House of Commons Hansard Debates for 14 Nov 1990

Mr. Alex Salmond (Banff and Buchan) : I shall concentrate in today's debate on the economy on the Scottish steel industry, but I shall first pick up on four speeches. First, I listened with some interest to the right hon. Member for Chingford (Mr. Tebbit), who made a plea for self- determination, control and the ability to sack Governments and Chancellors. I wish that he had extended that important right to the nation of Scotland, which has been trying to sack this Government and successive Tory Chancellors over the past 10 years.

I suspect that the major difference between the right hon. Gentleman and me on Europe, and the reason why I am friendly to the developments taking place in the European Community and he is so hostile to them is that we in Scotland are starting from zero self-government, zero control and zero self -determination. Therefore, any improvement on our position, or the raising of our status to that of other member states over the next few years, will be a major achievement for Scotland.

I also listened with interest to the speech of the right hon. Member for Cirencester and Tewkesbury (Mr. Ridley) and to his appeal to hon. Members representing constituencies in Northern Ireland, the north of England and Scotland to show their support of his view that those areas have been disadvantaged within the monentary union of the United Kingdom. The hon. Member's economic views are probably as popular with the people of Northern Ireland, Scotland and the north of England as are his political views with the Germans, the French and

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the Irish. His views would have a great deal more credibility were it not for the fact that, as Secretary of State for Trade and Industry, he presided over the demolition of regional policy in the United Kingdom. Someone from his background does not have the right to lecture other Europeans on whether they would be prepared to make a fiscal contribution to offset the disadvantages of monetary union to areas of low productivity.

Such a policy could be introduced. We could, for example, have surrogate devaluations, such as labour subsidies, in the community. There are many debates in Europe on how such fiscal assistance could be introduced in the monetary union of the Community. I should be more confident of the interest and ability of other Europeans to take part in such a policy than I would ever be of the right hon. Member's wish to do so, given his track record on regional policy. I listened with interest to the Prime Minister's speech, and I re-read it last night to remind myself of what the right hon. Member for Yeovil (Mr. Ashdown) called a "chilling" passage on the Gulf. I was concerned by the circumstances in which that passage arose. The deputy Prime Minister had resigned, her leading political rival was poised to strike and she was expecting an assault from the Leader of the Opposition. She was not to know that her position would be strengthened by the time that he sat down ! Her speech was calculated. That passage seemed to me to be designed to divert attention from domestic political difficulties in much the same way as the American President used sabre rattling on the Gulf to divert attention from his domestic problems two weeks ago.

I cannot see the point in sabre rattling on the Gulf. A dictator like Saddam Hussein will not meekly withdraw from Kuwait, because the loss of face involved would lead inevitably to the demise of his regime. It does not seem that the western world is prepared to offer him the golden bridge of diplomacy, which would allow a peaceful settlement to be negotiated. The consequences of a war in the Gulf are becoming all the more clear, and may include 100,000 dead and substantial if not gigantic environmental and economic damage to the international community.

The only real option in the Gulf is the determined application of sanctions to get hold of the windpipe of the Iraqi economy, to keep hold of it and gradually increase pressure until internal dissent brings about the demise of the Iraqi regime. Such a policy demands patience, real guts and determination, rather than the saloon-bar patriotism offered by the Prime Minister last week.

The Prime Minister's political difficulties are substantially greater than they were at this time last week. I hope that, in the midst of the Tory party's internal election battles over the next four days or so, we do not see the Gulf card played once again as a diversion from domestic political difficulties.

I found it interesting that the Leader of the Opposition managed to achieve the not inconsiderable performance of delivering a speech in which he did not lay a glove on the Prime Minister, never mind a knockout blow. I re- read it carefully last night to try to ascertain whether that was part of a grand strategy or merely natural ability. I have no doubt that, while natural ability comes into it, the right hon. Gentleman's speech was designed to ease the pressure on the Prime Minister. Indeed, it was designed to put no

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pressure upon her. If the Conservative party wants once again to alter the rules of its internal election contests, I suggest that it extends the franchise to the Labour Front Bench, where it will find some of the few remaining Members of this place who are extremely anxious to keep the Prime Minister in office.

