House of Commons Hansard Debates for 6 Mar 1990

Sir William Clark : Yes, the exchange rate mechanism ; I think all hon. Members knew what I was talking about.

One of the problems is that we have not yet seen and cannot envisage the difficulties regarding the deutschmark

Column 765

when there is monetary union between East and West Germany. We do not know whether unification will happen, but it looks as if monetary union will come fairly soon. Whatever the exchange rate between the ostmark and the deutschmark may be, the consumer demand and spending capacity against the Bundesbank will be increased, because people in East Germany, who at the moment cannot spend their ostmarks outside that country, because they are useless, will create, if they swap them for deutschmarks, consumer demand against the deutsch-mark. Consequently, inflationary pressures will come into play with a unified monetary system in Germany.

With regard to industry, of course we have difficulties and of course there is concern, but I sincerely believe that the two elements of my right hon. Friend the Chancellor's strategy--high interest rates and control of public expenditure--will do the trick. It will take a few months, but industry is leaner and fitter today. The cash flow of companies is much improved. In 1980, bank borrowing by companies was 45 per cent. of the value of equity ; in 1987, it was 28 per cent.; today, it is probably very much lower, because the position has improved since then.

The hon. Member for Dunfermline, East would not answer any questions. My right hon. Friend asked him about the payroll tax, and he would not answer. He was then asked about the national investment bank, which is another way of directing investment that the Labour party is very keen on. Then there is the question of what happens to dividends of industries that have been privatised. All these things have come out in policy documents, but they are not being spoken about.

My right hon. Friend suggested that they were being ditched. I think he is being very kind about that. I do not believe that they have been ditched at all ; I think that they have been hidden in order to hoodwink the public into thinking that, if there were a Labour Government, all the nasty things in their policy document--payroll tax, national investment bank, control of dividends--would disappear. But that is not so. They would come in ; there is no question at all about that. They have not been ditched--they have been hidden. It is a confidence trick on the public.

6.12 pm

Mr. Matthew Taylor (Truro) : I listened to the comments of the right hon. Member for Henley (Mr. Heseltine) with interest because he made a fascinating speech, in contrast to those made by Opposition and Government Front Bench Members. He made a devastating and, broadly speaking, accurate attack on the Labour party, making points rather more effectively than they could be made by quoting statistics for the 1970s and the 1980s. They went to the heart of the difference in economic approach and the effect that that had in the 1970s on the Labour party. But he also made a devastating attack on the Government because of the Prime Minister's unwillingness to see the need for an independent bank and for monetary disciplines other than interest rates. The direction in which he was heading there was an appropriate one.

The sad thing is that the right hon. Gentleman reminds me more than anything of a comet which, cast out into the cold from the centre of power, circulates around with

Column 766

nobody to pay much attention to it and not looking terribly interesting for a while. Then, as it heads back towards the centre of power again, in the hope, perhaps, that it will take over from the sun, it attracts its little streamer of hangers-on anxious to hear what it has to say. Whether they will stick with it or float away again over the next year or so remains to be seen.

The situation that brought the right hon. Gentleman to the Chamber today is nevertheless a serious one. This was not adequately reflected in the speech of the hon. Member for Dunfermline, East (Mr. Brown), in which there were plenty of jokes but no meat, or in that from the Secretary of State, who gave his familiar contemptuous response but again failed to tackle the underlying problems that the country is facing. Both those speeches, but particularly the Secretary of State's speech, failed to reflect the concern expressed to me by business men, the Confederation of British Industry and, indeed, a whole range of people about the difficulties that the economy is in, and, therefore, that the Government are in. The climate of uncertainty and the lack of confidence in the Government's ability to manage the economy are among the root causes of our present problems.

That is one of the fundamental changes of the past few years. If there was anything that the Government depended on--this was something that they argued for in opposition and in the early years of government--it was confidence and certainty about Government strategy--that it could work, and that they meant it. The loss of that confidence in the anti-inflationary strategy--the loss of belief that the Government mean what they said about tackling the fundamental problems of the economy--led to many of the problems that we have faced and are facing.

