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was £10.14 billion a year. In 1982 it was down to £6.35 billion, and in 1988 it rose to only £10.01 billion, scarcely recovering the 1979 position--not much higher than in 1973 and, in real terms, little different from the position in 1950.

Although manufacturing investment has stagnated over the Tory decade, financial and business investment has doubled. At the same time, we have had a 50 per cent. reduction in infrastructure. The Chancellor spoke about the cranes that dotted the skyline. However, those cranes were not building new factories, schools or hospitals ; they were building hotels, leisure centres and speculative offices. In her Conservative party conference speech this year, the Prime Minister poured scorn on the previous Labour Government going cap-in-hand to the IMF like a Third world country, but, with the horrifying decay of our hospitals, sewers, water, and rail and tube transport, we are approaching Third world levels. Taiwan spends a greater proportion of its gross domestic product on research and development than Britain does. South Korea spends a greater proportion of its gross domestic product on education and training than we do. A recent article in The Political Quarterly described the Chancellor's predicament as

"a strategic predicament of staggering proportions with the only real alternative to a trade deficit of £40 billion or more a virtual stop to growth or even an absolute decline in total demand and output in the British economy".

The Chancellor has an unpalatable choice. If he allowed sterling to fall in line with the views of Sir Alan Walters, it would certainly help exports and make imports dearer, but it would increase inflation and eventually lead to a recession. If the Chancellor continues to increase interest rates to protect the pound and reduce inflation, he will lead us to an even earlier recession. The Chancellor is taking a gamble, hoping that he will create a soft landing by reducing the rate of economic growth and inflation, but avoiding bringing the economy to a halt. That gamble depends on the world economy.

America has not managed to deal in a real sense with its twin problems of balance of trade and budget deficits. Added to that is the $20 billion which the American Treasury had to use to prop up loan banks, and the leverage bids--the over-extended bids--in the American takeover madness. West Germany and Japan have not greatly reduced their balance of trade surpluses over the past few years. The gradual rise in interest rates, not only in Britain but in other economies, means that Third world indebtedness is approaching a trillion dollars because of the change in circumstances. The Chancellor talks about going on and on, but he has been a monetarist, an interest rate cutter, and a man who has savagely increased interest rates, but he is still the same Chancellor. We now have a stop-go economy, stagflation and possible recession.

British labour costs have risen over the past two years twice as high as those of our major competitors. In 1987, consumer credit including mortgages reached £282 billion, which is more than the total disposable income of wage earners in this country. Personal savings, which in 1981 were 15 per cent. of personal income, are now down to 1.3 per cent. of personal income, and the Chancellor talks about encouraging savings. Since 1979, 100,000 mortgage default repossessions have taken place--an 800 per cent.

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increase under the Tory Government. Sixteen thousand individuals have been declared bankrupt and 170,000 companies have been liquidated.

That is the new spirit of enterprise which the Government have spoken about. There is a new spirit in Britain, but it is among the Opposition and the working people who have fought back over the past few months despite the managerial counter revolution which the Government have encouraged and despite the reactionary and vicious anti-trade union legislation. More workers were prepared to take industrial action in one week in July than in the whole of 1986. There is a new spirit in this country. Many people--40 per cent.--have never received anything from the Government. They have not had an increase in their standard of living, and their housing benefit, pensions and child benefit have been reduced under this Government. Those who once gained have also been savagely attacked. That means that the Chancellor will go and that there will be a change of Government, and the sooner the better.

8.39 pm

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak) : There is, of course, no doubt that we have some economic problems at present. Indeed, I cannot think of a time in the history of this country when there have not been some economic problems and it would be nonsense to say that all is now going swimmingly. However, at least my right hon. Friends are dealing with the problems of success. In fairness to Labour Governments, I should say that successive Governments after the second world war had no such problems of success. They had to deal with one failure after another.

I have sat through most of this interesting debate. Whenever people pick on just one name, I always think that that means that there is a paucity of argument. The name of Alan Walters has stalked this debate like a ghostly mist over the moors. His name has been brought up because those who do not know what else to do think that if they can say that Her Majesty's Government, in the shape of the Prime Minister and the Chancellor, are split, it somehow makes it easier for them to define what to do. It may be true that the Chancellor thinks one thing and that Alan Walters thinks another. However, Alan Walters is only an adviser.

As a Member of Parliament, one does not have the time to be a partner or a director, so I am called a "consultant" to some businesses. That means that I am an adviser. Every now and again I am asked for advice and it is not taken. If we ever reached a position where as soon as an adviser were appointed everything that the adviser said had to be taken as gospel, no one in his right mind would ever have an adviser. The adviser would become Prime Minister and the Prime Minister would become nothing. If Alan Walters feels that he must disagree, he should shut up because he damages what he is trying to advise.

