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Chancellor stays in office for two years until the next general election, my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) will take over from him.

The Chancellor talks to us on television and in the House today about sound finance and threatens, as though it has some sort of macho symbolism, to raise interest rates to 16 per cent. The Keynesian retort--

" Sound' finance may be right psychologically--but it is a depressing influence"--

is as apposite today as ever it was.

The recession that is inherent in the Autumn Statement is depressing, as indeed are the Chancellor's words. Delving into deep and difficult psychoanalytic theory, not to mention sado-masochism, he tells us that, if the policy is not hurting, it is not working. But the people who will be hurt are not the Chancellor's own class but the working people of Britain.

Behind this ludicrous language and the pain and despair of recession lies a profound and tragic ignorance of economic management on the part of the Chancellor. When he made his Autumn Statement on 15 November, I asked him why the warranted rate of growth in 1989 was less than it was in 1979. As his answer moved from guff to persiflage, it was clear that he did not have a clue what I was talking about. It is a bit like the neurosurgeon, taken before the medical disciplinary tribunal, saying, when asked why he operated on the patient's leg, "Nobody told me that the brain was in the head." We should have realised what was going on when the Treasury and Civil Service Select Committee heard the Chancellor's pathetic outburst on 3 February 1988. You know how it is, Mr. Deputy Speaker when, in this place, we hide our true selves, we bottle it up inside and we pull a mask over our face--until there is a cathartic event and we have to blurt out the truth and a little tear rolls down our cheek. That is what happened to the Chancellor on 3 February. I shall quote him extensively.

I asked him what would happen to public expenditure if we had a disastrous balance of payments crisis. He flipped and refused to answer the question. He answered :

"While undoubtedly you were at university learning to become an academic, I was outside digging roads learning how to earn my living".

I yield to no one in my admiration for those versed in the theory and practice of digging roads. I would even be prepared to accept that, as an economist, the Chancellor makes a first-class navvy but, summoning up all my reserves of logic, I have to say that being good at digging roads is not being good at being Chancellor of the Exchequer.

Mr. James Hill (Southampton, Test) : Oh dear!

Mr. Sedgemore : Yes, it will be "Oh dear" as I quote from the Chancellor again. He then made two statements which, on the Richter scale of economic imbecility, have never been exceeded. He said : "I also know that there is no imminent balance of payments crisis".

To add insult to injury to that estimable Committee, he said : "I simply observe beyond that that if you think that any projections that anybody has produced of any possible payments deficits in the last few weeks represent remotely a crisis in terms of the percentage of GDP compared with what we saw year after year during the 1970s, then I am extraordinarily surprised that you should make that comment."

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History has recorded that I was right and that the Chancellor was wrong.

I have examined the figures in some detail. In the 1970s, there were balance of payments deficits in six years. But not even in 1974, when oil prices trebled, did the balance of payments deficit reach 4 per cent. of GDP, as it will this year. There were deficits in four other years in the 1970s when Labour was in power--in 1975, when the balance of payments deficit was 1.4 per cent. of GDP, in 1976 when it was 0.8 per cent. of GDP, in 1977 and in 1979. When it comes to a balance of payments deficit, this Chancellor, with deficits of 3.2 per cent. of GDP in 1988 and of 4 per cent. in 1989, is in a mega-league of his own.

Every hon. Member knows what the warranted rate of economic growth is, but because the Chancellor does not, I shall define it for him. It is the sustainable rate of economic growth that Britain can have without moving into a balance of payments deficit. From 1950 to 1970, the warranted rate of economic growth varied between 2.5 per cent. and 3 per cent. of GDP. In the mid-1970s, because of the oil crisis, it fell to 1.5 per cent. In the 1980s, because we found North sea oil, it rose to 3 per cent. Recent simulations have shown that the warranted rate of growth is between 0.5 per cent. and 1 per cent. of GDP. That means that there has been a tragic decline in our manufacturing base. The proof of that lies in the Chancellor's forecast that, in 1990, with virtually no growth and a recession, there will be a £15 billion balance of payments deficit.

That will not end in 1990 or in 1991. The Chancellor is hopeless, helpless and hapless. No wonder we shall be voting against him tonight.