If it is true, as I understand the hon. Member for Cunninghame, North (Mr. Wilson) wrote in the West Highland Free Press only last week, that the Labour party calculated their interest to be in the retention in office of the present Prime Minister, I suggest that it tries to keep that quiet, safely away from the notice of the electors of Paisley, Renfrew and Johnston over the next two weeks. I shall say a few words about the Scottish steel industry. The hot strip mill at Ravenscraig is under a death sentence from British Steel, despite its high productivity. The Clydesdale seamless tube works is also under a death sentence, despite the fact that a modest investment could make the works competitive in the one major steel market in Europe which is expanding. The Dalzell plate mill still awaits a decision in respect of a single plate mill strategy. It is still anxiously wondering whether it is to be the chosen plant, despite the fact that a Glasgow university study showed clearly that the cost of concentrating on Dalzell would be about £125 million, while the cost of the green-field site option would be £425 million. First, I should like to hear a firm commitment from the Opposition Front Bench on the position of Dalzell within the single plate-mill strategy. I should like the Labour party unambiguously to back Dalzell as the best option for such a strategy. Secondly, I should like to hear from Conservative Members at least--the hon. Member for Cannock and Burntwood (Mr. Howarth) made a plea earlier about competition in markets--that they are prepared to support a reference to the Monopolies and Mergers Commission, or, even better, to the European Commission, designed to examine the exploitation of the monopoly in domestic steel production in which British Steel is undoubtedly engaged.

Mr. Doug Hoyle (Warrington, North) : I do not know whether the hon. Gentleman is aware that the Select Committee on Trade and Industry, of which I am a member, took the right decision today to examine the position at Ravenscraig. We know how essential it is for Scotland and the entire British economy. I think that we shall all join the hon. Gentleman in doing our best to save the steel industry in Scotland for the nation.

Mr. Salmond : I thank the hon. Gentleman for his intervention. I welcome the decision of the Select Committee. I hope that it will extend the terms of reference of the inquiry to include the Dalzell plant. I hope also that it will examine the network of deals in which British Steel has engaged across Europe to carve up markets and restrict competition. That is the folly of privatising as a monopoly, and that applies certainly to British Steel.

Thirdly, I should like to hear some commitment from the Labour party on public ownership. It seems to me and to many others in Scotland that, if the Opposition parties are to have any influence on the actions of the board of British Steel, we need to convince Sir Robert Scholey and the other members of the board that, unless he changes course and stays the hand of the executioner over the Scottish steel industry, there will be a day of reckoning. If he and his board are engaged in an act of industrial

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vandalism--that is the only possible description of the rundown of the Scottish steel industry--such a strategic industry cannot be left to the likes of them. The Opposition parties should say clearly that, if British Steel continues on its present course, it will be a candidate for public ownership. That is something that the Opposition parties could do now that might have an immediate influence on British Steel's decision making for Scottish plants.

I believe that the Labour party is not making that demand and not engaging in that sort of rhetoric because it is frightened of the concept of public ownership. It is not now "respectable" to sell public ownership south of Birmingham, to that part of the electorate on whom it has targeted so many of its political efforts. About 20, 000 jobs are linked to the Scottish steel industry, either directly or within the plants of immediate suppliers. If we include industries which depend on the sourcing points for steel that would be affected by price increases if the steel industry in Scotland were run down, perhaps as many as 100,000 jobs in Scotland would be touched in one way or another by closures and the demise of the Scottish steel industry.

What country in history has discovered oil and ended up poorer but Scotland? What country in Europe would be running down its indigenous steel industry in the face of the large and expanding North sea market but Scotland? What country but Scotland has had to endure the level of economic incompetence that has been imposed upon it by a succession of United Kingdom Chancellors of the Exchequer? 7.58 pm

Sir William Clark (Croydon, South) : I welcome the Gracious Speech. My only regret is the speech of my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe). I found it disappointing and, in some sections, unfair.

I welcome especially the items in the Gracious Speech that are related to transport, whether they be planning applications or increased investment in our transport system. I welcome also the privatisation of the Export Credits Guarantee Department, the insurance department for exports.

The Gracious Speech is tied up with the autumn statement. It is right to put on record again the congratulations of my right hon. and hon. Friends and myself on the achievements of my right hon. Friends the Chancellor of the Exchequer and the Chief Secretary to the Treasury. Week after week and month after month, we suffered rumours about what was happening in the economy. These originated from the media and the pundits. The House will recollect that the overshoot of public expenditure for next year was said to be about £12 billion. In fact, the public expenditure increase will be increased by about £8 billion. The media and the pundits were about £4 billion out on that score alone.

If we discount the reverse element within public expenditure of £3.5 billion, the increase in public expenditure for next year has been contained to £4.5 billion. The Government's commitments to pensions, welfare payments and the rest of it will all be honoured. Many local authorities--mainly those which are Labour

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controlled--have overspent, and the Government's control of public expenditure is a remarkable performance.