As my right hon. Friend the Member for Shropshire, North (Mr. Biffen) said, those who talk about the EMS and the Common Market, which Opposition Members now seem to think is a wonderful witches' brew which will take them into office, should beware. As my right hon. Friend said, Britain's balance of payments with West Germany is nine times worse, so why should being in the EMS suddenly make things so much better?

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I come from the midlands and my right hon. Friend the Chancellor sometimes accuses me of being a Brummie industrialist, as though that is an insult--I do not think that he means it that way.

The Chief Secretary to the Treasury (Mr. Norman Lamont) : He does.

Mr. Beaumont-Dark : When the pound went to $2.40, industry melted and wilted. When in 1985 the pound went to something like $1.20--heading down to almost $1--manufacturing industry began to blossom. Therefore, I do not go all the way with the Government when they seem to think that the panacea of a high pound will somehow solve all the problems of inflation. When one looks at the figures for the deutschmark, which is the Chancellor's favourite currency, or at the dollar, one finds that it is not true that a high pound against the deutschmark or a high pound against the dollar helps inflation. When there were five deutschmark to the pound, inflation was something like 14 per cent., and when there were three deutschmark to the pound it was 10 per cent.

Economists are the great plague of our time because they get paid so well to say such nonsense. If one takes 500 economists, one gets 700 opinions and 200 computers. I wish that we had never heard of them. If only common sense could rule.

I turn now to business men. In my view, a trade deficit of £20 billion matters. I come from a manufacturing area and I do not care what clever people say. I know that a trade deficit of £20 billion cannot go on for ever. What I find most disturbing is that the investment views of West Germany and Japan are so different from ours. In West Germany and Japan the mega-rich are those who make things--the industrialists who have built great manufacturing companies. It is even the same in Italy, but in America and, unfortunately, in the United Kingdom at present the mega-rich are those who make money and who make deals. I advise hon. Members not to believe what anybody says about this because the simple truth is, "If you don't make it, you haven't got it." We should not fall for the charismatic chimera that making money is the same as making goods, because it is not. In the end, money must lead to goods, to the things that people buy.

We in this country must do the same as the West Germans and the Japanese-- let us pray that this day comes--and produce goods so that our mega-rich will comprise more than just a few shopkeepers, property dealers and financiers. Our mega-rich should once again be those who make the goods. This country was at its greatest, as Japan and West Germany are now, when the great rich--apart from landowners who are always rich--were those who made something and built businesses.

Unless we build something for ourselves, all that we are doing is sucking in other people's goods. That is what is happening at present. It is not the problem of Government alone ; it is industry's problem and the financiers' problem. It is no good saying that Governments can solve everybody's problems because, of course, they cannot. Why do British financiers regard a long-term investment as being one of six to 12 months when the Japanese and West Germans regard a long-term investment as one of five to 10 years? The Japanese and the West Germans mean to invest and to build. By some form of tax concession, the Government should encourage us to be producers, not consumers. If we

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can encourage people to conserve and to preserve our manufacturing wealth, this country has just as much chance as other nations. We have inventiveness, and people who care and those who are economic and financial geniuses. But what good is that without someone who can make the goods? If we invent things but the Japanese and the West Germans make them, we will end up more and more in debt. Let us turn our thoughts, respect and will to those who make things.

8.47 pm

Mr. Giles Radice (Durham, North) : The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) accepted that Britain is now facing serious economic difficulties. However, as we heard from his speech, the Chancellor prefers euphemisms. He talks about a temporary blip and about the British economy catching its breath. At the Mansion House last week, he even blamed the short-term vagaries of the economic cycle. However, as everybody now knows, the reality is that the British economy is dangerously out of balance. Our inflation rate is higher than that of any major industrial country and there is little sign so far of any improvement.

The other glaring symptom of the imbalance in our economy is our huge balance of payments deficit, which is the largest in our history. The Chancellor has consistently sought to play down the significance of the deficit. According to him, it is merely a temporary phenomenon. He says that it is benign because it is the result of British industry re-equipping and reinvesting. He goes on to argue that in an age of massive international capital movements deficits can be easily financed.

The trouble for the rest of us is that the markets no longer believe the Chancellor. Why should they? In defiance of the Government's forecasts, the deficit has grown from a rough balance two years ago to a deficit of between £19 billion and £20 billion this year, and even the most optimistic forecasters do not believe that there will be a major improvement next year. Indeed, on present trends we will be running a balance of payments deficit of between 2 and 3 per cent. of GDP well into the 1990s.

The United Kingdom deficit is not just a symptom of reinvestment by British industry, as the Chancellor argues, nor is it merely due to overheating, although the over-rapid growth of the economy in 1987 and 1988 sucked in a massive flow of imports.

The major structural problems which are increasingly revealed in our balance of payments are what disturb most of us. Growing import penetration, the weakness of our exports and the massive deficit in manufactured products all suggest that British industry is simply not producing enough of the goods that people want to buy.

