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identifies the responsibility of social service departments and health authorities in terms of section 7 of the Disabled Persons (Services, Consultation and Representation) Act 1986. More important, given all the Government's discussions with local authorities and given that the House was told by Minister after Minister, including the Prime Minister, that section 7 and the rest of the Act would be implemented when resources became available, the House is entitled to an explanation as to why that commitment was lightly dismissed. I turn to residential provision and the problems of the elderly. Hon. Members have said that they appreciate that all Governments would have a problem in terms of demography. More and more people are living longer. This should be seen as a challenge and opportunity, not something that is hanging around our necks. The Government have said that they will not take a particular approach until they have consulted and heard our debates, but they give the impression that they do not accept the case for the mixed economy. My hon. Friend the Member for Livingston confirmed that this is the Labour party's approach. It is realistic and reasonable. It would be difficult to remove the influence of local authorities in terms of not only enabling but providing.

I disagree with the speech of the hon. Member for Gedling (Mr. Mitchell), which appeared to be out of step even with the views of other Conservative Members. I shall not pretend that local authorities have a monopoly of wisdom, but the case for a national inspectorate for the private and the public sectors has been underlined. There may well be more support in Whitehall circles for the view of the hon. Member for Gedling--the hon. Gentleman may feel that I tend to flatter--than for the view of other hon. Members, but it would represent a setback in terms of enabling as well as providing.

I am sorry that the hon. Member for Stirling is not present. The Opposition do not ignore the role of the Adam Smith Institute in giving advice to the Government. A few days ago, it published a document on community care-- [Interruption.] I point out to the hon. Member for Bolton, North- East that our proceedings are not publicly televised yet. With that document it published a news release which said :

"The report also calls for local authorities to turn over all" I emphasise "all"--

"their care homes to private and voluntary care providers in order to avoid any possible conflict of interest. Michael Forsyth, Scottish Health Minister writes that There is no question of local authorities providing a full range of services directly themselves. We have made it quite clear that the maximum possible use should be made of the voluntary and commercial sectors so as to widen individuals' room for choice'."

The Government cannot have choice if by their policy on social security and their approach to residential care they discriminate quite clearly and deliberately, as the Adam Smith Institute would advocate, against one of the sectors--in this case the local authority sector.

Mr. Nicholas Winterton : As an hon. Member who has served in local government, I believe that not only the officials but the elected members of county councils and other local authorities have considerable knowledge and an immense commitment to residential care. It would be a catastrophe if that was surrendered and given up.

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Mr. Clarke : I am pleased to endorse the hon. Gentleman's comment. It would be a great tragedy if the Government tried to get themselves off the hook of Griffiths's major recommendation about local authorities by diluting the role which has so clearly been endorsed in this debate.

Tonight, we are speaking about community care in action. Hon. Members have wearily indicated that speeches in the past have not been met by the sort of action that we would wish to see. We want to extend best practice, including endorsing the consumer's right, to every part of the United Kingdom. At last week's Conservative party conference delegates had a great deal to say about active citizenship. In a first class speech my hon. Friend the Member for Newham, North-West (Mr. Banks) was able to underline what active citizenship under this Government means in practice for Crossroads. Apart from the absence of a strategy for community care, people are worried that a number of contradictions exist between various Government Departments, many involving the Department of Employment. I am not even sure whether the Department of Health and the Department of Employment have got together on the training scheme which so worries Crossroads.

I shall quote from the Scottish annual Crossroads care report and mention some of the remarks made by its chairman, I. J. Cowan : "On the 5 September when the Manpower Services Commission community programme ended and employment training started, 25 schemes were involved. Most investigated ET and decided it was unsuitable. In the event, eight joined the ET but at the end of the year only four remained and they were caring for 16 per cent. fewer families and providing 45 per cent. less caring hours. The other 20 schemes were supplying a similarly reduced level of care. The number of families cared for was down by 24 per cent. and the number of caring hours provided, down by 48 per cent."

If we are to have community care involving all who are capable of making a contribution, the voluntary sector is entitled to ask for better than that. If we are to talk about carers in the way that we have done during this debate, we must deplore the absence of any proper planning which takes into account not just the views of the carers, profoundly important though they are, but the fact that section 8 of the 1986 Act already contains the opportunity--if the Government wish to grasp it--for carers to have an assessment of their own position and that of disabled people.