8.10 pm

Mr. Phillip Oppenheim (Amber Valley) : I shall deal first with what I call the manufacturing myth--the myth that Labour Members are the true friends of manufacturing industry. Some commentators paint a picture in which all the recent economic growth that we have enjoyed has been in the retail and service sectors and that none has been in manufacturing. Some say that the supposedly great manufacturing industries of the 1960s and 1970s are all dead or dying. Opposition Members have consistently claimed that, under Conservative rule, manufacturing output has fallen.

The stark fact is that manufacturing output fell under the last Labour Government. Under the Conservatives, manufacturing output has risen sharply, particularly in the past few years, and last year it rose by 4 per cent. Much of the industry in the 1970s was grossly uncompetitive and almost dead on its feet. Not only do we have more manufacturing industry now than we had under Labour, but it is more competitive and in better shape-- [Interruption.] Labour Members laugh, but I will give examples to prove my point.

Who would have given British Steel a chance in 1979? Who would have given a chance to our aerospace industry or even to ICI, which had the reputation of being a sleepy, inefficient giant depending largely on our old colonies for its markets? Yet last year, for the first time ever, Britain's pharmaceutical companies exported more than those of any other country.

Our aerospace producing industry recently overtook France to become the world's largest, after the United States and the Soviet Union. Many people in my

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constituency, including Labour supporters, tell me frankly that industry in the area in the 1970s depended largely on inefficient and uneconomic pits or on old industries which were on their last legs. My constituency has seen a huge growth in manufacturing industrial output and there is now a widespread competitive manufacturing sector ranging from engineering to carpets and from consumer products to electronics.

Just outside my constituency, another of the industrial near basket cases of the 1970s, Rolls-Royce, now has a record order book for its aero engines. At almost every airport in the world one sees new planes with Rolls-Royce engines. My hon. Friends and I are extremely proud of a record such as that, even if Labour Members are grudging about it.

There is no denying that there has been some mismanagement of the demand side of the economy. That mismanagement has been due not to tax cuts, as is often claimed--such cuts injected only £4 billion extra into the economy last year--but to low interest rates in 1987 and 1988, which injected 10 times as much demand into the economy--£40 billion in all.

Those demand side problems should not blind us to the fact that the supply side of the economy has been producing record levels of wealth and output in recent years. Proof of that lies in the fact that, while the demand explosion has undoubtedly meant that imports and inflation have risen, our domestic output has risen sharply as well. The reasons for that enormous improvement in domestic output are better productivity and more competitive industry which has enjoyed an investment boom.

Investment now going into British industry is far better than that which occurred in the 1970s. At that time, investment was often directed by Government into unviable projects such as the creation of ludicrous and unsustainable levels of capacity in the steel industry.

There are other, more positive, though little noticed, signs which bode well for our prospects in the coming few years. For example, our share of world exports, which fell sharply in the 1970s, has stabilised in the last decade. Exports were up sharply in the last year and, in volume terms, they rose by 10 per cent. over the last quarter.

Our exports are now growing far faster than are our imports-- [Interruption.] That may not give Labour Members much pleasure, but I have stated the facts. Our export performance is good now. That shows that our economy is more competitive and is responding well to increased demand. Perhaps that does not amount to the economic miracle that some were unwisely claiming some years ago, but it shows that our industrial problems are not nearly so grim as Opposition Members suggest.

Perhaps there never was a real chance of solving in a decade all our deep- seated and long-term industrial problems, many of which go back many years and are the responsibility of many Governments, as hon. Members in all parts of the House will accept. Even so, we now need, above all, a continuation of our successful supply side policies to consolidate the improvements of the last decade. An area where improvement is vital is the education system, which must supply the skilled, trained and educated people whom industry needs. Conservative policies have produced more wealth and more manufacturing output than ever before. We should not be blinded to that fact by short-term demand problems. To deny that our policies are working risks a

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return to old-style, pre-Thatcherite policies. It would be ironic if, at the time when every other country, including many Communist states, are moving to more free market systems, we should return to a more controlled, centralised, regulated economy.

