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I hope that my hon. Friend shares my concern that, although the privatisation of Sealink has been such a success in my constituency and on many other islands, the nationalised board of British Rail sadly did not allow employees to buy shares when Sealink was privatised. Does he agree that there could not be a greater indictment of the board that refused to give that right to the employees who had served so faithfully for so many years? Sealink is the only company on the glorious roll of honour read to us by my hon. Friend not to do so.
Mr. Gow : It will come as no surprise to the House that there is an identity of view between my hon. Friend and me. That identity of view presages a happy and agreeable evening, which we shall spend in the presence of new shareholders in formerly nationalised industries. My hon. Friend won his seat from the Liberal party. There is no representative of that party present today, but we welcome the arrival of my right hon. Friend the Patronage Secretary.
Mr. Gow : My right hon. Friend the Secretary of State for the Environment made a model speech of outstanding quality last night. The last two names on the list are the Training Agency and the water industry. Let me put a direct question to the hon. Member for The Wrekin (Mr. Grocott). Who knows how he came to be put up to reply to the debate, but that task has been allocated to him--by whom I do not know. There he is, however : the official spokesman for Her Majesty's Opposition. Let me ask him which of those 33 companies will be taken back into public ownership in the event of a Labour Government's returning to power? I shall pause for the hon. Gentleman's reply.
Mr. Grocott : I am encouraged by the hon. Gentleman's implication that he is drawing his remarks to a close. The sooner that he does so, the sooner that we can get on with the rest of the speeches, and the sooner I can deal with his points at the appropriate time.
Mr. Barry Field : Before my hon. Friend draws his speech to a close, may I prevail on him to question the Opposition regarding their policy towards the security of frontiers in Europe? During the debate on the Aviation and Maritime Security Bill, I asked the hon. Member for Kingston upon Hull, East (Mr. Prescott) about his party's policies on retaining frontiers within Europe to prevent terrorism and drug smuggling. He informed me and the House that, broadly speaking, the Labour party supported that policy. However, time prevented me from asking him how his party reconciled that with its continual call for a vote to be taken in this House on the Prevention of Terrorism Act 1974. There is a complete contradiction between the Labour party's view on the retention of frontier posts in Europe and its continual calling into question of the Prevention of Terrorism Act.
Mr. Gow : Again, it is so fortunate that this evening I am to make a journey to the Isle of Wight. My hon. Friend and I, who are in such happy agreement, will be able to continue our discussion about the Labour party's policies.
I shall be unable in my brief speech--I have been on my feet for only one hour and 20 minutes--to cover every aspect of the Opposition's policy document "Meet the Challenge : Make the Change." It is four times the length of the previous document that has been described as the longest suicide note in history. It consists of 88 pages of closely typed script in two columns of very small print. Perhaps that was deliberate. It is sometimes said that if one wants to conceal things, they ought to be put into very small print. It is a matter of great satisfaction to the House that my hon. Friend the Member for Crawley (Mr. Soames) is in his place. He has to leave shortly to make the journey to his Sussex constituency. He is a keen student of these matters and he has given me valuable assistance in preparing my speech. I thank my hon. Friend for the great help that he has given me. I hope that he will continue to assist me on future occasions.
I want to say, in the presence of my right hon. Friend the Patronage Secretary, since we have been considering the extension of ownership and choice during the last 10 years and more, that nowhere is that extension of choice illustrated more vividly than in an answer that was given yesterday in this place by my hon. Friend the Financial Secretary to the Treasury, although all of us know that the answer was prepared by my hon. Friend the Economic Secretary to the Treasury. My hon. Friend the Member for Birmingham, Northfield (Mr. King) asked the question, about share ownership.
We welcome most warmly, directly back from Hong Kong, my right hon. Friend the Member for Blackpool, South (Sir P. Blaker) who has just come into the Chamber. I know that he will wish to contribute to our proceedings.