My right hon. Friend the Chancellor of the Exchequer rightly castigated the right hon. and learned Member for Monklands, East (Mr. Smith), the shadow Chancellor of the Exchequer, for not once mentioning any of the achievements of the Conservative Government in terms of the economy since 1979. I know that Opposition Members do not like good news. They should stop talking down the economy. We have more people in work today than in 1979. I accept that inflation is high, but it has come down from 26 per cent.--

Mr. Bruce Grocott (The Wrekin) : When was that?

Sir William Clark : It was 22 per cent., and rising rapidly, when we took office.

Our exports have risen since 1979. In addition, our net overseas assets, as a percentage of gross domestic product, are the largest of any major industrialised country. Another important point is that all the doom and gloom about new businesses in fact relate to those that fail. Currently, the net increase in new businesses--those that are set up minus those that fail--is 1,300 per week. That is not a bad record. Of course, there are many fewer strikes now.

There has been a transformation in our economy, to which the Opposition should at some point pay tribute. The national debt next year will be reduced by £29 billion. I remind Opposition Members that that is equivalent to 12p in the pound at the standard tax rate. The interest on that sum would be about 1.5 to 2p on the standard rate each year, so it is a considerable achievement.

There has been a great deal of talk about the exchange rate mechanism, which Britain has entered with a 6 per cent. margin either way and at a deutschmark rate of 2.95. Some people have questioned whether that was the right rate at which to enter, but hon. Members should remember that Britain will eventually move to a 2 per cent. margin either way. If at that time it is felt that the 2.95 rate is too high, it can be adjusted.

I am convinced that the hard ecu should not be written off. The bond issues in the ecu market on the London international financial futures exchange are growing. That currency is being used for bond issues. In March next year, the exchange intends to introduce a futures market in the ecu. We should not set any time limit, but rather wait to see what evolves from that. In five or 10 years--who knows?--the hard ecu may be acceptable. In the meantime, we could have a parallel currency with a European monetary fund.

In each of our economic debates, the Opposition are asked what they would spend in Government, and how much it would cost. We never have an answer. They promise increases in pensions and in spending on the national health service and on education. Whatever one cares to name, they promise to provide it. They say that they have not costed their proposals, but I can help them, as Liverpool university has costed all their promises--

Mr. Grocott : Oh?

Sir William Clark : If the hon. Gentleman does not believe me, I can send him a copy of Professor Patrick Minford's report. He has costed the Opposition's proposals at £22 billion-- [Interruption.] If Opposition

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Members do not accept that figure, they should tell us their figure. I am prepared to accept Liverpool university's estimate. I remind Opposition Members of what that would mean for taxpayers. A Labour Government would have to find that money and they could do it through an increase in the standard rate of tax from 25p to 35p. That would produce £20 billion. As the higher rate taxpayer would also have his rate increased, that would produce a little extra revenue. If the Labour party does not want to do that, it could raise value added tax by 10 per cent., which would produce just over £20 billion. I am convinced that the general public are entitled to know how much all the glowing promises from various Opposition spokesmen will cost the taxpayer-- [Interruption.] If Opposition Members do not agree with the Liverpool university figure, they must tell us their figures.

I accept that the medicine of high interest rates is unpalatable and unpleasant, but it is worth it because the economy has slowed. However, I agree with my right hon. Friend the Chancellor that it will pick up next year. We must be realistic and pragmatic and take various factors into account--the Gulf, the United States economy, and so on. I accept that we are in rough seas, but we have been there before and we have come through.

We have achieved a tremendous amount. We have achieved a strong economy, and we must not deny that or talk it down. We must continue with the present policies. We do not want any U-turns. I am convinced that we shall come through and that Britain will return to prosperity. That is why I welcome the Gracious Speech.

8.8 pm

Mr. Doug Hoyle (Warrington, North) : If ever there was typical complacency, it was the speech of the hon. Member for Croydon, South (Sir W. Clark). Indeed, there has been a series of complacent speeches by Conservative Members, from the Chancellor onwards. At least the Chancellor admitted that Britain is in a recession. Of course, we are not simply in a recession--we are in a deep recession. All that the hon. Member for Croydon, South could talk about was Labour party promises--not what the Government will do to remedy the mess into which they have got this country.

The Government are inept. There has been a high degree of economic mismanagement. They have had £91 billion in oil revenues--they have been positively awash with oil--since they took office in 1979, but we have little to show for it.