We have recently been hearing more a term which, thankfully, we have not heard for a decade. It is "industrial strategy". If we can learn lessons for the future by looking at the past, we can learn much by looking at previous attempts at industrial strategies. Consider, for example, Jaguar, which is topical today. The Government have been accused by the Opposition of allowing Jaguar, supposedly the jewel of the British car industry, to be sold off to foreigners, preventing it from developing into a major independent force in world car markets.

The battle for Jaguar to be a major independent force in world markets was lost not in the last decade but in the two decades before that. When we took office, Jaguar made a paltry 15,000 cars per year. Last year it made more than three times that number. It has been brought back from the brink by Conservative policies. Jaguar was taken to the brink by earlier Labour policies, for it was an industrial strategy of the Wilson Government which decreed that the British car industry should merge.

Industrial strategy and regional policy ordained that the British car industry should build plants in unsuitable places which meant that bodies and engines had to be shunted around the country from the midlands to Bathgate, and to Speke and back again. An industrial policy in the 1970s determined that the volume car business should bleed Jaguar and Land Rover white, so that for years those companies did not have enough investment capital.

That was why the good bits of the old British Leyland empire, such as Jaguar, were virtual industrial write-offs by 1979, making a few thousand cars in out-of-date factories with appalling labour relations and no pride in the job. Opposition Members need not take my word for that. George Simpson, currently the managing director of the Rover group, who worked in that group in the 1960s and 1970s, talking about the late 1960s, observed :

"It was a radically different company years ago riddled with archaic practices. My greatest initial experience when I joined the company was trying to find out which level of canteen I would be assigned to. There were 14 levels of canteen and eventually I was allocated to one where you could have beer or sherry with your lunch."

That was under a Labour Government. That was when Jaguar's pass was sold. That was the legacy of Labour's industrial strategy. Industrial strategies and interventionist industrial policies do not work. Markets work because they represent the individual choices of millions of people. It is sheer arrogance to believe that politicians and bureaucrats can make those decisions for people and that they know better than business men where to invest money.

The investment decisions of politicians are almost invariably clouded by political judgments which usually lead to commercial failure. Those who hold up Japan as an example of supposedly successful industrial planning have grossly misread the causes of Japan's industrial success. I accept that it is always easy for western politicians and business men to claim that Japan succeeded through something simple and easily understandable such as an

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industrial policy, which supposedly we have not had in the West. However, virtually all western Governments have tried industrial policies, and almost always they have failed.

To believe that industrial planning lies at the heart of Japanese industrial success is to miss the point. Japan has succeeded for many reasons, among which are its intensely competitive internal market, very low taxation, very low Government spending and a disciplined and vocationally oriented education system. Since the war, Japanese Governments have never pilloried profit or sneered at success in the way that Labour politicians habitually do. Japanese companies have taken care to make their employees feel part of their organisation, and they have been open-minded enough to buy in the best technology from overseas. Japan's Governments have provided a pool of low-cost investment for its industry by keeping taxes very low on savings--something which we would do well to emulate. None of those things has anything to do with industrial strategies.

We should not kid ourselves that the Japanese have succeeded through industrial planning, however alluring an excuse that might be, or that all that Britain needs to solve its industrial problems is a little bit of intervention here and a little bit of administrative guidance there. We should not fool ourselves that the right hon. and learned Member for Monklands, East (Mr. Smith) and his friends will get together with industrialists, trade unionists and a few civil servants and solve all our industrial problems. Our economy is not like that.

All those policies have been tried, and they have failed. Those policies gave us the economic planning boards of the 1960s, the National Enterprise Board of the 1970s, and British Leyland, British Shipbuilders, and British Steel, all of which were chronic loss-makers. Those policies will fail again if they are tried again. We should not return to the old pre- Thatcherite agenda which is being rejected all over the world. We should continue with the free market policies allied to improvements in our education system which will steadily rescue us from nearly a century of steady decline. 8.23 pm

Mr. Ted Rowlands (Merthyr Tydfil and Rhymney) : I believe that my remarks will more than answer the complacent speech of the hon. Member for Amber Valley (Mr. Oppenheim), who managed to describe a successful supply policy which has resulted in a £20 billion balance of trade deficit. Other hon. Members have mentioned--and I recall vividly--the first statement made by the new Chancellor when he said that, if it is not hurting, it is not working.