Does this failure really matter? As we are finding out, the short answer is that it matters very much indeed. In a world of global markets, we cannot rely upon international capital to go on financing our deficit indefinitely. Money which comes in can go out again and, sadly, as we shall find out to our cost, it can go out again very rapidly.

Many hon. Members have consistently warned the Chancellor about the dangers of running a massive balance of payments deficit. The main problem is that it takes control over the shape and timing of economic decision making out of the hands of the Chancellor. Instead of being able to adjust in our own time, we are

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likely to be forced into a process of abrupt adjustment, both to levels of demand and the value of sterling, by the markets. I predict that the Chancellor's failure to react to the balance of payments deficit in 1988, when it was still manageable, will force the British economy into a hard landing in 1990, and affect employment, output and growth. I predict that the Chancellor's gamble will fail.

I agree with the right hon. Member for Worthing (Mr. Higgins) on many things, but, contrary to what he said, we warned the Government of what would happen, of the dangers of inflation and the balance of payments problem. We urged the Government not to make drastic cuts in taxes in the March 1988 Budget and to take a grip on consumption. They did not listen, and now the economy is in a mess. I do not want to say, "I told you so" ; I want to draw a lesson for the future. The conclusion that should be drawn from the failure of the Government's economic policies is that the prime objective of economic management must be to secure and preserve balance in the economy. A Government must keep a balance between their objectives--low inflation, low unemployment, sustainable growth--and an equilibrium between exports and imports. When one of those objectives is pursued at the expense of others, the economy runs into trouble, as we have seen.

As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) has often said, good economic managment is a question not just of keeping a balance between objectives, but of ensuring a proper balance, or mix, of economic instruments. The Chancellor's obsessive reliance on interest rates risks getting the worst of both worlds. To work effectively, it has to bear down heavily on mortgage holders and on business and, as we have seen from the survey published by the Confederation of British Industry today, it also clobbers vital investment.

Because the strategy takes such a long time to work, it risks being derailed by the markets before it achieves its objective of slowing down the economy. That is why the Chancellor should have been employing fiscal methods and control over bank lending as well as an interest rate policy, and why there should have been a balance between nationally and internationally co-ordinated instruments. Hence the case, which I have long supported, and which has been ably argued by my right hon. and hon. Friends, for joining the exchange rate mechanism of the EMS. We should join as soon as possible, as it would provide greater currency and interest rate stability and could add a useful counter-inflationary discipline.

A better balance is needed between the short term and the long term. One of the most powerful charges against this Government is their neglect of the long term. The Chancellor has often criticised other people for their short -term outlook, but the Government have mortgaged the country's future to a considerable extent with their poor record on education, training, research and development, the labour market and regional policy. A Government committed to a better structural balance in the economy would have to give a higher priority to this issue.

I doubt whether the Government are capable of providing the leadership necessary to bring the economy

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back into balance, particularly as they have allowed it to get so out of control. Once again, it will be the Labour party that has to get Britain out of the mess--as it did in 1964 and in 1974. To judge by the excellent performance of my right hon. and hon. Friends, they are well equipped to provide the necessary leadership, in contrast to that of the Government.

8.55 pm

Mr. Philip Oppenheim (Amber Valley) : Every one of the policies urged upon us by the Opposition in the past 10 years would have exacerbated our demand side problems. They have consistently urged that the Government should spend more, which would have pushed up demand and crowded out private sector investment. In October 1987, the Opposition joined the huge chorus of people urging the Government to cut interest rates. In May 1988, when there was a debate as to whether we should cut interest rates to lower the pound, which many people said was uncompetitive against the deutschmark, the Opposition urged the Government to cut interest rates, which the Government eventually did--although I think that they now recognise that that decision unwise.

The supply side is far more important than short-term demand. It is worth recognising that our problems on the supply side, in manufacturing industry, are not new but go back at least to the turn of the century. Germany and the United States overtook us in manufacturing output before the first world war. Japan almost overtook us in the 1930s and eventually did so in the 1960s. To blame the present Chancellor for Britain's long- term industrial problems is to blame him for history and for the mistakes of the past. Britain's supply side and manufacturing problems are so deep- seated and have been with us for so many years--probably as long as a century--that it will take more than a decade to turn them round. It will be many years before British industry is capable of competing with the best in the world.

It is easy for Opposition Members to pose as the champions of manufacturing, but it is worth reminding them that this country's manufacturing output fell under the Labour Government. Under this Government it has risen, and last year it rose by 4 per cent. Those figures tend to get lost in the fuss over the mini stock market crash. People may talk about the decline in our manufacturing industry, but it is worth pointing out that large sectors of that industry have done well. Our aerospace industry is booming, and last year it overtook that of France for the first time in many years to become the third largest aerospace industry of the world after America and the Soviet Union.