We also have the well-grounded fear that inflation is on the way up again and that it could hit 9 per cent. in the next quarter. We have had pressure on sterling, even in the last few days. When the Secretary of State tries to dismiss the latest trade figures as merely an unfortunate erratic item, one cannot wonder that, whereas those in the City who study these matters swallowed that excuse in the short term, they clearly did not accept it once they had had a moment to think about it. There is now fear of a further rise in base rates to prop up the pound and curb inflationary pressure. All these things go right to the heart of what the Government have always said they were about during the past 10 years. They also demand an adequate response from the Opposition parties. There is no advantage to the country or to the House in knockabout speeches that are high on public relations but failures on O-level economics. The paucity of policy from the Labour party raises serious concern about the job that it is doing. There is nothing wrong with the PR ; there is nothing wrong with the argument ; we can all agree with the argument. But it does not do for the Labour party to talk always of the long term, always of the things it wants to achieve, but never of the concrete reality of how to achieve them.

We have seen the trade figures putting pressure on the pound over the last few days. The January trade figures show that high interest rates are not working sufficiently to dampen the demand for imports. Whatever the Government say about erratic items, the truth of the situation is underlined by the January consumer credit figures, which show the highest increase in consumer credit on record. The figures show that consumer credit is not slowing but still expanding at 2 per cent. a month.

Column 767

Although M0 and M3 have disappeared into the history books as measurements of what is happening in the economy, there can be no question but that real credit difficulties and the supposed interest rate policy pursued by the Government are mutually incompatible. If the Government's interest rate strategy was working, consumer credit should be coming under control. Even worse, wage inflation is further evidence that any slow down in consumer credit and later in inflation may well be only temporary as wage inflation pushes up the price inflation that the Government created only a couple of years ago. It is clear that consumer demand has not been satisfactorily brought under control, and reliance on high interest rates has not even begun to provide a proper answer.

Government policy and the disease afflicting the economy are starting to become one. High interest rates are crippling industry, and I have said that there are already fears of a further rise in base rates. Last year there was a 10 per cent. increase in business failures and, if high interest rates continue, bankruptcies will increase. The CBI quarterly survey in January reported a sharp fall in demand among large companies and a levelling of manufacturing output. It is not surprising that CBI surveys have shown that industry's intentions to invest are falling. Investment in plant and machinery is expected to fall. Of course Government investment has also fallen.

Although the Liberal Democrats have unequivocally supported the moves towards the single market and 1992, Government involvement in that process cannot stop with DTI posters announcing in franglais that the single market is here. The question on the posters, "Where are you?" might be better directed at the Government. The Government should tackle supply in the economy and long-term investment in research and development, transport and education.

The problems in manufacturing industry are already critical. Manufacturing industry is being starved of investment when many firms are already working at or near capacity. Many firms are held back by the lack of capital investment and skilled staff. The short-termism that that reflects--much of it related to Government policy--is the most serious and damning criticism of the Government. Solutions are available, and they have been proposed not only by the right hon. Member for Henley but by many hon. Members on both sides of the House, including many Cabinet Ministers, but they are resisted by the person in the strongest position to block them or push them through- -that is, the Prime Minister.

Interest rates could be lowered without the problems that the Government fear if there were a commitment to joining the ERM by the end of the year. Unless that commitment is made, sterling will continue to fall as soon as interest rates are cut or confidence in the Government falls. We are not arguing for membership of the ERM as an easy solution--far from it. Our policies have tackled the problems and have addressed what would need to be done to avoid running into further difficulties. However, membership of the ERM would give industry a more certain environment in which to operate and would help to bring an end to the stop-go approach which has done so much damage to industry under Tory and Labour Administrations.

Mr. Austin Mitchell : I am sorry to postpone the hon. Gentleman's fascinating recital of fact, but when he says

Column 768

that membership of the ERM will not be an easy solution, how hard does he envisage it will be? Will it be as hard as it was in France, where it managed to increase unemployment to 2.6 million, or in Italy where unemployment increased to 2.9 million? Will it be that hard for us?

Mr. Taylor : No. I meant that it would be hard in that the Chancellor would have to take measures to bring down the inflationary effects of joining the ERM and cutting interest rates. The hon. Gentleman performs a useful function in that, by opposing joining the ERM, he exposes the duplicity of Labour Front-Bench spokesmen. We have consistently argued that although Labour Front-Bench spokesmen like to talk about joining the ERM as an easy criticism of the Conservative Government, in practice, they have proposed a series of blocking conditions before they would be prepared to join it. The hon. Gentleman was obliging enough to point that out on another occasion by saying that he was prepared to support those on the Labour Front Bench because he was well aware that the conditions for joining that the Labour party was laying down could never be met. Over the years we have missed opportunities that could have been provided by joining the ERM and bringing down interest rates. If we are not to miss future opportunities, the Chancellor should announce in his Budget that he will begin negotiations to secure our entry as soon as is practicable. The Budget speech could then be about cutting interest rates and tackling the problems of British industry, but it would also have to be a tight Budget to prevent demand from increasing and some of the current problems getting worse. The Chancellor could do that in ways that were fair and responded to the need while redressing some of the inequities in the current tax system. The Chancellor should at least get rid of the national insurance ceiling and reduce mortgage interest tax relief to the basic rate. Those measure would be felt only by the better-off, who in many ways are most responsible for the current trade deficit. They would have a beneficial effect on imports and inflation.

