours) said earlier that we must play a more interventionist role in manufacturing industry, perhaps on a sectoral basis. It is certainly difficult to see how market forces can cause manufacturing industry to re-emerge.

We run deficits on almost everything. One would have thought that we produce a lot of potatoes, yet we export £18 million-worth and import £58 million-worth. The picture is similar for sports goods.

Mr. Macdonald : And condoms.

Mr. Worthington : Condoms are mentioned yet again, which reflects some hon. Members' obsession with them, but there is only a £3 million deficit there. Last year, we exported £64 million-worth of coal but imported £427 million-worth. Twenty years ago, no one would have believed that we would be running a £24 million deficit on carbonated water.

In the 18 years from 1970 to 1988 there was a 23-fold increase in imports of capital goods and a 35-fold increase in imports of consumer items. In those 18 years there was less than a tenfold increase in exports. There was a 78-fold increase in car imports but only a sixfold increase in car exports. We assemble cars but although the wages are earned in this country the profit and the control are elsewhere.

We can no longer rely on oil as a surplus. The surplus in 1985 was £8.1 billion but by 1988 it had been reduced to £2.3 billion. We can no longer rely on invisible exports. In 1986 they amounted to £8.5 billion, but by 1988 they had fallen to £5.8 billion. Earlier we were told that we need not worry about the deficit because we were importing capital goods. We are indeed importing them--we have ceased to manufacture capital goods.

The hon. Member for Corby (Mr. Powell) pointed out that the average wage in Germany is 31 deutschmarks per hour and that the average wage in this country is 21 deutschmarks per hour. He said that we had a competitive edge. It is strange that Germany is beating us hollow on wages as well as having all the social benefits, extra training, better pensions and nurseries for children that we are denied. We had the clearest confession from the hon. Member for Corby that the Government's strategy is to seek a low-wage economy, but the people do not want a low-wage economy. They want an economy with high

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wages, high education standards, better research and development. They want a Government who believe in the future of the United Kingdom as an economy which can compete with countries like Germany. The speech of the hon. Member for Corby reminded us of the words a few months ago of the director general of the CBI, who said that a combination of British productivity and German social costs would be lethal for this country. He was right. That is the legacy that the Government have given us.

It is essential that we abandon our non-interventionist strategy in industry. There are no grounds for thinking that work will return to many areas simply by leaving things to market forces. Capital remains the most portable of the factors of production and it can go anywhere in the world. Labour has to stay here ; it should stay here and should have a good life. Certainly we need far more investment in education and training. We should abandon the pretence that the employment training scheme is anything other than a means of lowering unemployment figures. It is an insult to the people to pretend that the employment training scheme will provide adequate training for people to compete in the modern world.

We have a capital-oriented economy on the Government Benches. We need an economy much more oriented to the needs of the people. There has been much reference in the House to the creation of jobs. Jobs may have been created in some parts of the country but in Strathclyde, the region that I represent, total employment had fallen in September 1988 to 767,000, a decline of 10,000 jobs since September 1987, and the number of jobs in manufacturing industry had fallen by 162,000, or 49.7 per cent. Since 1979, the last peak in the trade cycle, Strathclyde's total employment is estimated to have fallen by 220,000 or 22.3 per cent. Strathclyde's share of employment in the United Kingdom has fallen from 4.3 per cent. to 3.5 per cent. since 1979. That is the economy within which I live and work. That is the reality of life there and in Glasgow, Central, where male unemployment in Bridgeton and Dalmarnock is 38.2 per cent. All that the Government promise us is that there will be a decline in the economy over the next few years while their high interest rates continue to take effect. The Government have to recognise that the only hope for many parts of the country is for them to abandon dependence on market forces. They must realise that in area after area we have no products to sell and that the only way to have products is by taking a much more interventionist stance. When we lost television manufacturing to the Japanese, we then lost video, compact discs and all the developments that occurred after that. My hon. Friend the Member for Workington (Mr. Campbell-Savours) referred to the knock-on effect of the loss of production of quartz digital mechanisms for clocks, and showed how we have lost products in one area after another. We must abandon reliance upon market structure and take a much more interventionist role.

8.37 pm

Mr. Tim Janman (Thurrock) : I congratulate the Chancellor, the Government and my hon. Friends on the Front Bench on the many positive aspects of the economic advance that we have made over the last decade. Deregulation, lower taxation, privatisation and the control of public spending--all the things that the Labour

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party never sought to do when in power--have led to increased productivity, investment and profitability in British industry, and to a longer period of sustained real growth in the economy than we have seen for many decades, whereas in the past we were continually in stop-go cycles.