People in the communities that I represent are asking who else has to be hurt or damaged and how many more have to lose their jobs before that policy apparently works. During the summer, in the weeks before the Chancellor took his new office, communities such as mine were already suffering serious blows as a result of the Budget and of the continuing structural changes imposed upon us. In one month during the summer, two pits in my constituency were closed. Six others have been closed within a 30-mile radius in the past 12 months. On the day of the announcement of the closure of Merthyr Vale pit at Aberfan, Hoover, our other major alternative source of

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employment, also announced significant large redundancies. It directly attributed those redundancies to the Government's economic policy, particularly on interest rates.

Hoover--the major alternative to the coal industry in my constituency-- started the decade 1979-89 with 5,400 jobs and now, at the end of the decade, it probably has no more than 1,500 people at work. Many of the structural changes mentioned by the hon. Member for Amber Valley were accepted many times during the last decade by the trade union movement and management agreeing to change a variety of practices to become more efficient. It is a sad and tragic observation that, after a decade of difficulty, sacrifice and job losses in our communities, we now have the chilling feeling that in the next 12 months we shall have a repeat performance of the experiences of 1980 and 1981.

It is in that context that one has to measure the famous valleys initiative launched by the Secretary of State for Wales, of which my constituency is supposed to be the major beneficiary. I welcomed the initiative from the start. Local authorities, myself and others have co-operated fully in endeavouring to make the initiative successful. The Secretary of State thought that it was so successful that he wanted to show it off to the Prime Minister a week ago. That was the first time that the two have been seen together in public. Nevertheless, he was willing, keen and eager to demonstrate the success story of the valleys initiative.

I doubt whether the Prime Minister heard the whole truth. The truth is that the jobs we have gained from the valleys initiative have been more than matched by the jobs lost. In character and volume, those lost jobs cannot be compared with the jobs created. We have lost well-paid jobs in manufacturing and, with one or two exceptions, we have gained poorly paid part-time jobs in the service sector. The Queen's Speech offers no solution to the structural problems which led to the supply problem about which the hon. Member for Amber Valley boasted. How can one boast about a successful supply policy which ends up with a £20 billion balance of trade deficit? What has happened in the past two or three years--there was a semi -admission of it in what the hon. Gentleman said--is that consumption has risen totally out of line with production. The only answer that the Government have is to crush consumption to match the decline in production. To achieve that cut in consumption, they will damage the investment necessary to increase production.

I can give a vivid illustration from my constituency. A new young enterprising company came to my constituency to make pistons for diesel engines. It is an amazing story. Do the hon. Member for Amber Valley and the Government know that now in Britain--once a great nation of manufacturing and engineering--there are only two companies which can make pistons for diesel engines? One is a small nascent company set up in Merthyr Tydfil. The company was set up because the gentleman who owns the export company had export orders which would no longer be met by any British company. He could not find the products to sell to the export markets that he has secured, so he was forced to set up a small manufacturing unit.

Having set it up, he has been besieged by telexes from Rolls-Royce, Perkins and Listers asking him to deliver pistons for diesel engines within Britain, in addition to his

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exports. He therefore needs to expand. However, a small company such as his needs to borrow. He has found that his interest rate bill alone has gone up by £2,000 per month in the past 18 months to two years. He will therefore not be able to expand to meet the supply-side problems that have arisen in the economy as a result of the Government's total and utter neglect of the manufacturing sector of the nation.

Our internal manufacturing supply problems and the Government's interest rate policy will make it more difficult, not less, to produce things in Britain again in communities such as mine. Developments in Europe, particularly in eastern Europe, will also cast economic and industrial shadows over manufacturing in this country.

I read with some interest that large-scale West German and American capital will be crossing into eastern Europe. Parts of eastern Europe are seen as a new south-east Asia or Taiwan within Europe because they offer an opportunity to launch products manufactured with cheaper labour and new investment into western European markets. Another major employer in my constituency is Thorne Lighting. I recently read a headline stating : "General Electric plans attack from the east." The United States group has moved to buy into Tungsram, a major Hungarian lighting company which a few years ago caused enormous damage by dumping light bulbs on to the British market. That is a sign of other developments that will occur. Such developments may be understandable, but they will add considerable pressure on the manufacturing sector in our economy.

