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Column 800the Government statement that greater efforts will be made to make fathers accept their responsibility for children in families whom they have deserted. I hope that they will be pursued relentlessly. That should result in future savings to the Treasury.
Expenditure in Scotland, Ireland and Wales is raised automatically in line with the so-called Barnett formula. Whereas other spending Ministers must justify their budgets to the Treasury, the Secretaries of State for those three countries get their cash automatically. That does not seem fair on the other Secretaries of State or on the English.
The Barnett formula was fixed in 1978 and was based principally on population. Since 1978, the population of Scotland has fallen whereas the population of England has risen. The last year for which I have been able to obtain figures is 1987-88, but for identifiable expenditure per head of the population the figure in that year was £2,676 for Scotland and only £2,063 for England, a difference of more than 25 per cent. That is unfair on the English and especially unfair on the northern English, who have all the problems of Scotland and are, in many ways, less affluent and so need more public expenditure.
I have heard it said that we spend more per head on health in Scotland because the Scots suffer from poorer health. It is right and proper to ask why that should be so. If it is because they spend a lower proportion of their income on housing and a higher proportion on alcohol and tobacco than the English do, we have a right to ask why the English should have to finance the excesses of the Scots. Similarly, is it right that expenditure per pupil should be higher in secondary schools in Scotland than in England? Without doubt, people in England are beginning to feel increasingly dissatisfied with the Barnett formula. They think that it should be scrapped and that there should be equity between the three kingdoms of the Union. My right hon. Friend the Chancellor said that any increase in public expenditure should go principally to improving services, such as health and education, and not to excessive wage claims. One problem in our economy is that we still have a tendency to increase pay faster than do our competitors. The latest figures show that, despite increases in productivity, our unit labour costs are now rising faster than those of our European competitors. If that continues, it will undermine our competitive position and it will take us longer to reduce our balance of payments deficit to an acceptable level.
It is no good the Government exhorting the private sector to keep settlements down. Exhortation never works. When I hear the Goverment making such exhortations, I believe that it is the first step to an incomes policy, and we all know that that never works. The Government should refrain from interfering in private sector wage negotiations, but should make it clear that they will not let the pound fall to accommodate excessive wage increases. There is no doubt that the fall in the value of the pound before Christmas enabled many of our manufacturers to accommodate higher wage increases than would otherwise have been the case.
The Government should also make it clear that the higher the wage increases, the longer it will be necessary to keep interest rates high. They can set an example in the public sector, where they are the employer-- [Interruption.]
Madam Deputy Speaker (Miss Betty Boothroyd) : Order. The House is an institution which should show great tolerance. I will not allow running commentaries from sedentary positions when an hon. Member is trying to express himself.
Mr. Townend : Regrettably, after 10 years in government, pay bargaining in the public sector is still in a bit of a shambles. There has been little reform and the Government have failed to play their part in bringing about a more flexible labour market, which is necessary if our economy is to compete on equal terms with our major competitors, who have market economies. Much of our public sector is still highly unionised, restrictive practices are still rife and pay bargaining is carried out nationally. Local productivity deals are virtually impossible in many areas. National settlements do not take account of the great regional differences in the labour markets. In the past, only a small proportion of public sector wage increases have been paid for by increases in productivity, unlike the position in the private sector.
We made a serious mistake last summer when we encouraged British Rail to go for regional pay bargaining and then, when the workers went on strike and the commuters were caught in traffic jams, gave the nod for British Rail to give an 8.5 per cent. inflationary settlement. I am convinced that that settlement played a significant part in the ambulance workers' dispute. In addition, had the Government scrapped central pay bargaining, we should not have an ambulance workers' dispute because pay and productivity would be negotiated piecemeal by local managers.
The balance of payments deficit is another problem that the Government face. We should examine the problem in a little more detail than the Opposition do. The biggest element is the deficit of about £6 billion in motor vehicles. Our motor industry was devastated, not by high interest rates or Government policy, but by the activities of militant trade unions, which were out of control. Restrictive practices, over-manning, and a refusal to accept new technology meant that the British public and our friends abroad stopped buying British cars. We did not produce cars of the right quality, at the right price and when they were wanted. There were cases in which, as a result of union pressure, there was no proper quality checking and quality controllers were told that they should reject only so many cars per shift. Cars went out although they had not been checked properly, so the public found that they were not reliable and bought foreign cars. There were also inter-union disputes in which the unions destroyed themselves.
