House of Commons Hansard Debates for 28 Nov 1989

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Ms. Diane Abbott (Hackney, North and Stoke Newington) : If the number of new firms is a sign of success, what is the record level of bankruptcies a sign of? Will the hon. Gentleman enlighten us?

Mr. Grylls : The figure that I gave was a net figure. In three or four months, the figure may go up or down. It is a forecast. However, so far that net figure has been increasing.

Interest rates are a great worry to many independent businesses. However, we should not simply decry the great success caused by the supply side changes which have been the basic foundation of growth which is the important success in our economy. It would be wise of us to recognise the huge turn-round.

No doubt the right hon. Member for Swansea, West will remember as I do that, under the Labour Government and in the early years of the Conservative Government, we still faced huge losses in several nationalised industries. British Steel reported losses of £500 million. British Leyland was always in a disastrous state. There was always a crisis around the corner and BL representatives visited Ministers and Back Benchers to explain the latest disaster. Leyland has been successfully returned to the private sector, and we hope that it will thrive and become stronger and achieve the exports that it deserves. Similarly, I hope that British Aerospace is successful. The transformation of the nationalised industries has been very important. We are all aware of the success story of British Telecom. Mercury, a new telephone company, is gradually expanding and bringing much-needed competition into the telecommunications market. That competition has helped to create new firms in the telecommunications business. When we had one dominant nationalised industry, it was difficult for new firms to enter the marketplace. The market has been opened up and there is a strong regulator in the shape of Oftel to encourage competition. New gadgets are being invented daily in the telecommunications world and British Telecom is one of the world's leading companies in that area.

I do not want to refer to Europe at length today, as other hon. Members have done that already. However, anyone who says that Britain is behind hand in being a good member of the Community must be aware that we were the first to open up our telecommunications to procurement Communitywide. We are entitled to ask other Community countries when they will open up their markets so that British firms can try to win orders to supply their telecommunications companies. In that respect--and I believe in many others --Britain has been a very good European and has been leading the way in deregulating. In surveying the general scene of industry and commerce. I want to refer to the smaller industrialists. Now that we have had such an improvement in British industry generally, it is time to see whether we can give more encouragement to the typically smaller industrial firm. I want to refer to a firm of a size that is typical in West Germany and which has been the backbone of the German industrial scene and largely responsible for West German industrial success. It is a small industrial firm with a turnover of about £1 million. Typically, such a firm would spend about 50 per cent. of its turnover on materials and associated costs. When interest rates go up, such a firm faces a double squeeze

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--a squeeze by customers, who may take up to two extra weeks to pay, and a squeeze by materials suppliers, who will restrict credit by two weeks. That firm's overdraft could then go up from £100,000 to £160, 000. The firm is squeezed by the higher borrowing and, sadly, by a lack of understanding on the part of too many of our high street bank managers who inadequately understand the needs of a smaller independent business. Some of them are trying to change, but matters are not as good as they should be. A firm which is faced with such a squeeze must cut back somehow and hope to ride out the substantial extra cost of borrowing or of working capital.

We can look to Germany and Japan for a solution. Although we have rightly removed general subsidies in nationalised industries and our other great industries, which should be and are now standing on their own feet, there is an argument for helping and encouraging a small industrial firm with a turnover of £1 million. That argument has been accepted in Germany and Japan, where such firms are given a differential rate of interest.

No doubt Opposition Members will say that the hon. Member for Surrey, North -West has taken leave of his senses and is asking for some form of subsidy. Of course subsidies have not yet been totally removed from the economic scene. They have not been removed from housing or from pensions--indeed, they are prevalent. There is an argument for seeing how we can help this sector of our industry, because it would be an investment for the future. I hope that hon. Members who do not like general subsidies will not be derisive. Unlike large firms, a small industrial company cannot borrow on the Eurodollar market, for example, or in some sophisticated way through the City of London. Generally, it can borrow only through its own bank in the way that I have described. When we try to defeat inflation with high interest rates, we must try to help such companies. Therefore, I hope that the Government will look at this matter. We should not rush into it, but we should study what is done in several other countries, such as Germany and Japan, and see how we can help such firms. They comprise part of our still weak industrial life. They were seriously weakened over the 1950s, 1960s and 1970s by too much taxation and regulation, and they are not yet strong enough. I want them to be helped to get on to their feet.

Mr. Benn : I do not know whether the hon. Gentleman is aware that the exact scheme that he proposes was put up by myself as Secretary of State for Industry, but it was turned down as a breach of the treaty of Rome. The right hon. Member for Old Bexley and Sidcup (Mr. Heath) had an interest relief scheme which was 1 per cent. below the going rate to help industry in Scotland. The Commissioner in Brussels said that it was illegal, and it was abandoned. As a pro-European, the hon. Gentleman must take account of the fact that everything he has suggested would be deemed illegal.

