House of Commons Hansard Debates for 31 Oct 1989

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That is the price that the British people will have to pay if we continue with the policies adopted by the previous Chancellor. We have heard today from the Prime Minister and the Chancellor that that is the path they will follow, whatever the consequences. It would make more sense if we kept the pound below DM3 as it would make our products more competitive in relation to Germany. It would also make imports from Germany more expensive. That would be sensible because we have a trade deficit with West Germany of £9 billion. We need to obtain a bigger share of that market. It is madness to continue with the present policy.

We should be looking at how we can revitalise our manufacturing industry. The Conservative party does not understand manufacturing industry or what it has done to it. It is good to have an economic debate on the day that the Secretary of State for Trade and Industry said at the Dispatch Box that the Government are withdrawing the golden share from Jaguar. That will mean that the last of the totally British-owned motor manufacturers will go to the wall. It does not seem to matter that by that policy he has created a bear garden in which the multinational American companies will slug it out. It does not seem to matter that research and development in Jaguar will go overseas. The Minister does not seem to care about the consequences for Jaguar employees, or what our position in the motor industry will be.

That is symptomatic of the Government's approach to manufacturing industry in general. It is a sad state of affairs. We ought to be looking

Mr. Ian McCartney (Makerfield) : The Chancellor tried to say that the imbalance between Germany and other nations was caused by retailing and reinvestment. I was asked recently by a managing director in my constituency to visit his company. The company has a policy to buy British. It has spent six months scouring Britain in an attempt to obtain British machinery for retooling. The Government have completely destroyed that sector of the economy and that company had to buy Japanese and German machinery. That whole sector of manufacturing industry and the new technologies in packaging have been destroyed and companies cannot now buy British when they want to.

Mr. Hoyle : That is a good point. If one goes into any plant where investment is taking place--particularly in machine tools--one finds that companies are forced to buy foreign because the goods are no longer available in this country. A large part of the destruction of the manufacturing industry has involved the machine tool industry. That seedcorn has gone. The Government are doing nothing to bring about the revitalisation of manufacturing industry. They say that we can be prosperous with a service economy. We have seen the consequences of buying goods from abroad in our £20 billion deficit. We ought to be trying to give incentives to manufacturing industry to strengthen the manufacturing base that we have left. One of the tragedies of Government policy was seen recently in Sunderland, where two companies wanted to recommence shipbuilding. Those companies did not want any intervention funding and would have been prepared to re-establish shipbuilding in an area where labour was still available. However, the Government went to the European Commission and were

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ready to accept that, if the companies reopened for shipbuilding, there could be a cost of about £90 million. That is ridiculous. They ought to have said that we are going to see shipbuilding reopened in Sunderland because there is going to be an upturn. However, that is typical of the Government's outlook in relation to manufacturing industry.

The same is true of training. The hon. Member for Bridlington talked about a reduction in the working week. The West Germans already enjoy a shorter working week, yet they are more competitive than us. The hon. Gentleman said that a shorter working week would cause a problem because of the skills shortage. That shortage exists because we are not training people and are not providing training in the new industries, such as information technology. That is one of the tragedies. The problem with the Government is that they think always in the short term, never in the long term.

I am sorry that the new Chancellor of the Exchequer is not in the Chamber. We wish him well in his new job, but we heard a very uninspired speech from him. Much effort was needed by Conservative Members even to acknowledge that the right hon. Gentleman had completed his speech. One or two tried bravely to wave their Order Papers. We could see that there was no great enthusiasm for what he was saying.

The right hon. Gentleman's problem is the problem of the previous Chancellor--who will be in charge of the Department? One suspects that "Fortress Thatcher" will continue and that the Prime Minister will continue to run this Department as she runs every other Department, whatever the possible cost of having the Prime Minister running that Department and whatever the possible cost to our international standing. We gather from what she said on Sunday that she will continue to do it her way and if her Ministers do not like it, they can get out of the Cabinet. That applies, of course, to the present Chancellor.