We have also supported the CBI's call for the investment allowance to be raised from 25 to 40 per cent. to tackle some of the supply-side problems, although we would restrict that to new investment. That would encourage investment and would not be inflationary. The forthcoming Budget provides opportunities, if the Chancellor is prepared to be brave and imaginative and, most important of all, to do what Chancellors should do and not what Prime Ministers say. I hope that the Chancellor will overcome that difficulty. Once he has done that, he can start to tackle some of the fundamental supply-side difficulties, in transport, research and, above all, education.

I feel most strongly that we are selling the people of this country short on education and training. We all suffer and, in a sense, we all share the blame for under-investing in research and development, but we should not throw away the opportunities available to the younger generation. They depend on us for only one thing. They can make their own way later on, but they depend on us to give them the education and training that, we hope, will see them through most of the rest of their lives. We need to expand in -service training, but every child in education has one brief opportunity which is never repeated.

Column 769

Any Government who let them down cannot put things right later, as there is no second chance for the children who are now in education and training. The skills shortages are with us now and the problems cannot be ovecome overnight, but if we do not make that fundamental investment, there will be no second chance. Therefore, we propose a series of policies that start to put people back into education and training of a standard that needs to be met and which is already offered in many of our competitor countries.

Not only do European countries educate in further and higher education more youngsters than we do, but countries such as Taiwan are producing per head of population more graduates than we produce. Our training schemes need improving. Youngsters under 18, even those in work, should have a statutory entitlement to further training. Let us beware of those companies that feel that their time and energy can best be spent poaching the trained staff of other companies, rather than themselves doing the training. We would institute a remissible training allowance by which the economics of training would be weighted in favour of companies that believe in apprenticeships and long-term investment in their employees, and away from companies that think that it is quick, clever and easy to poach from other firms.

The Labour party has failed to spell out its policies on that and many other issues. I do not disagree with much of what Labour Members say about the need to invest long-term in training, education, research and development. But they must spell out how they would do it, for that is fundamental to getting it right. Time and again in debates of this kind, Labour Members have not explained how they would put their policies into practice.

6.30 pm

Mr. Ian Taylor (Esher) : In the days of studenthood, one was asked in The Observer mace competition to speak to a motion the wording of which one was given shortly before the debate. Judging from recent performances of the hon. Member for Dunfermline, East (Mr. Brown), a practised debater, one can only conclude that he was given the wording of the motion only after he had spoken. His recent speeches have been witty but totally devoid of detail about the policies to which he was supposed to have been addressing his remarks. That applied to his speech this afternoon.

The people of Britain deserve to know what policies the Labour party has to address the difficulties of the economy. It is no good Labour Members saying, "We wish we were not starting from here." The people must know whether it is Labour policy, for example, to remove the pain of high interest rates by forcing down interest rates regardless of other factors in the economy. If Labour would do that, we should soon return to the inflationary heyday of the last Labour Government, when inflation levels averaged 15.5 per cent., compared with the lower levels that the Conservatives have successfully maintained throughout the 1980s.

Unless Labour Members show that they appreciate why we were successful throughout the 1980s, it will be impossible for them to compose policies to address the problems of the British economy. They never talk about

Column 770

the improvements that have occurred, for example, in the levels of productivity. They have not assessed the reasons why we have achieved massive job creation, the figures of which compare favourably with other members of the European Community.

Labour Members have not focused on the interesting investment figures for British manufacturing industry, which have been particularly strong in the capital goods sector, a factor which has contributed to the change in the balance of trade through import of capital goods. Labour Members do not talk about the number of new businesses that have been created--on a net basis, still running at over 1,000 a week. Nor do they talk about the supply side--the issues on which the new democracies in eastern Europe focus--especially our ability to abolish controls, which we have done progressively from 1979 onwards. None of that is part of official Labour party policy. Nor have Labour Members welcomed, as Conservative Members have, the programme relating to 1992. I welcome to the Government Front Bench the Under-Secretary of State for Corporate Affairs, whose efforts in making sure that the 1992 programme continues have been applauded in the House and have made a major impact on the economies of this and other European Community countries.