Mr. Grylls : I do not think that that is right. Any subsidy must be negotiated with the Commission--that is quite correct--but the scheme is in place in West Germany, and it is approved. I am not suggesting what the necessary mechanism is, but the issue must be looked at. Let the House be clear that independent business is immensely stronger than it was 10 years ago. It is a

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thousand times better off, largely because of the supply side changes that have been brought about by the Government. My right hon. and learned Friend the Leader of the House has played his own distinguished part by means of reductions in personal and capital taxation. They have made it easier to pass a firm from one generation to the next, which is essential if a firm is to grow from one generation to the next. A firm should not need to be taken over when its proprietor retires or dies. The situation is much better than it was. The Government's initiatives have given great encouragement to independent firms.

The additional venture capital that is around today was scarcely known about 10 years ago. The Government's loan guarantee scheme has helped firms to get on their feet. All that has at last given Britain an opportunity to have a strong, independent firm sector. That will be the central part of our future economy. There is no doubt that 99 per cent. of British industry is wholly behind the Government's efforts to put inflation at the top of the agenda and to conquer it. That must be correct.

Hon. Members will agree that, when inflation goes up again, the Government will succeed in dealing with it. We dealt with it in the early 1980s and in 1985, and we will defeat it in 1989-90. It is not a disease that can be cured once and for all and never reappear. That would be too easy. Every business man knows that no business goes along in a straight line. Of course there are ups and downs. That is exactly what happened throughout most of the industrialised world in the past 10 years. Inflation has ebbed and flowed. Today's inflation could do much more damage than the damage that was done by interest rates. The damage is painful but it is not terminal. However, inflation is terminal for the independent business. There is no doubt that business will support the Government's efforts to bring inflation under control.

I am delighted that my right hon. Friend the Chancellor has come back to hear my last words. [Interruption.] I am sure that he will hear them. Business men will support the Government's worthy aim of getting rid of inflation. They can then look forward to expansion and to continuing the growth that has been the hallmark of the decade of the Conservative Government.

Several Hon. Members rose --

Madam Deputy Speaker : Order. I need to remind the House that the Standing Orders now require speeches to be limited to 10 minutes. 6.7 pm

Mr. John Evans (St. Helens, North) : The huge strike in Czechoslovakia yesterday and the strikes that have taken place in other eastern European countries over the past few weeks would be illegal in Great Britain. They would be illegal because they were political strikes against the Government. Such strikes were outlawed by the Employment Act 1982. They would be illegal also because they were called without ballots. For British trade unionists, such actions were made illegal by the Trade Union Act 1984. If the Government's new employment Bill is enacted, they will be illegal because they are unofficial.

We welcome the developments in eastern Europe and the movement towards freedom and pluralistic democracies. But it is easier for workers in eastern European countries to take industrial action than it is for workers in

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Thatcher's Britain to take industrial action. The Opposition do not believe that arguments about freedom stop at the Berlin wall. I will examine one or two issues which are basic to freedoms in this country, and which the Queen's Speech clearly ignored.

The Gracious Speech does not recognise the level of poverty in Great Britain. It does not mention the poverty of millions of our fellow citizens, nor the contribution to that poverty which has been made by the appallingly low social security benefits which the Government have created. Nor is there any recognition of the disastrous under-funding of Britain's local authorities or of the demise of many of their services, which manifests itself in many of our towns and city centres being left unswept and frequently looking like pigsties. Nor is there any commitment to the major improvement in the National Health Service that a massive majority of the British people want to see and for which they are willing to pay. On a constituency note, I draw the attention of the House to a petition that I have received from the St. Helens and District Society for the Deaf, protesting that there is no provision in the forthcoming broadcasting Bill for improved facilities to enable the deaf to enjoy television programmes. I beg the Home Secretary to correct that omission before presenting the Bill for its Second Reading.

Most significantly, nothing in the Queen's Speech recognises the economic problems that 10 years of Thatcherism have created for towns such as St. Helens. As I have only limited time, I shall concentrate on the one Bill that the Government claim will be beneficial to Britain's economic performance--the new employment or trade union Bill. When the former Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson), downed ledgers a few weeks ago, the Prime Minister got a taste of bad industrial relations. The Chancellor obviously found his working conditions intolerable and walked out.

It is ironic that, just weeks later, the Government have announced a Bill to outlaw unofficial industrial action. They should be well aware that disruptive action, whether the resignation of a Chancellor or a lightning strike in a factory, happens when trust breaks down and when conventions or agreements are unilaterally broken. The Government's Green Paper "Unofficial Action and the Law" is symptomatic of the inability of the Secretary of State for Employment to grasp that basic fact. In many ways, the Green Paper is misleading, fundamentally misconceived and frequently economical with the truth. Paragraph 1.1 states :

"The reform of industrial relations law since 1979 has made a vital contribution to the improvement in our country's economic performance."

