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Mr. Howarth : Does the right hon. and learned Gentleman agree that the trade deficit is accounted for in large measure by the individual spending decisions of our fellow citizens? Does the Labour party plan to introduce import controls across the board or is the right hon. and learned Gentleman content simply to tell his right hon. and hon. Friends that they should stop buying French cars and do as I do and drive a British car?

Mr. Smith : I do not know whether the hon. Gentleman wants to be congratulated on his personal purchasing decision. However, it will not do for the Government to try to shuffle off the responsibility for the balance of payments deficit on to private individuals. In far too many areas, people who want to buy British cannot because there are no British goods available because our manufacturing sector has become so small that there is very little in the way of choice : there are no British goods in the shops to

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combat imports. In the interests of choice, apart from economic success, the hon. Member for Cannock and Burntwood (Mr. Howarth) should be supporting the policies advocated by the Labour party. Of course, even after all that experience, Government economic policy is still characterised by complacency and confusion. Despite resignations and reshuffles, the Government's economic policy remains obscure and muddled. In ringing tones in the public expenditure debate on 9 February, the present Chancellor said :

"the first economic duty of government is to safeguard the value of the currency".--[ Official Report, 9 February 1989 ; Vol. 146, c. 1154.]

[ Hon. Members :-- "Hear, hear."] "Hear, hear," I hear from Conservative Members sitting behind the Chancellor. On the day the Chancellor spoke, on 9 February, sterling was DM3.27 ; now, it is DM2.80. No wonder there is scepticism about the Government's commitment to the policy which the Chancellor has articulated on their behalf.

The markets have known all along, and still believe, that the Prime Minister, schooled by Sir Alan Walters, does not want to manage the exchange rate at all, on the view that one cannot buck the market.

Mr. Quentin Davies (Stamford and Spalding) : Will the right hon. and learned Gentleman give way?

Mr. Smith : I have repeatedly given way to Conservative Members. I must make some progress.

Mr. Davies rose --

Mr. Smith : I will not give way to the Member for Stamford and Spalding (Mr. Davies). I have made it crystal clear, and I make it clear again, that I do not intend to give way to the hon. Gentleman at present. Perhaps if he will remain in his seat I could make some progress in this debate. Many hon. Members want to speak and I should not take too much time.

The same degree of confusion appears to extend to the other first duty of Government--the control of inflation. One wonders why the new Chancellor has been so coy about accepting that inflation should be his judge and jury. On at least two occasions he has reminded us that those were not his words--perhaps a case of "Read his lips, don't read mine." The Government's problem is their loss of credibility over the whole range of their economic policy. They once professed to have a medium-term strategy. Hon. Members remember the heady days when we were told that the MTFS would provide a stable financial climate for business and that stability was to be brought to the disordered world of our finances so that virtuous businesses could plan ahead with confidence.

Earlier this year, the new Chancellor, the then Chief Secretary, sought to explain the policy to small business men. He said : "Government policy now operates in a medium-term framework, which gives individuals the confidence to plan ahead."

He was speaking on 24 May, the very day when interest rates rose to 14 per cent. He omitted to warn them of that increase or the subsequent increase to 15 per cent. in October. So much for the confidence-inspiring medium- term financial strategy. It is no more than an addiction to rising interest rates.

The Government still peddle the myth of an economic miracle and will resort to any device to attempt to wish away economic reality. When the balance of payments

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monthly deficit first began to exceed £1 billion, at Prime Minister's Question Time the Prime Minister herself dismissed the figures as a "freak". But as, in month after month ever since, the average monthly deficit was significantly above £1 billion, a new explanation for the freaks had to be found. The device which the Government hit upon would have pleased Lewis Carroll--stand the problem on its head and declare it to be a success. The deficit was not a problem at all. Indeed, it was but a sign of success. Into the fray went the present Chancellor, again as Chief Secretary. On 27 April 1989, in a speech to the American Chamber of Commerce, rather than attribute the deficit to the consumer boom, an error into which many other commentators appear to have fallen, he declared :

"the main reason for the balance of payments deficit is the dramatic surge in investment."

We have often heard such arguments since. For example, British industry is merely pausing to re-equip itself for the next great leap forward.

That argument cuts no ice with the Opposition. To refute it in detail, I quote the analysis prepared by the City firm, Greenwell Montagu Research, entitled "The UK and Its Love of Imports : How the Deficit Arose", which was published in May of this year. In a detailed study of the composition of the balance of trade, meticulously analysing imports in each category of goods under the standard international trade classification, it concluded : "The deterioration in the trade deficit is across virtually all categories of goods. It is certainly not true that the deterioration is due, as the Chancellor"--

that is, the former Chancellor--

"would have us believe, to an investment boom."