In his answer, my hon. Friend the Financial Secretary said : "The latest Treasury and stock exchange survey in February 1989"--" I pause there. My hon. Friend the Member for Crawley will agree that we are now in January 1990 and that next month there will be another survey, which means that I am about to give a figure that is 11 months out of date. My right hon. Friend the Member for Blackpool, South follows these matters closely. The figures given yesterday in this place by my hon. Friend at Question Time are not so good because they relate to February 1989. He continued :
"showed that approximately 9 million people"--
I shall repeat that figure for the benefit of the hon. Member for Bolsover- -
"showed that approximately 9 million people--that is 20 per cent. of the adult population--owned shares directly."
In the last sentence of his answer--I want the Comptroller to listen very carefully to it--my hon. Friend said :
"This represents a threefold increase in the number of shareholders since 1979."--[ Official Report, 18 January 1990 ; Vol. 165, c. 392-93.]
I hope that my right hon. Friend the Member for Blackpool, South has taken that on board. Next month, we shall have the updated figures. According to my hon. Friend the Financial Secretary, 20 per cent. of the adult population now own shares, but the figures do not take
Column 544account of the successful privatisation of the water industry. That point was made to me by my hon. Friend the Member for Crawley.
Mr. Nicholas Soames (Crawley) : The figures that my hon. Friend will be able to give to the House when a similar debate is held this time next year will incorporate not only the staggeringly successful response to the privatisation of the water authorities, but the privatisation of the Property Services Agency.
Mr. Gow : It would be correct to describe my hon. Friend as one of the architects of the privatisation of the Property Services Agency. During the critical time when policy was being fashioned, my hon. Friend was the Parliamentary Private Secretary to my right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), who was then the Secretary of State for the Environment but is now the Secretary of State for Trade and Industry. It was a brilliant appointment by my right hon. Friend the Prime Minister to send the former Secretary of State for the Environment to the Department of Trade and Industry. My right hon. Friend the Member for Cirencester and Tewkesbury and I hold identical views about the extent to which the Government ought to intervene and interfere in industry : the Government ought not to interfere at all. We look forward to continuing our privatisation policy. However, there is not much left to privatise. The privatisation of British Coal will please the hon. Member for Bolsover. He will be able to buy shares in British Coal. He is a miner. If he is still in this place, his hon. Friend the Member for Brent, East will also be able to buy shares in coal mines.
Mr. Skinner : The hon. Gentleman is travelling a little further than he ought to go. He probably knows that Tory Ministers at party conferences have said, before giving the Prime Minister her 40-minute standing ovation, that British Coal will not be privatised until after the next election. That depends on the Tories winning. Such is the nature of the Opposition's policies, to which the hon. Gentleman is not referring today--he is concentrating instead on Tory party policies--that we shall win the next election. Therefore, British Coal will not be privatised.
Moreover, I shall put in a bid to repeal some of the measures that have already been enacted. We may reopen a few of the pits that the Tory Government have assisted in closing. We shall also repeal the legislation that is now going through the House that will lead to a massive increase in opencast mining. We are interested in saving the environment. We shall almost certainly repeal the new legislation to increase the number of men employed in private mines from 30 to 150. We shall have a pretty good programme for the coal industry. The hon. Member for Eastbourne (Mr. Gow) need not worry his head about that. He will have plenty of time to sail up and down Eastbourne marina.
Mr. Gow : It is always a great pleasure to follow an intervention from the hon. Member for Bolsover because his intervention illustrated so clearly the deep divisions that characterise the Labour party and the unity that characterises the Conservative party. I say that even after a little matter where apparently some of my right hon. and hon. Friends were not very enthusiastic about the community charge. However, I shall come to the point. The hon. Gentleman's intervention related to the coal
Column 545industry. Although it is very unlike him, the hon. Gentleman is misinformed. I can inform him--and my right hon. Friend the Chancellor of the Duchy will confirm it--that it is the official policy of Her Majesty's Government to privatise the coal industry. That has been made perfectly clear.
Mr. Gow : I agree with the hon. Gentleman that only if the Conservative party wins the election will we be able to give the miners of Bolsover that choice and opportunity--which they do not have now--to become owners. It is thrilling and exciting news for us and appalling news for the hon. Member for Bolsover and his right hon. and hon. Friends that, given the chance, the miners of Bolsover and the entrepreneurs of Brent, East would prefer to be owners. And that is what will happen. [Interruption.] We welcome back the hon. Member for Southwark and Bermondsey, the absentee representative of the Liberal party.