This shows the need for a different Government who will collaborate with our European partners and end what the Bundesbank is doing in terms of deflationary policy. That must be the way forward. We need a Government who care not only about national but about regional policies. I am afraid that, judging by what we have heard from Conservative Members, we will not have that type of Government from the Conservatives. We need a new Government who will have faith in the country, our people and the future. I know that we will not get that from the Conservatives. Only a Labour Government can bring that about. [Laughter.] If I were a Conservative Member, I would not laugh so loudly. Some Conservative Members have only a short time to remain in the House.

6.42 pm

Mr. Quentin Davies (Stamford and Spalding) : It must be unusual in the House for a particular economic concept to form the touchstone of a major political debate and even more unusual--it is perhaps unprecedented-- for an esoteric, technical mechanism such as the exchange rate mechanism to be the source and focus of so much emotion.

There is a perfectly coherent, valid, intellectual argument that Governments should not concern themselves with exchange rates, that the target of macro-economic demand management should be the

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maintenance of equilibrium between money supply and productive capacity, and that Governments who interfere with exchange rates run into fundamental contradictions with sound monetary management. It is true that it is technically impossible to target a particular monetary aggregate and the exchange rate. If one targets the exchange rate, one commits oneself to increasing interest rates if the exchange rate falls below the target, thereby reducing demand. If the parity tends to move above the target, one has to reduce interest rates and inrease demand. The monetary course is therefore changed involuntarily.

One great problem for those who follow that argument is that, since the end of the Bretton Woods system in 1971--indeed, in modern history--there has never been a Government of any major western country who for any length of time have been disinterested in the level of the exchange rate. That is more than a reflection of the natural detrimental desire of all politicians to interfere in and manipulate the economy. There is a sound theoretical basis for the stance that has been adopted by all western Governments.

First, the notorious stickiness of prices in modern economies produces a ratchet effect. Unionised labour demands nominal increases in wages to cover actual, recorded or expected inflation but does not accept nominal reductions in wages, however far prices may fall.

Mr. McCartney : The hon. Gentleman is explaining an interesting theory about trade unionists accepting wage cuts in times of recession. Is the hon. Gentleman, with his various directorships and other arrangements providing tens of thousands of pounds for working here part time, prepared to give up some of that money, given the value of his work in the House?

Mr. Davies : I would be in danger of being ruled out of order if I followed the hon. Gentleman's remarks. I look forward to the opportunity to debate that matter with him in another context. Because of the ratchet effect, if one's currency depreciates unduly, one suddenly finds that a higher level of inflation has been built in without the possibility of building it out if the parity rises. Secondly, there is the technical deficiency of monetarism. The theory is based on the assumption that there must be some objective measure for policy. Under modern conditions, almost no one has succeeded in finding an aggregate that tracks effectively the money supply and aggregate demand over a period. The United States may have done that--I think of M2 in the first half of this century, which is the basis for Milton Friedman's famous work on that subject and, indeed, his Nobel prize. However, no one in Great Britain has been able to find an index that even begins to play the role that the monetarists require of it.

Thirdly, no responsible Government can contemplate a unilateral free float. If every other country is intervening to manage its exchange rate, clearly any country that declines to join that game will be the passive victim of those intervention policies. Free floating, rather like football, is probably a game that cannot be played alone. It requires others who are prepared to play by the same rules.

The argument which is pursued enthusiastically between those who say that in no circumstances should Governments intervene in the exchange rate or adopt an

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exchange rate policy and the supporters of the ERM is a charade. This is an elaborate debate which has nothing to do with the issue. The issue is not whether we should have an exchange rate policy but whether, if we were part of the ERM, that policy would be more effective and we could achieve given objectives at a cheaper price. That means not just a smaller use of reserves to maintain a particular parity but moving interest rates, for example, less far in either direction to counter an undesired rise or fall in parity, resulting in a smaller loss to other economic objectives. I find it difficult not to take the view that within the ERM, monetary policy would be more effective and, in the sense in which I have defined it, cheaper. It cannot make sense to suppose that if we were co-ordinating our use of reserves with others' use of reserves, so that intervention was in the same direction, it would not be more effective. A greater weight of demand or supply for a given currency would bear on the markets at a given time.