Today, the British motor car industry is rising like a phoenix from the ashes although, regrettably, that is not because of Ford or British Leyland, but because of the Japanese investment which has been encouraged by the atmosphere that has been brought about by the Government. Nissan will increase production to 400,000 units a year, Toyota will produce 200,000 cars a year and Honda will produce 200, 000 a year. With Datsun, the Japanese will reconquer our home market and use this country as a launch pad for Europe--and we all know that the EC is petrified of Japanese industry in Europe. All this will take time, as my hon. Friend the Member for Croydon, South (Sir W. Clark) said. I am convinced that over the next four or five years it will have an important impact in reducing the deficit.
Column 802I support my right hon. Friend the Chancellor in his main aim of bringing down inflation. I have every confidence in him. When inflation is brought down to 3 per cent. and when we are able to use the surplus that we have built up by our own good housekeeping by giving it back to the British people, to whom it belongs, that will be the launch pad for another election victory.
Mr. Graham Allen (Nottingham, North) : I am sorry that the Chancellor of the Exchequer is not in his place at the moment and I am also sorry for the Chancellor. He seems to be having an unfortunate baptism, in view of the way he entered the job and the state of the shop left for him by the right hon. Member for Blaby (Mr. Lawson). The Chancellor told the Treasury and Civil Service Select Committee that running the economy was rather like being on a surfboard in high seas. Once again, one must feel sorry for a person who has crashed on to the rocks in consecutive economic indicators and who lies gasping on the beach only to find that when my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) comes along, he kicks sand in his face. That is heaping indignity upon indignity and perhaps my right hon. and learned Friend should be a little more sympathetic in future when dealing with the Chancellor. He needs all the assistance that he can get, having been left by the previous Chancellor, as is now evident, with the debris to clear up. There were many rumours and explanations about why the former Chancellor left as he did, but it is clear that he, unlike anybody else, had access to all the background documents and papers for the forecasts for this coming year and the year after. He decided to get out while he could still get the directorships that are being bandied about in the Sunday papers, and a decent contract for his memoirs ; and he left his former deputy to clear up the mess. One cannot but feel sympathy for a man who, after all, is very reasonable and nice--prone to certain lapses in judgment, such as supporting Chelsea football club, but by and large quite an honourable person. He has been given a task that he will find very difficult to perform. One of the harder aspects of the job is that the Chancellor will not be allowed to get on with it, to formulate his own ideas and use his own initiative to carve a way forward. Just when he thinks that it is safe to go back into the water on his surfboard, the phone will ring, and it will be No. 10. Every time he moves vaguely forward on something like the exchange rate mechanism there will be someone on the Front Bench coughing gently at his side.
When the Chancellor looks at the implications of higher wage settlements for inflation, he cannot buck the market. We need to ensure that people are paid at the rate necessary to make enterprises work. When he moves away, as he has, from out-and-out monetarism he finds that there is a gentle reminder--perhaps not Sir Alan Walters but certainly a gentle reminder-- that monetary indicators continue to exercise a profound influence.
Some of the ancient pharisees of the Conservative party--the hon. Member for Horsham (Sir P. Hordern) and the right hon. Member for Worthing (Mr. Higgins)--have contributed to the debate. Rather like guarding the gospels, they referred to those ancient times of M4 and, when that did not work or was inappropriate, M3. Now we are on MO--that is apparently the fashionable one. If
Column 803in doubt, get the "M" correct and that will justify one's monetary stance. The Chancellor does not believe that, and his beachboys on the Front Bench do not believe that. Unfortunately, soon he will be told that, whether he believes it or not, that is the way things must go.
The same argument could apply to public investment. There was a lot of rhetoric about the importance of public investment in the interview that the Chancellor gave to the Financial Times. The reality is slightly different : No. 10 believes that, wherever possible, private investment should take the place of public. In my area that dogma is highly destructive. The east midlands as a whole and Nottingham in particular will suffer because we are not in British Rail's plan for a link through London to the Channel tunnel. Perhaps under a Labour Government such investment will be forthcoming. Everyone in my region realises that it is essential. It will not come through the private sector but only through the public, and it is folly to imagine that we should have only private investment when all our major continental and G7 competitors are pouring money into the infrastructure and the railway network. In France, for example, every last chicken shack appears to be on an electrified line ; in Germany two brand- new north-south routes are being built ; in Spain they are ripping up the gauge completely and replacing it. Yet we say in this cheese-paring manner that we are not prepared to invest £95 million to electrify the line to connect our region with the Channel tunnel. That is madness when the CBI, the TUC, chambers of commerce and members of all political parties in my region are united in believing that, for such a small sum, there could be a tremendous economic pay-off in the long run.