The really thrilling point which will cause such happiness in the hearts and minds of the hon. Members for Bolsover, for Brent, East and for The Wrekin, whose position is at some risk at the next general election, is that we have discovered from those 33 newly privatised companies that when people are given the choice of being tenants or owners they prefer to be owners and when they are given the opportunity to become shareholders they say, "Yes, we would like some shares."
This is only a short debate and we have to conclude our proceedings no later than 2.30 pm. The Economic Secretary has to report to the Chancellor on the momentous nature of the debate, and when he does so-- [Interruption.] I remind the House of the gulf between the Opposition's suicide note which contains five or six times more words than the one that the shadow Foreign Secretary described as the longest suicide note in history, which has been superseded. I want to remind the House of the gulf between the policies set out in it and some of the policies of the Communist countries in eastern Europe. It was described yesterday in the House in a picturesque way by my hon. Friend the Financial Secretary. Again, although the words were spoken by the Financial Secretary, the hand that drafted the words was that of my hon. Friend the Economic Secretary who is seated on the Treasury Bench. I ask the hon. Member for Antrim, East (Mr. Beggs) not to engage in conversation with the hon. Member for Bolsover at this critical moment of my speech.
The words that fell from the lips of my hon. Friend the Financial Secretary --I commend, them to you, Mr. Deputy Speaker, as you were not in your place when that answer was given, although you will have studied it in the Official Report --were :
"the former Socialist countries of eastern Europe are appointing Ministers responsible for privatisation."
That is what they are doing, yet the Labour party says in its suicide note that it will nationalise companies in the
Column 546United Kingdom when in eastern Europe they are privatising. The British people will be rather bewildered by that. My hon. Friend continued :
"In Poland my opposite number has the splendid title of the plenipotentiary in charge of ownership changes."--[ Official Report, 18 January 1990 ; Vol. 165, c. 393.]
But the ownership changes that are taking place in Poland are moving ownership out of the hands of the state and into the hands of the people, whereas the Labour party in England wants to take ownership out of the hands of the people and back into the hands of the state. The debate is about whether we believe that we should concentrate ownership in the hands of the few--such as the hon. Members for Brent, East and for Bolsover, although to be fair to them, if there were a future Labour Government neither of them would agree to serve in it. Nevertheless, under a Labour Government ownership would be concentrated in the hands of the few.
You are a keen student of these matters, Mr. Deputy Speaker, and in the years that have elapsed since June 1987 there has been some attempt by the official leadership of the Labour party to distance itself from previous policies. There has been some recognition that the policies on which the Labour party fought in 1979, 1983 and 1987 were not popular with the electorate. That was a correct judgment. However, I single out the hon. Member for Bolsover for particular praise as he does not care whether the policies which he is expanding are popular. I salute him for that. The hon. Gentleman is one of those relatively few people who preach the message that they believe to be true, whether it is popular or unpopular with the audience. That shows him to be a man of principle. What is not principle is to continue to believe in the truth of the message but to try to adapt or adjust it to conceal that belief from those who are listening to the message.
The doctrine that I am expounding was put most vividly in a speech on the last Sunday of November 1959 at the Winter Garden in Blackpool. I expect that the hon. Member for Bolsover was there, and so was I. It was the last speech of Mr. Aneurin Bevan's life. I was so impressed by his words that I committed them to memory. The then deputy leader of the Labour party said, "You really cannot go before the country with a programme and tell the country that you thought the programme was good for the country, and immediately the country rejected it say you would like to alter it. It will not work. It is not right. It is almost like saying that you put before the country a false prospectus."
Aneurin Bevan was a man of principle. Today's Labour party has not altered its beliefs, but because it has found that they are not popular with the British people it has sought to conceal its true beliefs. As my last words, I quote the last sentences of Aneurin Bevan : "It will not work. It is not right."