There is also the great matter of confidence. There could be no greater degree of commitment by any Government to a particular exchange rate policy than to announce the exchange rate which is targeted. That would be the effect of our joining the ERM, and we have not done that up till now.

Conversely, if we decline to join the ERM, I am afraid that we shall be sending a signal to the financial markets to the effect that we are unwilling or unable to accept the degree of discipline which is required for us to join. We would again be regarded as having a more volatile and weaker currency structurally than have the countries which are members of the ERM. That would be dangerous because a weaker currency discounts a higher level of inflation and interest rates, and the prophecies can too easily be self-fulfilling.

The Chancellor made a positive speech today. It has been an encouraging day for those who are committed to stability in the economy and to our future prosperity to hear that our joining the ERM is no longer a question of whether but of when. We must have a viable system which is able to deliver the advantages that I have set out, and we must have the right parity at the moment when we join ; DM2.85 is much closer to whatever the right parity is than is DM3.15, which was the figure not long ago. The country can take from today's debate a message of considerable encouragement. It is with pleasure that I endorse the remarks of the Chancellor.

6.52 pm

Mr. Stuart Bell (Middlesbrough) : I was intrigued by the speech of the hon. Member for Stamford and Spalding (Mr. Davies) I was not sure whether he was referring to monetarism today, yesterday or tomorrow. It was interesting to learn that the parity of no devaluation welcomes a devaluation of the pound from DM3.15 to DM2.85. It seems that that message has not yet reached the occupants of the Conservative Back Benches.

I was grateful when the Chancellor allowed me to intervene earlier so that I could put to him a point contained in an OECD review showing that in relation to the British economy it was Government policy that interest rates should stay as high as necessary for as long as necessary to reduce inflationary pressures. The review went on to point out that the Government had also confirmed their commitment to not accommodating

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increases in domestic costs by exchange rate depreciation. In short, the British Government would use interest rates to stabilise the exchange rate and to fight inflation.

I asked the Chancellor if that was still the policy of Her Majesty's Government. During his speech he elaborated on that and said clearly that he believed in a firm exchange rate. That means that he believes that the markets should be bucked. That is a clear swing away from what I can only describe as the nefarious influence of Alan Walters at No. 10 Downing street.

Neither the Chancellor nor my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) dealt at length with the subject of credit controls. I shall not discuss that subject at length, but I trust that in due course the Minister will examine the points that I raise. A recent paper published by the International Monetary Fund entitled "The instruments and operating procedures for conducting monetary policy in the group of five countries" showed that, while the level of short-term interest rates was the main monetary policy weapon in America, Japan, West Germany, Britain and France, it was supplemented by bank reserve ratios in all the five countries except Britain.

Thus, within the central banks of our major competitors and allies is a measure of some control on their lending. Hence, if we are moving away, as I believe we are, from the single-club policy about which we have heard for so long--the right hon. Member for Chesham and Amersham (Sir I. Gilmour) thought that there was no other weapon--it might be useful to examine the concept of supplementing by bank reserve ratios so that we are in line with our competitors. We also often hear from the Government--not surprisingly, I suppose--about what our policy would be in a given situation. I am reminded of the general who approached Napoleon and said, "Suppose the enemy was to the front of you and behind you. Suppose also that the enemy was to the right and left of you so that you were surrounded. What would you do to get out of that situation?" Napoleon replied, "Get out of it? I would not have got into it." Who would get into the situation of having £20 billion deficit across the exchanges? Who would get into a situation of having inflation that does not go down? Who would get into a situation of having 15 per cent. interest rates, meaning an overdraft at 18 per cent. for those who borrow, and then ask Her Majesty's Opposition, "What would you do about that?" Our answer, which we give regularly, is that we need an industrial strategy that will offset the balance of payments deficit.

