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Column 762never had to deal with the problems of an economy growing too fast. All that they ever had to deal with were the problems of a thoroughly stagnant economy.
Mr. Morgan : We all note with interest the Minister's attempt to award the Government innocence by association, by trying to draw in the fact that other countries have experienced an increase in inflation, especially OECD countries. In his attempt to produce innocence by association, can he name any half year, any year or any quarter of any year in which the British inflation rate under this Government has been near or below the OECD average?
Mr. Lamont : As my right hon. Friend the Chancellor of the Exchequer said, throughout the Government's term of office the inflation differential between Britain and the EEC has been a fraction of what it was when the Labour Government were in power. Although inflation is the most pressing problem that we face, we heard no policy advocated by the Opposition to deal with it. That is remarkable. The hon. Member for Dunfermline, East seems to think that investing public money is somehow an anti-inflationary policy. That is the strangest anti-inflationary policy that the world has ever heard of, and one that will not impress the financial markets. There are only three ways of dealing with inflation : direct controls on pay and prices, which the Opposition are against ; monetary policy, the mere mention of which makes them shiver in their bones ; and taxation, which we all know is their anti-inflationary policy. They are always itching, always wanting and always about to increase taxes.
The right hon. and learned Member for Monklands, East made a tremendous amount of the current account deficit. The deficit is not a reflection, as deficits were in the past, of an uncompetitive economy. It is much more a reflection of the excess demand and inflation which is the main and key problem. As demand slows down, the current account will improve. Inevitably it will take time for the slow-down in the high street to work through to stocks, lower production orders and imports. Likewise it will take time for exporters to divert orders from the easy and expanding home market, as conditions tighten, into the international market. Just as the boom last year diverted orders from abroad to the home market, as our economy slows down we shall see orders diverted overseas. That the current account deficit is a product of excess demand is, with great respect to the point made by the hon. Member for Cardiff, West (Mr. Morgan), shown in the export figures. If our current account deficit were largely the result of a loss of competitiveness, we would not be seeing anything like the rise in exports that we are currently seeing and that we have been seeing since the Government tightened monetary policy at home.
In the three months to September, exports rose by more than 13 per cent. in value and by more than 8.5 per cent. in volume. That shows that British exports are competitive and that the current account deficit is largely a product of excess demand rather than lack of competitiveness.
My hon. Friend the Member for Amber Valley (Mr. Oppenheim) referred to the statistics for our share of world trade, which Labour Members have mentioned. For decades, our share of world trade has been falling. It stabilised in the 1980s right up to 1987 and deteriorated in
Column 7631988 as we had excess demand in our economy. But this year the performance of our exports is good and all the signs are that our share of world trade will stabilise again.
I have talked about the problems that fast growth has created for us, but my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) was right to remind us that the very fast growth that we have had, the fact that we have been top of the growth league in the 1980s when we were bottom in the 1960s and the 1970s, has been an enormous advantage to the British people. It has meant that we have had more to invest in the public services that so concern the hon. Member for Dunfermline, East, and it has meant that we have had a dramatic rise in living standards.
The hon. Member for Dunfermline, East made a remarkable claim. He said that the Government have now abandoned the unemployed. Some statistics have just been published which show that in the past year unemployment has fallen faster than in any other major country. We hear a lot about international comparisons on inflation, but we do not hear comparisons on unemployment. We used to hear them a few years ago, but the United Kingdom unemployment rate is now almost two thirds of the EC average and, more importantly, youth unemployment has also fallen sharply. The OECD figures for the United Kingdom show that the United Kingdom unemployment rate for under 25-year- olds is only about half the EC average. Why do not Labour Members welcome that and face the facts?
Mr. Brian Wilson (Cunninghame, North) : Since the Minister had the impertinence to mention youth unemployment, will he recognise that one fifth of the total fall in all unemployment in the past year has been achieved by the simple expedient of removing unemployed 16 and 17-year-olds from the register by depriving them of the right to claim benefit? That is the truth of the matter, and to claim those 16 and 17-year-olds as a trophy is obscene.
Mr. Lamont : The hon. Gentleman is talking nonsense. The fall in unemployment has been due to the expansion of our economy. We need only to look at a newspaper to see that there is a tightening market for young people and that many employers cannot get young people. Labour Members also suggest that the acceleration in inflation and the deterioration in the current account mean that nothing has changed in the British economy ; that we have simply moved to a situation where the old familiar constraints apply every time that we try to expand our economy ; that nothing has changed in the supply side. It is travesty to say that nothing has changed. An article in The Economist two weeks ago pointed out that the sort of sudden surge in demand that we have had in the past two years would, in previous decades, have caused much higher inflation and that what we have seen in the past year has underlined the flexibility and the ability of British industry to respond to the increase in demand that we have had.