Mr. Hanley : Does not the hon. Gentleman welcome the relocation of the Civil Service? Up to 4,000 civil servants will move to Nottingham in the near future. Is that not a large public investment?
Mr. Allen : I thank the hon. Member for Richmond and Barnes (Mr. Hanley) for his intervention. I welcome those jobs coming to Nottingham and I hope that they will be encouraged. I hope, too, that public sector bodies will co-operate and that the Government and the Minister for the Civil Service will make sure that there is no long and protracted struggle, but that British Rail, the land-owners and the unit concerned, the Inland Revenue, will talk together so that members of all parties are not forced to exert pressure to achieve that welcome move.
Mr. Rhodri Morgan (Cardiff, West) : Will my hon. Friend confirm that when the present Government came to office in 1979 one of the first things they did was to scrap Government dispersal from London? Eight years later, they did a massive U-turn and decided, in view of labour market pressures in the south-east, that it would be a good idea to disperse Civil Service jobs to the regions, and they decided to resuscitate the programme undertaken by the previous Labour Government under which various jobs were sent to the regions.
Mr. Allen : I accept my hon. Friend's point. His work on relocation and in trying to get a proper distribution of jobs is well known. I am a little more magnanimous than he ; if the Government are beginning to realise the efficacy of relocation, they may start to drop some of the rhetoric in other areas and operate a more realistic economic industrial and relocation policy.
Column 804We must support the Chancellor in his undoubted battles with No. 10 as he begins to creep back towards what is almost a neo-Keynesian position, if we read between the lines. On the public investment side, such moves are to be welcomed for their beneficial effects for all our constituents. Relocation is one of the things mentioned in a budget that I had the privilege of putting together for Nottingham ; we are making a budget submission, and relocation is one of the things that we emphasise strongly. I hope that my hon. Friends on the Front Bench will make sure that their alternative Budget strikes a chord with the public and is not formulated purely on an arid fiscal basis. There are areas where we can seize the initiative, and even if the Government choose to accept those initiatives they are things that we would commend.
I think particularly of the reference by the hon. Member for Croydon, South (Sir W. Clark), although expressed in grudging terms, to child care and workplace nurseries. Demographic, if not moral and social, reasons for getting women back to work underline the need for the Chancellor to make considerable progress in encouraging child care and workplace nurseries that are beneficial to employers, to the parents concerned and to the children. That is one area where the Government can win some political kudos as well as doing the right thing, and I hope that we would welcome it.
Progress could also be made in giving a green tinge to the Budget. I welcome what the right hon. Member for Blaby (Mr. Lawson) did on lead-free petrol, and I hope that the success of that experiment will lead to other ventures, notably tax incentives on energy conservation, and additional incentives to ensure, for example, that coal-fired power stations are brought into a comprehensive scheme to reduce acid rain. One area that might be somewhat controversial would be to reconsider the abolition of the road fund licence and the collecting of revenue through the duty on fuel. This and other matters would benefit from further consideration and they might attract greater cross-party support than some of the more strident views that Opposition Members need to put forward and win on industrial policy. The more I visit people and places in my constituency, the more I share the view of many hon. Members that there is a developing consensus-- what I call a "manufacturing alliance". Very recently in the east midlands the CBI published a document containing five or six major areas of economic and industrial thought on education, training, land availability, infrastructure, transport and encouraging manufacturing investment, any of which could have been written by my hon. Friends on the Front Bench in an alternative Budget. That consensus extends across almost all Opposition parties. It certainly extends through the CBI, the TUC, chambers of commerce and other bodies. There is room for measures acceptable to a large percentage of the electorate. I hope that the Chancellor will accept that there would be great support for him in the no doubt private but none the less serious battles that he will have in asserting his independence from No. 10 Downing street.
The main starting point of the budget produced for Nottingham is education and training. It is a cliche worth repeating that our future is invested in young people. Unless they have adequate training and education, all our future economic and industrial strategies are worthless. A number of initiatives could be taken, but above all we need
Column 805the political will to invest money in education and training. If the will is there, ways will be found to ensure that all 16 to 18-year-olds who want to stay at school or take further training can do so, so that we may have the same standards of training as our major competitors. That is not an over-ambitious aspiration. All that we ask is that we are as capable of delivering economically as our key competitors.
Another point that should be mentioned is the incentives that are necessary for manufacturing industry. Recently all hon. Members received a briefing from the CBI which sets out three key proposals. We may disagree with the percentages of capital allowances or whether there should be a return to the indexation of allowances, but there is room for progress in building an engine of investment for the economic revival that we need.