A document from SENSE, the National Deaf-Blind and Rubella Association, refers to the sad and tragic case--it is known to the House--of Beverley Lewis, a 24-year-old rubella sufferer who died weighing four and a half stone. Clearly, a domestic problem involving caring also existed. The following quotation is not what I or other hon. Members on both sides of the House who have given massive support to the Act have said ; it is the organisation's opinion : "Implementing the Disabled Persons Act. This Act if implemented could have completely transformed Beverly Lewis' life. It came too late for her but for the many other deaf-blind young people and adults it is essential if community care is going to work." It certainly is.

I congratulate hon. Members on both sides of the Chamber. Community care and our debates on it are rightly here to stay. The pressures on the National Health Service mean that 90 per cent. of the most vulnerable people in society are still out there in the community. I am

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pleased that today at least we have had the chance to address some of these problems, and, together with my hon. Friends, I look forward to offering a meaningful solution to the need within our communities, which the existence of those problems invites.

9.41 pm

The Parliamentary Under-Secretary of State for Health (Mr. Roger Freeman) : The hon. Member for Southport (Mr. Fearn) doubted whetherthis debate would make any difference to Government thinking and implied that the White Paper had already been written. The Government have listened carefully to the contributions to this debate. I agree with the hon. Member for Monklands, West (Mr. Clarke) that it has been a most valuable and interesting debate, but the hon. Gentleman cannot have it both ways. If we had published the White Paper last week he would have been the first to say that the Government were not listening. It was a sensible decision first to listen to the debate and then to publish the White Paper. I must tell the hon. Member for Newham, North-West (Mr. Banks) that we have adopted the Griffiths report not reluctantly but enthusiastically.

I want to deal first with the initiatives that we are planning for the mentally ill. This subject was raised by the right hon. Member for Stoke-on -Trent, South (Mr. Ashley), by my hon. Friends the Members for Eastleigh (Sir D. Price), for Bournemouth, East (Mr. Atkinson), for Macclesfield (Mr. Winterton), for Hendon, South (Mr. Marshall), for Taunton (Mr. Nicholson) and for Gillingham (Mr. Couchman), and by the hon. Member for Clydebank and Milnegavie (Mr. Worthington), all of whom rightly attach great importance to this issue.

As the House knows, I made a statement on 13 July clearly setting out the initiatives that the Government propose to follow. Our overall aim is clear and we have reaffirmed the policy pursued by different Governments over the past 20 years. We want to develop locally based hospital and community services, including long-term asylum facilities. I stress again that, as a consequence of, and not as a driving force behind, that policy some, but not all, of the large, isolated Victorian hospitals will close. This civilised and humanitarian policy, which I hope has the support of both sides of the House, will involve closures only when we are satisfied that there are adequate facilities in the community, and not before. Hon. Members on both sides have expressed worries not about this general philosophy but about its implementation, and I want to deal briefly with certain aspects of our policy, beginning with procedure. We have made it plain that by April 1991 all district health authorities must have in place a proper care programme for the discharge of each and every patient. That programme will entail not only a register but a stipulation of who is in charge of the patient once he is discharged. This policy will apply not only to those discharged from hospital but to the growing number who never reach hospital in the first place.

The hon. Member for Monklands, West spoke about the draft guidelines which we have circulated to enable district health authorities to put in place this new requirement. I am delighted to see that the Royal College

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of Psychiatrists is drawing up minimum acceptable standards for discharge and, most important, standards for following up patients after they leave hospital.

Secondly, I should like to speak about resources. In the fiscal year 1991- 92 and succeeding years, new extra money will be available through the National Health Service to local authorities to develop additional social care services for the mentally ill. That is additional and new money and we shall discuss with the Treasury during the public expenditure survey round next year the specific amount to be provided. Only about 3 per cent. of social services authority expenditure is spent specifically on the care of the mentally ill. Those services have various pressures upon them, but that is a bald statement of fact. There is need for additional resources. There will be a specific grant paid on agreed plans for programmes to be put in place by local authorities.

Thirdly, I shall deal with capital provision. I am well aware that we need facilities in the community before the hospitals close and not afterwards. We have a number of initiatives, including exploring the use of private sector finance to build community facilities now in return for releasing the land to private sector developers when the hospital closes. We are presently looking at possible candidates.