Clearly, we were blown off course by certain international events in 1987. Indeed, had they not occurred we would not be facing many of the present problems. But the test of a firm Government is the way in which they react to those problems. World experts in 1987, particularly after the stock market crash, forecast a worldwide recession. That was the view of the pundits in the City of London. There was fair unanimity in this House about that, and in New York the pundits were speaking of the same problem.

Reflation--relaxation of monetary aggregates--was a natural reaction to those circumstances. Remarkably, the capitalist system did not collapse, as many articles in the quality press forecast. Indeed, the buoyancy of the capitalist system was remarkable, and we reacted wrongly. We predicted a recession and the failure of capitalism, but capitalism triumphed, although that had some unfortunate knock-on effects. The inflation that we had today --at levels of which the Labour party would have been proud when it was in office in the 1970s--was caused by that degree of monetary laxity, not by errors in budgetary management.

The budgetary side is being run on a basis of tight fiscal policy. We have a public sector surplus, which is a notable achievement. The problem was caused not by Goverment profligacy but by private sector domestic borrowing. The only credible response to that has been to increase the cost of money. The Conservatives have had the courage to introduce such a policy. The test of a Government is not that they never make a mistake--no Government have ever had that honourable distinction--but whether, having seen that a mistake has been made, they have the courage to correct it.

Once monetary aggregates had begun to relax, there was a tightening, even at the cost of short-term opinion poll difficulties. There is no doubt that the manifestation of the increased supply of money was the withdrawal of equity from booming property prices from 1987 to 1989. The correction of that relies on higher interest charges, but particularly the mortgage rate.

Column 771

Although it is not politically easy to accept it, there is no doubt that recent decisions by building societies to increase their mortgage rates to a level even higher than base rates have had a welcome and direct depressant on the housing market at this stage, even though it is extremely painful. Many of my constituents have told me about that pain. But the Government must show that they can conquer inflation, and if inflation can be conquered, houses will once again prove a good long-term investment.

By having increased the cost of money, a positive effect is already evident. My hon. Friends have referred to the improving trend in export growth, and the figures are interesting. The figures for the last three months compared with the same three months of the previous year show that non-oil exports have risen by 11 per cent. against a static growth in imports. That means that the sharp rise in the balance of trade deficit reflected excess domestic demand--that we were sucking in imports faster than manufacturing industry and other industries could produce goods. It was not the fault of an over-valued pound. In other words, the competitiveness of the British economy is still sound. Our problem was that we had excess demand and we had to tackle it. It is clear that those inflationary pressures still exist.

There are special factors, which have been discussed, which will ensure that the level of short-term inflation stays high, although the underlying rate of inflation, if one excludes mortgage rates, is much lower and much healthier. The strange point about mortgate rates is that, although they increase the rate of inflation--the retail price index--they are a deflationary element. The mortgage rate is working in a conflicting way, so we must keep our eyes on the underlying rate of inflation.

With those inflationary pressures, what policy should the Government adopt? I do not advocate short-term changes in fiscal policy as a way of depressing demand. That is not to say that the Budget should not tighten fiscal policy. We shall see what happens. However, we cannot easily bear down on the total expansion of domestic demand by altering fiscal policy in major ways. That causes subsequent structural difficulties. Much academic research, including that by Alan Budd, has shown that, used to depress demand, fiscal policies take a long time to work through into the economy and have undesirable long-term effects.

We could set new monetary targets, which is a sensible policy. Monetary expansion, even in narrow money, is still worryingly high. However, to set such targets is, in itself, insufficient. Setting monetary targets has to be linked with a clear, objective guideline and a signal that the Government are pursuing a medium to long-term policy against inflation.

I encourage the Government, therefore, to bring forward a policy to which they are now already committed--entry into the exchange rate mechanism. That will provide a stable framework for monetary policies. It will also have an important impact on wage levels in this country. The experience of France is relevant here. Attaching oneself to a stable currency backed by stable money will give more confidence in the purchasing power of the pound.

If one increases confidence in the purchasing power of the pound, one is effectively discouraging trade unions from looking for highly inflationary wage settlements. That is exactly what happened in France. Between 1983 and 1986, France broke the wage-cost spiral by a clear

Column 772

signal that it would maintain the purchasing power of the French franc. Such a policy would have a beneficial impact in this country. It would signal that we were prepared to follow an anti- inflationary policy over a long period, and it would therefore reinforce tight monetary targets.