Rolls-Royce, a company which operates close to my constituency and was virtually written off as an industrial basket case in the 1970s and early 1980s, is now booming. It is recognised as a major world manufacturer of high technology engineering and jet engines. Our pharmaceutical industry-- another high-tech industry--has also done extremely well and in recent years its exports have overtaken those of West Germany, the United States, Japan and Switzerland to become the largest exporting pharmaceutical industry in the world. For the first time in many years, our share of world exports has stabilised. With regard to imports, it is worth bearing in mind what is known as the "balancing item", which is a black hole in the world trade balance worth something in the

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region of £50 billion. If the effect of that is aggregated across the world's trade balances it substantially reduces the trade deficits of those countries in negative balance.

I cannot take the Labour party's pose as the champion of manufacturing seriously when it has rigorously opposed every policy designed by the Government to improve the supply side of the economy. The Opposition opposed our reform of the trade unions and they have consistently opposed our attempt to end monopolies and subsidies for industry. They have opposed our attempts to increase competition in the economy, they have opposed our cuts in taxes and they have opposed our attempts to lower public spending as a percentage of GDP so that it does not crowd out private investment so much. Now they tell us that education is vital to our industrial performance, but they opposed our reforms designed to make our education system more disciplined and more geared to the vocational needs of our industry. The Opposition sneer at us when we say that education must be so geared.

What of the Opposition's policies? Today we have heard that they want us to join the ERM, but they have not told us at what rate they would do so. They have told us that they will abandon any pretence that trade protectionism can work. If they plan to abandon trade barriers, does that mean that they will renounce the multi-fibre arrangement? We all know what Opposition Members will do at the first sign of constituents running to tell them that those awful foreigners are making goods with which they cannot compete-- they will put up trade barriers. The Opposition have also told us that there will be a new form of administrative guidance for banks, as though anyone believes that the banks would take any more notice of them than their trade union pals and paymasters did in the 1970s.

It is also important to consider the industrial policy of the right hon. and learned Member for Monklands, East (Mr. Smith), who is, I believe, a lawyer. He was one of those who urged the Government to drop the proposed General Motors takeover of Land Rover in 1986. What was the result of that industrial policy? General Motors effectively pulled out of United Kingdom van manufacture. It made most of its work force redundant and handed the remainder over to the Japanese company, Isuzu. That outcome was partly thanks to Labour's national industrial champion, the right hon. and learned Member for Monklands, East.

I know that it is fashionable to compare us with the Japanese. Hardly a Labour spokesman stands up without comparing our performance with the Japanese and without telling us that we must adopt the policies adopted by the Japanese since the war. Those Japanese post-war policies can hardly be called Socialist. The Japanese have extremely low levels of taxation and of public spending. They have not been ashamed of encouraging enterprise and business. They have virtually no nationalised industries and they have denationalised the few that were. Above all, the Japanese have always had a high rate of saving and a sound, vocationally-oriented education system. If, when the history books are written, people say that the Government have made one major mistake and if there is a lesson to be learnt from the Japanese, it is that we should have implemented our education reforms much sooner than we did. Despite the firm action that we have taken to improve our education system, unfortunately, the benefits of those reforms will not be seen for many years.

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In Japanese schools the children are expected to clean out their classrooms. That has a great effect on the level of litter in Japan and on the cleanliness of the workplace. Anyone who has worked in industry will know that that is important. If the Government were ever to propose such a policy for our school children, it would be met with howls from the Opposition saying that it was terribly inhumane to expect children to do that.

The other leaf that we could take out of the Japanese book is that, traditionally, the Japanese have taxed savings either at a low rate or not at all. They have followed that policy because they want to encourage savings and because high levels of saving mean a good pool of available investment for industry. Virtually every economy in the West has, on the one hand, heavily taxed savings and, on the other, heavily subsidised and given tax reductions towards consumption. I believe that to cut taxation on savings or to abolish it altogether up to a certain level would do us much more good than the currently fashionable panacea of joining the EMS.

It is fashionable for Opposition Members to say that it would be a good idea to join the EMS and I shall not argue the rights and wrongs of that, but I know full well--as does every Conservative Member--that if we had gone in 18 months ago and still had economic problems, Opposition Members would claim that those problems were a result of our rash and unwise entry into the EMS tying us to the high interest rate policy of the German Government.

Today we have learnt that, at best, the Opposition have no policy and at worst, at the very time when the Soviets are dropping their Gosplan industrial planning policy and when virtually every Government in the world bar North Korea, Romania, East Germany, China and one or two others are abandoning planning, the Labour party proposes fresh industrial control and a fresh industrial planning strategy for Britain. Have Opposition Members learnt nothing? Do they not recollect the economic planning board of the 1960s and the National Enterprise Board of the 1970s? Have they forgotten the fiasco of the British Leyland merger, the billions of pounds which were pumped into Concorde and the unwise and unnecessary investment in the British Steel Corporation? Have they forgotten their attempts to set up an office equipment company to rival the world which they called Nexos and which has now been consigned to the history books of the office equipment world?