Mr. McCartney : That is asset stripping.

Mr. Freeman : It is not asset stripping. It is accelerating the programme of expenditure which would not otherwise have been possible. We are looking at possible candidates and they have to prove themselves good value for money. I hope that we can make progress on that score. I must emphasise the heavy burden borne by local district health authorities in keeping open half-empty psychiatric hospitals. That is extremely expensive, and anything that we can do legitimately to speed up that process is all to the good.

Mr. Nicholas Winterton : Will my hon. Friend give way?

Mr. Freeman : No. I regret that I have only 14 minutes to try to answer the points raised in the debate.

I shall devote two minutes to the homeless mentally ill, especially those in London. That issue greatly concerns the Department of Health and me. The Government are anxious to assist homeless people, whatever their circumstances or medical needs. My right hon. Friend the Secretary of State for the Environment will shortly report on his review of the homelessness legislation. My ministerial colleagues and I at the Department of Health have a particular responsibility in respect of that part of the homeless population suffering from mental illness.

It is difficult to get firm facts and figures, but the organisations with which we are in touch, such as St. Mungo's and the Bondway housing association think that on average 10,000 people sleep rough in London every night, and of those, about 30 per cent. have obvious mental health problems. There are of course smaller numbers in other towns and cities. Some of those people have never been in touch with the psychiatric services. Others have been, but for one reason or another have broken off contact with the services. I accept that a proportion consists of people who have been discharged in the past from hospital without adequate arrangements being made for their care in the community.

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As I have already made clear, we are taking steps to make arrangements for providing continuing care in the community more effective. That will be done in particular through the requirement on district health authorities to introduce the care programme approach from 1 April 1991 and the new specific grant to social service authorities payable from the same date. Those initiatives will not immediately assist those in need of psychiatric treatment and currently among the homeless population. We are therefore considering how best to help that group.

Those experienced in working with that group, including the departmentally funded psychiatric team for single homeless people at Guy's hospital, are clear that it is not realistic to offer what will often need to be fairly long-term treatment to people with no settled accommodation. Therefore, the aim must be to increase the number of hostel places and places in group homes with proper social work support to create the necessary bases from which people can receive treatment.

The experience of the Bondway housing association shows that reasonable supported accommodation acceptable to homeless people with mental illness can be provided economically. We are having talks with those with direct experience of helping this vulnerable group, and we shall soon be talking to the statutory services concerned. We recognise the problem, we intend to work with and build upon the achievements of the voluntary sector and bring our review to a satisfactory conclusion as soon as possible. I hope that the House welcomes that.

Mr. Nicholas Winterton : What about those in prison?

Mr. Freeman : Professor Gunn, on instructions from the Home Office, is surveying the population not only in the remand prisons but in long-stay gaols to identify how many of the prison population should be either in special hospitals but in psychiatric hospitals. We await that study with interest. There is no doubt in my mind that a significant proportion of prisoners should be not in prison but being cared for in hospital. Once we have that information, we shall proceed accordingly.

The hon. Member for Livingston (Mr. Cook) asked a specific question about the obligation on local authorities in relation to care. A statutory obligation to assess and then to decide the best method of care, whether at home or not, will be placed on local authorities. As many hon. Members have said, a proportion of those in residential homes would have preferred to stay at home and wish to be cared for at home. The revenue support grant will be reassessed each year for the level of provision necessary for local authorities to fund not only care in residential accommodation for new claimants and new applicants from 1 April 1991 but the level of domiciliary care that is needed. We shall spell out our proposals in greater detail in the White Paper.

Like the hon. Member for Livingston, the right hon. Member for Stoke-on- Trent, South and the hon. Members for Caernarfon (Mr. Wigley), for Wakefield (Mr. Hinchliffe) and for Makerfield (Mr. McCartney) all raised with me the important issue of the role of the public sector. I am glad to make the Government's position quite clear. We have no intention of introducing any element of compulsory tendering on home help provision or in any other element of local authority care. The speculation by

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some hon. Members about privatisation of local authority care services is misplaced, and I am happy to clear up that


We want a partnership between the local authorities, which play an important role, and the voluntary and private sectors. The Government do not seek, and it is not part of our policy, to prevent local authorities from providing care. Some local authorities--it is entirely a matter for them--will decide to continue to provide services and even enhance, improve or increase the level of care that they provide. That is satisfactory. We make no judgment about the level of care to be provided by local authorities. We regard services provided by the voluntary and private sectors as supplementary and not as a replacement of local authority care. Therefore, I agree with my hon. Friends the Members for Mid-Kent (Mr. Rowe), for Gedling (Mr. Mitchell), and for Bolton, North-East (Mr. Thurnham), all of whom expressed a similar sentiment.