Greenwell Montagu Research showed that true investment goods, which it defines as categories 71 to 74 in the standard trade industrial classification, which means power generating machinery, specialised industrial machinery, metal working machinery and general industrial machinery,

"have accounted for a little over £3 billion of the £25 billion deterioration in the trade account since 1981."

Just as the claim that the deficit has been caused by an investment boom is bogus, so is the claim that the rise in business investment has transformed the capacity of the British economy, and especially of its manufacturing sector. The truth about the Government's claim is that they constantly seek to obscure the facts about manufacturing investment with hype about business investment--we hear it every day of the week. The real increase in investment is overwhelmingly concentrated in the service sector. There has been greater investment in retail distribution, in banking, insurance, finance and related services. In contrast, manufacturing investment is only marginally higher than the level inherited by the Government 10 years ago, in 1979. Imagine that--manufacturing investment is hardly higher today than it was 10 years ago.

The fundamental point that the House of Lords Select Committee on Overseas Trade begged the Government to appreciate but which they have constantly failed to appreciate, is that manufacturing is not only the basic wealth creator in this country, but also the crucially internationally tradeable sector of the economy. I remind the House that, at page 82 of its report, the House of Lords Select Committee stated :

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"service industry cannot substitute for manufacturing because many services are dependent on manufacturing and only 20 per cent. of services are tradable overseas".

The same point was made in an important article on the United Kingdom's investment record, which was published in the Financial Times on the 8th of this month by Mr. Andrew Glyn, an economist at Corpus Christi college, Oxford. He stated :

"it would be fantasy to believe that finance and business services can take over from manufacturing and generate the foreign exchange necessary to pay the import bill".

In this House, however, we are more accustomed to hearing of fantasies rather than facts when Government economic policy is being justified. What else but a sense of fantasy could have led the former Chancellor to claim in the Budget debate of 1988 that Britain was experiencing an economic miracle similar to that enjoyed by Japan and previously experienced by West Germany?

The first thing that needs to be done is to abandon such illusions. We need a fresh start. Rather than seeking to maintain the pretence of a busted medium-term financial strategy, we need to build a medium-term industrial strategy that will modernise and expand Britain's manufacturing capacity, so that by wealth creation we can secure the prosperity of the nation and provide the public services that are so vital to the community's quality of life.

Such a strategy must encompass the whole nation. Britain cannot afford the north-south divide or, to put it another way, cannot operate properly by cramming so much of our economic activity in the overcrowded and congested south-east, to the prejudice and harm of the rest of the nation, as well as of the south-east itself. Therefore, a vigorous and determined regional policy is required, not only in the interests of fairness, but to deploy the under-used resources and the unemployed people who have potentially so much to contribute to the process of wealth creation-- [Interruption.] Mr. Ian Bruce (Dorset, South) rose --

Mr. Edward Leigh (Gainsborough and Horncastle) rose

Mr. Smith : Some of the Conservative Members making interventions from sedentary positions would be better employed listening to some of these obvious truths about the British economy. They do not like the truth, but in this free Parliament they are going to get it, whether they like it or not. I give way to the hon. Member for Gainsborough and Horncastle (Mr. Leigh).

Mr. Leigh : The right hon. Gentleman has talked about making a fresh start, so may I help him by referring him to the four new taxes proposed in the Labour party's policy document? I refer to the two local taxes that already appear to have been dropped, and to the payroll tax, as well as to the tax on unearned income. As two of the taxes have already been dropped, may I take it that the battlecry of the Labour party is no longer "Meet the Challenge : Make the Change", but "Dodge the Issue : Ditch our Tax"?

Mr. Smith : The hon. Gentleman has spent a long time rehearsing that intervention ; perhaps the kindest thing I can say is that it needs a little more rehearsal.

Mr. Quentin Davies rose --

Mr. Smith : Perhaps the hon. Gentleman will allow me to answer the point raised by the hon. Member for

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Gainsborough and Horncastle (Mr. Leigh). A lesson in courtesy would not go amiss among some Conservative Members--not so much to me as to their hon. Friends who have been so good as to ask me a question. The hon. Member for Gainsborough and Horncastle has a sauce to talk about new taxes. What is the new tax afflicting our people from one end of the country to the other? It is the poll tax. Those of us with constituencies in the northern part of the kingdom, in Scotland, know only too well what lies in store for the people of England and Wales. I am being kind in restricting my comments to the poll tax, as what amount to a water tax and an electricity tax will also come the people's way as a result of the privatisations.