To those who are worried by such matters--I know that my hon. Friend the Member for Selly Oak (Mr. Beaumont-Dark) is one--there is no doubt that we are buffeted or affected by changes in the deutschmark. Come what may, we shall be affected by the level of deutschmark exchange. As my hon. Friend the Member for Croydon, South (Sir W. Clark) said, we shall be buffeted by the changes that may result from the deutschmark union. That will affect us anyway. We shall not be worse off in the exchange rate mechanism : in those circumstances, we shall be better off.

The argument about the rate at which we should enter again misses the point. The current level would be a reasonable point at which to enter, and it happens to be roughly similar to the level in 1986, which was another window of opportunity that we might have taken. We may enter at a level that results in having to intervene to keep the pound up. We should bear in mind the fact that that would involve selling foreign currency and buying sterling. That would reduce monetary supply, and would therefore be deflationary. Those are elements which, in our current circumstances, are themselves virtuous. That is an extra benefit of joining the exchange rate mechanism now.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak) : Virtue is always terribly good for other people. If one sticks one's currency in the ERM, the EMS or whatever one wishes to call it, one is stuck with the fact that, if one has to stay within that band, the only way in which one can control the currency is by interest rates. If we had to put our interest rates up by 1 per cent. in staying in that awful artificial barrier, how could it help this country? If one really wants to ruin the economy, just put 1 per cent. more on the interest rates--which, I agree, might keep us within the band.

Mr. Taylor : With great respect to the learning of my hon. Friend on the subject, I disagree. There is a greater likelihood of an increase in interest rates, were we not in the exchange rate mechanism, if the German economy itself increased interest rates. There is also likely to be a mildly depressing effect on interest rates at any given level of inflation once we are in the exchange rate mechanism. Consequently, there is a virtuous benefit from being in the exchange rate mechanism at this point and, if necessary, intervening in the monetary market to keep sterling up. That is anti-inflationary.

In terms of the external aspects, the entry conditions laid down at Madrid have largely been met. The French abolished their own exchange and capital controls on 1 January, and the Italians are moving in that direction. If they follow suit, we shall find that over 80 per cent. of the gross national product of the European Community is represented by countries that do not have exchange or capital controls. That seems to meet the substantive external point. Do we wait for inflation to go down in this country, and then consider joining, or do we use the ERM as a means of bearing down on inflation? It is clear from my remarks that I believe that we should enter at around our present level of inflation, so that we can bear down on it by using

Column 773

the anti-inflationary benefits of the ERM. In any event, keeping a firm exchange rate will have to be part of the Government's strategy, as should be made clear in the Budget speech.

There are other questions to which we look forward to answers in the Budget. One is the Government's attitude to the gilt-edged market, which is very important. There is a weakness at the long end in interest rates at present, and there are some journalistic thoughts--

Mr. John Butterfill (Bournemouth, West) : Before my hon. Friend leaves his interesting point on the exchange rate mechanism, will he tell us why he does not feel that there is some difficulty for the United Kingdom which arises out of the very high volume of trading of sterling, which is not related to goods and services? Sterling is traded in any one week at about the level which would be our national requirement for a year. The same applies to the deutschmark. Such a bipolar system might upset the equilibrium of the ERM rather than assist us.

Mr. Taylor : My hon. Friend makes an interesting point. Clearly such a disequilibrating effect on the ERM will be part of the negotiations when we enter. As a result of the volatility of sterling, which sometimes results from wide international holdings and the trading in them, it may be necessary to enter in the transitional period at the 6 per cent. margin rather than with the smaller margin of 2.5 per cent.

As we need the objective criteria that membership of the ERM would give our anti-inflationary policy, we should leave the experts to decide what the circumstances and the range of fluctuation around the mean should be when they are taking us in. I believe that, unless we have a firm exchange rate policy and unless we are in the ERM to fulfil that policy, we shall not fully eradicate inflationary pressures in the economy with as much ease as we should like. I was referring to the gilt-edged market. It would be interesting to hear in the Budget about the Treasury's attitude towards that market, about its policy towards funding and whether, given the continued inflationary problem and monetary laxity, it might consider issuing new stock, which would be an interesting signal to the market.

The single European market of 1992 has integrated liberal market economics into the British economy. Perhaps Opposition Members will want to call that liberal-social market economics. Deregulation has had a dramatic effect on our economy. My right hon. Friend the Member for Henley (Mr. Heseltine) went further, and said that some form of independent banking system within the European Community could have a beneficial effect and--if we take my analogy--could integrate sound monetary policy into the British economy. I should welcome further consideration of that point, as the argument has now been moved forward to discussing economic and monetary union.