My right hon. Friend the Member for Chertsey and Walton (Sir G. Pattie) asked whether certain jobs can or should be done entirely by the voluntary sector. While we welcome the contribution of the voluntary sector, we have no intention of heaping obligations on it, either exclusively or to a greater extent. He also asked about long-stay mental handicap hospitals and whether the management of them would be transferred to the social services department. We have no such proposals.

My hon. Friend the Member for Eastleigh raised two of the central issues of this debate, the first being the vital importance of carers. The hon. Member for Newham, North-West also referred to this point. They will find that the White Paper will emphasise that support for carers is the top priority. It will be seen when we publish the White Paper how we intend to manifest that priority. My hon. Friend the Member for Eastleigh raised also the issue of ring fencing, or specific grants. The issue has been taken up by many hon. Members on both sides of the House, including the hon. Member for Livingston. The Government are grateful for the views which have been expressed and the arguments which have been advanced. I say in defence of the opposing view--that grants should not be ring-fenced or should not be made specific--that many hon. Members on both sides of the House have confidence in local government and social service departments, of whatever political persuasion, making the right judgments and arriving at the right priorities when determining the level of domiciliary care and of assistance for residential homes. I invite the hon. Member for Newham, North-West and my hon. Friend the Member for Eastleigh to consider that the Government are seeking to provide additional money to supplement the funds that social services departments already have. We do not want the departments themselves to ring-fence funds. We want the additional money that will be transferred from the Department of Social Security through the payers' mechanism to be incremental funds to build upon that which is already being achieved in domiciliary care.

My hon. Friend the Member for Bournemouth, East referred me to the Schizophrenia After-Care Bill which was introduced in another place and which has now reached this place. I can give my hon. Friend the assurance that we shall be building upon the valuable lessons that have been set in the introduction of that Bill and in the debates that took place in another place.

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The hon. Member for Birkenhead (Mr. Field), in what I considered to be a refreshing and interesting speech, asked a number of specific questions. He adopted an interesting consumerist approach to community care, which I am sure would be echoed by many of my hon. Friends, especially in the light of his support for the White Paper entitled "Working for Patients", for which we are grateful. If I may, I shall write to him about flexibility of contracts. His comments deserve a serious reply, and that cannot be done in the few minutes that are available to me this evening.

I am grateful to the hon. Gentleman for allowing me to mention that the independent living fund has been set up by my right hon. Friend the Secretary of State for Social Security. It is designed to help those with disablement live independently within the community. Applications can be made at the Nottingham office and local inquiries can be made at the social services department. The hon. Gentleman knows that vouchers have been discussed by some Conservative Members. I can assure him that his comments will be borne in mind carefully. I find myself agreeing with both of the key points of my hon. Friend the Member for Macclesfield. Essentially, my hon. Friend wants registration and inspection to be carried out independently, and to be seen to be done in that way. Perhaps we may differ in the ultimate in how we propose that that should be done, but I take his point. I am sure that all my right hon. and hon. Friends believe strongly that there should be independent assessment. We believe also that the continuous monitoring of local authorities is essential. I can tell my hon. Friend that the social services inspectorate at the Department of Health takes that job extremely seriously. We shall spell out in the White Paper how we envisage that task being discharged.

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The hon. Member for Crewe and Nantwich (Mrs. Dunwoody) referred to village developments. If it transpires that I have misunderstood her, perhaps she will be kind enough to write. I am a supporter of village developments, especially for the mentally handicapped, but only if they are not geographically isolated. They should be seen as proximate to the community and not inward-looking. If that is what the hon. Lady believes, I agree with the sentiments that she expressed.

My hon. Friend the Member for Gillingham talked about training. The Government agree with him. An additional central grant is to be made in 1990-91 of about £2 million, as a start, to support

post-qualifying training in management in social care. My hon. and learned Friend the Minister of State, Department of Health is to meet the Association of Directors of Social Services tomorrow. He has had two meetings already with it this year.