We believe in an industrial rather than a financial strategy. We cannot allow our country to be overrun for years to come by imported products and respond only in a financial manner. The consequence of high interest rates is an added cost to all of us, whether or not we borrow, because at the end of the day those high interest rates bear on all members of the public. Only by embarking on an industrial strategy that gets British workers making goods for British consumers will we ease away from the massive deficit in our balance of payments. My hon. Friend the Member for Warrington, North (Mr. Hoyle) dealt with that issue and said that nothing was being done to revitalise industry.

In the final analysis, we are talking about the wealth of the nation, the so-called prosperity which lies in the net worth of the personal sector, which is based on the inflated

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value of people's homes. House prices have shot up by so much that we are becoming almost millionaires, in the poor sense of the word. Paul Getty used to describe himself as a rich millionaire. I recall once joking that I was a poor millionaire, and I have had to live with that remark ever since. With property values rising, we are getting wealthier. We have witnessed what a newspaper referred to as the embourgeoisement of the British people.

That has nothing to do with the creation of wealth or with the productive capacity of our manufacturing base : it is happening simply because so much money is available to enable people to buy property that house prices spiral, and intangibly some of us have the impression that we are becoming richer. I say "intangibly" because, when we come to sell the family home and buy another, we have to get on the treadmill again--borrowing more money to buy another house at a greatly inflated value--and so the process continues. The bubble expands until one day, like all bubbles, it bursts.

The Government make a vice out of their own virtues. Hardly a Chancellor's Question Time goes by without some reference to the iniquity of allowing mortgage payments to be part of the retail price index. We are constantly told that, if that did not happen, our inflation rate would be lower than that of Italy. Only the Republic of Ireland, we are told, follows the same system.

We are told that the Government believe in and stand for a property-owning democracy. The Conservatives want everyone to own their own homes. Indeed, they arrange the financial conditions to that end, so that in the Chancellor's constituency of Huntingdon people can borrow five times their annual earnings to buy properties. The Government then complain all the way to the House of Commons about the unfairness of the system and the extent of mortgage payments ending up in the retail price index. As the Chancellor may one day want to come to the House to tell us that he is going to take mortgage payments out of the RPI, he must remind the House that other countries, which do not have the same policy and which have a large rented sector, use a rental value in the calculation of the inflation rate. The Chancellor cannot simply say that he will take mortgage payments out of the RPI and thus bring down inflation without putting something in its place, as our competitors in Europe do.

The Prime Minister showed her solidarity with her new Chancellor today. We all know that she believes in Victorian values, but they did not necessarily work in those days and they work even less today, 100 years later. The old Victorian concept of covering one's balance of payments deficit on manufactured goods by invisibles through the City of London has died the death. Last month's deficit was reached after imports of £10.37 billion exceeded exports worth £8.4 billion. The surplus on trade in services and profits from abroad was put at £300 million-- hardly a significant contribution to reducing a trade deficit which has reached such massive proportions.

The Prime Minister certainly believes in freedom, but it is the freedom to push up interest rates and to threaten the small business man. We have heard from the Chancellor that the number of new starts in business is 1,600 a week. He did not tell the House how many businesses close down in the same period.

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The Financial Secretary to the Treasury (Mr. Peter Lilley) : The figure was net.

Mr. Bell : I did not hear the word "net", but if the figure is net I will accept that. However, the small business men have to live with high interest rates, high overdrafts and the threat of bankruptcy. Home owners have to pay more for their mortgages. In the Chancellor's constituency of Huntingdon, five times the value of a person's salary is available to obtain a mortgage.

In the Prime Minister's country, we have the freedom to risk our lives at work and the risks are greater because the Health and Safety Executive has been impoverished by Tory cuts. We have the freedom to borrow more than we can pay back through the banker's card, thus adding to insecurity. The OECD report said :

"An increasing number of households may be overextended or severely constrained--because interest payments now amount to some 13 per cent. of disposable income and exceed interest receipts for the personal sector."