What does the Queen's Speech offer to help the manufacturing sector? We are not being governed by people who are interested in making things. Communities such as mine were founded on making things and there is nothing wrong with wanting to produce things rather than simply servicing things. In the end, the service economy depends on wages in the manufacturing sector.

Much of the service sector is self-consuming--it consumes other people's wages. To stay open, our B and Q stores and Great Mills stores require other people to have incomes, so people must be earning good money in other companies in the manufacturing sector. Communities such as mine with our great ironworks began the British and world industrial revolution in the late 18th century. We want to produce things again, but the Government are more interested in paper money than in meaningful production.

Recently I read the Chancellor of the Exchequer's remarks about taking the Bank of England out of politics. The origins of the Bank of England date back to the 1960s. There were great debates in 1710 when the nascent Bank of England refused to support the Government of the day and almost created a credit strike. Daniel Defoe wrote an essay on credit in which he referred to "men of paper". The Government, too, are men of paper. They are not in the slightest bit interested in the manufacturing sector. If they were, they would not have allowed the decline in the past decade to become as bad as it has.

I have one modest suggestion which can be applied within the existing terms of Government policy. The Government can assist the growth and redevelopment of manufacturing investment in communities such as mine in two ways. First, they can use selective financial assistance to its limits. That is the last bit of regional policy left which can serve communities such as mine. Companies such as

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the one that I have decribed, which makes pistons, require that assistance to at least offset some of the costs of the high interest rates imposed by Government policy.

Secondly, the Government must take a much more imaginative approach to the EC funds available for regional restructuring and redevelopment. There has been a large increase in the regional development budget. However, in my extended correspondence with the Secretary of State for Wales in the past few weeks, I have found no imaginative thinking about how some of those regional Community funds can be used and adapted to ensure that communities such as mine, which are proud of their tradition of manufacturing things, can be so again.

8.34 pm

Mr. Ian Bruce (Dorset, South) : I am pleased to follow the hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands). Like him, I believe passionately that manufacturing industry is extremely important for the United Kingdom. I have always believed that the United Kingdom has been able to show the world how to manufacture and I believe that it can do so again in future.

I want to confine my remarks on the Queen's Speech to a very narrow subject. I want to help by offering some suggestions about our trade balance. Our trade balance can be financed and there is no need to panic. However, we can take measures against it.

When my right hon. Friend the Chancellor of the Exchequer considers his options, he must be worried about how he can steer his way through the problems without raising interest rates even higher. He must be worried about keeping inflation down and move against constant tax increases. He must always keep his eye on the difficult problem of unemployment which we are beginning to control. The Government already use interest rates in their battle with the trade balance, but I believe that there are other measures available. We could reduce inflation through a tax reduction which would make United Kingdom goods and services more competitive, reverse the trade gap and bring greater employment. I can see the excitement on the faces of my colleagues on the Treasury Front Bench at the thought of that. I am referring to employers' national insurance.

In the Autumn Statement, I was very unhappy to hear that we will continue to keep employers' national insurance at roughly 10.5 per cent. I was involved in costing as a work study engineer in industry. Whenever we carried out a costing, we first considered the labour costs in the particular goods or services. As soon as we had written down the labour rates, we added on what was usually a very high figure for the employers' national insurance.

Earlier, I listened to my right hon. Friend the Member for Old Bexley and Sidcup (Mr. Heath), who tends to rewrite history. However, I want to praise his excellent efforts with regard to employers' national insurance. In 1970, when my right hon. Friend's Government took office, employers' national insurance, which is really a tax on jobs, was 13.5 per cent. Over four years my right hon. Friend reduced that to 6.5 per cent. However, when the Labour Government took office they did not like that level of the tax because they are so friendly with the workers.

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They saw it as a tax on employers and one which they would not be hammered for by their supporters. However, we all know that a tax on an employer is passed on in the cost of the product.