Those policies are not part of some new post-Thatcherite agenda, but a return to the old, discredited pre-Thatcherite agenda which is being abandoned right across the world.

9.6 pm

Mr. Rhodri Morgan (Cardiff, West) : In the four minutes available to me I shall concentrate--as we should on this supply day or seminar on the state of the economy--on a couple of facts which should be common between us since they are well established. Perhaps we can discuss their implications for the economic conduct of the Government over the next five to 10 years.

The trade figures for September were published today. They show that we are still running with a trade deficit equivalent to 4 per cent. of our gross national product, which we can no longer regard as an odd statistical freak. That is one of the largest gaps which any country has had

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in its current trade this decade. It is a sort of San Andreas fault underneath our economy which has opened up in the past two or three years. We lived in a fool's paradise for many years, believing that we were somehow manufacturing the oil which emerged from the ground under its own internal pressure. This hid the weakness in our trade deficit.

Now that our oil revenues are about one quarter of what they were at the peak of oil production, because oil is worth only half what it was and we produce only half what we did, we are returning to normal. Can we make as much to sell to foreign Governments and consumers as they make to sell to us? It is perfectly clear that in 1989 we cannot. We have an absolutely colossal trade gap which shows a lot of competitiveness of a kind with which we are familiar in a mild form but which we now have in an acute form.

I can see the Financial Secretary shaking his head as though what I have said is contradicted by the fact that the economy is growing too fast and that we expanded the economy because we did too much to restimulate it when we misunderstood the October 1987 stock market crash. But that is complete baloney. Every other country overstimulated its economy but they do not have a trade deficit equivalent to 4 per cent. of their GNP.

I hope that I can kill off Government claims that exports are rising strongly. Of course they are. There has never been a better time to export because world trade is rising strongly. In the past couple of years the economies of Japan, Germany and the United States have been importing and consuming as never before. The fact that our exports are rising, but our imports are rising faster is not due to some strange aberration of British economic policy caused by an overstimulation of the British economy alone after the October 1987 crash.

Every OECD advanced country stimulated its economy because of fears of a recession after the October 1987 stock market crash. Let us never again hear from Conservative Members the excuse that somehow only this country expanded rapidly after October 1987 and that exports generally have been difficult to find, suggesting that the fact that our exports have been going up represents massive credit to the British economy.

It has never been easier to sell abroad than it has been in the past two years. Economies abroad have been sucking in imports as they have never done before, as the OPEC decade and a half has expired and as the post-OPEC era has been upon us. As I say, it has been easier for OECD Governments to get their economies and manufacturers to expand. It is a unique factor of the British economy that our competitiveness has undoubtedly worsened, as is evident from the 4 per cent. equivalent of GNP in our trade deficit. We are now weaker than we were 10 years ago in the competitiveness of our economy. 9.10 pm

Mr. Gordon Brown (Dunfermline, East) : The background to this debate is the worry of industry, small businesses, home owners and low-income families that, after 15 months of the highest interest rates, the worst inflation and the biggest trade deficit of our major competitors, inflation has still been rising, the trade deficit is worsening and interest rates have still been going up.

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The Chancellor devoted a major part of his speech today to the subject of inflation. The issue, he said, was getting it down. We must ask why it went up. The same Chancellor who told us that the battle was with inflation is the Chancellor who has doubled inflation over the last 15 months. The same Chancellor who told us that inflation was a blip presents us today with inflation at 7.6 per cent., the highest of all our major competitors.

The same Chancellor who told us that his objective was zero inflation now presents us with a situation in which we have 7 per cent. inflation here, 3 per cent. in Germany, 3.5 per cent. in France and 1 per cent. in the Netherlands. This is the Chancellor who said that he would eliminate inflation. It looks just now that inflation will eliminate him.

Not only have we the highest inflation in our major competitors, but we have the worst interest rates. Interest rates have risen 11 times, yet still the Chancellor persists in denying the reality of the consequences. High interest rates, he told the Tory party conference and repeated at an interview afterwards, were testimony to the vigour of the economy. The Prime Minister said after that that Britain, as a result of those policies, was stronger than ever. The British economic miracle, they still insist, is intact.

What are the real problems that people are facing? What are business men and industrialists saying about their prospects? The Chancellor quoted from the CBI, but he did not tell us the main impact of the CBI's message--that manufacturing investment will fall, that order books are falling back and that vital investment to correct inefficiencies is being denied.