Not only do we conduct less research and development than our main competitors, but the emphasis is on defence rather than civilian activities. Without making the macro-political point about the future of the nation and its defences, may I point out that no other nation twists its research and development expenditure as we do. Sir Trevor Holdsworth, in his address to the CBI annual conference, said that some of that expenditure should be redirected. It is recognised nationally that current policy perverts the effort that we are trying to put into longer term investment. Once again, the Chancellor might address that matter in his Budget statement.
One item that the Chancellor will not address and with which we shall have to deal when we come to power is the flow of capital and money across the computer screens of the world. We will address it as a nation state. The United States, Japan and countries in the rest of Europe are also prey to major fluctuations of capital in the world. Whatever economic strategies may be agreed in the European Community, globally or nationally, they can be washed away by major capital flows. It is not an easy question and I do not pretend that there are easy answers. Perhaps one way to provide the answers is to co-operate with other nation states and discuss how we can affect the speed of the flows and their volume. Whether that means building on the institutional arrangements that we already have or whether we need to start looking at other transglobal institutions is a matter that needs more thought than I can give it here.
Mr. Morgan : Does my hon. Friend agree that the truly appalling measure of the country's current economic uncompetitiveness is the figure produced by the National Institute of Economic and Social Research in the past few weeks in its study of the size of our current account deficit, plus the non-bank capital inflows required to finance that debt, plus the net capital outflows for long-term investment abroad, which now amount to 9.8 per cent. of our gross national product?
Mr. Allen : My hon. Friend makes a pertinent point. I join him in pressing Labour Front Bench spokesmen to use some of their valuable time to put the message over clearly and simply, although not on a partisan or party political basis because it affects all parties and all national economies. There is room for international co-operation.
There is more to be said, particularly on whether we should return to a non -allowance personal tax structure, where income tax could be reduced dramatically and
Column 806certain benefits increased dramatically, so eliminating the poverty trap. My right hon. and hon. Friends need to put together a comprehensive package which the electorate will understand. In the meantime, there will be another year or two years of this Government. I hope that my right hon. and hon. Friends will do everything possible to ensure that the battle, assuming that the Chancellor is the person we think he is, is fought hard. I hope that he, rather than the occupant of No. 10, will be victorious.
Mr. John Watts (Slough) : A considerable part of the debate has been concerned with inflation. That is not surprising as it is our principal economic problem. My right hon. Friend the Chancellor placed considerable emphasis on the need to continue to bear down on inflation. The right hon. and learned Member for Monklands, East (Mr. Smith) told us that inflation had not been vanquished, but my right hon. Friend the Member for Worthing (Mr. Higgins) went on to enlighten him that inflation could not be defeated once and for all but required continuing and constant vigilance.
Several Opposition Members have referred to that part of the Committee's report in which we draw attention to the way in which, in succeeding Autumn Statements from 1984, the target for inflation has always been 3 per cent. in the third year. The hon. Member for Norwich, South (Mr. Garrett) was a little ungenerous in suggesting that the target had never been met. It was met in 1986, but only in that year. If the 3 per cent. target three years out in this year's Autumn Statement is to have any chance of achievement and, if having been achieved, that control of inflation is to be sustained for longer than in the past, we must seek to identify the causes of current inflation.
My right hon. Friend the Member for Worthing recommended that we should adopt a pragmatic approach rather than seeking to be purists of either the monetarist or the Keynesian school. I agree with him. I do not believe that the economy behaves precisely in the same way as any economic theory suggests it should, or that the real economy responds in the way of an economic model. I think that our current problems are primarily monetary.
My right hon. Friend the Member for Blaby (Mr. Lawson), the then Chancellor of the Exchequer, in giving evidence to the Treasury and Civil Service Committee about the Autumn Statement of 1989, acknowledged that monetary policy had been too lax during the summer of 1988. In paragraph 54 we report that the then Chancellor said : "we relaxed monetary policy at precisely the moment that we should have made it a little more severe".
I make no criticism of the relaxation of monetary policy which took place in the aftermath of the stock exchange crash of 1987. That policy was pursued by monetary authorities around the world. It is possible to say with hindsight that perhaps that injection of liquidity was unnecessary because we now know that no disaster occurred. However, had the authorities not made it clear that they were prepared to make liquidity available to prevent the collapse of any of the great financial houses, we might have had more trouble in the economy than actually occurred.
Therefore, I make no criticism of that policy decision which was pursued in this country, as in all the other major financial centres. The error was to continue the lax monetary policy after the 1988 Budget, by which time it
Column 807was becoming perfectly clear that no damage had been sustained in the economy as a consequence of the stock exchange collapse in October 1987.