The Labour Government raised the employers' national insurance from 7.4 per cent. to 8.5 per cent., then 8.75 per cent., and to 10 per cent. The Labour Government said that they had to increase the employers' national insurance tax because of higher and higher unemployment and benefits. To add insult to injury, they added on the iniquitous national insurance surcharge, first at a rate of 2 per cent. and then at 3.5 per cent.

When this Government came to power, my right hon. Friend the Prime Minister understood the difficulty that the surcharge was causing employers and she made a commitment to reduce it. She reduced it from 3.5 per cent., but that took a long time. I believe that it was finally removed on 6 April 1984. That was one of the engines which ensured that inflation was reduced, because it had an effect on the cost price of goods and services in the United Kingdom. Therefore, it helped to boost enterprise and company profitability. That tax has been 10.45 per cent. or 10.5 per cent. for many years, and the employees' national insurance charge, which started at about 5 per cent. or 6 per cent., is now 9 per cent. Both taxes are foolish. We presently appear to have a surplus of taxation receipts. If there is any money to be given back, the best place to put it would be the employers' national insurance charge. That would have the effects that I have outlined.

If the Government wish to be adventurous, by transferring that tax--not a tax on employment but a tax on consumption--and putting it effectively on the VAT rate, at one fell swoop they would ensure that, when goods are imported, which effectively reduces employment in the United Kingdom, somebody buying those goods or services would pay for unemployment benefit, pensions and so on.

A tax on employment is wrong. At the moment, we export goods at 15 per cent. and we remove a 15 per cent. tax, but, in France, we might get a tax rate of 25 per cent. or 33 per cent. We effectively pay a higher tax rate in France. In France, an employer gets 33 per cent. or 25 per cent. taken off his goods as he is going out the door, and only 15 per cent. when he comes in our door. The equalisation of VAT would work to our advantage against most of our competitors. There are some fine judgments to be taken, but we could improve our competitiveness.

It is not de rigueur to do the opposite of what the Labour party suggests or what it has done in the past, but it is often good to do it. The Labour Government put up taxes, and their tax take into the Treasury went down. They looked for more Government involvement, but got less control over the economy. They opted for more

nationalisation, supposedly to preserve companies and jobs, but we ended up with fewer companies and jobs. They put up national insurance rates, thereby putting up prices and destroying competition.

By cutting tax rates, we have increased the tax take and created more enterprise. We have removed Government control and privatised many companies, which has created more enterprise and jobs. Let us now reduce the employers' national insurance rate. That would reduce prices, restore competition and start to cut the trade gap which undermines international confidence in our economy. That is the mechanism for getting our economy back on track in the next financial year.

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8.42 pm

Mr. Graham Allen (Nottingham, North) : I should like to continue my series of great Tory economic myths--an in-service training course for the more gullible Conservative Back-Bench Members. The great Tory myth which I should like to discuss today is the "record levels of investment in the United Kingdom".

This morning, the east midlands CBI announced a programme for the east midlands--it could have been endorsed or even written by myself or the Labour party--calling for transport investment, the availability of more land for new industry, and a serious retraining and reskilling programme. However, the common ground that now exists between the CBI, Opposition Members, trade unions and commerce is not shared by Conservative Members. The Conservative party once proudly boasted that it was the party of business, but it can no longer make that claim. The process has subtly changed.

The Conservative party is now clearly identified not as the party of business but as the party of the City, the money-changer, the moneylender and the money markets. Those interests often run counter to the interests of business, and more and more people in the business community--the real economy--such as the producers and the wealth creators, are beginning to realise that. The Conservative party can no longer claim to be the party of industry. The free market obsession, which, incidentally, is exclusive to Thatcher's Britain, has been the death sentence for the many of our industrial companies.

On investment, it should be enough to quote the Chancellor's own Autumn Statement in which he admitted that total fixed investment will plummet in 1990, increasing by only 1.75 per cent., including a fall in general Government investment of 3.75 per cent. We must look deeper, as Tory propagandists have yet to catch up with the magnitude of the economic crisis.