One wonders to which country it refers. Perhaps no one has told the author that interest rates are at their highest for eight years ; that the balance of payments deficit is heading for £20 billion ; that inflation is nearly 40 per cent. above the European average ; that Britain's training and education programmes are among the worst in the Economic Community ; that Britain is teetering on the brink of a recession ; and that unemployment is set to rise again. But of course, the Secretary of State for Employment knows that very well. The so-called "economic miracle" is a mirage. So that, as things go from bad to worse, the Government can attack workers' rights as the scapegoat for their own economic mismanagement. The Government make the mistakes, but the workers get the blame.

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The new trade union Bill marks a major change in emphasis from previous Employment Bills. Until now, we have always been told that the nation's real enemies were the trade union bosses. Trade union bosses, the Tories claimed, were power-mad barons who conscripted workers into closed shops against their will, bullied reluctant workers into strikes and used the workers as cannon fodder to satisfy their own lust for power.

To rescue the workers from their clutches, the Government have banned the post-entry closed shop. They have given workers "rights" to elect union leaders in the expectation that the workers' well-known moderation would kick the militants from office. Unions have also been prevented from disciplining any worker who defies a lawfully called strike.

However, the Tories have suddenly changed direction. There is now a new enemy within--ordinary trade union members. Despite the compulsory ballots, the alleged decline of the closed shop, and the election of responsible leaders, the workers are still not docile enough for the Tory party. The new bogeyman is unofficial industrial action. Paragraph 1.2 of the Green Paper states that the great majority of strikes in Great Britain have always been unofficial. Paragraph 1.3 states :

"Most unofficial strikes arise over local issues which have not been taken through the agreed procedure for dealing with disputes". Of course, the Government are interested only in those bits of the truth that bolster their own arguments. They do not tell us what is behind 95 per cent. of those "local issues". In fact, the cause is almost always unilateral action by employers or managers who arbitrarily breach agreements by riding roughshod over the work force on such things as wages, conditions, safety or union recognition, or by sacking workers unfairly. In other words, it is invariably an employer who ignores the agreed procedures for the avoidance of disputes.

So what do the Government propose to do about their concern for good industrial relations? Again, they attack trade unionists. They are certainly not proposing penalties for guilty employers who provoke industrial action. The Government condemn workers for not abiding by procedures. Employers, however, are not only free to do as they please, but will now be given even greater freedom to attack their employees.

Under a heading "Extending Trade Union Responsibility", in chapter 2, page 4 of the Green Paper, of which the Nazi propaganda Minister Goebbels would have been proud, the Government will force trade unions to repudiate any unofficial action. Trade union bosses will have to coerce their members back to work no matter what their employers' provocation. Secondly, if workers do go on unofficial strike the Government will give the employer the legal right to sack the so-called ringleaders. Thirdly, if any striker is sacked, industrial action, even backed by a secret ballot, in support of his or her reinstatement will be unlawful.

In paragraph 2.10, the Government say that action is unofficial where there has not been a ballot. If these proposals become law, trade unions will be accountable for the actions of every member. The only way to escape large fines would be for the union to repudiate any and every unofficial action. If a union does not repudiate its members in writing, employers and their customers could

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get injunctions forcing the union to call off the action. If the union could not comply, it would face fines and sequestrations. The Government do not make it clear how a union can force workers to return when they are on unofficial strike. It could mean that, to escape legal action, unions would have to expel striking members or dismiss full-time officials deemed to be supporting strikers or withdraw credentials from shop stewards. Difficulties will arise if a walkout occurs over, for instance, the dismissal of a shop steward, which was later endorsed by a secret ballot.

At paragraph 2.11, the Green Paper states that the union could "accept liability for industrial action, in which case the union would need to hold a proper secret ballot of all its relevant members."

Although the Green Paper is silent on the matter, it implies that while the ballot is being held the union would be obliged to get its members back to work--

Madam Deputy Speaker : Order. It really hurts me to have to call an hon. Member to order, but we are now within the 10-minute rule.

Mr. Evans : Yes, I appreciate that, Madam Deputy Speaker. What is required is co-operation between Government, employers and workers. The Gracious Speech makes no mention of that, but that is what we require--

Madam Deputy Speaker : Order. I call Mr. Terence Higgins. 6.17 pm

Mr. Terence L. Higgins (Worthing) : The debate on the Gracious Speech this year is inevitably taking place against the background of the dramatic events in eastern Europe. I was rather struck by a phrase--one might almost say a slogan--that was used in our earlier debates on the Gracious Speech. I refer to the expression, "Today we need borders, not barriers." That is a good way of summing up the present position. Clearly, it is vital that the barriers should come down between the various countries of eastern Europe and those of us in the West. That is particularly important, not least from an economic point of view.

However, while I share the euphoria at recent events, I also share considerable concern about the potential dangers. The argument for maintaining borders at the moment--whatever may come at some time in the future--is important. That point is worth stressing because it is against that background that we need to look at both the European situation and the general economic position.