It is not much good Conservative Members talking about the new companies that have been created when there were 16,500 bankruptcies in the first nine months of this year and 64 per cent. more liquidations in the third quarter of this year than there were in the same period last year. That is not a record of success--it is a record of failure.

Building employers tell us that there will be 50,000 redundancies this year in the construction industry and a further 50,000 redundancies next year. In the real world in which many of us live, unemployment is increasing. When we talk about unemployment we must remember the misery that it brings not only to those who are unemployed but to their families, who suffer falling living standards,

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bills that cannot be met and the difficulties of paying for a roof over their heads. That is the real world under this Government after 11 years in office.

Anyone who doubts what is happening has only to consider the Government's unpopularity as shown in the two recent by-elections. That unpopularity has caused such a flurry in the dovecotes that Conservatives no longer know whether they want the Prime Minister. At long last, whether they like it or not, the Government have had to join the European exchange rate. One can argue about whether DM2.95 to the pound is the right rate. The truth is that it is too high for British industry and British industry is uncompetitive, which means that more firms will go bankrupt, there will be more liquidations and more unemployment. That is the real tragedy of what is occurring.

The Prime Minister is now against EMU. She huffs and puffs like the big bad wolf at the wall, but it was she who erected that wall when she agreed to the single European market, when she took us into the ERM. She is well on the way, whether she likes it or not, and she is the person who is responsible. The Prime Minister may say that she will not accept something, but she always does in the end. That is the tragedy of the record of the Prime Minister and her party on Europe. As a result of that attitude, we are always responding to rather than shaping events.

Next we will have a European bank under the control of bankers rather than under political control. What we should be arguing for in Europe is for more regional aid and for regional policies as outlined by Labour Members. Nor, despite the crisis in British industry, is anything being done to bring about the necessary investment. Investment in industry is already lagging far behind that of our competitors, which means that we shall fall even further behind. We all know that the present situation in Britain means that investment in industry will be cut yet more, making our industry even more uncompetitive.

Labour Members also stress the importance of training, but rather than increasing training the Government will be cutting spending on training by £1 billion in real terms by 1993-94. Here again, we are falling behind our competitors--we do not have the highly mobile, highly trained work force that they have, and that augurs ill for the future.

I realise that there is a crisis of confidence in the Conservative party. There is a little local difficulty. We hear from the Prime Minister that she will not duck the bouncers, that she will not stonewall, that she will knock the bowling all over the field. As a keen student of cricket, I can tell her that the person who plays that kind of game may succeed but may also be bowled first ball. If she does not believe me, let her ask Ian Botham. She may well be bowled first ball in the election that is to take place--I do not know--but I do know that it is not the Prime Minister alone who is responsible. The Cabinet must share responsibility for the situation in which we find ourselves. Whoever is elected will also have to bear responsibility for 11 wasted years. Despite the benefits that should have accrued from oil revenues, we are not in a good position to face competition.

What we need is not a private cricket match but a cricket match in which all can join. We need a general election with a new captain, a new team and a new start. We need a team that believes in industry and in revitalising manufacturing industry so as to create the wealth to pay

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for our social programme, for education and for a better health service. That is what we need, but without competitive industry we shall not be in that league.

For 11 years there has been a concentration on service industries, but because of our handling of European matters we are in danger not only of losing out on the European bank--the City of London may also lose out and the centre of finance may move from here to Paris or, more likely, Frankfurt. Whether we like it or not, in or out of the Common Market, we are affected by what happens to the deutschmark. We cannot get away from that. The Government cannot lead us forward, nor can we recover from the economic mess in which we find ourselves without a new approach and a new team who will put money into industry and training and prepare us to meet the challenges of the 1990s.

8.17 pm

Mr. David Howell (Guildford) : With some exceptions, this has been a rather enjoyable debate, contrary to the expectations of some of us, certainly on the Conservative Benches. My right hon. Friend the Member for Chingford (Mr. Tebbit) was in cracking form when he spoke earlier, but his view that Chancellors should be the sole controllers, and could be the sole controllers, of modern economies was a bit romantic.

It is risky to hold such a view because that devalues the role of the other authority in any modern economy, whether a large continental one or a national one, and that is the role of the central bank and its governor-- the central monetary authority. Therefore, I am concerned when I hear hon. Members talk as if there were some magic world to which we could somehow return in which all the economic factors of our nation could be controlled by the politicians, the Minister of Finance or, in our case, the Chancellor.