My hon. Friend the Member for Ipswich (Mr. Irvine) referred to hospital discharges. He is right to say that they increase pressure for domiciliary care. We are concerned that there are some patients in acute hospitals who are blocking beds because they cannot be discharged as there is no domiciliary support for them. Our proposals will help to overcome that problem. The hon. Member for Belfast, South (Rev. Martin Smyth) and my hon. Friend the Member for Mid-Kent raised the question of advocacy. We very much support that principle, which will help those with mental illness and handicap to understand not only their rights but the services available.

The hon. Member for Greenwich (Mrs. Barnes) referred to compulsory treatment orders. We are still seeking professional opinion on that matter. I am sure that the House would wish to proceed with great caution, because it is not an issue that we take lightly. If we do recommend that it should proceed, I am sure that the House-- It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.

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The Economy

Motion made, and Question proposed , That this House do now adjourn-- [Mr. Goodlad.]

10 pm

Mr. Graham Allen (Nottingham, North) : The Government are in a mess and the economy is in a mess, yet because of the magnitude of the crisis no one, least of all Opposition Members, draws any pleasure from the disarray in which the Government find themselves. The events of the past two weeks show that the Government have finally lost control of the economy. However, it is no recent crisis ; it comes on top of 10 years of mismanagement, mistaken policies and ideological ineptitude. To put that right, the Labour party needs to win the next election, whatever any passing opinion poll may say. Current polls put us well in the lead, but we cannot depend upon them. We must expose the Government's economic policies to full public understanding and ensure that the public are aware of the full extent of the incompetence of the Thatcher Government. By proving that, we can also pick up the pieces of the shattered economy and fashion a viable economy to take Britain towards the next century.

First, we need to dispose once and for all of the myth of the economic miracle. That is relatively simple to do by measuring reality by the accepted indicators of economic success and failure--inflation, the trade balance, the standing of the pound, the level of investment and the interest rate. Every indicator is a chapter heading in the indictment of this Government. The Chancellor once said that inflation was the judge and jury of his economic policy. After 10 years of being the top economic priority of the Government, inflation is now 7.6 per cent. and rising, prices have almost doubled since 1979 and our inflation is the highest of the major industrialised countries. There is no doubt about the jury's verdict--in more than one way it should be a capital sentence. On inflation alone, the claim for an economic miracle is no more than a political junk bond.

On our balance of trade, the Thatcherite destruction of our economic base is evidenced by the world record gap of £22,000 million between what we import and what we export--again, built squarely upon the Government- induced recession of 1979 to 1981, which destroyed a fifth of our manufacturing export potential, and the bribery Budgets that vacuumed in exports from throughout the globe. Quite simply, we are living beyond our means. We are living on borrowings from abroad, drawn in by excessively high interest rates. We are increasingly unable to compete and are now being measured and fitted for a walk-on part in a mere market for other people's goods, while diminishing as a producer in our own right.

Some estimates now predict a deficit of £40,000 million to £50,000 million for next year. The Chancellor, in one of his sweeps of confidence, declared that the deficit was irrelevant as it takes place in the private sector. I can ask him only to heed the words of a small business man who said last week :

"I beg our party not to argue that a deficit in overseas trade is of incidental importance, self-correcting, easily financed. I don't believe a word of it."

Those were the words of the right hon. Member for Henley (Mr. Heseltine). He is right to challenge the Chancellor's bland assertion that the deficit can be financed.

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What that really means for ordinary people is that the chronic imbalance between imports and exports brought about by Government incompetence can be sustained by a secret tax which has not been authorised by Parliament. That tax is levied on every home owner and business through higher interest rates. For every home owner with a £30,000 mortgage the Lawson tax is an extra £73 a month compared with what was being paid last year. For a small business man with a £5,000 loan the Lawson tax is a £75 addition per month to what was being paid last year. To British industry the Lawson tax is now £250 million for every 1 per cent. increase in interest rates. Even before that, the income tax cuts were more than cancelled out by the rises in VAT--indirect taxation--so that the average tax burden on a typical family is higher under this allegedly tax-cutting Conservative Government than it was under the previous Labour Government.