It is true that this debate on the economy, at the end of the debate on the Queen's Speech, is never satisfactory, not least because the wind-up speech must cover the entire debate. Although my right hon. and learned Friend the Leader of the House can cope with the various economic arguments made, tonight he must cover a broad area.

We have had two recent debates on the economy. An extremely good one on an Opposition Supply day and one when we discussed European harmonisation. We have also had the Chancellor's Autumn Statement. The Treasury and Civil Service Select Committee is still in the course of taking evidence--last week it took evidence from Treasury

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officials, yesterday it took evidence from the Chief Secretary and next week it will take evidence from the Chancellor. My Committee has not yet reported nor has it had an opportunity to look in depth at the implications of the Autumn Statement, which no doubt will be debated in January. In that sense we are in limbo, so I shall confine my remarks to a couple of specific points.

I believe that the action taken by the Chancellor on the economy has been right, not least with regard to the rate of interest and the fiscal policy. Those actions are having the desired effect. Although I understand the concern expressed about the balance of payments, the figures year on year, three months on three months or month on month are showing an improvement. The year-on-year and three-monthly comparisons, of course, show an improvement because exports have gone up faster than imports. The latest monthly figures show exports up and an actual reduction in imports, and that is a reflection of the success of Government policy. We must all hope that those policies continue to operate in that manner.

From time to time my Committee has produced a crude analogy of the Chancellor--the present and the previous one--on a tightrope between inflation and unemployment. It is apparent that the danger of the Chancellor falling over on to the inflation side was greatly exacerbated by the failure of the official forecast to anticipate just how rapidly the economy was moving, not least when action was taken following the stock exchange crash of 1987. The danger is that, because that forecasting error was due largely to the huge expansion in consumer credit, when interest rates began to bite, the forecasts could be in error in the other direction. If that happens, my right hon. Friend the Chancellor will not realise the extent to which deflationary pressures are operating within the economy. That matter is of considerable concern.

More particularly, however, I am concerned about a rather technical point with regard to the use of interest rates in relation to fiscal policy. We continue to run an enormous budget surplus with no clear precedent. We must ask to what extent that reflects the tightness or looseness of fiscal policy given the Government's approach which involves a policy of so-called fully unfunding that surplus. We must ask whether there is some scope for action on public expenditure and so on that has not yet been undertaken.

One simply cannot get rid of the surplus. That would be grossly irresponsible, but we must take into account the relationship between that surplus and the policy of fully unfunding. I have come to the conclusion that the answer depends on whether one adopts a monetarist or a Keynesian approach. A monetarist may question, given the policy of fully unfunding, whether it makes any difference if one runs a budget surplus of £15 billion or £5 billion. That is a relevant question--whether the size of the public sector debt repayment makes any difference. A monetarist may say that the aim of policy, as defined by the Government, is to leave the size of bank deposits unchanged. Since bank deposits are effectively insulated from changes in the PSBR, a monetarist would say that there is no difference. He would argue that there would be no difference to aggregate demand because the money supply or interest rates do not change. The only change is in the composition of aggregate demand as the contraction of public expenditure is offset by the expansion of the

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private sector as long-term interest rates fall. That happens because when the Government buy in gilts their price goes up and the rates go down.

A non-monetarist--or, for want of a less pejorative expression, a Keynesian --would argue that the fall in long term rates is unlikely to offset fully the contraction in the public sector. They would argue for example, that the fall in long-term rates is likely to be small because if the public sector is operating a surplus some other sectors--the private or overseas sectors--must be operating a deficit. If those sectors in deficit borrow in the bond market the long-term interest rate will not be so low as expected by monetarists and private expansion will be stifled. Consequently, Keynesians would argue that the fiscal policy does have an overall effect, because pulling the purchasing power out of the economy has the overriding effect and they would argue that the monetary effects are relatively small.

At the moment I do not believe that we are clear, nor is the Chancellor clear, what the true impact of the fiscal policy is when it is backed up by the policy of fully unfunding. We are faced with an unprecedented situation and we have not analysed the situation correctly. Does the size of a fully unfunded surplus matter? We must appraise carefully whether there is some scope for changes in public expenditure or in taxation that have not been recognised previously. The answer turns on which analysis one adopts. I do not expect the Leader of the House to give me that answer tonight, but we should know which of those policies have been adopted.

Although I remain strongly of the view that control of public expenditure is of overriding importance, that raises the question of what the Government's spending priorities should be. My maiden speech was about whether pensions should be given, as of right, to the over-80s left out of the national insurance scheme. I subsequently introduced a private Member's Bill--I was lucky enough to come first in the ballot--but the Labour party, to its eternal disgrace, filibustered all through the Thursday night and stopped the Bill coming to a vote on the Friday. I am happy to say that the first thing that happened when we come to office in 1970 was that we gave pensions, as of right, to that group.