We have the freedom to worry about the future of our children, the future of our educational institutions and the education system itself. Since 1982 -83, the Government have cut capital spending on education and science by 10 per cent. in real terms and serious shortages of teachers now threaten educational reform. Her Majesty's inspectors stated in their 1989 report :

"Too many teachers fear that their profession and its work are misjudged and seriously undervalued."

The Prime Minister also gives us the freedom to leave our own homes and areas to seek work elsewhere because the Government have failed to have an appropriate regional policy. We know that average income has risen faster in the four better-off regions--the south-west, greater London, the south- east and East Anglia--but the chances of being in the bottom 10 per cent. of households in terms of earnings is greatest for the people in the west midlands and as one moves steadily north. The freedom to be homeless under this Government has doubled between 1979 and 1987, with the number of new houses completed in Great Britain falling by 17 per cent. That is the freedom in which the Prime Minister believes. It is the freedom of the condemned man. We all know the story of the condemned man who, before being taken to the scaffold, can have any breakfast he likes. That is the freedom of the British people--to have a good breakfast before the hanging.

We heard today from the former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson). The hon. Member for Bridlington (Mr. Townend) referred to the right hon. Gentleman's speech, as did my hon. Friend the Member for Warrington, North (Mr. Hoyle). However, the fact that we respect the former Chancellor, as a House of Commons man making a statement to us, does not mean that we accept the policy that he followed for so many years.

The steps leading to his resignation are easy to trace and they were touched on by the hon. Member for Bridlington. There was the relaxation of monetary policy in 1985. There was the devaluation of the pound which followed the fall in oil prices--another piece of sleight of hand by the former Chancellor. The party that did not devalue allowed the pound to be devalued when oil prices slipped in 1985. That gave Britain a competitive edge which ensured economic prosperity, as the country perceived it, in the run-up to the 1987 general election. We saw, in fact, a devaluation-led boom leading up to the 1987

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election and, like the Barber boom, it was good old devaluation from the man who said that his party had never been the party of devaluation and never would be.

The short-term benefits were there for all to see under the effective disguise of an economic miracle. That was part of the go strategy of the former Chancellor, but when it was time to put a stop to the go policy he was unable to do so. When the consequences of the go policy were high inflation and a high balance of payments deficit, when there was a serious imbalance in and destabilisation of the economy, and when the time came to bring that under control, he was unable to do so.

Mr. Christopher Hawkins (High Peak) : As I believe that the hon. Gentleman is a straightforward and honest man, I wish to ask him a question before he moves too far from high interest rates. His party's alternative is to have discussions with the big banks to encourage them to lend less to the public. Has he considered that it is not enough to talk only to the big banks? His party would also have to talk to the building societies, which are now free to lend for purposes other than home ownership. There are about 500 building societies in Britain. It would also have to talk to Curry's, Dixon's, Selfridges and all the shops dishing out credit on every high street. One can pick up a few thousand quid in an afternoon just with shop credit cards. The hon. Gentleman should also consider all the moneylenders. One would need to hire the Albert hall to talk all those people and institutions out of giving credit.

Mr. Bell : The Opposition believe that the single-club policy is neither an effective policy nor the only policy. As we have often said, the alternative is to consider the question of credit controls. I have given one suggestion to the Chief Secretary to the Treasury on ratio bank reserves and there are other possibilities. However, I do not want to go down that road as I have to wind up my speech so that my colleagues who have been sitting here patiently can speak. I do not want to give the impression that the former Chancellor was any kind of miracle worker. On the day he resigned, the headline in the Evening Standard said :

"Miracle Worker or Mirage Builder".

There is no doubt that the former Chancellor's record reads like a bad novel in which the characters are unreal and the story line naive, and in which words count for little more than to fill page upon page of paper. Only the ending has any semblance of reality, as the novel ends in tragedy.