Mr. Ian Bruce rose --

Mr. Smith : No, I shall not give way.

We cannot be content with the range of our manufacturing activity. In too many areas, as is being increasingly recognised, Britain has either no presence or one that is too weak to make a real impact in the competition of export markets or in competition with imports at home. That is the very point to which the hon. Member for Cannock and Burntwood (Mr. Howarth) inadvertently drew attention in a previous intervention. Let us remember that we have a deficit of more than £2 billion in information technology industries alone.

It is the unavoidable responsibility of Government, as recognised by so many of our competitors, to work in partnership with industry to see that Britain is properly placed to develop the new products and the new processes on which we may have to depend in the fiercely competitive markets of the 1990s.

The neglect of research and development, and particularly the neglect of product development, must end. Above all, we need a wholly new commitment to education and training. For 10 years, our system of industrial training has been in relentless decline. Modern economies are talent-based, and success in the 1990s will go to the countries that can mobilise the skills of their people--all their people. That is why the French train three times more people to craft-level qualifications than is done in the United Kingdom. Each year, the Germans train 600,000 young people on three-year industrial courses offering vocational qualifications at the end. In Britain, employment training is under-subscribed by one third and, on average, offers a six-month training period only with, at best, just credits towards vocational qualifications. According to the British Chambers of Commerce, skills shortages now affect 46 per cent. of manufacturing businesses in the United Kingdom.

In the face of those facts, how can anyone argue that training is satisfactory in Britain today? How can the Government justify the public expenditure programme that they recently brought to the House, which cuts the amounts available for training in industry? If we set ourselves the ambition, we could create the best educated and trained work force in western Europe. I believe that the nation would respond to a Government who drove forward to achieve such an ambition.

Sir Peter Hordern (Horsham) rose--

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Mr. Smith : I hope that the hon. Gentleman will forgive me, but I shall not give way ; I am about to conclude.

Sadly, that ambition will not be achieved under an Administration whose vision is so limited and whose concept of the future is so hopelessly flawed by their restricting ideology and their policy failures.

The Gracious Speech shows that little has been learnt either about the challenges of the 1990s or the failures of Thatcherism in the 1980s. Britain needs not just a change of Prime Minister : it needs a Labour Government.

4.13 pm

The Chancellor of the Exchequer (Mr. John Major) : I am grateful to the right hon. and learned Member for Monklands, East (Mr. Smith) for his kind opening remarks. May I take this first opportunity to welcome warmly the hon. Members for Derby, South (Mrs. Beckett) and for Brent, South (Mr. Boateng) to the Opposition Treasury team? I am sure that the right hon. and learned Gentleman will miss his hon. Friend the Member for Monklands, East- -

Mr. John Smith : For Dunfermline, East (Mr. Brown).

Mr. Major : I beg the hon. Gentleman's pardon. The right hon. and learned Gentleman and his hon. Friend are perhaps the two most famous men to come out of Scotland since Burke and Hare, and it is perhaps understandable that I mixed them up. I know that the right hon. and learned Gentleman will miss his hon. Friend. Above all he will miss him because his hon. Friend has gone to shadow the Department that the right hon. and learned Gentleman regards as the real heart of economic policy. Some time ago, when the right hon. and learned Gentleman was the Opposition spokesman on trade and industry, he said :

"the Treasury has been too dominant in the whole area of economic and industrial policy. What has been lacking is an important economic department based on the Department of Trade and Industry." The right hon. and learned Gentleman has not yet retracted that. His hon. Friend the Member for Dunfermline, East is now the Opposition spokesman on trade and industry, and presumably the right hon. and learned Gentleman, who is the shadow Chancellor, is subordinate to him.

Although the right hon. and learned Member for Monklands, East may wish to downgrade his role, the shadow team remains as interesting as ever. In that context, I shall turn to the hon. Member for Derby, South (Mrs. Beckett), who has recently joined that team. She has spent a considerable part of her career distancing herself with some clarity from precisely the policies that the right hon. and learned Gentleman so frequently advocates. Hon. Members will recall that, not long ago, the hon. Lady said :

"None of the arguments for staying in the EEC can be sustained." As I understand it, that is not the position of the right hon. and learned Gentleman. The hon. Lady also said that the EEC was a prime obstacle to the policies that the Labour party wants. There is no doubt that the hon. Lady will bring variety to the Opposition Front Bench. While the right hon. and learned Gentleman tours European capitals, the hon. Lady will remain at home planning our exit from the Community.