I go further and say that if there is one overriding and burning need in Britain in order that we may perform more effectively and have a sounder monetary policy and be better members, or effective members, of the ERM, it is that we should somehow achieve a less politicised monetary policy. It is the countries that can run a depoliticised monetary policy, with perfectly sensible and democratically controlled fiscal policies and broad national policy, which have been most successful in getting their currencies to perform and whose currencies are most respected, traded and sought in world currency markets.

Whether we are in the ERM or not, and on the whole it adds some reinforcement, it is no substitute for the fundamental need for Britain to secure and run a sound monetary policy. When world markets look in on this country and see that, however determined are our political leaders, they are still the people who pull the precise levers of monetary policy--short- term interest rates--those markets are bound to attach less credibility to such decisions than if we had a separate, more independent monetary authority.

There can never be a completely independent authority, because a subtle nexus of relationships must exist between central bank governors and any democratically elected Government. However, unless we can establish greater separation of the powers of our central monetary authorities in operating monetary policy, and remove from the shoulders of my right hon. Friends the burden of carrying the political responsibility for setting and

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changing short-term interest rates, we shall not succeed in establishing credibility for our currency and thus the lower interest rates at which it can be traded in a stable way that we really deserve. That touches on a fundamental misunderstanding that I believe that I saw reflected in some of the notions of my right hon. Friend the Member for Chingford, much as I agreed with many of his other remarks and enjoyed his speech.

However, the real muddle in this afternoon's debate was to be found not in the remarks of my right hon. Friend but in those of the right hon. and learned Member for Monklands, East (Mr. Smith). I do not deny that we are in a bit of a muddle, too--it would be silly to suggest otherwise. However, it was comical to witness the right hon. and learned Gentleman--who is usually so incisive and crisp, and considered such a dreaded lawyer, and who will carve everyone up at the Dispatch Box--wade into deeper and deeper difficulties as he tried to grapple with his own party's policies on Europe and its monetary affairs.

The right hon. and learned Gentleman is himself being sucked into a religious war--from which my right hon. and hon. Friends have not been entirely free--over issues of tax theology that are of remote practical importance. The great religious wars of the late middle ages were fearsome affairs and were fought with terrible ferocity, but when they ended, few people could remember what they were about or the point of those conflicts. I fear that the same is true of our arguments over a single currency and a European central bank. Some of my right hon. and hon. Friends and Opposition Members fail to realise that the chances of a central bank ever coming about are very remote. If it happens in years to come, that will be decided not by politicians, on dates set by bureaucrats in Brussels, and not even by treaty amendments. It will be determined by markets--industry, customers, consumers, and to some extent by central bank governors. They will decide whether it will be more convenient to operate a single currency running from Lisbon to Berlin, and from Reggio Calabria to Glasgow, or whether it will be more convenient, sensitive, flexible and articulated to operate separate currencies broadly within national zones.

Dame Elaine Kellett-Bowman : Does my right hon. Friend agree that that is exactly what my right hon. Friend the Prime Minister said? If a sufficient number of countries want to use a single currency, they will do so--and if not, they will not do so.

Mr. Howell : That is exactly the argument made by my right hon. Friend the Chancellor in respect of the hard ecu, to which I shall refer shortly.

If people imagine that Karl Otto Pohl, the Bundesbank's distinguished governor, does not understand that argument, they are wrong. He knows perfectly well that it will take years to establish a central bank. He is in no hurry, even though he is chairman of the committee that is supposedly drafting its structure. He understands perfectly well that such a concept is possible on the other side of nowhere. Therefore, he is almost certainly drafting models that are so perfect as to be unattainable. His latest suggestion is that such a bank should be free not only of all national political control but of any political control whatever, and should be spinning

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in space, run by a lot of platonic philosophers and bankers in a dreamy way that could never be acceptable to nation states and their Governments, or even to the Community.

A great deal of unnecessary energy and aggro has been expended over a concept which probably will not be realised, and over which we anyway have no control. There is no hurry, and in the meantime, as my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) points out, the opportunity exists for markets to decide whether to trade on their local currencies or on a good strong ecu. The ecu already exists, and many people choose to use it. Invoicing in the ecu already occurs. Some people are paid in that currency, but need to change it into their local currency at a bank.

The hard ecu is not a bad idea, and I would argue with Mr. Pohl about dismissing it out of hand. The hard ecu offers the market a menu, to ascertain whether it wants to use that currency. I am surprised that some people are disparaging about its use. If there were a hard ecu as good as the deutschmark, I should be happy to be paid in it and to trade in it. I am sure that many commercial concerns throughout Europe would be equally happy to trade, invoice and run their books in a hard ecu, although others may prefer pesetas or sterling.