Last week, the former Chancellor moved an amendment to an Opposition motion in which he commended the Government on raising output. He knew all along, because he had referred to it, that the latest CBI report revealed that the volume of new orders had fallen over the past four months, the first negative result since July 1986. The right hon. Member for Chesham and Amersham referred to the economy slowing down. There was proof in the CBI report, which showed that the economy was slowing down.

According to the latest OECD report, using the former Chancellor's own peculiar method of plucking statistics out of the air, growth over the past 10 years

"hardly exceeded two per cent. per annum."

In other words, over 10 years, there was 2 per cent. growth per annum.

In his last speech from the Dispatch Box, the former Chancellor said :

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"The real issues are what is happening to productivity, to the quality and quantity of investment, to profitability and to training."--[ Official Report, 24 October 1989 ; Vol. 158, c. 694.] In fact, when it comes to growth, the United Kingdom is still 25 per cent. behind most of the rest of Europe. It is 16th out of 21 in the European productivity league table, and in non-manufacturing the rate of productivity growth has been only one third as fast as in manufacturing. Investment stood at £3,000 per head in 1988. It is lower than that of our major competitors and it is half that of Japan. Between 1979 and 1987, investment rose by only 9 per cent., which is less than half as fast as consumer spending. Manufacturing investment fell by one third between 1979 and 1983.

We have listened to the Chancellor of the Exchequer today. We are aware of the mountain that faces him in tackling the balance of payments deficit and the difficulties facing him with interest rates and the exchange rate mechanism with Europe. The Chancellor of the Exchequer has the Gordian knot before him, but he has no Excalibur with which to cut it.

Several hon. Members rose --

Madam Deputy Speaker (Miss Betty Boothroyd) : Order. Before calling the next hon. Member, I remind the House that Mr. Speaker has determined that speeches should be limited to 10 minutes between 7 pm and 9 pm. The digital clocks are there for all to see.

7.9 pm

Mr. David Howell (Guildford) : I will of course obey your ruling, Madam Deputy Speaker, because I do not wish to hit an iceberg, or even the tip of one.

It is ironic that a few years ago, when some of us in this House and elsewhere immersed ourselves in arcane questions about the European monetary system and the exchange rate mechanism, they were dismissed as boring and sexless subjects which had no political relevance. People were not generally interested in those questions. However, hon. Members now talk of nothing else. In the Tea Room and the Smoking Room, there are 650 experts on the exchange rate mechanism and why it is a good or bad thing. Even those who are against it claim to know something about it.

It is also ironic that, just when everyone has become an expert, the exchange rate mechanism has become rather more marginal to the central question of international currency and even to our national domestic issues than it was in the past. That has happened partly because of the greater attempts of the G7 nations to co-ordinate. It has also happened for a reason described by my right hon. Friend the Chancellor of the Exchequer this afternoon. The real issue is how we in this country impose monetary discipline on ourselves. In other words, the real issue is how we manage our own affairs.

I believe that the exchange rate mechanism, when we join under certain conditions, will help at the margin to reduce some of the speculation against the pound which has mounted inevitably while we are outside the grid and others are inside. But, as my right hon. Friend the Chancellor said, the real issue is how we manage our internal monetary affairs to ensure price stability.

In that regard it is right to ask, as this debate asks, how the Bundesbank has done it over the years. How has it been able again and again to control the monetary

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aggregates to deliver up a quite amazing degree of price stability and so fulfil the overriding duty of maintaining the value of the currency? Neither the good Professor Sir Alan Walters, whom I greatly admire for having a very stimulating mind, nor my right hon. Friend the Member for Blaby (Mr. Lawson), the former Chancellor, was able to face that question.

We have heard arguments about whether we should go for floating rates and monetary control or the exchange rate mechanism. However, neither Sir Alan Walters nor my right hon. Friend the former Chancellor could say how, in an economy of our size or even in a larger one, we can control the monetary aggregates. The truth is that neither the theory of floating rates with wonderful precise control of the monetary aggregates--it ought to work on paper, and Professor Walters is quite right to state that it works in theory--nor the move towards fixed and managed rates within an exchange rate grid, can work unless we know how to control the money supply and the monetary aggregates internally.