The Treasury Committee's report contains a paragraph which could have explained this event most eloquently, but alas it was one of the paragraphs which did not gain support of a majority of the Committee members. However, its message is important. In that missing link to the argument we said that :
"in early 1988, the previous Chancellor forced interest rates down to curb the upward pressures on sterling. Interest rates were thus falling when they should have gone up. In our view, a great deal of the policy error over this two-year period can be attributed to the excessive weight placed on tacit exchange rate targeting. The result was that too little attention was paid to the inflation warning signalled by the extent of domestic credit and growth of the broader monetary aggregates. This error has clear implications for the future conduct of policy."
The major error in policy which exacerbated the inflationary pressures already there as a result of lax monetary policy was the decision that we should behave as though we were members of the exchange rate mechanism even though we were not. It seems that my right hon. Friend the Member for Blaby had in mind a parity of three deutschmarks to the pound. Through the summer of 1988 he strove to prevent sterling from rising above that parity. In that attempt, interest rates went down to a low point of 7.5 per cent.
The attempt failed because the reaction of the market is often perverse and the sight of the Chancellor confident in his ability to refuse interest rates produced greater confidence in the value of sterling. While policy was trying to reduce parity with the deutschmark, sentiment was driving it up. That period of continuing reductions in interest rates stimulated an extra £40 billion worth of borrowing. That £40 billion borrowed in the credit expansion makes the £4 billion of tax remissions in the 1988 Budget pale into insignificance.
We have heard reiterated today the argument that the tax reductions in the Budget fuelled a great consumer spending spree which led to our inflationary and balance of payments problems. Not a bit of it. The £4 billion worth of injected demand did not have those undesirable effects, but the 7.5 per cent. interest rate and the extra £40 billion worth of credit did. The experience of those inglorious summer months of 1988 should serve as a warning to all those who are enthusiastic for our early membership of the exchange rate mechanism of the European monetary system.
The claimed benefits of full membership that have been reiterated today are stable exchange rates and lower inflation, coupled with lower interest rates. I am sure that when the Confederation of British Industry and other business representatives urge upon us membership of the ERM, and when the TUC urges that policy--as one of my hon. Friends said earlier--they are looking for stability in exchange rates. They are certainly hoping for lower inflation and interest rates, but early membership does not act as a panacea. It is not an instant solution to current inflation problems, as the hon. Members for Berwick-upon-Tweed (Mr. Beith) and for Durham, North (Mr. Radice) suggested earlier.
There is a failure to recognise that the exchange rate mechanism with sterling in it would be a different animal from the exchange rate mechanism as it is at present. As it exists today, ERM is basically a deutschmark area. The deutschmark is the only heavy currency in the system and
Column 808the only one traded internationally to any significant extent. All the other member currencies are pegged to the value of the deutschmark and, therefore, the system can confer some stability in parities. The outcome would be very different if there were, within the system, two currencies, both of which were traded internationally to a significant extent, as are the deutschmark and the pound sterling today.
Therefore, there would not be the same stability in parities between the European currencies and externally if sterling were in the system, as exists now while sterling remains out of it. Whatever we within the European Community might decide should be the parity between the pound and the deutschmark, if it appeared to be out of line with underlying realities as perceived by the market and because people trade dollars and yen for deutschmark and pound, the pressures would build up from that international trading and we would be unable to hold a parity which had been agreed in the European Council of Finance Ministers.
Let us suppose that we had joined the exchange rate mechanism during 1988, perhaps during the summer when the former Chancellor was trying to hold down sterling. There would still be the same inflationary pressures within the British economy because we would already have had that period of fairly lax control of money supply. As market sentiment sought to push up the value of the pound, we would have had to make the same policy response as my right hon. Friend the Member for Blaby did when he shadowed the
deutschmark--reduce interest rates in an attempt to cap the rise in the value of the pound sterling.
There is no reason to suppose that if we had been in the system the effect on the British economy of reducing interest rates to a low point of 7.5 per cent. would have been any different from the effects that we can assess now, looking back with the benefit of hindsight. At other times, the pound would come under downward pressure, as it has during recent months. With a commitment to a fixed parity we would have no option but to raise interest rates to try to maintain that parity.
Since he took office, my right hon. Friend the Chancellor of the Exchequer has successfully steered us through some fairly rough seas, as he described his attempt to manage the economy. He guided us through periods when the pound was under pressure but without increasing interest rates above 15 per cent. Had Britain been firmly committed to a fixed parity, my right hon. Friend would have been unable to steer us through those rough seas. In recent weeks, the pound has recovered and is now up to 88.1 or 88.2 on the trade weighted index. That has been achieved without interest rates being increased to 15 or 16 per cent., or even to 17 per cent.