I believe that there is a close analogy between that group and war widow pensioners. All war widow pensioners get the basic pension, but those who claimed after the deadline when the so-called occupational scheme was introduced also get a substantially larger sum on a separate scheme. Because it is an occupational scheme, we are told that it cannot be made retrospective. In many respects that is the same argument as that advanced regarding over-80s pensioners. The war widow pensioners who are excluded from the occupational scheme should at least be entitled to that part of the pension that is not covered by contributions. I advanced the same argument for over-80s pensioners and so last week I tabled a question to ask what part of the occupational pension scheme for war widows was covered by contributions. The reply stated :

"The armed forces pension scheme is non-contributory"--[ Official Report, 13 November 1989 ; Vol. 160, c. 32. ]

The whole lot comes out of the defence vote. The only argument for the other side was that the pay of those who claimed after the 1973 deadline was cut to represent notional contributions. It is ridiculous to suggest that their

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pay was then lower than that received during the war. I went into the forces after the war and my pay was four shillings per day. That is an absurd argument.

Despite all the restraints on public expenditure, I hope that my right hon. Friends at the Treasury will consider carefully the close analogy between the position of war widows and the over-80-year-olds, as the arguments are almost the same.

6.28 pm

Mr. Tony Benn (Chesterfield) : From listening to the debate and especially the right hon. Member for Worthing (Mr. Higgins) the implication is that economic policy is a subtle seminar about the management of an unchanged economy.

I am sure that the right hon. Gentleman, in common with me, has had people come to see him at his surgery who have waited a long time for medical treatment or those who have become homeless. The other day, a young girl came to me who had been thrown out of her house by her father on her 16th birthday. He had broken her nose because she was pregnant. She was living on the streets and stealing to live. She was denied a place on the youth training scheme because she was before the probation service.

In common with many hon. Members, I have had people come to me because they are suddenly in huge arrears with which they cannot cope as a result of the new housing benefits regulations. It is no good saying to them, "Are you basically a monetarist or a Keynesian?" Economic policy is about the aims and objectives of society ; it is not just a discussion between financiers in the City about who can run the economy best. I acquit the right hon. Member for Worthing of that charge, but there are many people who speak as though we were only discussing whether industry was profitable.

Other objectives in society should be the concern of the Chancellor. One is that everybody should have useful work at a living wage. People should have a home in which to live. The benchmarks by which to judge the success of economic policy should be : is there proper provision for education ; are the schools provided with books ; is there an adequate health service or do people have to try to jump the queue by opting for private medicine ; will people be able to enjoy dignity when they are old? If the only criterion set is the profitability of companies that are still in business, we are missing the whole point of economic policy.

We have been told to look at reality, and I think we should. Although many hon. Members have spoken about the new situation in eastern Europe, the Chancellor never mentioned defence expenditure. Next year, he will have to find £21 billion and his great new reality did not include the possibility that reducing defence expenditure and diverting the money to other matters might not only reduce inflationary pressure, but might pay for some of the needs that I have described.

Another new reality is that, in a democracy, the Government's economic policy must be approved by the people. The shift in public anxiety or the change in feeling among the people about the Government is because they no longer accept the underlying assumptions of Government policy. They do not believe that monetary policy and profitability are the criteria by which our society should be governed.

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Mr. Cash rose --

Mr. Benn : No, I shall not give way. We are restricted to 10-minute speeches, I think a bit unfairly.

We must recognise that the debate is not just about the Prime Minister. I have never liked the word "Thatcherism", because it is the values peddled by the Government that people are rejecting. Hon. Members should not think that things are not changing. On Saturday week, I was at Trafalgar square supporting the ambulance drivers. The police buses were waiting in Whitehall, as they always do when there is a big demonstration. The policemen were huddled in the buses and inside there were stickers saying, "We support the ambulance workers". There was a Marine commando at Trafalgar square wearing a steward's armband.

Hon. Members should not think that trade unions are unpopular, because as mortgage rates go up and people in this generation are driven into debt, they learn what others have learned before them--that they need trade unions to protect them. My hon. Friend the Member for St. Helens North (Mr. Evans), who made a powerful speech about the new proposals, gave an idea of what would happen. The poll tax, the widening gap between rich and poor, and the debt into which people are being driven are unfair. It must be the experience of every hon. Member that many people who had good jobs bought houses on mortgage. Then the interest rates knocked out their company, which meant that they could not keep up the mortgage payments and had to sell the house. However, house prices are falling and there are no council houses because the councils have had to sell them and cannot buy or build any more. That is the reality that must breathe some life into the debate.

The gravity of the situation is far greater than has been admitted. I do not intend to go into debating points about statistics. I was an industrial Minister in 1964 when we came to office. George Brown was at the Department of Economic Affairs and Callaghan was the Chancellor. There was the "Maudling dash for growth" that led to a deficit. We had a national plan, but 18 months later it was dropped because of international financial pressure. In 1974, we inherited an even worse situation.