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Ms. Hilary Armstrong (Durham, North-West) : Perhaps the Chancellor has found himself in the wrong place. The Pre-School Playgroups Association is meeting in the Dining Room.

Mr. Major : In that case, I am surprised to find the hon. Lady here.

The right hon. and learned Member for Monklands, East had a great deal to say about the problems that we face. Much of his speech requires an answer and I shall deal specifically with that. He had little or nothing to say about a practical and worthwhile solution. He under-valued our industrial performance and said little to acknowledge the improvements that have been made in recent years. He does not help his party or anyone else by playing down the achievements of business and industry in recent years.

The right hon. and learned Gentleman conveniently overlooks the fact that total investment is at an all-time high and that an additional 69,000 businesses have been created in the first 10 months of this year alone. He did not acknowledge at all the fact that 2,750,000 more people are in work than six years ago--the greatest creation of jobs by a considerable amount of any nation in the European Community. Perhaps the right hon. and learned Gentleman does not wish to give the Government credit for that. I understand that, but he might offer some credit to the business men and the people who have created that success in the last few years.

Mr. Robert Sheldon (Ashton-under-Lyne) : When the previous Chancellor of the Exchequer departed from office, we were informed that the policies would remain unchanged. Since then, the effective rate of the pound has declined by 4 per cent. Is that a continuation of policy?

Mr. Major : The central core of our policy has been, and remains, our intention to bear down on inflation and to reduce it as speedily as possible. That is precisely the policy that I shall continue to follow, for I share the view of my right hon. Friend the Member for Blaby (Mr. Lawson) that inflation is now higher than we wish it to be. It is imperative that we use every mechanism at our disposal to bring inflation down : that was my right hon. Friend's policy, and it will remain my policy.

Mr. Nelson : My right hon. Friend will know that, day on day, exchange rate variations--even those in the European currencies in relation to the pound--are becoming quite substantial. As many of those depreciations must inevitably feed into the rate of domestic inflation, I wonder whether my right hon. Friend feels that we would have been worse off or better off over the past two days had we been full members of the exchange rate. In my view, there can be no doubt of the answer : we would have been better off.

Mr. Major : At present, that is, I think, unprovable. The fact is that we are not a member of the EMS, and we shall not become a member until the conditions set out at the Madrid summit by my right hon. Friend the Prime Minister are met. There is no doubt that we shall join then, but there is much to be done before that day arrives--not all of it by this Government.

Mr. Tony Banks (Newham, North-West) : I am grateful to the right hon. Gentleman for giving way. We ex-Lambeth councillors must stick together.

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Opposition Members genuinely want to see the good side, but if it is so good, why--after 10 years--is our inflation rate higher than that of any of our major European competitors, and why have we the highest balance of payments deficit on manufactured goods? We merely want to know why that has come about.

Mr. Major : I am surprised that the hon. Gentleman should think that that constitutes ex-Lambeth councillors sticking together. The differentials between the performance of this country and that of the rest of Europe have narrowed dramatically between 1979 and now. Over the past 10 years, we have experienced a higher compound year-on-year growth than any other nation in the European Community. That is a matter of undoubted fact, which the hon. Gentleman may care to bear in mind.

Mr. Geoffrey Robinson (Coventry, North-West) : Is the Chancellor not aware that that growth has come from imports and service industries? Does he not realise that, far from being the enemy of manufacturing industry, the Opposition are its greatest supporter? Is the right hon. Gentleman not aware that the whole problem arises from the attitude of his predecessor, who said that he could see no difference between a job in service industry and one in manufacturing industry, and who could not perceive that service industry was largely dependent on manufacturing industry? That attitude has bred a culture of maximum short-term gain, in which the spivs of the City are against long-term investment in our manufacturing industry. That is what is wrong with the Government's outlook, and until they correct it, manufacturing industry will decline yet further.

Mr. Major : I think that the hon. Gentleman has a cheek. He should remember that Jaguar is a good deal better off today than it was when he was running it some years ago. The figures that I quoted were for output growth, in which we have a better record than any of our partners in the European Community. The hon. Gentleman should not seek to downgrade that record.