Mr. Ken Livingstone (Brent, East) : There was one flaw in the basis of the speech by the hon. Member for Eastbourne (Mr. Gow). He confused two documents--the election manifesto that we put before the people in 1983, which was rejected, and the Labour party's policy review. The 1983 manifesto was flawed because it tried to square too many circles. Rather than being clear, it blurred the commitment to unilateralism to hold all the strands of the party together, and too many compromises were struck on
Column 547the economic policy that it put forward. To compare that five-year programme for government with the present policy review is a mistake.
The policy review is not a manifesto but a long shopping list of all the things that we would try to do, the majority of which are not controvesial and would be supported by members of the Green party, bits and pieces of the old alliance and many moderate Conservatives. The commitments to better training, to better research and development and to a more positive stance on the environment would be shared by the majority of British people. The only place in Britain where one would not find majority support for those objectives is the Cabinet, and some of its members may secretly harbour those views. The policy review is not a manifesto for five years of government and therefore is not costed. No one would deny that that has there has been a shift to the Right between 1983 and the present Labour party policy review.
This debate is not appropriate just to the present time. The Opposition-- who 100 years ago were led predominantly by the Liberals but are now led predominantly by the Labour party--face one difficult and unpleasant fact. For a century, no party in opposition to the Conservatives has won a second term with a working majority. The Liberal Government of 1906 to 1910 failed to gain a majority and had to form a working arrangement with the Irish Nationalists, who held the balance of power. The 1945 Government and the Wilson Governments of 1966 and 1974 failed to win a second term. During the two years when I was a member of the policy review I concentrated on trying to understand the reason for that. It is not that we have not been sufficiently accommodating to the centre or to the status quo. The reason is that the the Labour party and the Liberals of the past failed to be sufficiently radical in transforming Britain when they held power. They made so many compromises and lost so many opportunities that they failed to consolidate their hold on power. Unlike Conservative Governments, they failed to hold their natural interests together as a governing block in order to win re-election. The problem currently facing the Labour party faced the Opposition at the beginning of the century--how to pay for a legislative programme. Throughout the century, non-Tory Governments have faced that problem and have often alienated key groups of their supporters by imposing wage controls, higher taxation and policies that led to higher inflation. If Labour is to govern Britain in the 1990s and thereafter to win a second term in office it must resolve those problems. That means making difficult choices.
I have tremendous respect for the present leadership of the Tory party. I do not agree with almost anything that they do, but I recognise that, following the oil crisis in 1973, and faced with the shift in the world economy that that brought about, the end of the 25-year world boom and a much more rigorous future, the Tory party acted swiftly. It removed its old one-nation Tory leader, shifted its policies to the Right and decided which policies to defend, which it has done effectively over the past 10 years. The policies that the Prime Minister and those around her have chosen to defend are defence spending and the freedom of capital to invest abroad rather than in Britain. That is not a recent decision, because those problems faced the British economy at the beginning of the century.
Mr. David Nicholson : The hon. Gentleman has referred to the Labour party's policies and the Conservative party leadership. Will he expand on a statement that he made on his party's leadership, which says :
"You can have all the best policies in the world but if you have a Ramsay MacDonald in front there isn't a cat in hell's chance of getting them implemented."
Will he expand on that interesting theme?
Mr. Livingstone : It is obvious that Mr. Ramsay MacDonald was not one of the most successful Labour party leaders. He opened the way to almost a generation of Conservative Government. We have no desire to have another Ramsay MacDonald. We must avoid the mistakes of compromise, waffle and indecision, which opened the way to the disaster of 1931. The decade of the 1930s was wasted by Britain. Two basic flaws that undermined our economic progress in the first decade of the century are still with us today. The British economy allowed too many of its resources to be drained away on defence spending and the Government of the day allowed a vast flow of capital out of Britain and neglected the reconstruction of our industrial base. The figures for the 15 years that led up to the first world war are stunning. In Germany, which was committed to a strong modern and prosperous industrial base, investment abroad was 5 per cent. of its gross domestic product per annum. Throughout that 15-year period, 54 per cent. of capital in Britain was invested abroad. If an economy invests abroad, a skilled work force is not necessary to the same extent as in an economy that is building a modern, strong domestic economic base.
The problems that we have experienced under the Prime Minister, which sometimes many of my colleagues believe are solely her satanic creation, have been at the core of the problems that Labour, Conservative and Liberal Governments have faced throughout the century. The Conservative Government are quite happy to see those policies continue.
