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Now the public understand the full meaning of the Prime Minister's celebrated justification for his policies--that "if it isn't hurting, it isn't working". They know from bitter experience that it is hurting severely, but where, they ask, is it working?
Mr. Taylor rose--
Ms. Diane Abbott (Hackney, North and Stoke Newington) : Will my right hon. and learned Friend give way?
Mr. Smith : I will give way to the hon. Gentleman and then to my hon. Friend.
Mr. Taylor : In reality, mortgage increases hurt. Given, by his own admission earlier in his speech, that the right hon. and learned Gentleman advocated that interest rates should fall further in 1988, the switch in eradicating inflation which his policies would have generated would have had to be even tougher and to take even longer. Is not the way of maintaining our stability within the exchange rate mechanism guaranteed only by this Government's policies, not by the cut-and-run policy which the right hon. and learned Gentleman is now advocating, which would lead to further devaluation and, ultimately, stoke inflationary fuel again?
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Mr. Smith : To believe that the only way to tackle inflation is to subject the economy to the punishment of the high interest rate regime for as long as we have suffered from one is an admission of failure and dismay. Other countries in the European Community can achieve low levels of inflation without having to suffer.
Several Hon. Members rose --
Mr. Smith : No ; I have given way a great deal.
The Financial Secretary to the Treasury (Mr. Francis Maude) : The right hon. and learned Gentleman should give way.
Mr. Smith : The hon. Gentleman did not give way to me at all on the last occasion. Let me finish the point.
The Government's case is that the only way to tackle inflation is by high interest rates. I dispute that. It is not the experience of other countries in the European Community.
Ms. Abbott : The House will have heard Tory Members laughing when my right hon. and learned Friend mentioned mortgage arrears in London. He will be aware, as all London Members are aware, that property prices in London have meant that mortgage burdens are particularly crippling. If he speaks, as I speak day in and day out, to young couples who bought their house in the latter part of the 1980s on the crest of the enterprise and home-owning bubble and now face repossession, he will agree that mortgage arrears in London are no laughing matter.
Mr. Smith : It is important to give some attention in this debate to the problems facing people in difficult circumstances which flow directly from the Government's policies. I am sorry to say that the Chancellor of the Exchequer did not manage to find a word to say about them in his speech.
Mr. Mellor : Where is the pain-free alternative? What policy is the right hon. and learned Gentleman proposing?
Mr. Smith : I do not think that I have ever heard a question such as that from any Minister since I came to the House of Commons-- [Interruption.] I accept that the Chief Secretary appeared to have a genuinely inquiring tone. He knows that his Government's policies are not working, so he says in despair. "Is there something better?" I give him one. If the right hon. and learned Gentleman were to rid his mind of some of its prejudices, he would carefully consider the use of credit controls to control demand rather than high interest rates. That would be a much better and a much less painful alternative. After all, it is what some European countries do, and they appear to get by without difficulty. I shall cherish the right hon. and learned Gentleman's intervention long after the memory of this debate has faded.
Several Hon. Members rose --
Mr. Smith : I have given way a number of times, and I shall not do so again.
Mr. Sedgemore : Have another go.
Mr. Smith : The Chief Secretary appears to be resisting my hon. Friend's blandishments. He is wise to do so. One
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thing that the right hon. and learned Gentleman--[ Hon. Members :-- "Answer the question."] I just gave the right hon. and learned Gentleman the answer.The constituents of Conservative Members will be wary about relying on a Government forecast of the economy. Their estimate of the recession was wrong, so how can we believe their assertion that there will be a near- miraculous recovery in the second half of this year? That is, I understand, still their assertion.
When the former Chancellor, now the Prime Minister, presented his autumn statement, he told us that the British economy was coming back on track. A similar confident assurance was made by the present Chancellor in the Budget debate last year. He is fond of quoting others, so I shall remind him of what he said last year. Bearing in mind that there might be a question such as that just asked by the Chief Secretary, I shall quote the Chancellor exactly. When he was Chief Secretary, he said :
"Pain there may be, but gain there will also be. By this time next year, the prospects will be distinctly brighter."--[ Official Report, 21 March 1990 ; Vol. 169, c. 1144.]
That was the Chancellor's promise in his Budget speech last March. Can any hon. Member honestly say that things are distinctly brighter because of the Government's policies? They may be brighter for some, but they are pretty dim for most of my constituents and for the constituents of most hon. Members.