Mr. Ian Bruce : Does my right hon. Friend remember that, in the 1970s, when faced with the problem of high wage inflation in the economy and difficulties with the balance of trade, the Labour party--the friend of manufacturing--decided that the way out was to increase employers' national insurance, with the iniquitous employers' national insurance surcharge? Does he believe that that would be the right way in which to proceed today, or does he agree that it was responsible for sending our manufacturing competitiveness spiralling downwards?

Mr. Major : I recall those historical sins of the Labour party. More relevantly, however, I also recall that--for all that Labour Members say about manufacturing industry--manufacturing output fell between 1974 and 1979. Against that background, the right hon. Gentleman should perhaps be a little less forceful in his criticism of the present Government for the changes that have taken place in the wider economy.

Mr. Stuart Bell (Middlesbrough) : Before he leaves the subject of the exchange rate and interest rates, let me remind the Chancellor that his right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath) coined the phrase, "the sole golf club in the Chancellor's bag". The Chancellor said in reply to an earlier question that he

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would use every possible mechanism in relation to the exchange rate. Is he saying that the "single club" policy has now been discarded? Are there now other mechanisms with which to control the exchange rate? Is the right hon. Gentleman prepared to allow it to continue to fall, and, if not, what preventive measures does he propose?

Mr. Major : If the hon. Gentleman had listened carefully to what I said in the Autumn Statement, he would know that I made it absolutely clear that we shall maintain a firm monetary and fiscal policy to bear down on inflation. I believe, and there should be no doubt about it, that we need to bear down on and to reduce inflation, which I shall try to do. He may not understand the impact of a firm monetary and fiscal policy, but I shall deal with that and other matters later for him.

Mr. A. E. P. Duffy (Sheffield, Attercliffe) rose

Mr. Keith Vaz (Leicester, East) rose --

Mr. Major : If hon. Members will forgive me, I should like to make progress. I have given way generously.

Insofar as the right hon. and learned Member for Monklands, East addressed what I believe to be the principal problem that we face--inflation--he simply attacked the methods that we are using to curb it, without suggesting any practical alternative. He attacked the medicine but, alas, neglected the disease. He did not overcome his chronic reluctance to reveal his policies in any detail, although I shall be able to help him with that later, as I have now had the opportunity to read with some care the Labour party's policy review. The burden of the right hon. and learned Gentleman's speech was that, over the past 10 years, little or nothing has been achieved, and that nothing has changed in our economic performance. If that genuinely is his view--I doubt that it is--he has a selective memory. Ten years ago, we had an economy in which the market was strangled by regulations and controls. There was a large, hopelessly inefficient and loss-making nationalised industry sector. There were controls on prices, dividends, and pay. There were controls on how much the average holidaymaker could take abroad, which had to be stamped in his passport before he could go abroad. All those controls have gone. At that time, they had control of just about everything, except inflation, borrowing and debt, which were uncontrolled by the Labour Government.

We have moved from that, which is why I reiterate, without qualification, what I said in the Autumn Statement--that the British economy enters the 1990s incomparably stronger than it entered the 1980s, and nothing can hide that reality.

Mr. Tony Benn (Chesterfield) : I am listening intently to what the Chancellor is saying. Will he say what the time scale would be for the reduction or disappearance of the balance of payments deficit if present policies, which he supports, are followed? In the end, that will be an important factor. Will he give his estimate of how long it will be before that deficit disappears?

Mr. Major : I share the right hon. Gentleman's wish to see the trade gap diminish, and I made that clear some time ago. It has not been the fashion of the Government or their predecessors to forecast the trade gap beyond a year. I

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made a clear forecast in the Autumn Statement of what I think will happen to the trade gap next year. I forecast that it would fall from this year's level of £20 billion to £15 billion. I shall make a further forecast in next year's Autumn Statement, but at present it would not be productive to go further than that.

Over recent years, economic growth in this country has been good in historical terms and by international comparisons. Throughout the 1980s, it has been faster in the United Kingdom than in all the other European Community countries.

I do not hide for a second the short-term difficulties that we face, but the policies to deal with them have been put in place and remain in place. The problem that confronts us is to get inflation down. At present, it is too high, and bringing it down will not be easy. Inflation tends to be stubborn, and that will take time. The path from one month to the next will not necessarily be smooth. It may be erratic, not least because of the effect of including mortgage interest payments in the retail price index. For example, next month the recent increase in mortgage interest rates may be reflected in an unnecessarily high retail price index figure.