For 10 years, the extent of the trade imbalance has been concealed by the God-given gift of North sea oil exports which peaked at £8 billion in 1985 and even last year reduced the real deficit from £21.7 billion to £14.6 billion. Even the invisible earnings, for so long the economic seventh cavalry riding to save the trade deficit, are now themselves cantering inexorably towards the knackers' yard. The "Concise Oxford Dictionary" describes a miracle as a "marvellous event due to some supernatural agency."

This economic disaster, being wholly man-made, or woman-made, cannot qualify as a miracle even under that broad dictionary term. A further key indicator of the economic miracle, or debacle, is the standing of the pound. We must be thankful that the Chancellor, who has presided over an 11 per cent. devaluation of the pound this year, still has enough of a sense of humour to say to his conference : "We Conservatives are not the party of devaluation."

That was such a whopper that even the Prime Minister might have smirked at that on the way home.

Since 26 September the Government, who cannot find money for hospitals, schools or adequate pensions, have found £3,000 million to waste in a vain effort to support the price of the pound. To quote a cliche --"It really is not good enough to throw money at these problems."

At my grandfather's knee I heard about the IMF loan of 1976. It is worth remembering that all the political suffering and the anxiety that that caused was for less than what was quietly frittered away over the recent three-week period. When I examine the magnitude and predictability of the economic disaster I am left incredulous at the easy ride that the Government have been given by the commentators and the media.

Many will feel, as I do, that the dislocation of the money markets and the City of London from the real economy of industry, production and work, which is even admitted by the Chancellor, is to continue to be host to a potentially lethal parasite which Britain must at some point either purge from its system or assimilate.

Continuing industrial weakness is the main structural problem in the United Kingdom. To survive as a competitive economy we must invest. Yet by every comparison with our main competitors we are investing less than they are. It is little wonder that our markets are being taken over by their goods.

Investment in new plant and buildings is only now back to 1979 levels. The collapse in training, the shortage of

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skills and the lack of innovation, research and development and science are symptoms of the lack of investment in our economy. Yet the Government, by using figures which include spending on the acquisition of privatised companies, claim an increase in investment.

Statistically--in this field as in others--the Government sort the wheat from the chaff, and use the chaff. While British industry stands on its own two knees, every other industrial economy is supported and encouraged by its Government. There is massive investment in infrastructure development, transport and capital re-equipment in Germany, Italy and France--indeed, throughout the countries that are our major competitors. Meanwhile my region, the east midlands, cannot even get £95 million out of the Government for the electrification of the midlands main lines, which is vital if we are to make a success of 1992. While this penny-pinching goes on in our economy, Japan is to invest £150 billion in its domestic market. Even some American economists are now advocating what they call a national competitiveness policy. While Governments throughout the world rediscover and press on with investment-led development programmes, Britain is politically captured in a free-market time warp that is as outmoded and unworkable in its way as any fossilised state economy in the eastern bloc.

The final indictment is interest rates. High interest rates--ours are the highest in industrialised Europe--crucify existing borrowers, as every home owner and every business knows. Even more dire, they put off potential investment, which is critical if we are to rebuild the real economy that is the base on which we must found our long-term prosperity. An increasing amount of industrial borrowing at these punitive interest rates is not investment borrowing for growth ; it is distress borrowing to fend off bankruptcy, just as we saw in the period between 1979 and 1981. The record is of a 10-year decline, which can be judged miraculous only by a staggering level of incompetence.

Some Chancellors in the past have unfortunately managed to get inflation up, interest rates high, the pound shaky or the trade gap wide ; but they have never done all those things at once. Perhaps that is the economic miracle of which the Government boast. Monetarism does not work--but what a price we have had to pay for the Government's learning curve.

Whatever else he may be, the Chancellor is not stupid : it may have taken him some years, but he knows now that there is another way forward. In the past he has ditched unworkable monetary targets, and now he must ditch some more ideological baggage and move in on our agenda. If he is not allowed to by "She who must be obeyed", he should resign not merely his office but his seat so that Professor Alan Walters can for once observe the constitutional proprieties--that the man who runs the economy in the United Kingdom is normally elected.

What would the Chancellor do if he were free to run the economy sensibly? Obviously he would not start from here ; however, within the constraints of the current position, a number of steps could be taken by a Member of Parliament for Blaby, for Henley or--more likely--for Monklands, East. They all revolve round tackling the

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structural problems of the United Kingdom economy : putting the producer before the financier and the long term before the short term.