In the past 10 years we have seen £120 billion sail out of this country to be invested abroad. It does not go into the Third world where it might help to restore the balance of poverty between the first and third worlds. Almost all of that wealth has gone into the economies of our major competitors--£60 billion during the past 10 years has flowed into America. The Americans have seen our money building factories. Our money has been invested in America and has created jobs there. We end up importing the finished goods that they create and have the burden of a trade deficit. That has been an endemic problem throughout the century.
No party opposing the Tories can win an election and govern sufficiently to win re-election unless it addresses these problems. Unlimited wealth is not available to any nation. If we want to increase spending on pensions, housing, health and all the matters to which we are committed in our policy review, we shall have to create new wealth somewhere else or switch resources.
Even if we could generate growth in the British economy of about 5 or 6 per cent. a year--no one sees that as immediately possible--it would still be far too long to wait to ease the burden that our pensioners have carried and increase the meagre resources which the nation gives them so that they can spend the end of their lives in reasonable comfort. It would be too long to wait to see the
Column 549extra £3 billion that we need to invest in the Health Service to bring it up to the level of that in France or West Germany. A Government taking office in the early 1990s who want to rebuild the welfare state and create the investment we need in expanding our industrial base, cannot wait for growth. It would be asking too much of people in Britain. Therefore, we are faced with a difficult choice : should we increase taxes on ordinary people as well as the rich to find those resources, or should we divert resources from elsewhere in the British economy? If the Labour party can come up with a convincing answer to that question, it could govern through the 1990s and beyond. If we fail, we face repeating the experiences of the Wilson and Callaghan Governments.
Mr. Skinner : My hon. Friend referred to defence expenditure and to the fact that Britain now runs a massive balance of payments deficit of about £20 billion. Does he agree that that is easily confirmed by the statistics of the balance of payments for the two major nations in the world : West Germany, with the equivalent of a $40 billion balance of payments surplus, and Japan, with the equivalent of an $80 billion balance of payments surplus? Those two countries have not had the massive defence burden around their necks which we in Britain have had since the end of the second world war.
Mr. Livingstone : I confirm what my hon. Friend says. It is interesting to look at the period during which Britain rose to global dominance at the beginning of the last century. Our defence spending then was less than 2 per cent. of GDP. America's defence spending in its rise to global dominance in the period up to the second world war was less than 2 per cent. of GDP. Throughout the post-war period Japan's defence spending was often less than 1 per cent. and never more than 2 per cent. ; and the same applies to West Germany. There is no doubt that a dynamic economy cannot sustain, year after year, an armaments burden of much more than 2 per cent. of GDP. The next stage forward for the Labour party and its policies is to create the financial framework and make it clear how we intend to pay for what we seek to do. No one in the Labour party, from Front Bench spokesman to the newest member, is prepared to say that we should wait for five to 10 years to create the growth that we need to take such action. We do not have the time. We are still slipping behind the rest of the world in terms of investment and our welfare provisions. It becomes a sick joke when we compare the level of pensions in Britain to the level of those available in other member states of the Common Market.
We must do what the Prime Minister has done--decide where our priorities lie and pursue them with the same vigour as she has done. But we must reverse her priorities. We wish to reverse the society she has created, which is one of greed and lack of fulfilment of individual potential. To do so we must consider those sectors of the economy which she has preserved and protected.
As my hon. Friend the Member for Bolsover (Mr. Skinner) said, we start with defence. Let us forget the latest changes in global politics wrought by Mikhail Gorbachev's policies. Let us consider the basic flaw between us and the rest of the major European nations. Throughout the '50s, '60s, '70s and '80s Britain, on balance, has spent 2 per cent. more of its gross domestic
Column 550product on defence than the average west European nation. We now spend an incredible £9 billion more of our wealth on defence than France or West Germany.