Mr. A. J. Beith (Berwick-upon-Tweed) : The Chancellor has turned to the very point that I wanted to ask him about. It is surely no use for him to complain about the statistical problems of including mortgage interest rates in the retail price index when cost-push inflation is led by pressure for wage increases from people whose mortgages have rocketed at such a rate, because of high interest rates, that they must plead for higher incomes. Given that position, how can the right hon. Gentleman hope to conquer inflation with a high interest rate policy? Why is he not looking for the sort of external disciplines, such as the exchange rate mechanism, that would enable him to get interest rates down?

Mr. Major : The hon. Gentleman misstates what we have said previously about the RPI. We have said that it is an unreasonable comparator between this country's inflation rate and those of other countries which, with the exception of Canada and Eire, do not include anything remotely approximating to mortgage interest rates in their retail price indexes. That means that the comparative figure looks noticeably worse in this country simply because of the separate methods of calculation.

Mr. Vaz rose--

Mr. Harry Ewing (Falkirk, East) rose--

Mr. Major : I have given way quite generously and a large number of hon. Members wish to cach your eye, Mr. Speaker, so I fear that I shall not give way.

To bring inflation down, we are clear that a firm monetary and fiscal stance remains necessary. We have one in place, and we will keep it in place. I expect to do that for some time. That will be so, because the only way to bring inflation down is to keep policy tight, which means keeping interest rates high as long as we need to do so and taking account of a range of monetary indicators, including the exchange rate. That is not a popular message but, in my judgment, it is essential.

Tight monetary policy should also contribute to a narrowing of the trade gap, by slowing the excessive growth of demand. Of course, to reduce the deficit, our exporters need to do well too, and the signs on this front

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are far more encouraging than they have been for a considerable time. In 1989 so far, our manufacturing exports have been up 11 per cent. on the same period a year earlier. It now looks as though the United Kingdom's share of world trade will have risen in 1989, which is the clearest possible demonstration that British industry can compete and is competing successfully in world markets. I expect further strong growth in exports next year and a slowing in imports as home demand continues to respond to the tight policy which we now have in place.

I must say bluntly that there is no known easy way to get inflation down. I have carefully considered the potential alternatives to high interest rates, but the more I have looked at them, the less convincing they have become. Nothing illustrated this more clearly than the difficulties that the Labour party had when it flirted with the fashionable idea of reintroducing credit controls. When Labour did so--

Mr. Neil Kinnock (Islwyn) : We are not flirting.

Mr. Major : The Leader of the Opposition says that Labour is not flirting with that idea. The hon. Member for Derby, South (Mrs. Beckett) said on television that the Labour party had not made up its mind about the issue. I am pleased to hear that the Leader of the Opposition is in favour of credit controls. I am delighted to hear him confirm that.

Mr. Kinnock : The Chancellor said a moment or two ago that there was no known alternative to his policy of trying to squash out demand by very high interest rates. There is a known alternative, which permits a country to control the amount of credit extended in order to bring down demand without hammering industry by pushing up costs, and belting every home buyer. Why does not the right hon. Gentleman try one of the known ways that will not harm the economy in the way that his policies will?

Mr. Major : The right hon. Gentleman clearly does not understand that making credit scarce puts up the price of credit ; it does not bring it down. He also does not understand that he has just described the classic way to create the mortgage queue so beloved of the Labour party.

When the Labour party considered credit controls, it was far from clear what it meant by them. The hon. Member for Dunfermline, East, who, alas, is not with us at present, told us that we could not have credit cards--at precisely the moment that the Labour party introduced its own credit card. The Labour party clearly does not understand that little personal borrowing is done on credit cards, so that would not work.

Scarcely was that interview over than the hon. Member for Dagenham (Mr. Gould) popped up to tell us that the Labour party did not intend to concentrate on credit cards, but wanted to restrict new mortgages. A little thought persuaded Labour Members that such a policy would be unpopular--as it would be--so the right hon. and learned Member for Monklands, East entered the fray to say that he did not mean to do anything about credit cards or mortgages--or anything else, as far as I can see. Instead, he would apply a little moral pressure by having a quiet drink with his friends in the City. So much for a brief flirtation with policy.

The truth is that credit controls are not the right answer. Not only were they unfair, inefficient and damaging to industry when they were last used, but in

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today's competitive and open markets--and especially in the absence of exchange controls--they simply could not work. Artificial controls on bank lending would not work. We tried them before and they failed.

Mr. Kinnock rose --

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