There has been a change on the supply side and the results of our policy speak for themselves. My right hon. Friend the Member for Chingford (Mr. Tebbit) referred to the dramatic and remarkable changes in the British motor industry, which was written off when the Labour party was in power. My right hon. Friend the Member for Chingford
Column 764and my hon. Friend the Member for Croydon, South (Sir W. Clark) also referred to the remarkable growth in investment. Business investment is now at an all-time high as a proportion of gross domestic product. Is that not a change which the Labour party should welcome? Investment has also been growing twice as fast as consumption. When the Labour party was in government, investment was growing at one eighth of the rate of consumption. Is that not a significant change, and is that not a change that the Labour party should welcome if it is really prepared to face the facts? British industrialists and British business men are taking the long view because they have confidence in this country and they have confidence that our growth will continue. It is nonsense to say that nothing has changed. Plenty has changed and our economy is much stronger than it was 10 years ago. That is well recognised outside this country, even if Opposition Members stubbornly refuse to acknowledge it.
The right hon. and learned Member for Monklands, East put forward the usual arguments today for credit controls. We are told that credit controls would be a painless alternative to increases in interest rates. It is disappointing that the right hon. and learned Gentleman does not know rather better than that. I have read in the newspapers that he and his hon. Friend the Member for Dunfermline, East have been dressed up in their pinstripes by Mr. Mandelson, sent round the central banks of Europe and wined and dined, but unfortunately the wining and dining in the central banks has been a bit too good. The right hon. and learned Member for Monklands, East does not really understand how monetary policy operates, either in Germany or in France. When the hon. Member for Dunfermline, East talks about reserve ratios and the German and French use of them, he should know that that is merely the way in which those countries create the money market shortages to put interest rates up. That is not at all surprising because if credit controls work and make credit scarce they put up interest rates, and that has been the effect. We heard a new twist today from the hon. Member for Dunfermline, East, who said that he wanted a voluntary arrangement between the banks and the Government. He seemed shocked that my hon. Friends were no more impressed by this solemn and binding undertaking than they were by the solemn and binding undertakings entered into by previous Labour Governments. A voluntary agreement between the Government and the banks would, of course, have no chance of working in a world in which there were no exchange controls. As my right hon. Friend the Member for Chingford said, to have such an agreement would merely leave people exposed to the blandishments of offshore lenders, and we have quite a number of problems with offshore lenders as it is. The right hon. and learned Member for Monklands, East seemed surprised that my hon. Friends thought that the banks were not likely to agree to his proposition. My hon. Friends are entirely realistic. In the competitive international world of the City today, it is sheer lunacy and fantasy to imagine that the City of London could remain competitive and expose itself to competition from offshore lenders in the way that the right hon. and learned Gentleman described.
Column 765emotional 10 minutes, I shall give him time to calm down and think carefully about the answer to my question. What is the Chief Secretary actually saying? Is he saying that if the balance of payments and trade position deteriorate, and if there is a run on the pound, all he and the Chancellor will do will be further to increase interest rates?
Mr. Lamont : The hon. Gentleman does not come to economic debates often. If he did, he would know that we have not only a tight monetary policy but the tightest fiscal policy of any country. We have heard much from the Labour party about the plight of home owners. Of course, I accept that higher mortgage rates, although necessary to fight inflation, may cause difficulties for those who have recently taken out mortgages. The figures quoted by the hon. Member for Dunfermline, East and the right hon. and learned Member for Monklands, East on the plight of those with mortgages greatly exaggerated the problem. The hon. Member for Dunfermline, East might have had the grace to mention that the rise in disposable income over the past two years would have dwarfed the increase of £90 a month that he chose to put forward in his distorted example. Over the past two years, take-home pay for an average married couple has risen by over £150 a month. Of course there are problems, but they should be considered in that context.
Labour's conversion to home ownership would be convincing if we could believe in it, but the Labour party is the party that has fought the right to buy and the party under whose leadership councils daily obstruct tenants' efforts to exercise their rights. It is the Labour party that wants millions of permanent tenants to remain dependent on the Government.