The reality is that, during all the policies that have been followed--on the exchange rate, interest rates, credit controls, the old stop and go and incomes policy--there has been a steady decline in British manufacturing relative to what we need to survive. That is a continuing problem. Oil gave us a bonus. I was the Minister of Power in 1970 when the Forties field was discovered. My hon. Friend the Member for Copeland (Dr. Cunningham) was with me later in the Department of Energy. I think that I am right in saying that BP put £500 million into the Forties field and amortised it in 18 months, so rich was it. We have thrown the whole thing away. Look at the amount that has been paid out in unemployment benefit or at the imported goods that have destroyed or limited our manufacturing industries. There will soon be an election. I should like to see the people being given the right to make their choice sooner rather than later, because this House of Commons is in the time warp of 1987 and much has happened since then. I am bound to turn my mind to the questions that will face an incoming Labour Government, because that is the Government we shall have. Compared to 1964 and 1974, the problems that that Government will face will be monumental. I asked the Chancellor when he thought he

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would get the deficit down, and he could not say. He would not pretend that it would be down to anything like a reasonable level by the time that there is a change of Government.

What will my right hon. and hon. Friends do when they come to office? Will it be enough to deal with the problems in terms of exchange rate policy, the exchange rate mechanism or the European monetary system? The answer is no. We shall have to take a big national decision by deciding that industry is as essential to us as agriculture. We have never allowed agriculture to be destroyed by temporary movements in world food prices. We have sustained it--the Conservative party is best at doing that because it represents the shires. To allow our industry to be destroyed because of short-term changes in the exchange rate or stop-go policies is absurd. Nobody can accuse me or my hon. Friends of not being clear in our amendment about what will have to be done. We shall have to have exchange controls.

We could not have a nation generating profit by its own wealth only to see it move to Korea or South Africa where people can make a bigger profit. We have a deficit of such magnitude that the Chancellor cannot anticipate its end. I cannot anticipate its end by using the old measures in which I was involved. That means that we will have to say to people that we cannot afford to buy from abroad what we now buy from abroad. We must tell them that they will have to wait a bit longer for a Mercedes but that they might get quicker treatment at the local Health Service hospital.

We shall have to cut defence expenditure sharply. Even the Secretary of State for Defence in Washington talked about cutting it by half. At the Labour conference, there was a resolution to cut it to the same level as that of our European partners, and that is outdated by the ending of the Berlin wall. What will Trident and Polaris be used for? Will one be dropped on Walesa and one on Gorbachev? Where is the enemy that justifies enormous military expenditure?

The real priorities are that people should be properly fed and housed, educated and cared for, because those things are in the national interest. Market forces cannot solve any of the problems that are of prime concern to our people. Nor can the Common Market. Who wants to transfer power to Mr. Delors, who is unelected and cannot be removed at an election? We have to do it ourselves. The British people must be told that the only answer to the problems that confront us lies in our own actions, efforts and policies. Such a suggestion may be a little ahead of its time. I found an article in the TV Times that I wrote in March 1957 calling for the televising of Parliament. Thirty-two years is about par for the course. Perhaps a little later, the House will heed what I am saying now. Without pursuing my Dubcek role any further, I commend our amendment.

6.38 pm

Sir Anthony Grant (Cambridgeshire, South-West) : Whether or not one agrees with the right hon. Member for Chesterfield (Mr. Benn), the one thing we can say about him is that we know where he stands. The right hon. Gentleman says what he believes in, and that is more than can be said for his colleagues on the Opposition Front Bench. I wish that we had more time to hear more of the policies that he proclaims in the amendment, about the

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withdrawal of troops from Northern Ireland, the withdrawal from military blocs and, presumably, from NATO and the EEC. We appreciate the fact that the right hon. Gentleman has said quite honestly what he believes in. I hope that he will not share the disillusion of the hon. Member for Liverpool, Walton (Mr. Heffer), who has decided to disappear from the House at the next election, because we would miss the right hon. Gentleman very much.

I and the right hon. Member for Chesterfield share one trait. He dislikes spending too much time on personalities and believes in talking about policies and principles. I entirely agree. On personalities, we are exceedingly fortunate to have my right hon. Friend the Member for Huntingdon (Mr. Major) in the post of Chancellor. We in Cambridgeshire may have had more opportunity to observe his abilities, but I believe that, in what may well prove a tough economic year, his acumen, sensitivity and plain common sense should give us considerable confidence.

It was, in my view, entirely right for the Gracious Speech to proclaim firm policies to reduce inflation and to foster the conditions necessary for sustained growth. No sane person would deny that that task should be a priority ; but how has the present degree of inflation arisen? I do not believe that tax reductions were the main cause, although it might have been better to phase them over a period. I believe in the reduction of taxation, and hope that our Government will never lose sight of that principle. I have also supported the switch from direct to indirect taxation which has proved so necessary over the past decade.