Maintaining a fixed parity would take precedence over every other aspect of monetary policy, and my right hon. Friend the Chancellor would not have the flexibility that he has now. He was right to resist a further increase in interest rates, because they are high enough to curb the growth of money supply and to exert the downward pressure on inflation. Any further tightening could lead to an over-tight policy, which would enhance the fears of recession that have been voiced today, mostly by Opposition Members. We have a tight monetary policy that is set by reference to monetary conditions in the British economy and not by reference so much to the pound's external parity, which is how it should be.
Column 809My right hon. Friend the Chancellor put his finger on the problem of managing the economy with low interest rates when he referred to the psychology of inflation. I understand him to mean that too many people will still have vivid memories of inflation running at 20 per cent. or higher. I believe that inflation of 26.9 per cent. was the pinnacle achieved by the last Labour Government.
Dr. John Marek (Wrexham) : Although I do not agree with every point that the hon. Gentleman makes, he has presented a number of sensible arguments--but his speech is now becoming very partisan. Perhaps he will remind the House of the highest rate of inflation reached under the present Administration.
Mr. Watts : The figure quoted earlier, if it was correct, suggested that the highest inflation seen under the present Government was 21 per cent. That was the consequence of the inflationary pressures that built up in 1978-79, during the death throes of the last Labour Government. In the same way, we are now experiencing the effects of the inflationary pressures that built up in late 1987 and 1988.
The Economic Secretary to the Treasury (Mr. Richard Ryder) : It may be helpful to my hon. Friend to be reminded that the average inflation under the last Labour Government was 15 per cent., compared with 7 per cent. today. What was good enough for Labour--inflation of 15 per cent.--is not good enough for us.
Mr. Watts : My hon. Friend reinforces my point about the national psychology of inflation. Because inflation of 15, 20 or 25 per cent. might at one time have seemed normal for our economy, when it falls to 4 or 5 per cent., most people stop worrying about it.
The same is true of the price of money. Because we have long been accustomed to high interest rates as a consequence of high inflation--over the past decade, interest rates have on average been on the wrong side of 11 per cent.--we are not yet attuned to running our economy at an interest rate of 7 per cent., as we did in June 1988. Until business men and the man or woman in the street are worried about inflation of only 4 per cent. or even 3 per cent., the Government will not be able to conduct the economy on an even keel when interest rates are much below 10 per cent. That psychology must change before there can be low interest rates consistent with lower inflation.
My right hon. Friend the Chancellor is right to set interest rates that meet the requirements of domestic monetary policy. If that policy is set tightly enough to bear down on inflation, there will be no need to worry about the parity of sterling. If holders of sterling are confident that it provides a stable store of value, there will be less speculative pressure on the pound. Of course there will be short-term pressures, but not long- term pressures of the kind seen when inflationary expectations are high.
If a choice must be made between using interest rates to control money supply or using them to fix the exchange rate, I have no doubt that they should be set by reference to the needs of money supply. If economic policy moves in the right direction, there will be no conflict between tight control of money supply and maintaining a firm exchange rate.
Column 810If I have any advice for my right hon. and hon. Friends on the Treasury Bench, it is to progress slowly towards full membership of the European monetary system. The exchange rate mechanism is not the anti-inflationary panacea that its enthusiasts choose to believe it is, and we should not contemplate the major step in economic policy that adoption of the ERM represents merely to establish our European credentials, whether for the benefit of Members of the European Parliament or for our partners in the Community. In the months ahead, and in preparing his first Budget, the most important task for my right hon. Friend the Chancellor of the Exchequer is to control money supply so that inflation is not accommodated.
Mr. Ronnie Campbell (Blyth Valley) : A measure of hypocrisy has been evident in tonight's debate, especially in the speeches of Conservative Members. Many of them argued that the public sector wages bill should be kept down, whereas their own wage increases will be reflected in their bank balances next week. Government Members also work in the public sector and are enjoying wage increases of 10 per cent. or more. Others are entitled to ask for the same 10 per cent. that we are receiving.
Now that the Government have made a right mess of the economy, all of a sudden they want to blame the workers--miners, dockers, car workers and ambulance staff. They are the people who are, according to Conservative Members, to blame for all the mess by asking for big pay rises. There should be less hypocrisy and more honesty on the Tory Benches.