In his Autumn Statement, the Chancellor stuck up two fingers at industry, and it is about time that the CBI at national level stopped primly believing that that is a gesture of victory and started to scream about alternatives before the recession starts to pick off its membership. The Autumn Statement gave no support to British industry, no new money for industrial research and development, no new money for industry in the regions, and less money for industrial training. Incarcerated in the prison of Thatcher's Britain, we often get a distorted perspective and need to look abroad to see what other nations do. What do they do in terms of investment and of assisting their industries? The new Chancellor today referred to what happens in the Soviet Union, Romania and other Eastern bloc countries which spend perhaps a quarter of their GDP on public investment--a brilliant intellectual sweep that was meant to indicate that virtually all investment was potentially bad. The Chancellor excluded our major industrial competitors in Japan, Germany, the United States and elsewhere.

Our total public sector investment has fallen by 20 per cent. since 1979. In Germany, two brand-new north-south railway routes are being built. In Spain, every single yard of railway track is being ripped up and restored on a new gauge. In France, just about every last chicken shack along every rural route has been electrified to bring about the benefits of rail electrification. All that costs money.

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However, the Government will not even allow British Rail to find £95 million to electrify the line from London to the east midlands.

The Chief Secretary to the Treasury (Mr. Norman Lamont) : I do not understand the hon. Gentleman's reference to £95 million. British Rail's investment in the next three years will increase by £3.7 billion.

Mr. Allen : British Rail's investment is commendable, but much of it is obviously in matters such as environmental improvements. The Conservative Government are quite happy to see £500 million spent on environmental improvements in Kent, but they cannot find £95 million for the economic regeneration of the east midlands.

I sometimes feel sorry for the Chancellor. He has perhaps been dropped into the mire, just as the Prime Minister is treading on the Meyer. He has been left an appalling legacy by his predecessor. He should insist on the resignation of the person who, in the debate on the 1988 Autumn Statement, predicted the levels of trade deficit, inflation and other matters. Sadly for him, the person who made that prediction was the Chief Secretary, and we all know who that was. The insanity of the Government's policies is that, at the very time when we should encourage investment in manufacturing, the Government are deliberately using high interest rates to choke the demand which would stimulate investment decisions on new plant and machinery. That is why the CBI's latest industrial trends survey shows the gloomiest outlook for investment since 1983.

On top of that, industry now has to carry the burden of new taxes. No, not the heavier burden of personal taxation which, if one adds indirect and direct taxation together, has risen under this Government, and not the taxation of the uniform business rate, but a new tax. Indeed, we might even call it a "Major" new tax in honour of the new Chancellor. This "Major" new tax has been imposed upon the people of this country without the consent of Parliament. It is the rise in interest rates. This "Major" new tax adds £73 per month to a £30,000 mortgage. For a small business man with a 5,000 loan, the "Major" tax adds £75 per month. For industry generally, for every 1 per cent. increase in interest rates, the "Major" tax adds £250 million to costs.

Why invest in such circumstances? Those who have funds to invest may well choose in such circumstances to put their money on deposit or into the money market rather than invest in Britain when returns are so high. That is why six major companies in the United Kingdom now have cash mountains of over £1 billion. They choose not to invest in Britain because they know that they can make larger returns by sticking their cash on the money market, contributing to the hot money economy that has been developed by the Conservative Government.

But if in doubt, one should go back to the old standards and fiddle the figures. That is the way to make the economy look a little better. First, redefine the terms. The term "business investment" now actually includes the investment of public corporations, as well as that of private business. But even with such investment added, "business investment" has not grown since 1979. Within that business investment, the manufacturing element has shrunk from 26.3 per cent. to 19.7 per cent. It is no wonder

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tht the Japanese put out the red carpet for the Prime Minister because she and her policies have done more for their economy than any other individual in the world.

The second of the big fiddles is a new one. A new fashion has been developed today on the Conservative Benches--it is to talk, not of the level or the quantity of investment, but of the quality of investment. First search out one's investment and then talk about its quality. It is the truffle theory of investment.

The third is a good old statistical manipulation from the Norman Fowler School of Actuarial Standards. Most Conservative investment statistics start with 1981 to avoid the year zero time for manufacturing, which was between 1979 and 1981 when, with Pol Pot dedication, the Government set about creating a pile of skulls out of one fifth of British industry. One fifth of Britain's manufacturing industry was piled into the economic mass graves dug by the Prime Minister and her Khmer Blues.