The prime cause of inflation was, I believe, the hysterical panic that spread throughout the world when the stock markets fell on black Monday in 1987. Governments of developed countries panicked and reduced interest rates, and the then Chancellor had to follow suit. There was no alternative ; indeed, he was urged by the Opposition to take such action.

No sensible person would deny that interest rates are the most powerful and effective weapon with which to deal with the cancer of inflation. The credit controls used by the Labour Government in the 1970s would be as ludicrous today as they were then. Rather like the Bourbons, however, the Opposition have forgotten nothing and learnt nothing. I understand that the alternative policy of the right hon. and learned Member for Monklands, East (Mr. Smith) is some kind of chit-chat with bankers in the City : an up- market version of beer and sandwiches--champagne and caviar, perhaps. I do not think that we can accept that as a serious alternative.

Interest rates, however, are also the cruellest weapon, hitting the have- nots and benefiting the haves. Three groups in particular suffer in this regard. No hon. Member has yet pointed out that farmers depend on credit. I am not talking about rich farmers ; there are many poor farmers in Cambridgeshire, and they will find the increase in interest rates very burdensome. Secondly, there are the small firms. I was pleased that my hon. Friend the Member for Surrey, North-West (Mr. Grylls) mentioned them, as they have always been a cause near to my heart. We need not worry about large firms, which, I am glad to say, have become very profitable under the present Government, and can sustain higher interest rates. Small firms working on tight margins, however, will find them crippling. When I was responsible for small firms, they were unfashionable, but they have now grown to a record

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extent. That is one of the most encouraging developments brought about by the present Government. They are the large firms of the future. I was pleased to note that the Queen's Speech promised to promote enterprise, and small firms are the basis of free enterprise.

I was interested in my hon. Friend's suggestion of differential interest rates. I do not think that the EEC or the treaty of Rome would be all that would stop that ; attractive though that may seem, I do not believe that there is a practical way of administering such a system. The only answer is to get these wretched interest rates down as soon as possible, and I beg the Government to bear that in mind and not to kill the goose that lays the golden eggs. The third category of sufferers are home owners with mortgages. Some, of course, have raised money through their mortgages for cars, videos and foreign holidays, but we should spare a thought for those who, in my view, constitute the majority--those who were inspired by the philosophy of the home-owning democracy, and especially those who were urged to buy just before the clampdown a year ago which caused the rise in mortgage interest rates.

Those three groups bear the greatest burden of anti-inflation policy, although it was not their fault that the markets and Governments of the world panicked in 1987. We should remember that they are the bedrock of support for the present Government : they know that Socialism is stupendous folly, and that it has never worked anywhere. They can see through the pretence by the official Opposition--not the hon. Member for Berwick-upon- Tweed (Mr. Beith) and his hon. Friends--that their policy is not really Socialist. I beg my right hon. Friend to give careful thought to the sections of society that I have mentioned. Let me make a suggestion. I do so somewhat hesitantly, as a Treasury Minister is on the Front Bench and I know that what I am going to say is anathema to the Treasury. I feel rather like the fat boy in "The Pickwick Papers" who said to an old lady, "I wants to make your flesh creep." I shall inspire horror in the Treasury mandarins.

I ask the Treasury not to reject out of hand possible changes in mortgage interest relief--and I mean changes in an upward direction. The housing market has taken such a knock that it will be some time before prices spiral again. On many housing estates, properties cannot be sold, but with a degree of balance and common sense I believe that the problem could be solved. I am aware that the Chancellor has poured cold water on the idea in an article in the Sunday Express , but he made it clear in his Autumn Statement that he does not reject the possibility of resolving the matter by fiscal means. I have great faith in my right hon. Friend, and I merely ask him to keep an open mind. The pressure for wage increases to combat the high interest rates from which many large firms are now suffering could be eased by such a measure.

The Government committed themselves in Madrid to the achievement of economic and monetary union as prescribed in the Single European Act, and decided that stage 1 should begin on 1 July, 1990. We shall obviously join the exchange rate mechanism ; the only question is when. I hope that my right hon. Friend will study the paper in which his and my MEP, Sir Fred Catherwood, argues that the solution to inflationary problems lies within the exchange rate mechanism, and that we should join sooner rather than later. That conclusion was also reached by the July report of the Select Committee on Trade and Industry, of which I am a member. Whatever

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we do, we should not miss the bus. If the Government take the view that Sir Fred and the Committee are wrong, and that we do not want to join the ERM, I feel that that will be disastrous for us. If we join, however, I believe that we shall experience considerable benefits, and that many of the problems that we have encountered since black Monday will be overcome.