Some of the richest people in the country were awarded overnight tax cuts of as much as £5,000 per year under the former Chancellor's penultimate Budget. Those tax cuts were totally imposed. Right hon. and hon. Members may recall Budget day in 1988, when the sitting was suspended for 15 minutes because of the response to the news that the Chancellor had spent that much money on the rich. No fewer than 780, 000 of the richest members of the population received that money, not the workers. I remind the House that the rich received £20 billion of taxpayers' money, not the workers. Tory Members should refrain from attacking the workers and from blaming them for the mess that the former Chancellor created.
At the same time, the poor were subjected to benefit cuts. That is what you gave the working people and the unemployed in the north-east, Scotland and Wales. Since the Government came to power in 1979 there have been 60,000 bankruptcies, and 170,000 firms have gone to the wall. Since 1979, 100,000 families have had to sell their homes because they could not afford the mortgage. That is your economic miracle.
Madam Deputy Speaker : Order. I dislike stopping the hon. Member, but he is taking my name in vain. I know that he has a lot of good material that he wants to use, so would he refer to the House through the Chair?
Mr. Campbell : I shall try to refrain from using the word "you". I have a habit of doing that. I think that I am back on the pedestal at the miners' meeting. Those home owners were not to blame, it was you-- [Laughter.] I am sorry, I am only joking Madam Deputy Speaker--it was the Conservative Government.
Since the Government came to power poverty has increased--9 million people in Britain, including some 2
Column 811million children, are living below the poverty line and that has happened since 1979. That is 17 per cent. of the population and it represents an increase of 55 per cent. since 1979. Do not blame the Opposition for Britain's ills, because the Conservative record is there and it is atrocious. The Conservatives must study the problem and put it right.
What have the pensioners got from the Government and their so-called miracle? In the early days of the Tory Government, the link between pensions and earnings was scrapped. Had it not been scrapped, a single person would have had £11 a week more in his pension today, and a married couple would have had £18 a week more. They have been done by the Tory Government, just as the unemployed and those who have suffered from cuts in social security have been done. As I said before, it is no good blaming the workers. That is what the Chancellor has tried to do, and I shall not let him forget it. That is what the Government are trying to do with the ambulance men. They are picking on the union, trying to take it out and to blame it for all the ills that the Government have caused.
Mr. Watts : The hon. Gentleman mentioned the link between pensions and earnings. I wonder whether his memory stretches back far enough to recall that the link was first established by a Labour Government because inflation was running at 26 per cent. and earnings at only 15 per cent. It was a way of abating the costs of increasing pensions which would otherwise have fallen upon that Government. They did it to cut spending on pensions.
Mr. Campbell : I do not care what the last Labour Government did. It is what we do in the future that counts. There will be a pledge in our manifesto to restore the link between pensions and earnings, and I shall be here to support it. I doubt whether the hon. Gentleman will be.
Dr. Marek : The House should remember that in 1979 the old age pension for a married couple, as a percentage of average earnings, was about 44 per cent. and it is now about 32 or 33 per cent. My figures may be slightly out, but it is clear that pensioners have become considerably poorer in the past 10 years under this Government.
Mr. Campbell : I agree. That is the point that I am trying to make. Pensioners are worse off under this Government. One can tell that by meeting them and speaking to them. An old lady whom I know likes to smoke, but when I went to see her on a Tuesday she did not have a pack of tabs in the house. That was unusual for her. Some hon. Members may say that she should not smoke at her age, but she cannot afford to do so until she receives her pension. When pensioners are in that state--when they cannot afford to buy a packet of cigarettes until they get their pension--it is a disgrace. The Government should consider pensioners' needs more often.
The wages council is another scapegoat for the Tories. It will be scrapped because the Tories want a low wage economy. That is already happening. Low wages are being paid throughout the north-east, and that is why one or two firms are moving there from the south. One business man told me a few months ago that he was coming north because of the low wages. The minimum wage is non-existent. We are the only European country that does not have a minimum wage, and we should consider that. If there is a minimum wage, firms can plan a long way
Column 812ahead, and perhaps we would not get the liquidations that I have mentioned on other occasions. [Hon. Members :-- "What about redundancies?"] I have been made redundant and I know all about that.
Let us have a decent minimum wage in Britain, as they have in Europe and America. Child benefit has not been touched on in this great Autumn Statement. Let us restore the cuts of £1.70 to every child under the age of 16, and give child benefit back to the women of Britain. Let us stop these means-tested benefits--the so-called social funds. Every good constituency Member of Parliament must have dealt with means testing and know of cases where people have been turned down for loans and grants although their plight is desperate poverty.