All that could be undermined if inflation is not brought under control. It is vital to regain full discipline of the money supply. I want to concentrate on one concern--that broad money is no longer targeted and has not been targeted for some time ; broad money is no longer under control. I acknowledge that narrow money has been brought under control, although clearly it was out of control until fairly recently. The December 1988 increase in M0 was the biggest monthly increase since 1979. Recent figures show that the interest rate increases, which the Chancellor was correct to bring in, have been working and that narrow money growth has been tumbling. That is shown by some recent statistics. In the year to January, narrow money increased by 7.4 per cent., in the year to April, it increased only by 5.7 per cent. and in the six months to April, narrow money has been increasing at an annual rate of only 0.9 per cent. That is one of the key ingredients in bringing inflation under control and getting it out of our economic system.

My concern is that broad money is not under control. If we look at the rates of growth in M3 and M4, we see that those rates of growth are far too high. In the 12 months to April this year, M3 grew at 20.6 per cent. Over the six months to April, it grew, annualised, at 19.1 per cent., and over the three months to April, it grew, annualised, at 18.8 per cent. The equivalent figures for M4 money supply growth show 18.1 per cent., 16.7 per cent. and 20 per cent. increases.

The figures for narrow money are welcome and, if anything, narrow money growth over the past few months has been slightly too tight compared to current and expected general growth in the economy. But the M3 growth and the M4 growth are not acceptable. Those figures are the result of printing money last year to buy deutschmarks and of attempts to fix or control exchange rates by allowing the commercial banks to throw money at the problem. The strength of sterling should not be a major consideration in counter-inflation policy. It should be the result of counter-inflation policy achieved through sound money policies, which we have still not wholly achieved or certainly have not been achieving for the past few years.

There was a considerable time after 1979 when we were well on the way to achieving sound money and well on the way to achieving zero inflation. Our policies achieved an inflation rate of less than 3 per cent. in mid-1986, when inflation reached a trough of 2.4 per cent. Sceptics will say that broad money is not important. However, taking into account the longer time lags that exist, the M4/retail price index relationship is clear.

I want to go through some figures for the period from 1972 to the present, which clearly show that there is a relationship between broad money and inflation, albeit not quite as tight or with such short time lags as with narrow money. In 1972 and 1973, the average increase in broad money on the M4 measure was 22 per cent. From January 1974 to August 1975, inflation increased from 12 per cent. to 26.9 per cent. During 1974, broad money growth was reversed and it went down to a trough of 12 per cent., which resulted, in July 1976, in inflation coming back

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down to 12.9 per cent. During 1975, with the election of a Socialist Government, we inevitably saw an irresponsible increase in broad money supply growth--

Mr. Bryan Gould (Dagenham) : The election was in 1974.

Mr. Janman : I am quite aware that the election was in October 1974, but in 1975, the Labour Government had already escalated broad money supply growth to 16 per cent. That increase resulted in inflation peaking in June 1977 at 17.7 per cent. During 1977, as a result of the International Monetary Fund coming in, broad money supply was again reduced to a trough of 11 per cent. growth on an annualised basis and this worked through to produce a reduction in inflation to 7.4 per cent. in June 1978. During 1978, while inflation was coming down, broad money supply again reached a peak growth rate of 18 per cent., which in turn, in May 1980, produced an inflation rate of 21.9 per cent.

During 1982, after this Government's heroic Budget in 1981, broad money again reached a trough of 13 per cent. in annualised growth terms and this resulted, in May 1983, in inflation coming down to a low of 3.7 per cent. In more recent years, between 1983 and 1986, broad money, on the M4 criteria, grew between 13 per cent. and 14 per cent. and that resulted in inflation between 1984 and 1987 averaging 4.7 per cent. The disturbing news is that, between the fourth quarter of 1987 and the fourth quarter of 1988 inclusive, broad money has been allowed to creep up to a growth range of 16 per cent. to 18.5 per cent., which has unfortunately resulted in an inflation rate of about 8 per cent. in April 1989.

I am not saying that narrow money is not important, because it is probably more important than broad money, but I am trying to show that broad money is also an important consideration. If we take snapshots of two periods in the middle and late 1980s, we can see that that is the case. Between the fourth quarter of 1984 and the fourth quarter of 1985, the annualised rates of broad money varied between 12.8 per cent. and 13.8 per cent. The equivalent figures for narrow money were 5.6 per cent. and 3.3 per cent. In 1986, allowing of course, for a time lag, that resulted in inflation coming down to 3.4 per cent., with the lowest figure in the middle of 1986 being 2.4 per cent.--the lowest figure for about 20 years, which was a fantastic achievement at that time.