If we do not know that, we will run into difficulties no matter whether we are part of the exchange rate mechanism or not. We are dealing with international capital flows, not with a panacea, whether the ERM or a magic adherence to money supply figures which it is impossible to get hold of.

Even after the eruptions of last week, we must still address that issue. There are two new thoughts on the agenda that hon. Members must consider with the utmost care. The first was raised by my right hon. Friend the Member for Blaby. We should be under no illusions : in all that he said this afternoon, he made one comment of the utmost significance which will be central to our debates in future. He said that he had been thinking, as many of us have, about how to set up a genuinely independent central bank which would depoliticise monetary decisions. The politicisation of such decisions bedevils them, causing them to be taken on political rather than purely technical grounds.

I am not talking simply about denationalisation and repealing the Bank of England Act 1946. We must unravel issues dating back to the first world war, long before going off the gold standard, when the Bank of England and the politicians from Lloyd George onwards became increasingly interwoven. We must address that very complex problem now. I was very encouraged to hear the ideas raised by my right hon. Friend the Member for Blaby, and like others I want to see them developed.

The second new thought follows from the first. If we have an independent central bank, we can begin to operate on the money supply in ways in which we have not been able to do hitherto. We set the interest rate for money and the central bank provides unlimited quantities as lender of last resort at the price of 15 per cent. That is not controlling supply, it is controlling demand. Many of us wonder whether we can switch to operating on the bank's reserves--on the monetary base. In that case, the independent central bank would not set interest rates. Instead, it would operate on the reserves and interest rates would fall out of the end of that. They would be more volatile, as there would be no fixed interest rate.

We must consider those two new thoughts if we are to begin to move away from the crazy and quite false

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argument in recent times about whether we should be part of the ERM or have a floating rate. That is a stark and unreal choice on which we have paralysed and crucified ourselves.

I understand that references to independent central banks are anathema to many Opposition Members. They think back to 1931 when they seized control of the banking system from Montagu Norman and the rest. Today the Labour party wants to return to exchange controls. That is the only way in which Labour Members can conceivably run a direct consumer credit control system. They must return to exchange controls. My recipe is no good for the Labour party. However, if my right hon. and hon. Friends believe that we are surrendering power if we move monetary policy to a more independent banking authority, they are wrong. There will be a substantial gain in the power and influence of politicians to ensure that sensible monetary policies operate in this country.

My right hon. Friend the Member for Blaby, the former Chancellor, has confirmed that the time has come for us to have an independent central bank which can operate an effective monetary policy which ensures stability of the currency upon which everything--the jobs, growth and everything else hon. Members want--depends.

7.17 pm

Mr. Terry Fields (Liverpool, Broadgreen) : This debate is a vote of no confidence in the Government. The Opposition Benches faithfully reflect the views of the British public in their attitude to the Government.

A week ago tonight I was billed to debate with a Tory Member of Parliament in the students' union at Liverpool University a motion that

"this house has no confidence in the Tory Government."

Over the summer the students' union applied to 60 Tory Members to get that debate started. As we have no Tory Members in Liverpool, the students' union thought that they would have to haul one through the Mersey tunnel. Unfortunately he could not show up. The Government cannot get a Tory Member to defend their economic policies.

Mr. Alex Salmond (Banfff and Buchan) : Will the hon. Gentleman give way?

Mr. Fields : No. I have only just started and I have only 10 minutes to speak. Other hon. Members are waiting.

In the European elections earlier this year, the results marked a sea change in British politics. For the first time in 10 years, there was a massive swing against the Tories. They gained their lowest percentage of votes in 100 years.

The workers and the youth in this country hate what the Government are doing in society. More importantly, that hatred is directed at the Prime Minister and the Chancellor for causing the conditions that prevail for millions of people.