I make a plea to my right hon. Friends and to Opposition Members who are not beyond listening not to turn on each other and to tear each other's eyes out. Instead, we should confront the realities and speak positively to our European friends--those who are perhaps a little too excited about establishing a single currency and who want to set dates, and those who are amenable to positive and co-operative argument rather than to defensive attacks and assaults.

It seems to me that the operation of a single currency is very unlikely to happen, as it would require the total convergence of the European economies. I do not accept the view that such a convergence would be impossible because some nations are poor and others are rich, nor the view of my right hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), who seemed to put us in the forever poor category--as though Britain is permanently handicapped and will never catch up with the big boys.

The future might be quite different. The famed united Germany could get into trouble. It is about to run the most gigantic budget deficit, almost as large as America's--DM140 million, or about £50 billion--for next year. It seems likely that Germany will have to raise interest rates to cope with that, and it may no longer be the overwhelming, strongest magnet for attracting all capital in Europe. Germany is attracting such support now, which is dangerous in that it forces up the interest rates of us all. Nevertheless, I do not accept the view that the United Kingdom is a dispossessed region that is bound to lose out from fixed exchange rates or freer trade. That view has been expressed down the years by all opponents of the single market, but it is totally wrong.

We must be realistic and accept that the United Kingdom will have high interest rates for a good time to come--probably several years. The German affair is turning out expensive, and there is a vast shortage of capital in the world. Japan has ceased to export capital, and it will become more expensive stuff. If we want to maintain a sound currency, we shall have to keep our

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interest rates high. We have no choice. If we lowered them, capital would immediately move away, sterling would weaken and inflation would increase. Any attempt to expand our economy by escaping high interest rates would lead on the contrary to its contraction. That is the nature of the international monetary system.

There is little discretion available even to Parliament. It may be magnificent to stand here and say that this Parliament should have ultimate control of this country's monetary and fiscal policy, but in reality any Chancellor or central bank governor has only limited discretion. Those who stand up and make fine speeches, saying that Parliaments shall prevail in the matter of interest rates, are practising a cruel deception on the people. The reality is that, in open economies, there is little room for manoeuvre.

It is not good for the House or the country to be diverted from the realities. In the year ahead, we face some kind of recession. I hope that it will not be deep, but the United States is facing a recession and Japan is getting into grave difficulties over its financial structure. Those waves will be far bigger than anything that we can counter. We cannot avoid recession. Nor would any other Government be able to avoid it.

We can act prudently in adversity and we can possibly run a slightly--I emphasise the word slightly--less tough fiscal policy than we would otherwise have to pursue. We could move away from budget surpluses to perhaps just a balanced budget or a small deficit--let us consider what the Germans are doing--that would be prudent, but it would have to be carefully done. Other than that, the constraints upon the Chancellor, on the governor of the central bank--who should be reinforced--on this Parliament and on any realists are enormous. If we do not tell people so, we are deceiving them.

What we can do is to improve the supply side of our economy, as we have sought to do over the years. I do not accept that we are a crippled outlying country in Europe. We certainly have some weak patches. For a decade, I have argued that we should do more to maintain our infrastructure. I argued that in 1981-82 when I was in Government and I made no progress. I argue that case again today. Our transport infrastructure is inadequate and the education and training infrastructures also need to be built up in difficult times. The reality is not that some wonderful control over the great forces of international monetary policy exists, which can be regained by Parliament, but simply that 1991 will be a damnably difficult year for all of us. To see this nation through we shall need prudent fiscal and monetary policies.

I have no doubt but that with the right leadership we can certainly go through and regain the lost momentum of the 1980s, based on sound finance, a strong and positive role in Europe and vigorous enterprise. It can most certainly be done and those who suggest otherwise are conjuring up bogeys and fantasies, which we should not accept and which should not frighten us away.

8.30 pm

Mr. David Trimble (Upper Bann) : Last week at our party meeting when I said that I wanted to speak today I looked forward to discussing the economy. I specially looked forward to telling the House of my experience when I recently visited an enterprise in my constituency

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--an enterprise which had had a growth rate in excess of 11 per cent. for most of the last decade. I was told that in recent months its export orders were running at a mere 40 per cent. of the previous year's level, the drop being due to an overvalued currency. We entered the exchange rate mechanism at too high a level. The enterprise I visited told me that it could have lived with a rate of between DM2.60 and DM2.65. At present, this country and that enterprise will suffer.