The Government are on the right lines. They are bearing down on the rate of inflation, although that is difficult, as there are inflationary pressures in the economy. It will require continued pain and interest rates to stay at their present level for a considerable time. It will also

Column 774

require a tight fiscal and monetary policy. However, all those measures would be healthily reinforced by entry into the exchange rate mechanism.

Once the economy has been put right and is beginning to grow in a non- inflationary manner, we can continue to do those things that the Government have already done in some degree of magnitude, such as investing more money in training, in education and in the transport infrastructure. Those supply side measures are welcome, but they are not the sole answer, and it is no good the Labour party pretending that they are. They are a long-term solution to a much more general British problem.

The problem is to beat out the inflationary tendency. That requires courageous government, difficult decisions and even risking short-term electoral unpopularity--but, my goodness, it is the only way that a proper Government can behave, especially a Conservative Government.

6.52 pm

Mr. Geoffrey Robinson (Coventry, North-West) : The hon. Member for Esher (Mr. Taylor) referred to previous mace debating competitions in The Observer. I am sure that he will not mind my saying that, on today's performance, he would not have been in the running for any prizes.

One of the major propositions made by the Secretary of State related to inward and outward investment. All hon. Members welcome inward investment. Those who have directly benefited from it in their constituencies and know the technology that can come with it appreciate that it would be foolish to resent or resist it. The Secretary of State saw fit to refer to a recent article by Victor Keegan in The Guardian. He said that he approved of it, which would make for a pretty unholy alliance by ordinary standards. However, like all alliances it had the one hallmark of expediency--it left out the crucial differences.

What the right hon. Gentleman did not remember was that--I have not had occasion to consult that article since he spoke, but I am sure that my memory is good enough--Mr. Keegan finished his article with some severe warnings. He said that it was excellent to have high levels of inward investment as it could bring certain skills, knowledge, experience and employment to the country. However, when that investment is on stream and the dividends start to flow back in five to 10 years' time, where can we look for the indigenous investment to provide two crucial things--the flow across exchanges of the exports that are produced in this country and move abroad, and the employment that can, and still does, come from a heavy sustained investment in the manufacturing sector?

Victor Keegan said that we should welcome inward investment, but we should not regard it as a substitute for the indigenous investment--it is not intended to be that--on which the British economy will depend in the long term. I have heard much about the long-term policies that have been put forward, but which are being disregarded by the Government.

Mr. Allen : The flows of capital that return in dividends and profits could be beneficial to this country were they matched by the flows of profit that return to external competitors. The problem is that profits returning to the United Kingdom are not invested in the indigenous domestic manufacturing base--as they are in Japan, as part of a long-term planning process--but go into the

Column 775

hot-money circle and even into short-term current accounts with banks, where they attract a higher rate of interest than if they were invested in domestic industry.

Mr. Robinson : My hon. Friend makes two good points, especially on outward investment. Indeed, he has precisely anticipated my next point. Just as inward investment has its rightful role within the economy and within British industry--although it is not a substitute for indigenous investment--so we welcome outward investment if it is a logical extension of any successful economy's problems of saturation of certain markets or where the distribution network is inadequate and investment must be made in distribution in those markets or, indeed, for whatever reason, in local manufacture.

The countries that are now most heavily investing abroad are those that have had the heaviest sustained indigenous investment and have the biggest current surpluses from manufacturing. Germany and Japan now have to invest heavily in Britain and other markets because they can no longer successfully invest and, nationally, no longer need to invest in their domestic market.

Mr. Butterfill : Is the hon. Gentleman aware that Britain is second only to Japan in external investments? His points about Japan and Germany are irrelevant. He is contradicting himself when he says that outward investment is essentially undesirable because we should have indigenous investment and that inward investment is also undesirable. Surely that is a contradiction. The hon. Gentleman cannot have it both ways.

Mr. Robinson : I am sorry that I gave way. Either the hon. Gentleman was not listening or he is incapable of understanding. If he was not listening he has in some way excused himself, and if he is incapable of understanding there is no point in repeating what I said.

My second point--again, touched on by the Secretary of State--is the trade balance. Not so many years ago, the previous Chancellor of the Exchequer referred to our balance of trade in manufactures as the acid test for the successful performance of the British economy. The Government now have to find refuge in all types of new economic jargon and reasoning to suggest that that trade balance is no longer of any particular significance.

I still believe in a world where the conflicts between nations of two generations ago were fought out by military means. The war in internationally traded capital goods and consumer goods is now as fierce and intense as anything we have ever witnessed. It is still about the same things--economic predominance, national sovereignty, power and influence in the world. Now, thank God, the balance has changed from the military sphere to that of internationally traded goods and services. Now, goods predominate in that international trade war. We must state with the starkest clarity that in that war the United Kingdom is losing year after year.