We must move away from personal attacks, although they are very convenient. Labour Members share the glee of their constituents at what is happening on the Conservative Benches. However, we must be sober in our approach to what is happening in the economy. Those Tory characters will not suffer ; instead the ordinary working-class men, women and children, the old, sick and disabled will suffer as a consequence of the Government's mismanagement of the economy. Hon. Members talk about opinion polls. They are faithfully reflecting what is going on. Ex-Cabinet Ministers

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on the Government Back Benches outnumber Ministers on the Front Bench as a result of their disillusionment with what is going on. We saw in the Financial Times last week that a survey even in Lewes, Sussex, showed that most Tory voters are disillusioned with what is going on in the country. We see key issues such as the Health Service, the water and electricity industries, the poll tax and pollution militating against support for the Government. The economic collapse is politically undermined by what is going on in the House and in our legislation. The Government got away with it for a while--as long as they delivered the goods for certain sections of the community and provided inceased profit for financiers and capitalists, while squeezing poorer people to ensure that profits were maintained. However, the mood in the country has changed, particularly in regard to housing, health, water, gas prices, privatisation of the electricity and water industries, inflation, and mortgage rises. Whole sections of our community are turning in their tens of thousands against the Tory Government. The reason for that, which Conservative Members are too blind to see, is the decline in Britain's economy. Total disregard for investment in our industrial base is at the root of the crisis.

One hundred years ago, Britain's share of world manufacturing exports was 33.2 per cent., 50 years ago, it was down to 20.9 per cent., and today it is at an all-time low of 8.1 per cent. We were third in the OECD league, but we are now 19th. From 1979 to 1986, there was a 13 per cent. fall in investment in this country, while other OECD countries increased their investment by one third in the five years preceding 1987.

Those points are important. To the working class they are statistics, but we must elevate the argument to allow people to see clearly that these things do not just happen on a whim. There are deep-seated problems in the British economy. At the end of the day, British workers will pick up the tab while the jokers in the Government walk away from the problem. The key to the crisis is the lack of investment. The Government are all right taking the profits and running away with them. In 1979, they invested £10.4 billion in industry. In 1982, the figure dropped to £6.35 billion. In 1988, the level was up to £10.01 billion. That means that in 1988 the Government had reached only the 1979 level of economic investment--in real terms, the 1950 level.

Economic growth between 1979 and 1988 was 2.1 per cent. a year, the smallest rate of economic growth in the whole nine-year period. The EEC estimates that, in the next two years, growth in Britain will be lower than that in France, Italy, Belgium, the Netherlands, Ireland, Greece, Spain and Portugal. Britain is becoming a Third-world economy.

Statistics are one thing, but the reality of life for working people is that a woman in my constituency sold her baby aged two because she was suffering mortgage repayment problems amounting to £1,000. It means also that a guy went into a housing benefit office and set fire to the place, unfortunately killing one of the clerks, and then jumped from a six- storey block of flats. The Government are responsible for those social conditions. They are responsible for 10, 000 pensioners dying every year because of neglect, hunger and hypothermia. At a stroke, the Government reduced the benefits of 5.5 million people and gave £2 billion in tax cuts to their rich friends while taking £650 million from pensioners and the unemployed and

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low-paid. The Government and their economic policies mean personal debt and poverty for millions of our fellow citizens.

I do not wish to speak for too long. The case will be adequately made by my hon. Friends. Although Lawson and Walters can walk away from the problem, millions of ordinary decent people in society will be stuck with nowhere to go. In that will be the seeds of destruction not only of the Government but of the system that they represent. As Socialists, we give fair warning that workers are turning towards democratic Socialism because they see the ineffectuality-- [Interruption.]

Mr. Terry Dicks (Hayes and Harlington) : In Russia, Hungary and East Germany?

Mr. Fields : I do not need cameras, mate. I will speak on Socialism anywhere. You know nothing about capitalism. We know a lot about your system. That is why you are cutting into education. I do not refer to you, Madam Deputy Speaker, I refer to the hon. Member for Hayes and Harlington (Mr. Dicks).

Madam Deputy Speaker (Miss Betty Boothroyd) : I trust that the hon. Member will direct his remarks through the Chair.

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