If we now look at the 1987-88 picture, we see that between the fourth quarter of 1987 and the fourth quarter of 1988, broad money grew at a rate of between 15.3 per cent. and 18.6 per cent. and narrow money has been allowed to increase to growth rates of between 4.2 and 8.5 per cent. over that same period of five quarters. That has resulted in the current inflation rate of 8 per cent. and rising.

From those figures it is clear that we can conclude that not only is narrow money supply important in looking at inflationary trends and seeing what is going to happen in the future, but so is broad money. Broad money targets, preferably M4 targets, should again be set and achieved, although I take the view that those broad money targets can be more liberal than they otherwise would need to be if narrow money is under control. If we go back to having targets both for broad money and narrow money, and try to achieve and be seen to achieve those targets, I am confident that that will give a signal to the financial

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markets that the Government are serious about maintaining sound money and about attempting to achieve 0 per cent. inflation. There is an article in The Guardian today in which several hundred words are printed to try to show that there is no connection or no particular relationship between either narrow money or broad money and inflation, but the graph printed at the end of the article shows exactly the opposite. The graph shows a clear relationship between narrow money and the retail prices index, and with a time lag, with broad money. The figures show that to achieve zero per cent. inflation, we need to bring down broad money growth to not more than 10 to 11 per cent. per annum and narrow money, on which we have already perhaps gone slightly further than we need to, should be brought down to an annualised rate of no more than 1 to 2 per cent. growth at present.

This particular aspect of economic policy, about which this evening's debate has given me an opportunity to speak, is a matter about which I have some concern and which I would ask my right hon. Friend the Chief Secretary to review. It is not a matter about which one should be dogmatic and there are no simplistic solutions. If we look at the trends and the figures, and the fact that over the past few years we have ditched broad money targets, whereas for the first four or five years in office after 1979 we had such targets, it is clear that to achieve that worthy target of zero per cent. inflation, we need to keep high interest rates for as long as we need to. We need to allow exchange rates to float freely. We should encourage the Bank of England to sell securities to the banks to mop up that 7 or 8 per cent. of broad money that needs mopping up.

When considering the tenor of our economic policy and all the measurements upon which our economic success can be judged, it is ludicrous for the Opposition to deny that the past 10 years have brought this country excellent economic success. It is even more ludicrous for them to snipe at the Government's achievements when clearly, from the leadership of the Labour party downwards, Labour Members have no realistic alternative to put in its place and no understanding of how they can even try to find an alternative. We must consider having both broad and narrow money targets. If we do that, we shall have policies that will achieve the target, which we all want, of sustained zero inflation.

8.50 pm

Mr. John Battle (Leeds, West) : One line in the Chancellor's response to our motion drew my attention--his claim that so far not a word had been said about unemployment. I was surprised that he drew attention to what might be described as the forgotten factor whenever Conservative Members participate in a debate on economic policy. I should like to focus on the forgotten factor of unemployment. As we have commented throughout the debate, when we have a Government who have given us record interest rates and a record trade deficit, we should not forget that they have also given us a record unemployment level. It is still unacceptably high. The unemployment level represents not figures, numbers and statistics but real people who do not have jobs. It is worth reminding the House

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that, according to the Government's figures, nearly 2 million people are still without work. The Unemployment Unit estimates that we should add at least 500,000 to that figure to take account of changes in methods of calculation.

There is talk about handling inflation and references have been made to the Government having the single instrument of interest rates. There is another secret, unmentionable weapon--unemployment. The Prime Minister offered the following economic advice in February 1981 to readers of Time magazine :

"bringing down inflation does mean that you have increasing unemployment and I don't know of any other way of doing it." Clearly, unemployment is a weapon in the Government's armoury, although they are not anxious to stress that. However, this year's economic policy statement paragraph 3.04 in the Red Book, "Financial Statement and Budget Report 1989-90", refers to the labour market, and spells it out :

"Unemployment is most unlikely to continue falling".

What else can that mean, except that unemployment is expected to rise? That is the basis of the Government's economic and budget strategy.

My hon. Friend the Member for Warrington, North (Mr. Hoyle) referred to Barclays Economic Review, which has estimated that unemployment will increase in real terms by at least 200,000. On 21 April, the Parliamentary Under-Secretary of State for Employment was asked in a written parliamentary question when he expected "unemployment levels will fall to the 1979 level".