Last year's business man of the year, the head of the Coloroll Group, John Ashcroft, is saying that next year investment in his company will be halved. He says that in terms of what is happening in the United Kingdom now, if this is a soft landing, pass him the bruise cream because the present rates of decline are significant. Consider what is being said throughout the country. The West Midlands chamber of commerce comments that the cash flow problems for small businesses are worsening. Birmingham chamber of commerce reports that about 40 per cent. of companies have reduced export orders. Investment in Yorkshire and Humberside, reports the chamber of commerce for the area, "is falling quite rapidly." The Scottish Federation of Small Businesses reports that small business is buckling under the strain.

Despite all of that, the Chancellor is hamstrung by his obsession with high interest rates, like a gambler obsessed with a system that shows no sign of immediately working and who increases the stakes regardless of the damage that is being caused and regardless of the difficulties that industry faces.

For those reasons, our policy is to end exclusive reliance on interest rates. We would introduce an autumn statement for investment in our future and we would take steps to deal with the supply side problems that the Government have created. We would rule out tax cuts in the Budget so that we can have proper investment in our future. The Chancellor should act directly on the inflation he has created by refusing to allow higher water, electricity and rail prices and the poll tax to be imposed on this country.

Our complaint against the Government lies not just in the mistakes of the past two years ; it lies in the mismanagement of our oil wealth over the past ten. It is not only that they have pushed up interest rates to levels

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way beyond those of our competitors, yet still failed to curb inflation ; or that we have the worst combination of these indicators of any country in Europe ; it is that the Government have failed to create, after the one decade of North sea oil, the long-term stable environment that industry needs for a modern economy of the future. To seek to run a consumer boom without the necessary prior investment was bound to be unsustainable and to lead to the problems that we now face. The solution that the Chancellor has chosen--high interest rates--directly damages the investment that we need. And the tragedy of the Chancellor's position is that he has no greater desire in life than to repeat the mistakes that he has made.

We know that the Budget surplus that the right hon. Gentleman has is never intended to be used for investment, now or in the future, in training, skills, the regions or innovation. The Budget surplus is to be kept in store to finance exactly the same mistakes that we saw in the past--a give- away Budget, a consumer boom on credit and a further deterioration in our trade deficit with all the predictable consequences for interest rates and inflation.

Nowhere is the Government's failure to be seen more clearly than in what has happened to the trade balance--the worst quarter in our history, the worst month for imports and a trade gap not only in our traditional industries but in the new high-tech industries of information technology and electronics. Imports of consumer goods are up by four or five times the level of imports of capital goods. The volume of imports is up by twice as much as the Chancellor's forecast in the Budget.

What does the right hon. Gentleman claim now? Does he still claim that a trade deficit approaching £20 billion for the year is a result of freak figures--his first explanation? Does he still define it as of no consequence? Does he still say that it gives no cause for concern? Does he still repeat, now that it is approaching £20 billion, that the trade deficit is a second order problem? Does he still insist that it is self- correcting and easily financed? How many of the Chancellor's previous statements are now inoperative? The truth is that he cannot admit that there is a problem because he has no solution to it, and he cannot admit that the gap has not widened because we have had a supply side transformation, because there has been none.

Having denied industry the necessary stability and subjected it to the uncertainties of rising borrowing costs, having starved it of essential infrastructure and imposed on it all the inefficiencies and absurdities that flow from the doctrinaire abandonment of regional, training and innovation policies, what is the Government's view now? Their policy is to abandon Government responsibility for industry when we need a Government who will adopt a policy for all the regions. We need a Government with a strategy for science and technology and for innovation, a Government with a competition policy that restricts the use of junk bonds in company takeovers. Instead, we have a Department of Trade and Industry presided over by a Minister appointed from the Department of the Environment, not to head it up but to close it down--not a Minister but the Official Receiver. This Department, once the responsibility of Gladstone and of Churchill, is to become the retirement home for the Secretary of State for Trade and Industry. When all those working breakfasts of the previous incumbent have been cancelled and the glossy brochures have been pulped, when the PR men have been sent to the Department of Health for the next campaign, what will be left of the

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Department of Trade and Industry and of the Government's responsibility to industry? The Secretary of State, the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley), will be seated alone at his desk : no in-tray, no out-tray, just an ash tray. If the economy of the 1980s in Great Britain is as Ministers claim it is, if all the countries of the world are following our example, as the Chancellor tells us they are, why are not the Japanese closing down Miti, their department of industry, why are not the French abandoning their policy of encouraging centres of excellence, why are not the Germans abandoning regional policy and leaving the Ruhr to market forces? What other nation on earth runs down regional policy or its policy for science and for innovation? Blind to the needs of industry, deaf to the claims of small business and insensitive to the damage done by high interest rates, the Conservative party--the party of high interest rates--can no longer even pretend to claim to be the party of industry.