Why on earth should Britain spend 2 per cent. more of its GDP on defence than does West Germany or France? It is nonsense. Does anybody seriously believe that we are about to be invaded by the Soviet Union? That question has only to be asked to reveal its stupidity. We see from the opinion polls that Mikhail Gorbachev is the most popular politician in the history of polling in Britain. He has a support rate among the British people of 89 per cent.--only 8 per cent. of people in Britain oppose Mikhail Gorbachev. He does not need to invade Britain ; he is so popular that he could come here and win the general election. He is three times more popular than the Prime Minister.
Mr. Nicholas Bennett : The hon. Gentleman has been questioning why Britain's defence budget is larger than that of West Germany or France. We have responsibilities not only in Europe but across the world. In addition, our other big responsibility is fighting a war against terrorism in Northern Ireland. The hon. Gentleman is well known as an apologist for the IRA. In his book, "Livingstone's Labour : A Programme for the Nineties", when talking about the killing of people in Northern Ireland, he said that it
"would leave the IRA with no choice but to break the ceasefire". That is the signature tune of black propaganda issued by the IRA. The quote was taken from Conor Cruise O'Brien's review of the hon. Gentleman's book which appeared on 9 September 1989. If the hon. Gentleman came off the fence and supported the Government in attacking terrorism instead of being an apologist for that organisation we would listen to him with more care.
Mr. Livingstone : The people of Ireland as well as the people of Britain would much rather see the £700 million which is spent on security in Northern Ireland go to creating a modern Irish economy. Some of us might think that, after 20 years of stalemate, we should consider some form of negotiated settlement. A Government have a simple duty to their people. If they are involved in conflict, that duty is either to win the war or to negotiate a peace, not to drag on, generation after generation, with no prospect of any end in sight. However, this is a diversion. The reality of defence spending is that we spend a vastly greater proportion of our income on it, more than do other west European nations. Our research and development potential as a modern nation is a joke. Our investment in R and D is completely out of line with other modern European economies. Half of the scientists in western Europe working on defence spending are British. More than half of our entire research and development potential is consumed by defence.
When we ask why we buy good quality finished goods from Japan and West Germany rather than here, the answer is often because they are not produced here. It is not that the manufactured goods that we produce are
Column 551inferior to those of West Germany or Japan, but that often we do not produce them. Therefore, we have no option but to buy them from our major competitors. That is because their scientists and technicians have had the time to develop those products, whereas ours are working on bigger and better ways of killing people. Therefore, we lost that potential for growth and trade.
Decade after decade, the British economy has been dragged down by defence spending. Even without the latest changes in the global political position, any British Government of the past 20 or 30 years should have had the target of reducing defence spending to the average level for west Europe and releasing that £9 billion. Think what we could do with that £9 billion. We talk about needing £3 billion to restore our National Health Service so that it is at the forefront of those of modern nations. Think how much of that could be used to expand and re-equip our schools, and to give teachers and lecturers the remuneration that they require so that we have an education-led economy--a dynamic, growing economy based on the talents of the people. Think how much of that money we could use to build a modern infrastructure, with a modern transport system and modern housing provision. Anybody in Britain who considers all that we could do with the money would say that it was madness to continue to spend £9 billion a year more on defence than our major competitors. Are we more at risk of war than France or West Germany? What nonsense. That is one area from which we could shift resources to pay for decent pensions and the reconstruction of our welfare state.
The second area concerns capital. The wealth generated in Britain and invested abroad is not simply the wealth of the financiers who take the decisions to invest it abroad. Every penny of it has been created by the extraction of resources from the North sea or the productive labours of millions of British people day by day at their workplaces. The generation of new capital goes on every day. Britain is unique in investing that wealth abroad rather than at home on a scale out of all proportion to any other major nation. Britain now owns more of the rest of the world's productive resources as a proportion of its national wealth than any country other than Japan. The Government may say, "That's fine ; we can live off the profits", but it is clear from the trade deficit that we cannot. I am not opposed to some investment abroad, but I am opposed to it being so out of line with that of our major competitors that it starves and undermines our productive economy.
We are investing about £7 billion a year in our industrial manufacturing sector. To achieve West German levels of investment we need to double the figure to £14 billion, and to reach Japanese levels we need to multiply it to £55 billion. Those are stunning figures. We are falling behind, and the gap is getting worse. It translates into the trade deficit. It is not just the product of the 1979-81 recession, but has gone on since then year by year. We need to say to the British people, "You cannot have an economy that rests solely on a profitable financial sector in the City of London and a great service economy, where many of the jobs require minimal skills and are completely unrewarding." As the CBI said, we cannot export a haircut.