A year later, we know all about the pain, but what about the gain? Is that put off for yet another year? Will we have the gain if we are patient, with everything coming right as the economic cycle reasserts itself and the country goes into economic recovery?-- [Interruption.] The hon. Member for Birmingham, Northfield (Mr. King) should be concerned about what is happening to the industrial economy of the west midlands.
Mr. Roger King (Birmingham, Northfield) rose--
Mr. Smith : I suppose that I rather provoked the hon. Gentleman, so I shall give way to him.
Mr. King : A few months ago, the right hon. and learned Gentleman was asked to state Labour's alternative policy, and he came up with something he described as credit controls. Is he saying that nobody should be able to obtain a mortgage or buy anything in this country that he cannot afford? That would stop British industry in its tracks and ruin the housing market. It is no answer to the problem.
Mr. Smith : I gave way to the hon. Gentleman because I thought that he might be concerned about the industrial economy of the west midlands. I thought that he would deal with that in his intervention. I am sorry to say that I was disappointed. He should bear in mind what industrialists from his area are saying. I noticed an article in the Financial Times the other day, which said :
"Small and medium-sized manufacturing companies in the West Midlands are reducing investment and training programmes". The Engineering Employers Federation is telling the Government that there is nothing but misery in the west midlands, yet what does one of that area's representative do in the House of Commons? He makes silly interventions. The hon. Gentleman would do better to speak for his constituents and for the companies that he should represent.
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There is supposed to be a dramatic recovery in the second half of this year, but the only basis for believing that it will occur is to take the Chancellor's word for it--or even the former Chancellor's word for it. I fear that, on the record of recent years, there is no basis upon which such a naive confidence could be based. To achieve a recovery from a recession, there must be a change of course--the very option that has been excluded both by the former and the present Chancellors. That is why we have no confidence in their ability to lead us out of the recession into which they have driven this country.The Government should today have cut interest rates by 1 per cent. and they should be ready, as conditions permit, to make further reductions to bring our interest rates nearer to the levels prevailing in the remainder of the European Community. Further interest rate reductions will be necessary to avoid even more sharp falls in investment, output and employment, and to assist our country's prospects for economic success in the single market. However, a cut in interest rates, even if extensive, is not enough on its own to ensure a recovery from recession. Above all, we must take steps to arrest the deadly decline in investment. There is simply no way in which we can either recover or begin the long process of catching up with the leading countries of the European Community unless investment is made and maintained in new plant and equipment, new technologies and new enterprises.
That is why the Opposition urge that fiscal incentives for investment in manufacturing industry should be introduced in the forthcoming Budget. Britain's position is now so critical that the Government should abandon their somewhat inconsistent adherence to so-called fiscal neutrality. Both the CBI and the TUC recommend such proposals, and the Government should heed them. However, it is not enough to encourage investment in plant and machinery. The tragedy is that we have a colossal skills crisis in the midst of a severe recession. How foolish can it be to organise a skills shortage in the midst of rapidly rising unemployment? Investment in the skills of our people is vital. If the Government want something to do, if they want a prescription for action--and the Chief Secretary is the best man to do it--the Government should immediately reverse the cuts in the training budgets, which are part of the autumn statement and which were highlighted in the debate on training last week.
Investment is also required--both public and private--to renew the crumbling infrastructure that a decade of Conservative neglect has caused. In almost all my discussions with industrial managers, I am reminded of their belief that the Government have failed in their responsibility to provide the necessary infrastructure for sound industrial development. That investment must, in large part, be made in the regions, which are now being as seriously affected by the recession as the south-east. As the recession bites deeper and deeper into the industrial regions, the north-south divide, which does so much harm to our economy and to our society, will deepen. In our debates on the autumn statement and the public spending programme, we must remember that, although we need a strong economy--and, given that there is a recession, it is natural that we should concentrate on that--we must also aim for a fair society. The tragedy is that during the past decade the Conservative party has achieved neither.
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In a recent article on the latest edition of Social Trends, the Financial Times commented :"Britain has entered the nineteen nineties with the image of a land where the rich get richer, the poor poorer, and the rest live on credit."