In the dreadful balance of payments figures announced last year, which sent tremors through the financial markets of the world, one major industry--the motor industry--carries a principal part of the blame. The balance of trade deficit was in excess of £5 billion and the motor industry made up 25 per cent. of our total deficit. When we consider the shenanigans--I find it difficult to find another word for it--surrounding the Rover sale to British Aerospace, which Opposition Members want to be cleared up once and for all, we must say loudly and clearly

Column 776

to British Aerospace that once that matter is settled it has a major responsibility for the successful development and expansion of the Rover company. It is our last semi-volume manufacturer. British Aerospace must invest in it with a commitment that goes beyond the property deals and the balance sheet strengthening of which it made great play in internal memoranda. It must realise that it has acquired a major national asset on very favourable terms from the Government and that it has a direct, heavy and continuing responsibility for it.

Mr. Beaumont-Dark : I recognise the part that the hon. Gentleman played in Jaguar's early career, but does he not agree that some hon. Members, regrettably in his party as well, have tried to make political capital out of the agreement that was reached between Rover and British Aerospace? Bearing in mind the fact that British Aerospace has committed £1.3 billion to the future of Rover, and bearing in mind his pre- eminent part in Jaguar, will he stop some of his colleagues trying for political purposes to ruin the Rover company, on which so many jobs depend in the area in which he and I live, work and prosper politically?

Mr. Robinson : I will respond to the intervention in the same spirit in which it was made. Of course, there was an all-party inquiry into Rover. It was not a party political matter in itself, but in all parts of the House there are some hon. Members who are always intent on making political capital out of anything. I say to the hon. Gentleman, as openly as he spoke to me, that if I thought for a moment that my appeal to such hon. Members on this side of the House would be fruitful, I would make it. But I think that it would be as unprofitable and ineffective as any appeal made by the hon. Gentleman to his side.

I turn to the future of the Department of Trade and Industry. There are in the Department at least two Ministers who would much prefer to be somewhere else.

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. John Redwood) indicated dissent.

Mr. Robinson : If the hat fits, wear it. I see the Under-Secretary of State shaking his head vigorously. I assure him that I was not even remotely thinking of him. In his junior position he does not yet register in my thoughts. I am thinking of the senior Ministers in the Department of Trade and Industry. There have been so many Secretaries of State in that once distinguished and still most important office that it seems to be regarded merely as a shunting station between Departments within the Government.

I think that it was the predecessor of the present incumbent but about six, now in another place, who went to the Cabinet, and said, "I have a paper from my Department which recommends that we should back a major national industry and that we should put up the money for this industry. We have to do it because jobs and exports are at stake. Here it is, Prime Minister. I do not agree with it. I want nothing to do with it. I cannot back it." However, the sensible members in the Cabinet went ahead and voted it through.

The same attitude is adopted by the present Secretary of State, who makes it clear that he has no interest in the Department. He does not want to conduct the Department or serve in it. What he would most like to do, as so

Column 777

cunningly and cleverly pointed out by my hon. Friend the Member for Dunfermline, East (Mr. Brown), is close the Department.

Wit is not the order of the day in the debate. Conservative Members who have complained are devoid of it themselves. I ask the Secretary of State to address himself seriously to the problem. He has no mandate to close the Department or to run down major sections within it. In product-based sections there are many loyal, capable civil servants who have spent their industrial and often their whole official careers building up knowledge and experience of particular industries. We will not accept that the Secretary of State has the right to make proposals that would involve major restructuring of that Department.

I worked in the Industrial Reorganisation Corporation which was abruptly closed after the 1970 election, without consultation and without forethought for the good that it might bring to the nation. It was easy to close it, yet within three or four years, the then Prime Minister, the right hon. Member for Old Bexley and Sidcup (Mr. Heath), announced publicly that that had been a major mistake. Of course, that in itself is the strongest possible encouragement that we can give the present Secretary of State, although I hope that he will not take it as such.

I hope the Secretary of State will realise that he is in charge of a major Department of State and that nothing could be worse for the national attitude to manufacturing than for us to show insouciance and neglect for manufacturing industry. We should not denigrate the Department or take away its remaining powers. Nothing could give a worse impression of how manufacturing stands in national priorities than for the Secretary of State to do that. It would no longer be a case of the benign neglect which we have seen so far ; it would be tantamount to a malign disregard for manufacturing.