With the House's indulgence I intend to speak on a different aspect of the Queen's Speech--security, and especially security in Northern Ireland. The reason for my change of course was the events in my constituency at the weekend--the massacre at Castor Bay on the shores of Lough Neagh.

Mr. Deputy Speaker (Sir Paul Dean) : Order. I remind the hon. Gentleman that we are discussing the amendment in the name of the Leader of the Opposition dealing with the economy. I am sure that he will be able to use ingenuity to bring his remarks within that context.

Mr. Trimble : I am not sure that I wish to let so serious a subject be raised only indirectly and as a matter of ingenuity. I have been anxious to speak this evening simply to bring the grave concern of my constituents, and the great danger that what happened at the weekend will spark off yet another round of killings, to the attention of the House. If it is not possible to raise those important and grave matters before the House, then I have no desire to resort to subterfuge.

8.33 pm

Mr. William Ross (Londonderry, East) : There was no murder in my constituency at the weekend, although there have been many elsewhere in previous weeks. Therefore, I shall not speak about the security situation, other than to say that the violence that we have experienced in Northern Ireland has had a grievous effect upon our economy, as it has upon all that we desire for the wealth of the people in Northern Ireland.

The Government have asked us to support their policy on the economy this evening, as it is outlined in the Gracious Speech on page 3, where it says that the

"Government will maintain firm financial policies, strengthened by the Exchange Rate Mechanism, designed to reduce inflation and foster the conditions necessary for sustained growth They will maintain firm control of public expenditure with the aim of keeping its share of national income on a downward trend."

That is a laudable objective, but the Opposition take a rather different view, and have tabled an amendment. The Government's point of view is open to many interpretations, but I regret that they do not seem prepared to do more for manufacturing industry, which is the well from which our wealth is drawn. Not only do we have to consider what the Government say in the Queen's Speech, we have to take into account other Government statements, not least the autumn statement made last week. We also have to take into account the Government's actions with regard to the exchange rate mechanism.

Twice in the course of this afternoon, we have heard references made to the German budget deficit. According to some hon. Members, it will be about £50 billion, and according to the tape, it will be half that sum. In either case, it is a considerable amount of money.

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I remind the House that that money will have to be found somewhere. If the Germans do not raise internal taxation to take account of it, they will have to put up interest rates and, under the terms of the ERM, no doubt they will seek the support of sterling and other member currencies for the deutschmark. I mentioned this when I spoke on the subject when we entered the exchange rate mechanism. No one else has mentioned it today. It seems strange to me that this aspect of the ERM appears to have been forgotten in the general melee on the Government Benches, but it should not be forgotten by the House, so I remind hon. Members of it.

As I pointed out in a previous debate, this country will help to pay for German reunification, and it will get very little or perhaps nothing out of the benefits which will eventually flow from it. Hon. Members have listened with care to what ex-Ministers have had to say today and yesterday, particularly the interesting speech by the right hon. and learned Member for Surrey, East (Sir G. Howe). It was clear from what he said, and from what has been said in the past in the House for public consumption, that past statements were designed to conceal the reality of the deep and bitter disagreements about Europe which all of us knew in our hearts still existed within the Conservative party. The right hon. and learned Gentleman said that his quarrel was more about style than substance, but I suggest that there was little argument about style and a heck of a lot about substance. Our argument is about policy and his basic belief about the powers that the House should surrender to a supranational identity.

The consequences of what is going on in the Conservative party are now known to the world at large. Indeed, listening to Conservative Members in the Lobbies yesterday evening, I was irresistibly reminded of a flock of headless hens. It was quite interesting. I never thought I should see the day when the Conservative party would lose its head to the extent that it has clearly done in the past 24 hours.

Conservative Members now seem to be getting their legs under them again and to be trying to pull themselves together. Some of their speeches today have been carefully designed for that purpose and have been fairly successful. At least, that is the appearance to the outside world, although God knows what is happening under the surface--paddling away like a duck, I suppose. At least members of the Unionist party are united in our attitude to Europe. There has never been any doubt about where we stand. We are extremely sceptical of that organisation and of its work.

Mr. James Molyneaux (Lagan Valley) : We have been for 20 years.