Social Trends shows that the proportion of income in the hands of the top 20 per cent. of households increased during the 1980s to reach 39 per cent. in 1987 compared with 34 per cent. in 1979. In sharp contrast, there has been a steady fall in the share going to the bottom 20 per cent., from 10.1 per cent. in 1979 to 8.9 per cent. in 1987.
Mr. Maude : They are better off.
Mr. Smith : They are not better off. The figures prove that the trickle-down theory does not work. Many people are worse off as a result of 11 years of Conservative government. Conservative Members should catch up on their statistics. Indeed, the Government recently had to correct statistics that supported the contention of Conservative Members. The sad thing about these figures, which stop in 1987, bad though they are-- statistics that the Government find uncomfortable seemed to stop two or three years ago--is that they exclude the malign effect of the 1988 Budget, with its tax rate cuts for the top tax payers, followed within a matter of weeks by slashing cuts in housing benefit and income support.
The Opposition deplore a Government whose policies fail to achieve economic strength and continually undermine the foundations of a fair society, and many people in Britain are coming to agree with us more and more. Like the people we represent, we look with dismay at the continuing decline in our vital public services. We look at a Government who have neither competence to recommend them nor good social purpose to stand in its place. We stand for a strong economy and a fair society. Britain needs a new start, and it is clear that to achieve it, it will need a new Government.
5.10 pm
Mr. Terence L. Higgins (Worthing) : It is now more than three months since the then Chancellor introduced his autumn statement. I suppose that it is true to say that both in terms of domestic political events and in terms of events in the middle east, there has rarely been a more extraordinary and difficult period at home and abroad.
As a result, economic affairs have tended to be put in the background. Meanwhile, the Select Committee on the Treasury and Civil Service has been taking evidence and has produced a report on the autumn statement. I am grateful for the remarks by both Front-Bench spokesmen on the work of that Committee which enables the House to debate matters in more depth than would otherwise be the case. One point that has emerged clearly from the debate so far is that the original cause of the recession was in many respects the need to deal with the overheating of the economy which took place after the stock exchange crash in 1987, and that overheating would have been worse if the right hon. and learned Member for Monklands, East (Mr. Smith) had been in charge because he wished to lower interest rates even more than the Government.
I want first to comment on the Government's forecast with regard to the recession and inflation. The Treasury and Civil Service Select Committee went at some length
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into those issues and, taking all the factors into account, concluded that the recession is likely to be deeper and longer in duration than the Treasury forecasts.That is an important conclusion. The Committee's report on last year's Budget came to the conclusion that the Treasury always underestimates turning points in the economy, whether a turn downwards or upwards, and that that error has become bigger on every successive cycle. We repeated that analysis in our report on the autumn statement. Therefore, I fear that we reached the conclusion, which is reflected in the report, that the recession will be longer and deeper than would otherwise have been expected.
On the other hand, the Committee, which over the years has brought to the attention of the House the way in which the Treasury's inflation forecasts have not been achieved, reaches the conclusion on this occasion that the rate of inflation which my right hon. Friend the Chancellor predicted of about 5.5 per cent. by the end of 1991 is likely to be achieved. That is crucial in determining whether the economy recovers in the way in which he suggests. We reached the conclusion that the inflation forecast is much more reliable than has been the case in the past.
There is no doubt that in comparison with 1980-81 there is a substantial difference in the pattern of the recession. The regional pattern is different. The recession has undoubtedly hit the south more than it did in 1980-81 and there is a significant difference in the finances of the corporate and banking sectors. I was a little concerned about my right hon. Friend's comment on that, because in paragraph 23 the Select Committee points out :
"The financial deficit of industrial and commercial companies is unprecedented both in its sheer size (especially for this stage of the economic cycle and because this is the third successive year of financial deficits."
It goes on to point out :
"the corporate sector is finding it increasingly difficult to arrange the necessary finance in the short term."
It also says that the banking system is
"cautious following a number of major corporate insolvencies" and is
"far less accommodating than previously."
That is a worrying development, in marked contrast to the situation in 1980 -81, when many banks went beyond their normal prudential limits in order to preserve companies which had a long-term future. Therefore, that particular aspect gives especial cause for concern. Having said that, I ask the simple question--what should we do now? My right hon. Friend the Chancellor is right to say that inflation should be the top priority. If we weaken on the objective of reducing inflation, we may obtain some short-term relief, but we would undoubtedly greatly increase the problems in the medium and the longer term.