We know from the comments of the hon. Member for Dagenham (Mr. Gould) on "The Walden Interview" on 15 October what ideas Labour is toying with for home owners. The hon. Gentleman talked about controls on the building societies and on lending in relation to people's incomes. To be fair to him, he made it clear that he would not apply those policies to new home owners, but he went on to say : "Oh, this is very clear, the people who would be hit but only in prospect, I mean they would be fully warned and we would be fully alert to the change that had occurred in the interest of the national economy would be those who were trading up, those who over recent years and again I say, I've done it myself"--
that was decent of him--
"who buy, who move for one reason or another and find that because of asset inflation, the availability of this form of credit that it is possible to buy a more expensive house".
Now we know : if a person lives in a house he should make sure that he likes it, because it will be difficult to move under the policy put forward by the hon. Gentleman.
Labour Members have told us that the exchange rate is at the heart of economic policy. The right hon. and learned Member for Monklands, East spent a large part of today talking about Professor Walters. Without him, I do not know what the right hon. and learned Gentleman would manage to make speeches about. If Professor Walters did not exist, he would have to be invented. As the right hon. and learned Gentleman believes that the exchange rate policy is at the heart of economic policy, and as he believes that there is some ambiguity and lack of clarity in the Government's policy, I am sure that he must therefore be confident that the Labour party's policy on EMS is crystal clear.
Column 766What is the Labour party's policy? The hon. Member for Dunfermline, East has been on a tour of the central banks of Europe. He has had discussions with eminent central bankers. He has come back and told us that there is a possibility that Labour will join the EMS. Labour is eager to join the EMS, provided certain conditions are satisfied. The trouble is that those conditions are about as long as the Labour party's constitution and just about as interesting. Labour is prepared to join the EMS provided that, first, there is a strategy for balanced growth in the Community ; secondly, there are more structural funds ; thirdly, there are more regional funds ; fourthly, there are more swaps ; fifthly, there is an EEC-wide trade policy ; and, sixthly, the deflationary bias of the system is removed. The Labour party's position is crystal clear, is it not?
The most interesting statement was that the Opposition want more swaps within the EMS. Normally it takes a Labour Government two years before they go to the IMF and line up their creditors. Because the right hon. and learned Member for Monklands, East is prudent and cautious, he is doing that well in advance.
Most puzzling of all, the Opposition propose the removal of the deflationary bias in the EMS. I thought that the whole purpose of the EMS was that one currency could be tied to another so that inflation rates converged towards those of the low inflation countries. That is the main point of the EMS, and that is what the right hon. and learned Member for Monklands, East wants to remove. He does not want to join the EMS. He wants to drive a coach and horses through it. The right hon. and learned Member for Monklands, East spoke at great length about the views of Professor Walters on the EMS. However, he has not contrasted the different views among his fellow Opposition Members who are not part-time advisers, but members of the shadow Cabinet. I will contrast those views now. The right hon. and learned Member for Monklands, East said :
"We see advantages in the stability that membership of EMS could achieve for the currency in a very volatile world."
The hon. Member for Sedgefield (Mr. Blair) has said :
"We should treat with extreme caution claims about stability which membership would bring to our currency I do not believe that there is compelling evidence that long-term stability had been brought to the exchange rate currencies in the EMS."--[ Official Report, 29 January 1986 ; Vol. 90, c. 988-89.]
The hon. Member for Dagenham said :
"For sterling, EMS membership would actually mean a reduced ability to maintain a particular parity against the dollar. Nor is there any evidence that exchange rate stability of itself would necessarily be of great help to our economy. It is relatively easy to hedge against short-term volatility."
The right hon. and learned Member for Monklands, East has had the cheek to tell us that Government policy is disunited because a part-time academic adviser to the Government has expressed a view about the EMS. However, what does the right hon. and learned Gentleman say about the views expressed by his hon. Friend the Member for Dagenham?
The hon. Member for Dagenham was once an academic, but, as far as I know, he is not now a part-time adviser to the Labour party. He is a fully paid up member of the Labour party and a member of the shadow Cabinet. How can the right hon. and learned Member for Monklands, East maintain the fiction that the Labour party has a policy on the EMS which contrasts with the
Column 767Government's policy or claim unity against disagreement? That is absolute nonsense and rubbish, and the right hon. and learned Gentleman knows it.
The hon. Member for Dagenham has expressed his total opposition to the EMS. He declined to answer questions when he appeared before the Treasury and Civil Service Select Committee. He said that it would be inappropriate for him to reply, in his words,
"given my general hostility to the prospect of full membership of EMS."
How can Opposition Members talk about Professor Walters? Before they do that again, they should sort out their own policies and attitudes.