He replied :

"The Department does not forecast future levels of unemployment."--[ Official Report, 21 April 1989 ; Vol. 151, c. 347 ].

We are entitled to ask why on earth not, when it seems to be part and parcel of the Government's strategy. The country knows that since 1982 the Government's unemployment figures have been subjected to 24 changes in the method of counting and there are another four to come. According to the Government's figures, unemployment has been more than 3 million for nearly six of their years in office.

I shall draw attention to one group that is often forgotten--the long-term unemployed, who, understandably, could be the most aggrieved at the talk of the economic boom in Britain and all that we hear about the economic miracle of the Government's policies. The proportion of people who have been unemployed for more than a year rose from 25 per cent. in 1979 to 41 per cent. last year. It is not that those people were in and out of jobs. They and their families were paying the long-term price for the Government's faulty economic experiments.

There are regional inequalities in the distribution of employment. The 1988 "Regional Trends" shows that the Yorkshire and Humberside region, part of which I represent, had the highest proportion of people in the United Kingdom who had been unemployed for between one and two years--17.2 per cent. That region had the second highest proportion of people who had been unemployed for between two and three years--9.4 per cent. It had the fifth highest proportion of people who had been unemployed for more than three years--22.7 per cent. Unemployment is still high in the region. It has the second highest level of unemployment generally, with

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more than 270,000 people still unemployed. To take a smaller area, long-term unemployment in West Yorkshire is 42 per cent.

When dealing with statistics, how often do we forget the hopelessness of the long-term unemployed? On 4 May 1980, in the News of the World, the Prime Minister was reported as saying : "I could not live without work. That is what makes me so sympathetic towards those people who are unemployed. I do not know how they live without working."

Under this Government many of the long-term unemployed have had to live without work, and it seems that the Prime Minister either has forgotten her sympathy for them or is pretending that they no longer exist.

We are entitled to ask what future the Government offer to people in my constituency who are living with long-term unemployment, with no hope of employment for their children. When considering the prospects, we need look no further than the CBI quarterly report. Its industrial trends survey points out that, after a period in which manufacturing employment has risen, firms now expect to cut their work forces. No region comes out of that survey worse than my region of Yorkshire and Humberside. Commenting on the report, the Sunday Times said :

"it suggested that firms are still tending to cut back employment rather than make a determined effort to rein back pay. Indeed, the CBI's own evidence on skill shortages, with more than a fifth of companies regarding them as a constraint on output, suggests that many firms have no option but to meet employees' demands. The more fundamental point was that economic behaviour still conforms to the view that there is a trade-off between unemployment and inflation. In addition, if we regard the current-account deficit as in part an outlet for inflationary pressures, there is also a trade-off between the jobless total and the trade gap."

Mr. Janman : I have no quarrel with the hon. Gentleman's genuine concern about unemployment, and it is true that at the beginning of this decade there was a period of high unemployment. Given that every Labour Government have ended their term of office with higher unemployment levels that when they took office, can the hon. Gentleman tell the House how the return of a Labour Government would improve matters?

Mr. Battle : I must make it absolutely clear that the levels of unemployment under Labour Governments were a great deal less than those under this Government.

The paper presented by the Centre for Economic Policy Research, entitled "The Thatcher Miracle", points out that the

unemployment-inflation trade-off has not disappeared during the past 10 years but has simply been clouded by the existence of North sea oil. That is the key point. The centre points out that the level of unemployment required to reduce inflation--the non-accelerating inflation rate of unemployment--would have to be well above the current jobless total.

To achieve a steady rate of inflation of even 4 per cent. to 5 per cent. under current Government policies would require a higher level of unemployment. Higher unemployment levels will be inevitable in regions such as mine as a consequence of the Government's efforts to reduce inflation, yet the Government's response in a written answer was that the Department did not forecast future levels of unemployment. Perhaps they dare not do so ; perhaps they are deliberately suppressing economic

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data. We have the right to challenge the Government on why they will not forecast the levels of unemployment that would be a consequence of their policies.

What will happen when unemployment rises? It will be much easier for employers to dismiss workers or to make them redundant, because workers' rights have been undermined through legislation to eliminate trade unions, the reduction of wages councils' minimum provisions and the removal of social security entitlements. Even during the past few weeks, the Government have introduced measures to ensure that unemployment will no longer be seen to rise because those who do not accept low paid jobs will be taken out of the social security records. Perhaps, even now, officials at the Departments of Employment and of Social Security are working at their computers trying to find programmes for new ways to conceal the unemployment figures when they begin to rise again. At the very least the Government have a duty to spell out the Labour market implications of their economic policies.