Mr. Ross : As my right hon. Friend the leader of our party says, we have occupied that position consistently for 20 years. Would to God other Members of the House had done the same. We simply cannot understand how a person can stand for election and thereafter complain when they did not tell the electorate their true attitude. They say that they have no faith in the ability of their countrymen to earn their living in the world. I have such faith in my fellow countrymen throughout the kingdom : I believe that they can earn their living in the world. Furthermore, they do not believe that they are capable of so organising the finances of the nation as to create the

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necessary conditions to allow their fellow countrymen to earn their living in the world. They want, therefore, to seek shelter, in some form or another, in Europe. Finally, they say that we should move towards a united states of Europe.

The right hon. and learned Member for Surrey, East (Sir G. Howe) tried yesterday in his speech, as reported at column 463, to give the impression that there is a middle way, but I was surprised and disappointed to find that he took no steps to spell out that middle way. I am led to the conclusion that that was beyond even his considerable powers. There is no middle way. Either we run our own affairs or they are run for us by someone else. It is as simple and straightforward as that.

If we go down the path towards a totally united Europe, the House will learn the lesson that Ulster learned over a very long period. Under the Government of Ireland Act 1920, we rapidly found out that, if we wished to remain within the kingdom, we had to keep in step. My party consistently made sure that that happened. Moreover, we found out that, by keeping in step, we had to be subsidised. Therefore, we were totally under the control of those who sit on the Treasury Bench, especially when it comes to Treasury matters.

We accepted that as the price of staying within the Union, which is where we decided to remain. That meant that freedom of movement was so limited that Stormont was reduced to rubber-stamping much of the legislation. Local councillors in Northern Ireland find that they are now in a similar position. They have no freedom of movement whatsoever.

The House will find that it is rapidly placed in a similar position if we introduce a single currency that is controlled by a central bank. The path that has been set before us would lead not to a great but to a little Europe, with limited horizons. I should like the House to consider that prospect.

The Opposition ask us to support their motion. They condemn the Government but they express no view on the question that is rending the Conservative party asunder. All hon. Members know that the same argument rages on the Opposition Benches. So far, it has not come to the surface, but the argument rages under the surface on this side, just as it has raged on the Government side for so many years. I do not know when it will come to the surface, but it most assuredly will come to the surface one day.

The right hon. Member for Chingford (Mr. Tebbit) reminded us that there is all-party agreement on certain subjects. As I listened to the speech of the right hon. and learned Member for Monklands, East (Mr. Smith), I was irresistibly reminded of the circus act in which a fellow rides two horses at once. In the case of the Conservative horses, they slowly part until at last the elastic legs do not stretch far enough and the rider has to get on to one horse or the other. The Labour party also seems to be trying to ride two horses. The problem is that one is going clockwise while the other is going anti-clockwise. That is an extremely difficult act to perform. The rider will fall off very soon. The sooner the debate in the Labour party is out in the open so that the people of this country can decide, so much the better it will be for the nation, the House and both major parties.

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The marketplace for this nation is the world, not Europe. We need freedom of action. Power over the economy and control of the money supply, which the House fought for centuries to wrest from the Crown, should be retained. The right hon. Member for Cirencester and Tewkesbury (Mr. Ridley) referred to that much more elegantly than I could ever do. Control of the economy should remain with the House and all the people we represent. That is fundamental to the life of the nation. The more clearly that is understood by the electorate and all hon. Members, the better it will be for us all.

I am well aware that Governments manipulate the economy so that they can be re-elected. However, that does not always work ; the electorate sometimes decide that a change of Government is needed. The debate will continue not only during but after the election of the leader of the Conservative party. Our immediate and continuing concern, however, is the need for sound money. Problems will arise soon because of what is happening in Germany. The rise in public expenditure outlined in the autumn statement caused me to ask how the United Kingdom Government intend to maintain sound money. According to the tables of projected expenditure, in real terms there is to be a rise in public expenditure of £15 billion up to 1993-94. In cash terms, that is £35 billion. A large element of inflation must be built into that figure.

I hope that the Minister will tell us how the Government expect that huge and continuing rise in public expenditure to be financed. I asked the Chancellor of the Exchequer the same question last week, during the exchanges after he had made his autumn statement. He said that he did not believe that the United Kingdom would experience the problem that the Germans now face for the first time in many years--a public sector borrowing requirement. Are the Government confident that they can raise this huge additional sum by means of a buoyant economy? Are the Government certain that the British economy will be able to generate the money, or will they once more have to go to the money markets for a huge sum? I should deeply deplore such a course, which would leave a trail of misery in its wake. The further we keep away from a public sector borrowing requirement the better. We need to be told exactly what the position is. The Government ought to provide their real economic projections and tell us how on earth they intend to finance this huge extra expenditure.

8.47 pm

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