Let us have a major reform of the tax system. Every time the Budget is mentioned, the Government lob millions to the rich and nothing to the poor. Let us have a proper reform of the tax system. If you will not look at it, I am sure that Opposition Members will. We will reform it in our best traditions of making things fair and equal for everyone. We want a fair and just approach to the economy. That is what working people are asking for and what we have not had from the Government. It is your fault--
Madam Deputy Speaker : Order. I hate to remind the hon. Member again, but he must not burden me with those responsibilities.
Mr. Campbell : I will not, Madam Deputy Speaker. I know that you are fighting on our side.
The north-east has not seen any great strides during the so-called economic miracle. Some building is going on in my part of the world, but unfortunately it consists of three large supermarkets, and not factories. [Hon. Members :-- "Nissan."] Nissan came a long time ago. I am talking about what has happened since the so-called economic miracle, which was the last Budget but one.
The north is in the throes of increasing unemployment, and that is well documented. When the south gets a cold, the north gets pneumonia. I ask the Government to take account of the north-east when they consider the regions. I doubt that they will do so, but I take this opportunity to make the request.
Mr. Jeremy Hanley (Richmond and Barnes) : Until the contribution of the hon. Member for Notttingham, North (Mr. Allen) I thought that I had only one thing in common with my right hon. Friend the Chancellor--both our fathers had worked in the circus--but I now discover that there is a great sympathy between us, as we both support Chelsea football club.
This has been an interesting and wide-ranging debate. I should like to summarise some of the good news that we have heard--for not everything is as miserable as the hon. Member for Blyth Valley (Mr. Campbell) tends to suggest. The hon. Gentleman must remember one important fact : hon. Members can promise all the money in the world to all the people whom they think will get them elected, but they must be able to run the economy in a way that will sustain those increases in public expenditure.
When the Labour party was in government, the economy collapsed completely. Conservative Members can trot out the cuts that they made time after time : hospitals suffered cuts of 30 per cent. ; the railways were
Column 813cut ; pensions were cut ; everything was cut. Those cuts were the result of a Labour economy. The first necessity is a sustainable economy : the party in power must be able to create the wealth which, according to the hon. Gentleman, should be spread so much more widely.
Mr. Ronnie Campbell : That is a fair point, but should not the £2 billion provided in the last Budget but one have been spread out more equally and fairly, rather than going to the rich? Should not more have been spent on social security benefits such as pensions?
Mr. Hanley : The hon. Gentleman is typical of the many--I do not disparage them--who do not understand exactly why tax cuts occur. When they visit the supermarket to which the hon. Gentleman referred, they see that the manager reduces the price of goods that he wants to sell. Just as a sale in a store attracts purchasers, a reduction in the amount of tax that is taken out of the economy will generate money in that economy, and will increase the number of jobs. What the hon. Gentleman is really saying is that there should be redundancies, because that is exactly what would follow the policy that he advocates. Instead of viewing tax cuts as a percentage--as numbers--he should look at the results of those cuts, which will show him an entirely different picture. He will see that taxation revenues have increased because tax cuts have led to a new enterprise culture. He will also see a reduction in unemployment, and a dramatic increase in the total revenues into the Exchequer.
It is interesting that the hon. Gentleman should say that the rich have received the tax cuts. That is not true. Ordinary men and women--teachers married to nurses, for instance--benefited from those cuts, because the previous rates were so obscenely high. Let us concentrate, however, on the top 5 per cent. of taxpayers. Under the Labour Government, they paid 24 per cent. of the total income tax revenues ; under the present Government they contribute 29 per cent. In volume terms, we are collecting more money than ever before.
Mr. John P. Smith (Vale of Glamorgan) : If the hon. Gentleman looked more closely at the effect of the tax cuts that the Government have made over the past 10 years, he would discover that the top 10 per cent. of owners of private wealth currently own 52 per cent. of that wealth. The bottom 50 per cent. own less than 8 per cent. That is the largest inequality in wealth ownership since before the second world war.
Mr. Hanley : I was not going to mention housing until later, but following the hon. Gentleman's intervention I feel that I should point out that 68 per cent. of householders are now owner-occupiers. Thousands, indeed millions, of ordinary men and women who were never able to own a house, get a foot on the capital ladder, protect their families or give to their children can now do so, thanks to the Government. Since 1979, there have been 1.4 million sales of public sector houses : 1.4 million people can now say, "This is my house."
Mr. Roger King : May I apply a balance to the earlier statement about the ownership of wealth? Let us look at what is happening in eastern Europe. How much wealth is
Column 814owned by those living in the ideal social democracies that Opposition Members have championed since the last war, and have they accepted any of it?