First, the pound must be allowed to find its accurate and sustainable international valuation. As well as acting as a stimulus to industry and exports, that would end the colossal losses in reserves that we have seen in recent weeks. Next, the Budget surplus of income over expenditure, currently running at £14 billion, must be used for investment in the domestic economy--in education, training, capital equipment and infrastructure--rather than fuelling the financial markets through the premature repayment of national debt. Thirdly, we must begin to develop international co-ordination and, in turn, develop exchange stability. In other words, we must try to inoculate the economy as far as possible from currency speculation. That will mean beginning to negotiate on ERM and EMS as the floating pound begins to stabilise.

That assumes that our entry will not be vetoed. The Delors report demands economic similarity and convergence as a prerequisite among European nations for membership. Britain can hardly be said to be in that position. Indeed, the longer that serious negotiation is left, the greater divergence will come. In this area it is not so much that unilateralism has failed as that multilateralism has not yet been tried.

Fourthly, painful though it may be, we must reduce consumer demand to boost savings and build up capital spending by examining and reassessing the top rate of tax cuts of the 1988 and previous Budgets and then by instituting a more sophisticated control of credit than the crude use of interest rates. Such credit management, while apparently revolutionary in Thatcher's Britain, is routine and non-controversial in most continental countries-- our partners in Europe.

Fifthly, there must be a major public and political commitment to long- termism by institutionalising lending at lower rates for industry and commerce.

That package may be commonplace in most developed countries and may seem unambitious enough if survival can be said not to be an ambition. But we cannot over-emphasise the extent of the economic disaster that will face the next Labour Government. The extent of that disaster has outrun even the innovations of Labour's policy review, and even more radical solutions are inescapable if we are to manage capitalism effectively enough for it to be the staging post for progress towards our Socialist values.

It may be particularly unpalatable, but so far on these Benches I hear no disagreement that, for the education, training and infrastructure investment to bear fruit, there will be many years during which precious priorities--labour and public spending priorities--will have to be forgone. The extent of our economic crisis and the economic disaster which my right hon. and hon. Friends will inherit will mean that there cannot possibly be any return to business as usual--to the Callaghan or Wilson years of a little change here and there. There will be no leeway for a serious Government to conduct that sort of business.

The Thatcher experiment failed long ago, but it has been camouflaged by North sea oil revenues, by the asset-stripping of public property and by what I must admit has been some brilliant media management by the Conservative Government. But all that is coming to an

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end. Little of it can be extended any further. For too long my party has allowed the concept of "There is no alternative" to hold sway. Now there is an alternative. The question that remains is whether it will be the present Chancellor or the next Labour Chancellor who implements that change.

10.18 pm

The Economic Secretary to the Treasury (Mr. Richard Ryder) : The economic picture of Britain just painted by the hon. Member for Nottingham, North (Mr. Allen) is ludicrous. The hon. Gentleman spoke as one who, for the sake of narrow party advantage, seems to resent our success at managing the economy in the past decade. That success has brought unprecedented prosperity to the people of Britain. Britain has gone from beng the sick man of Europe under Labour--the Wilson-Callaghan era--to being one of the most dynamic countries in Europe under the Conservatives.

When we recall what Britain was like in 1979, the scale of our achievement becomes clear. Under Labour, borrowing and spending rose inexorably in its search for growth and higher employment. Living standards barely improved, taxes were high and industry, over-regulated and unprofitable, was unwilling to invest. Excessive interference and controls meant that important markets ceased to work properly, and some hardly at all. Spending and borrowing rocketed. Attempts to fine-tune demand led to inflation of 27 per cent. The trade union barons held the country to ransom. The humiliating consequence of this sad fiasco was that the Labour Government were forced to go to the IMF with their begging bowl.

The situation today is very different. We have demonstrated that the way to generate sustainable economic growth is not through Government meddling in the economy ; instead, the Government have let market forces work. We have liberated the private sector from unnecessary controls and regulations and industry has responded to its new found freedom. We have removed large areas of the economy from public control and the tax system has been reformed ; it no longer smothers enterprise, but encourages it.