My right hon. Friend faces daunting tasks, but I have every faith in is ability to deal with them effectively and courageously. Certainly the least of those problems will be dealing with the Opposition.

6.47 pm

Mr. William Ross (Londonderry, East) : Readers of Hansard will see that on 15 November I asked the Chancellor about the effect of increasing public expenditure from £168 billion to £203 billion between the current year and 1992-93. The Chancellor replied carefully that I must have misheard the figures, because the increase for next year was £5.5 billion. The question that I asked mentioned the correct figure of £35 billion--a huge, increase, even if the Chancellor's predictions of a fall in the percentage of gross domestic product is correct.

I appreciate that the Chancellor now has a huge Budget surplus. I am surprised that only two Conservative Members--the right hon. Members for Worthing (Mr. Higgins) and for Old Bexley and Sidcup (Mr. Heath)--have mentioned that so far. If that surplus were allowed to continue until the next general election, it would be the most bountiful gift that any Opposition could ever expect to receive. Imagine the joy of a Labour Opposition and shadow Chancellor who were handed such a treasure house. They could make the most generous promises to the electors, and the Conservatives could not say--as they have been able to say at every election within living memory--"Where is the money to come from?", for the money would be there. It follows, therefore, that the Chancellor must spend the bounty that he has inherited before the next election.

I am sure that that prospect does not make his task of reducing inflation any easier. If inflation is not reduced, the pressure on him to enter the exchange rate mechanism will be increased by those who are in favour of that course of action.

The apparent attractions of taking such an easy way out by taking the first steps to full monetary union are outweighed by the long-term loss of control of our affairs that would flow from that step. I believe that the Prime Minister at least is well aware of the consequences of handing control of the nation's finances to other hands. I have no doubt that the sovereigns from whom the House wrested control knew the importance of control of the money supply ; they certainly held on to it as long as they could. One does not hold on to something that is of no use.

If the Government now understand the downstream consequences of the loss of control of our finances, do they understand the consequences of the diminution of sovereignty that has flowed from the Anglo-Irish Agreement? Willingly adulterating one's absolute right to take whatever course of action is necessary, especially with the involvement of others, is not a policy that I should commend, especially if those most affected are opposed to it.

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An illustration of the defects of shared responsibility is the Anglo-Irish Agreement, which has created a rigid framework in which the Government must operate. They lost freedom of action, and as a result the Secretary of State for Northern Ireland foolishly said that he found it difficult to envisage the military defeat of the IRA. If that is so, the framework--the policy in which the Secretary of State must operate--is wrong and must be changed.

Despite his later efforts to qualify his words, by his first remarks the right hon. Gentleman did himself fatal political damage. The IRA's perception of itself is that it cannot be defeated, and it will act on that perception. That perception must be changed before victory over that terrorist body can be won. For the good of everyone who wants to live in a western liberal democracy such as we enjoy, that victory must be won.

My hon. Friend the Member for Antrim, East (Mr. Beggs) pointed out last Wednesday that the Unionist party wanted a good neighbour policy with the Irish Republic, and that we should like a lasting relationship based on mutual respect between Ulster and the Republic. I believe that that can follow only from stability in Ulster. My right hon. Friend from Lagan Valley (Mr. Molyneaux), who is the leader of my party, said last Tuesday that such stability could come about only if there were what he called a constitutional offensive--in essence, an end to constitutional ambiguity about Ulster. I know well that the constitutional measures that my right hon. Friend outlined--which are detailed to some extent in the amendment that we have tabled--were supported, and not for the first time, by a member of the Social Democratic and Labour party. I know that those measures are often referred to as "integrationist", but I do not agree with that description because they are far more accurately described as constitutionally neutral between integration and devolution, and they most certainly would not inhibit moves to a devolved parliamentary structure, when folk in Ulster learn to work together once again or to the creation of a constitutional and administrative position in Northern Ireland that is indistinguishable from the rest of the United Kingdom.

If the measures taken included the return of simple majority elections, the IRA would be even more deeply wounded, and so much the better for us all. Let there be no doubt that moves such as those outlined in our amendment would wound the IRA because they would change its perception, which is of fundamental necessity before it can be defeated.

Those steps would therefore send a clear signal to the IRA that its campaign of thuggery, murder and lies will not succeed in the short or long term. The foolish words of the Secretary of State will not be wiped out by more words. He has been wasting his time in trying to pull back from them since he first uttered them. No matter how wise or firm those words are, they will not suffice ; only action will do the trick, and it must be taken as soon as possible.

Democracy means far more to me than blind insistence on every jot and tittle of the desires of a 51 per cent. majority. The word "democracy", if one looks it up in a dictionary, demands sensitivity to all minorities and a willingness by the majority in any elected Chamber to take into account the minority point of view, especially when deciding on a course of action of which they may not wholly be in favour. I know that 51 per cent. majorities seem to work well and brutally in this House, but it is not

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