Column 552Our economy is out of kilter on a major scale. We can create the society that our people have a right to expect only if we see a massive expansion of investment in and the modernisation of our industrial base. No one can say honestly that that can be left to the market. It has been left to the market for a century or more. In the past 10 years the market has been allowed complete freedom and the financiers, probably no more than 3,000 of whom can take key decisions, have chosen to invest abroad the wealth created by British people.
Now we face an even more monstrous distortion. We are for ever debating the trade deficit. It is deeply embarrassing to the Government. It is the worse trade deficit of any of the G7 nations, the seven key industrial Western powers, at any time in the past 30 years. If we were to plot the deficits of the G7 nations on a graph, one after another and one year after another since 1960, it would show that Britain's present deficit of trade and capital outflow is three times worse than that of any of the other nations at any time in the past 30 years. That is frightening. We are worried about our £20 billion trade deficit. It amounts to 4 per cent. of our national wealth each year. That would put any company into receivership. That is not even half the story. Hidden away and not getting the same attention is the deficit on capital flows. In addition to the £20 billion trade deficit, we have a £30 billion capital deficit. That is the money that our financial institutions invest abroad in long-term projects as opposed to money from abroad invested here. Add the two together--the 4 per cent. GDP deficit on trade and the now close on 7 per cent GDP deficit on capital--and the country is running an 11 per cent. GDP deficit. We are living beyond our means to the tune of £10 billion a year with no prospect of change.
The only way that the Government can avoid international receivership is to organise a flow of short-term hot money into Britain, often on a 24-hour basis.
Mr. Skinner : Is there not another ingredient? In order to balance the £20 billion trade deficit, which is likely to remain for a considerable time, the Government have decided that we must have high interest rates. In order to finance the gap created by the consequential payments to finance the £20 billion deficit at high interest rates and the hot money, we face costs of about £26 billion. The bigger the trade deficit and the higher the interest rates, the more hot money we need to balance the books and pay out the interest rate instalments. That means £25 billion on our deficit.
Mr. Livingstone : My hon. Friend is right. That is the problem that we face ; and it is more of a problem for the Labour party than it is for the Tory party. International finance knows full well that the Prime Minister will defend it, but that would not necessarily be its presumption if there was a change of Government. The British economy is running a 4 per cent. GDP deficit on trade and a more than 6 per cent. GDP deficit on finance capital. We are surviving that only by keeping interest rates high and attracting hot money.
The money that we have invested abroad has bought factories and shares, and cannot be liquidated easily. Yet the short-term hot money, which the Government use to balance that, can go in 24 hours. The Government survive only so long as they hold the confidence of international
Column 553capital. So long as the Government keep interest rates high and pay profits, international capital will remain. When people complain about mortgage rates we should tell them that interest rates are high, so that we can continue to attract hot money from abroad, so that British financial institutions can continue to invest a total deficit of£30 billion in shares and building factories all over the rest of the world. They would think that we were mad. People are being bankrupted day after day and suffering pain to allow British bankers to invest money abroad.
The Government get away with that because international finance knows that when the crunch comes it can rely on this Government to put the burden of the crisis on ordinary British people and to preserve and protect it. International capital knows that it cannot rely on a Labour Government. Therefore, when the Labour party comes to power, we shall face a financial rack on a scale that makes anything that has gone before look like a tea party.
Mr. Nicholas Bennett : The hon. Gentleman's exposition of the problems that would be faced by a Labour Government, should one ever come to power, are most interesting, as is his description of the economic policies to be followed. I must remind him of what his right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said when he suggested that the Labour Government would persuade banks to limit credit. He explained that the banks would do so : "Out of a sense of reasonableness and of national duty and a desire to co-operate with the elected Government".--[ Official Report, 24 October 1989 ; Vol. 158, c. 688.]
That policy is not the same as that suggested by the hon. Gentleman.