We have heard no policies from the Labour party. It was like the Labour party conference--everyone was waiting for the big idea, but we did not get it. The big idea was a little idea. We did not really get any idea at all. All we have seen is the big vacuum. We were told to meet the challenge and to make the change. We know what we would be making the change from. We have certainly been given no indication to what we would be making the change.
It appears that the Labour party simply stands for what it thinks people will fall for. That is its policy. It reminds me of what used to be said about an unsuccessful Republican candidate for the American presidency--"At least with him you know you don't know where you stand." That is exactly how it is with the Labour party. We know what the big idea is. The big idea is one small step for the right hon. Member for Islwyn (Mr. Kinnock), but it would be one gigantic, catastrophic step for the British people and the British economy. Opposition Members have today exposed all the divisions in their shadow Cabinet. We are grateful to the hon. Member for Dagenham. He may be an embarrassment to the Opposition, but he is of service to the country because he is the only one who lets us see anything more than the Mandelson puppet show. The Government have courage. They will bring down inflation, and they deserve the confidence of the House.
The Parliamentary Secretary to the Treasury (Mr. David Waddington) rose in his place and claimed to move, That the Question be now put.
Question, That the Question be now put, put and agreed to. Question put accordingly, That the original words stand part of the Question :--
The House divided : Ayes 208, Noes 306.
Division No. 333] [10 pm
Abbott, Ms Diane
Archer, Rt Hon Peter
Ashley, Rt Hon Jack
Banks, Tony (Newham NW)
Barnes, Harry (Derbyshire NE)
Barnes, Mrs Rosie (Greenwich)
Beith, A. J.
Benn, Rt Hon Tony
Bennett, A. F. (D'nt'n & R'dish)
Bray, Dr Jeremy
Brown, Gordon (D'mline E)
Brown, Nicholas (Newcastle E)
Brown, Ron (Edinburgh Leith)
Bruce, Malcolm (Gordon)
Column 768Buckley, George J.
Campbell, Menzies (Fife NE)
Campbell, Ron (Blyth Valley)
Campbell-Savours, D. N.
Carlile, Alex (Mont'g)
Clark, Dr David (S Shields)
Clarke, Tom (Monklands W)
Clwyd, Mrs Ann
Cook, Robin (Livingston)
Cunningham, Dr John
Davies, Rt Hon Denzil (Llanelli)
Davies, Ron (Caerphilly)
Davis, Terry (B'ham Hodge H'l)
Dunwoody, Hon Mrs Gwyneth
Evans, John (St Helens N)
Ewing, Harry (Falkirk E)
Ewing, Mrs Margaret (Moray)
Field, Frank (Birkenhead)
Foot, Rt Hon Michael
Garrett, John (Norwich South)
Garrett, Ted (Wallsend)
Gilbert, Rt Hon Dr John
Godman, Dr Norman A.
Golding, Mrs Llin
Grant, Bernie (Tottenham)
Griffiths, Nigel (Edinburgh S)
Griffiths, Win (Bridgend)
Harman, Ms Harriet
Hattersley, Rt Hon Roy
Healey, Rt Hon Denis
Heffer, Eric S.
Hoey, Ms Kate (Vauxhall)
Hogg, N. (C'nauld & Kilsyth)
Home Robertson, John
Howarth, George (Knowsley N)
Howell, Rt Hon D. (S'heath)
Howells, Dr. Kim (Pontypridd)
Hughes, John (Coventry NE)
Hughes, Robert (Aberdeen N)
Hughes, Sean (Knowsley S)
Johnston, Sir Russell
Jones, Barry (Alyn & Deeside)
Jones, Ieuan (Ynys Mo n)
Jones, Martyn (Clwyd S W)
Kaufman, Rt Hon Gerald
Kinnock, Rt Hon Neil
Lestor, Joan (Eccles)
Lloyd, Tony (Stretford)
Macdonald, Calum A.
Mahon, Mrs Alice
Marek, Dr John
Marshall, Jim (Leicester S)
Michie, Bill (Sheffield Heeley)
Michie, Mrs Ray (Arg'l & Bute)
Moonie, Dr Lewis
Morris, Rt Hon A. (W'shawe)
Oakes, Rt Hon Gordon
Orme, Rt Hon Stanley
Owen, Rt Hon Dr David
Pike, Peter L.
Powell, Ray (Ogmore)
Quin, Ms Joyce
Rees, Rt Hon Merlyn
Reid, Dr John
Ross, Ernie (Dundee W)
Sheldon, Rt Hon Robert
Smith, Andrew (Oxford E)
Smith, C. (Isl'ton & F'bury)
Smith, Rt Hon J. (Monk'ds E)
Smith, J. P. (Vale of Glam)