Just as importantly, we have given individuals a greater stake in their own output, through profit-related pay and wider share ownership schemes, but above all by reducing tax rates so that they can keep for themselves more of what they earn ; and we have returned vast areas of the economy to the private sector. The end result has been to allow firms to get on with what they are there to do : make the goods that consumers wish to buy.

The result of those policies has been a supply side revolution. Manufacturing productivity has grown, very much faster than in the dismal 1970s and manufacturing output, which fell under the previous Labour Government, is running at record levels and continues to rise. Businesses are at their most profitable for 20 years. Business investment is at record levels, not merely in absolute terms, but as a proportion of total national income. Business investment grew by 17 per cent. last year alone, more than three times as fast as it did during the entire five and a half years of the previous Labour Government.

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The investment boom is not just a recent development. In the past seven years investment has grown more than twice as fast as consumption, a clear sign that British industry has confidence in the future.

Confidence in the future can be seen in other ways as well. New businesses are being started at a rate of well over 1,000 a week--a new record and a clear sign of the strength of the enterprise culture. It is not just businesses that have benefited. In the past five years, we have created far more new jobs than any other European country. Employment is now at record levels and living standards have been transformed.

The Government's finances have been transformed too. We are now heading for a budget surplus for the third successive year. That is an achievement unequalled in the past 40 years. We are now repaying the national debt and at the same time the success of the economy has allowed us to provide extra resources for priority areas such as the National Health Service.

Putting the performance of the British economy into a world context makes it easy to appreciate the massive turnaround in the past 10 years. Throughout the 1960s and the 1970s, the United Kingdom grew more slowly than all the other major European countries, in the 1980s we are top of the league. In the 1960s and the 1970s, we were at or near the bottom of the European investment growth league, in the 1980s we are top. During the dismal 1960s and 1970s, we were languishing near the bottom of the productivity growth league, but since 1980 productivity in the whole economy has grown faster than in any other major industrialised country except Japan, and in manufacturing we have beaten even the Japanese.

People and businesses here and abroad are confident that the Government remain committed to tough action against inflation. High interest rates are the only way in which to deal with inflation. We will take no risks with inflation. My right hon. Friend the Chancellor has made it clear that interest rates will stay as high as necessary, for as long as is necessary, in order to bring inflation down. Meanwhile, we fully understand the pressures on people with mortgages and businesses, but they know that inflation must be brought down.

It has been suggested that we should use credit controls rather than interest rates in an effort to slow demand, but in a world of free capital movements and financial liberalisation, credit controls would be unworkable and would be child's play to get round. Nor are consumer credit controls of much relevance to the control of borrowing. No less than 85 per cent. of household borrowing is on mortgages. Trying to reduce borrowing through controls on other forms of consumer credit would, as my right hon. Friend the Chancellor remarked in Blackpool last week, be

"a vain attempt to get the tail to wag the dog".

But these common-sense views on control are not shared by the hon. Member for Dagenham (Mr. Gould), Labour's trade and industry spokesman. No wonder the latest Gould gaffe over hammering home owners puts him at odds with the right hon. and learned Member for Monklands, East (Mr. Smith), the shadow Chancellor. We are entitled to ask who speaks for Labour on the economy. Is it the hon. Member for Dagenham or the right hon. and learned Member for Monklands, East?

One of their Labour colleagues was quoted in The Independent yesterday as saying :

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"This is absolute dynamite. He, Mr. Gould, has not cleared this with the policy review team. The National Executive Committee will want to have a look at this before it goes any further."

I should say so. And who better qualified to adjudicate on economic matters on the NEC than the hon. Member for Bolsover (Mr. Skinner), last year's chairman of the Labour party.

Inflation is being beaten. Demand growth is slowing. Retail sales growth over the past year has been only 1 per cent. But the current problem should be put into context. The underlying rate of inflation is now lower than the very lowest achieved than in any month under the last Labour Government. The last Labour Government would have given their eye teeth for our present inflation rate ; but what would have been good enough for them is not good enough for us. The hon. Member for Nottingham, North also referred to the trade deficit. The deficit is a private sector phenomenon, the Government's finances are in massive surplus. That means that the current deficit is very different from the deficits of the 1970s or the US deficit of today. The increased deficit is, to a large extent, a result of the investment boom. This boom in private investment will stand us in good stead for the future, increasing both capacity and exports over time. As the IMF has recently said, such a deficit is "efficient and self-correcting".

Mr. Allen rose--

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