Where is the Chancellor in all this? The man who has been bestriding the world stage for the past few years, boasting of his successes and their applicability to countries abroad, now tells us that the German economic miracle is one of the past but that ours is of the present. How does he see himself now, when his day begins with a begging telephone call to the president of the Bundesbank and continues with telexes to the Bank of Japan and with calls to the Federal Reserve Bank? The Chancellor who once boasted of his economic successes around the world is now reduced to ringing around the central banks for handouts to support his currency at the mercy of speculators.

What is his policy now? The man who considered every nuance of the M3 figures unceremoniously abandoned their publication this summer after 10 years. The man who said that interest rates were to be set by the markets in 1979 now insists on setting them himself. He is the man who has cast aside all the Right-wing theories of the Adam Smith Institute in which he has successively lost faith. The only invisible hand in which he now believes is that of Professor Sir Alan Walters, who is making the decisions at No. 10 Downing street.

What do we know of that mysterious figure of influence? He was once a member of the Centre for Policy Studies--the think tank for the Prime Minister--financed by the now Lord Joseph, and is a member of the American Enterprise Institute financed by American business--a think tank for such impressive figures as Vice-President Dan Quayle. For a few years Sir Alan was also a member of the standing committee of the Global Economic Action Institute, financed--as The Sunday Times revealed--by the Unification Church of the Reverend Sun Myung Moon ; in short, the Moonies. Is it the case that our economic policy is no longer under the influence of monetarism but under that of Moonie monetarism? Have we, in six or seven years, moved from punk monetarism to Moonie monetarism?

Let us consider the Chancellor's difficulties. Many lonely, sad and embattled people labour under the delusion that their thoughts are being influenced by the Moonies next door. But, for the Chancellor at No. 11 Downing street, sadly, such fears may be thoroughly well grounded. I assure the right hon. Gentleman that he is not paranoid. They really are out to get him.

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What does Sir Alan do? Much has emerged from documents from America. Leaving aside the question whether a truimphalist autobiography by Sir Alan Walters is yet in order, the Chancellor will be interested to know that he described himself in his recent article as

"a natural leader for the monetarist revolution in the United Kingdom."

The Chancellor may also be pleased to notice his description of the man who brought about

"immense changes in monetary and fiscal policy."

That was not the Chancellor, but Sir Alan himself. Not that he is ungenerous in his articles. Although much of the credit goes to himself, the rest goes to what Sir Alan describes as the real architect of Britain's economic renaissance--the Prime Minister.-- [Hon. Members :-- "Go on-- smile."] I am sorry that the Chancellor finds none of that amusing, but Sir Alan says of his own role as an economic adviser :

"My role was defined by the Prime Minister with the words, You know what you can do best and you know what needs doing' but the Prime Minister and I agreed that I would be most effective at her elbow in No. 10."

That is a proximity that the Chancellor might find not only unlikely but quite dangerous.

Mr. Tebbit : The hon. Gentleman verges on the edge of boring the House by reading extracts from newspapers and articles which any of us could read. In his last 10 minutes, would he like to turn his attention to what we cannot read and do not know about, the Labour party's alternative policy--if there is one?

Mr. Brown : I do not think that the right hon. Gentleman was here when I outlined the main points of Labour's alternative policy. I can tell the right hon. Gentleman that it might be difficult for him to get hold of the article "A Life Philosophy" by Sir Alan Walters because the institute which has produced it tells us that on the instructions of No. 10 Downing street it is not to issue any more copies.

Mr. Tebbit : Is the hon. Gentleman allowed to issue any copies of Labour's policy or to tell us how it would impose credit controls?

Mr. Brown : Perhaps the right hon. Gentleman has not seen the Labour party policy review document. If he cares to pay £2.50 for a copy he will receive one.

The Chancellor knows that even if Sir Alan goes a bigger problem remains-- the Prime Minister. Having signed the Madrid agreement on European monetary co-operation, she obviously spent subsequent months backtracking on it in the same way as she signed the Commonwealth conference agreement and immediately repudiated it. The Chancellor should be warned about what will happen if he goes to Europe for the next summit and reaches agreement on European monetary co-operation. Having successfully negotiated an agreement, he will no doubt find that barely has the ink dried when the Prime Minister will descend from her aircraft at London, call the press together and declare another triumph of diplomacy and another great success in international negotiations. She will say, "In my hands I have two pieces of paper, the official agreement and the official repudiation." Not a Minister will stand up and tell her that she is wrong.

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The Government are prepared to make the consumer pay with higher prices, the pensioner with an inadequate pension, and whole communities with deteriorating public services. They are prepared to make 7 million mothers and 12 million children pay by freezing child benefit. I can think of no parallel this century. Top salaries have risen and dividends and executive perks are greater than ever, but the Government have done little to mitigate child poverty and the poverty of millions of people. They are destroying the pretence of ever being called the party of the family.