From 1979 to 1988 business investment rose by 4 per cent. per year and high investment in services concealed the manufacturing investment element, which was still below 1979 levels. In the interim, an investment hole of some £18 billion had been created--a permanent irrecoverable handicap at a time when our competitors were investing like crazy, the Japanese having just announced £150 billion-worth of planned investment in the future.

Today the Chancellor attacked Labour's policies with all the confidence of a man who is certain that he will soon be replying to a Labour Queen's Speech, and who needs the practice. He asked, "How do we increase investment?", but unfortunately he uncharitably and untypically refused to allow interventions to answer that question from myself and other hon. Members.

However, the lines are clear and they will become ever clearer to Conservative Members. First, we need to work in partnership with industry. We need to work with business to develop our capabilities in training, education and research and development. We need to spread activity around the country and the regions. That makes sense in terms of fairness as well as in terms of economic efficiency. While the south-east overheats, the rest of us freeze. We need to look at instruments that can help industry and business, rather than hinder them. As well as tackling high inflation and high interest rates, we need to consider other specific economic instruments, including perhaps better depreciation allowances on capital investment, to examine the rates of corporation tax and, of course, to review the uniform business rate and the poll tax.

The squalid unclean Thatcher era is now stumbling to an end and for the Opposition that end cannot come too soon.

8.55 pm

Mr. Timothy Kirkhope (Leeds, North-East) : For just a few minutes I had a feeling that we were in the Romanian Parliament, hearing the voice of Socialism spouting in its usual inappropriate and undemocratic way. However, I was quickly brought to my senses when I realised that a considerable number of other hon. Members disagreed fundamentally with the sort of nonsense that we have been hearing from Opposition Members.

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It is all very well to refer to things that have happened in the past, but we should try to remember a little about the arrival in this country in the mid-1970s of the International Monetary Fund, not to seek our advice as happens now, but then to seek our proposals as to how the country might be bailed out of its bankruptcy under the Labour Administration.

About half an hour ago, an Opposition Member referred to Britain being "great" in Labour's day. Apart from the name, nothing much was great, except perhaps the great debts, the great inflation, the great misery of the British people, and the great trouble that we were in, financially and in every other way, in international terms. That was the "greatness" that the Labour party provided for this country when it last had its opportunity, and that is the sort of greatness that it would like to thrust upon the British people if it were ever to get power again.

Since the Conservative Government came into power in 1979, we have achieved immense results for the British people. Those listening to the debate this evening will realise when they look at their own families that their way of life, their quality of life and their standard of living have improved substantially under the Conservative Government. We are concerned with results. It is all right to have neat Socialist theories, but the people want results and that is what they have had ever since we came to power in 1979.

Our economy has grown faster than any other European economy. It is true that, initially, it needed to do so, because we had fallen so far behind in the 1970s. We have lowered taxes in numerous Budgets, and I hope that we continue to do just that, because the result is an inevitable increase in the resources available to the Exchequer to enable the Government to do things for the benefit of the people. During the past 10 years, investment in our industries and businesses has increased substantially. Some Opposition Members might decry the interests of overseas investors, but it is fair to remind them that our investment overseas is also substantial. Any free trade between countries includes the movement of investment, which is one of the greatest creators of wealth and prosperity for such countries. Let us consider the alleged north-south divide. I am pleased to say that that historic boundary no longer exists. I am speaking directly from my experience of my constituency in Leeds and of the north-east, where I lived before I was elected. The achievements have been absolutely sensational, and they are a direct result of the Government's economic and other policies. The fortunes of the north-east, Yorkshire, Humberside, the north-west and the east and west midlands have been completely revived.

Previously, those areas lay in a despondent state as a result of the constant Socialism thrust upon them when, unfortunately, local authorities were politicised at the end of the war. We were unlucky enough to have one or two Socialist administrations in power in those regions. One need only look at the resources of those areas to realise that the Conservative Government have been a great help. They have done an enormous amount to help the development of road programmes, regional airports--a great success story--and related infrastructure, as well as providing a concentration of investment in health, education and schools.

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