Mr. Livingstone : I am about to discuss the interesting problem of how one imposes a sense of loyalty to the nation on our financial institutions given that we shall inherit an economy that is running massive deficits and that will be dependent upon international finance to continue to prop it up.
Under President Reagan a similar budget and trade deficit developed. If a Democrat had been in the White House and had run similar deficits, the economy would have collapsed. As Reagan and the Republicans were in charge, Wall street and the Japanese banks were prepared to prop up that Government. They knew that they could rely on that Government to defend their interests.
If the Labour party took office tomorrow--if by some wonderful chance that glory should come to be--the financial institutions that have propped up the Government would end their system of support immediately. They would not be prepared to allow a Labour Government to run a £20 billion trade deficit, nor would they be prepared to witness that deficit's impact on our economy.
We must come to power in the full knowledge of the problems we shall face and we must be firm about how we shall deal with them. I do not believe that we can simply allow the flow of capital from Britain to continue. My right hon. and learned Friend the Member for Monklands, East (Mr. Smith) is right. The incoming Labour Government must tell our financial institutions that they should invest less abroad and more here. We shall expect them to honour that request because the people will have voted for precisely that.
Column 554If the hon. Member for Pembroke (Mr. Bennett) is suggesting that the British banking system and the City of London will not accept the result of the ballot box and the election of a Labour Government committed to increasing investment in British industry, that amounts to an act of economic sabotage. I believe that a Labour Government would enjoy massive popular support for imposing a level of restriction on the financial system to guarantee compliance with the result of that general election.
If the Labour party can construct an economic structure that shows ordinary people in Britain that we can rebuild our welfare state and increase investment in British manufacturing without increasing taxation on ordinary families and without fuelling inflation, we shall win the next election, and we shall govern for a generation. If we fail to be rigorous in our thinking, and if we fail to spell out the bottom line, we shall leave it to the Conservative party to exploit the fear that the election of a Labour Government may lead to inflation, increased taxation and wage restraint. Those policies were tried in the past and they failed.
The debate about the economy is still continuing within the Labour movement. Occasionally my hon. Friend the Member for Bolsover and I have been criticised by some of our colleagues for being sound money men. I am not interested in fuelling inflation. It is our people who carry the burden of the economic crisis created by inflation. A Labour party economic policy based on production requires stable exchange rates and low rates of inflation, and it must be serious about the money supply. If Milton Friedman had any self-respect he would sue the Conservative party for claiming to be monetarist--it has been profligate on a grand scale.
Our rate of inflation is a disgrace. I am not interested in Conservative Members telling me that inflation is not as bad as it was 10 years ago. There is no point in comparing the two rates. The important consideration is how we stand in relation to Germany, Japan and our major competitors. As long as their inflation rates are lower, their economies will grow stronger and ours weaker. We are committed to sound money. I do not want money to be printed just to fuel inflation.
Mr. Matthew Carrington (Fulham) : I am listening carefully to the hon. Gentleman's fascinating economic analysis. If I am right, I believe that he is suggesting that, unless the banks and the financial institutions are prepared to co-operate willingly--that is fairly unlikely, given that the vast majority are not British--the Labour party would be forced to reintroduce exchange controls. Presumably the hon. Gentleman believes that that is the only coercive measure available to a Government to repatriate capital from overseas. What would that do to our relationship with the European Community as such exchange control goes against the policies currently pursued by the Community? Those controls would be in direct contravention of European Commission regulations. Is the logical conclusion of the hon. Gentleman's argument that we would withdraw from the European Community?
Mr. Livingstone : I am arguing for exchange controls, but not necessarily in the form that existed up to 1979. Despite those controls, we still did not receive the necessary investment in our economy. The money stayed in Britain, but it fuelled a major boom in advertising, property speculation and fringe banking. Those were the
Column 555main growth areas in the economy in the 1950s and 1960s. We do not want to go back to that. We want to keep more investment in Britain and we want to direct it into rebuilding a solid manufacturing base. I am talking about a different form of exchange control, but one which will broadly produce the right results.
It is not possible for me, as one Back-Bench Member, with one economic researcher who works one day a week, to construct the exact mechanism of government necessary to achieve the desired result, but a range of options is available.