In a party political broadcast on 4 May 1977, the then Leader of the Opposition--the right hon. Member for Finchley (Mrs. Thatcher)--said :

"Sometimes I have heard it said that Conservatives have been associated with unemployment. We would have been drummed out of office if we had had this level of unemployment."

At that time unemployment stood at 1.3 million. Since then, and for every year of this Tory Government's office, the level of unemployment has been higher than 1.7 million. When the Prime Minister was Leader of the Opposition she said that a Government presiding over 1.3 million unemployed should be drummed out of office, so perhaps the time has come for her Government to be drummed out of office. Who, other than the long-term unemployed--the forgotten factor of the economy--have more right to beat that drum loudly and call upon the Prime Minister and the Chancellor not to get their act together? They manifestly cannot get their act together. Together they should go.

9.3 pm

Mr. Calum Macdonald (Western Isles) : The hon. Member for Thurrock (Mr Janman), who has unfortunately left the Chamber, showed why the Conservative Government have got the economy so badly wrong over the past 10 years. The hon. Gentleman was becoming further and further lost in the clouds of monetarist mysticism with his talks of M0, M4, M25, and so on. The Conservative party used to boast that it was the party of household economics. I should love to hear the hon. Gentleman giving a speech to housewives and to hear what they made of it. The hon. Gentleman's speech was difficult to follow, but I think that the gist was that the Government had it right at the time of the big recession, but that in the past few years they had made a terrible mess of things.

While I do not wish to go over ground that has already been traversed in the debate, I cannot resist referring to the latest issue of Business magazine, not only for the value of its leading article but because I recall Conservative Members referring to that magazine a couple of weeks ago, citing the then leading article which was headlined :

"Born again Britain. How industry is getting it right."

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I remember well how that magazine was held aloft and waved regularly at Question Time, with Conservative Members proclaiming that industry was once again confident of the British economic miracle.

The latest issue of Business magazine has a different tone to its leading article. It is not "Born again Britain" but

"How Britain lost its balance"

and the first sentence of the article reads :

"Britain is gripped by a trade crisis."

There is no better illustration of the collapse in business confidence than the change in tone of Business magazine and its attitude towards the Government's economic policy. The magazine's latest article goes on to say that its analysis suggests

"that the country might be facing a trade crisis even more deep-seated and fundamental than recent monthly figures indicate." In this debate various figures have been given for the different industrial sectors. It is clear that one by one they have all slipped further into deficit. What I find most telling--this has not been mentioned in the debate--is the fact that we have now slipped into deficit in the umbrella trade. I should have thought that if there was one area in which Britain could stay ahead, it was in the manufacture of umbrellas, but we are now importing £28.7 million-worth of umbrellas compared with exports worth £6.4 million. That must surely be a latter-day example of carrying coals to Newcastle.

When we examine the various regional sectors with which Britain trades, we find the same dismal tale. We are in deficit with all but two of the world's regional trading blocs, the two exceptions being the Arabian countries and North America. Amazingly, we are in deficit with the Socialist bloc. Indeed, we are in deficit with Russia. Even Mr. Gorbachev's perestroika has outstripped our Prime Minister's economic miracle.

It is important to note that the item so often pointed to in the past--our export surplus on invisibles--is no longer sufficient to keep our heads above water. Even that has decayed over the years. Whereas our surplus in invisibles was running at £8.5 billion in 1986, it slipped last year to £5.9 billion. In all those sectors we see a steady decay in Britain's economic situation, such that Business magazine concludes that the Government have managed to

"dig the biggest hole in Britain's economic history."

If that is the view of that magazine, it is little surprise that the financial markets are showing less confidence in the Government's performance. The key to finding our way out of the present difficulty must be to tackle the long-term underlying structural problems that the country faces.

Conservative Members regularly jump to their feet to ask what we, the Opposition, would do in this situation. It is certainly a difficult task to devise the Houdini trick that will get the Government out of the present mess. I do not believe that this is the right kind of approach. Our approach should not be to find some way of slipping out of a particular conjunction of bad figures in one month. Our approach should be one that is rigorously applied over a number of years and one which will resolve the long-term problems of the British economy.

The hon. Member for Lancashire, West (Mr. Hind) said--it was about the only point on which I agreed with him--that a solution to the present crisis would take time. It definitely will take time ; there are no immediate

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