No Government have yet managed to put right what is fundamentally wrong with British industry. Again I speak mainly of manufacturing industry. Certainly the Government, much to their discredit, have not attempted to solve the problem. As a nation, in our cultural institutions, in our institutions of higher education and in secondary schools, we have an in- built set of cultural values which places manufacturing far behind other things with which it should rank equal. If we are to make it clear to youngsters that we believe that manufacturing has importance, that we wish to encourage the teaching of science and engineering, and that we wish to encourage the promotion of graduates and ensure that they are regarded with esteem and respect, that must start with the Government. The lead must be given by the Department responsible for the industries whose standing we wish to restore.

The Government have not had a popular theme during the 10-plus years that they have been in office. Disparaging remarks have been made by another former incumbent of the office of Secretary of State. He could think of no better future for British workers than maintaining and servicing Japanese robots. That was his concept of British technology. A previous Chancellor said that he could see no difference between a job in manufacturing and a job in

Column 778

a service industry, and that in future all increases in employment would come from low-tech industries and not from high-tech manufacturing.

That attitude has permeated the Government and reinforced our major difficulty as a nation in coming to terms with the strong international competition in world markets. At last--after 10 years--the Government seem to have caught on. We have had one speech in those 10 years that sought to redress the balance. It was made recently by the Leader of the House and deputy Prime Minister. I agree with every word he said. He said that we have to place manufacturing much higher on our national scale of priorities. He said that manufacturing was the

"indispensable dynamo of a successful modern society"

and concluded :

"Innovate, invest, internationalise."

That was exactly the policy proposed by my hon. Friend the Member for Dunfermline, East. We have to invest more in research and development, in products and in manufacturing. Certainly we have to internationalise, but we can do it only on the basis of major investment in training.

Nothing could be more pathetic than this criticism from Conservative Members : "But all those are long-term policies. You will not get any return on your investment in training, in manufacturing plant and equipment, or in research and development." That is what we heard in a remarkably passionate speech by the right hon. Member for Henley (Mr. Heseltine). That was the passion which swept the right hon. Gentleman out of the Cabinet, and I expect that it is on the back of that passion that he sees himself being swept back into the Cabinet, in due course, in a different capacity. He put his argument as if it were some condemnation, some valid criticism of the Opposition's policies. Of course it is not ; it is the single best endorsement of those policies with which he agreed. If only the Government had embarked on those policies 10 years ago, when they came to office, or even five years ago, when they should have had time to see the error of their ways, we should not now face the absolute collapse of all their policies.

But 10 years is long enough. There is no point in the Government's harking back. With a trade deficit of £20 billion, with inflation pushing 9 per cent., and with interest rates pushing 16 per cent., we are confronted with a bankrupt policy, a disbanded Department and miserably uninterested Ministers. The solution to all those problems is replacement of those Ministers and those policies, and I think that the by-election in Mid- Staffordshire will take us one step further in that direction.

7.11 pm

Mr. Quentin Davies (Stamford and Spalding) : I ought to start, as I have done previously when speaking on economic themes, by declaring an interest in certain aspects of financial services and financial communications through my connections with Morgan Grenfell and with Dewe Rogerson. I need hardly say that neither the views nor, so far as I am consciously aware, the interests of those companies or, indeed, of their clients have had direct influence on the views that I shall be formulating this afternoon.

I too greatly enjoyed the speech of the hon. Member for Dunfermline, East (Mr. Brown). It was extremely amusing. The hon. Member has already earned quite a number of accolades as a joker in this House this

Column 779

afternoon, and I should like to add a bouquet of my own. However, I thought that, in other respects, his speech was particularly disappointing. I did not betray any hint that the hon. Member had the remotest idea how to address the three issues that are highlighted in his own motion--interest rates, the balance of payments and inflation.

It really will not do to claim that interest rates are too high, that the balance of payments current account deficit is too high, and that inflation is too high. The hon. Gentleman will not find in this country, or indeed anywhere in the world, a single reputable economist--and this goes for those retained by the Labour party--who will not tell him that a reduction in interest rates tends to increase a current account deficit and to increase inflation. In other words, the hon. Gentleman may attempt to reduce the first of his variables, or the second and third, but not all three at the same time. I hope that, before he comes back to this Chamber to lecture us on economic policy, the hon. Gentleman will at least work out in his own mind in which direction he is going.

The other disappointing aspect of the hon. Gentleman's speech, which, not surprisingly, has been remarked on already, was the extraordinary vacuity of his proposals for the future.

Next Section

Home Page