What about home owners? Two million have lost £80 per month as a result of the increase in the mortgage interest rate and 4 million are worse off by £50 a month. The teacher with the typical mortgage is worse off by about £80 a month and the engineer by about £100. What does the Conservative party say? Why is there no apology, word of regret or sympathy for people with such problems? I have here a copy of the Conservative party's research department document called, "Politics Today". It is about the economy and contains questions and answers. Needless to say there are more questions than are answered in the document.

The Government say that they are committed to extending home ownership, but the following question caught my eye. It says : "Aren't its high interest rate policies crippling countless homeowners especially families and first buyers?"

After two paragraphs we get to the heart of the answer. It says : "Yet though higher interest rates do increase costs for borrowers, including mortgagors, research evidence shows that there is no link between levels of interest rates and the number of people unable to cope with their mortgage payments."

There is "no link" but the numbers of people in arrears of two months or more have risen from 240,000 to nearly 400,000 this year. When the Governor of the Bank of England has said that there is a link, when the Building Societies Association has produced research showing that there is a link, the Conservative party tells worried home owners that there is no link between high interest rates and the arrears of many people. Can the arrears be blamed on poor housekeeping and bad budgeting? On what does the Conservative party blame the rising amount of arrears over the past year? That is a lie that even the Chancellor might have been unable to sustain in the heady atmosphere of a Blackpool audience in that conference hall. These are the people who budgeted on the Government's claim that there was an economic miracle, who were told to believe that there was a transformation, and who were encouraged in the view that Britain's prospects and theirs were transformed. These are the people who are being dismissed by the Chancellor with the words, "Cut back on something else." There is no sympathy, no apology and no regret. People are told that arrears have nothing to do with high interest rates. Now they are being told by Ministers that it is nothing to do with them and there is nothing that they can do about it. Ministers deny all responsibility and will walk by on the other side. That is the prerogative of the Pharisee down the ages.

First, the Government abandoned the pensioners, then they abandoned the unemployed. Then then neglected the low paid, then they froze child benefit. Now they have betrayed industry, small businesses and home owners. Soon there will be no one left to betray. The Conservative

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party has had 10 years. It has squandered the oil revenues, wasted the opportunities, mismanaged the economy and failed Britain in the 1980s. The 1990s belong to Labour.

9.31 pm

The Chief Secretary to the Treasury (Mr. Norman Lamont) : I agree with the hon. Member for Dunfermline, East (Mr. Brown) on one point, and that is that the main issue in the debate is inflation, why it has picked up and what should be done about it. It was interesting that, when inflation should be the main problem in our minds, both he and the right hon. and learned Member for Monklands, East (Mr. Smith) spent only a relatively short time in their speeches dealing with it. We all know why-- because they have no policies for inflation. They know that the record of the Labour party in government was catastrophic, and on the evidence of the speeches that we have heard today it has no policy for inflation now.

Why has inflation increased in the last year? The hon. Member for Dunfermline, East sought to place the blame on top rate tax cuts. According to the Labour party, most of the evils in the world stem from that. However, when we have had a budget surplus for two years running, it is stretching the imagination to suggest that tax cuts worth £3 billion could cause a surge in inflation in an economy with a gross domestic product of some £500 billion. That does not make sense ; it does not add up.

The origins of our inflation must be deeper than that, and part of the explanation lies in the loosening of monetary policy in the wake of the stock market crash. We were facing a situation that had not been seen anywhere for over 50 years, and everybody, including the Labour party, was unanimous in believing that the appropriate thing to do was to lower interest rates. With hindsight, it is clear that the stock market crash had no lasting effect on demand, but that was not clear at the time. Furthermore, even with hindsight, we cannot be sure that there would not have been a severe impact on confidence if we had not reduced interest rates when we did, with the full support of the right hon. and learned Member for Monklands, East. Our policy was also part of a co-ordinated international move. That is why there has been a rise in inflation in the United Kingdom and worldwide. If we take the seven major industrial countries as a whole, inflation is around its highest level for five years. That reflects the action that was taken here and elsewhere. It reflects also the acceleration in growth that we have been seeing throughout the world. Opposition Members may not like it, but the true comparison when measuring inflation here and elsewhere is achieved by removing mortgage interest payments That is done in other countries. From February 1988 to May 1989, inflation, excluding mortgage interest payments, rose in the United Kingdom by 2.5 per cent. In the same period, inflation in Germany rose by 2.2 per cent. In Japan, the rise was 2.2 per cent. and in Italy, where inflation both now and then was and is higher than in Britain, the rise was 1.9 per cent. The reason why inflation affected Britain somewhat more than other countries is that we had been enjoying growth for seven years. We did so at a higher rate and for a longer period than other countries in the rest of Europe. Our economy was no doubt nearer to capacity and the inflationary pressures were therefore greater. We cannot expect Opposition Members to understand this. They

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