The right hon. and learned Member for Monklands, East advocated a 1 per cent. cut in interest rates today and, apparently, more later, but it was interesting that he did not say whether he would do that regardless of whether it meant that we had to have a realignment of exchange rates. He was remarkably coy on that point.
My right hon. Friend the Chancellor has made it clear in evidence to the Select Committee and in statements to the House that there is no question of a reduction in interest rates which is not fully justified by our position in the exchange rate mechanism. The cut this afternoon shows clearly that he has been prudent in making that
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change because the exchange rate appears to have responded favourably. I hope that we shall see further progress.However, we do not know what will happen in the Budget, but the reaction of the market to the Budget will be important and it would be a mistake to reduce interest rates significantly before we know how the market reacts to what my right hon. Friend says in his Budget statement.
However, I am clear that to throw caution to the winds, to reduce interest rates substantially now and to have a devaluation and a realignment of the exchange rate would simply put us back on the old inflationary spiral. Suggestions that we may do that are likely to delay the time when we can prudently reduce interest rates. Therefore, my right hon. Friend's policy on that is right.
As recommended in the Select Committee's report, interest rates have been devoted to maintaining the position of sterling in the exchange rate mechanism within the limits which have been set, so they are no longer available to deal with the domestic situation. The Committee deals with that at considerable length, and it is a view that we have taken over the years. But it is more important in the context of membership of the ERM. The Committee reached the conclusion :
"We consider it to be unwise for the Chancellor to rule out the use of fiscal measures to affect the level of economic activity in all circumstances when the level of interest rates is determined by the commitment to maintain the parity of sterling in the ERM, particularly now when the depth and the duration of the current economic slow down is so uncertain."
I welcome the fact that the Chancellor, in contrast to the statement made by the previous Chancellor when he introduced the autumn statement, has said that he will allow the so-called automatic stabilisers to operate fully--that is to say, the natural increase in public sector borrowing or decline in surplus which would come about as a result of the recession ; the fall in tax receipts on the one hand, and more unemployment benefits and so on on the other. It is tremendously important that that should not be inhibited. It is also important to get it over to markets in advance of the Budget that that would in no way mean a weakening of my right hon. Friend's determination to bring inflation under control. It is highly likely that the extent of the public surplus or deficit will change radically as a result.
The case for a more active fiscal policy--in terms not only of taxation but of public expenditure--is appropriate in the circumstances in which we now find ourselves, in endeavouring to reduce the duration and depth of the recession. As we cannot use the interest rate weapon, for the reasons that I have explained, fiscal changes are important.
I will give one example. It is absurd that the hospital building programme should grind to a halt because regional hospital chairmen will not sell land, believing that it will be worth more in two years' time, say. In such circumstances, it would be entirely appropriate to allow some relaxation of the Government's position on public expenditure, for they know that the money will come in later, and because at this stage in the cycle, the construction industry is seriously underutilised. The Committee makes an overwhelming case for the adoption of a more active policy, particularly now that we are in the ERM.
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My final point concerns an aspect that we have not debated for some time. I refer to pay policy. Over the years, the House has seen many forms of pay and incomes policy, and I myself have lived through everything from total laissez-faire to the most rigorous statutory prices and incomes policy that one could envisage. One neglects pay policy in the public sector and its repercussions for the private sector at one's peril.Although the leader in The Times was unduly harsh on my right hon. Friend the Chancellor, recent settlements in the public sector have caused me concern. Pay in the private sector has been coming down more rapidly than the Confederation of British Industry's figures suggest. In fact, the CBI itself takes that view. That is good for the purpose of getting down the underlying rate of inflation, but public sector settlements should be subject to the kind of policy that we adopted many years ago, involving the so-called N minus 1 formula, which provided effective scrutiny.
In those days, it was a good rule of thumb that, whatever a Department told the Treasury was the increase in pay, the true figure was roughly double that, because of fringe benefits and so on. Unless public sector awards are scrutinised with the utmost vigour by the Treasury and by Ministers, the opportunity to reduce the underlying rate of inflation at a reasonable pace will be seriously jeopardised.
I am concerned also about the argument that pay awards are all right provided that they are staged. Public sector pay is governed by cash limits and running costs, but to store up problems next year by staging a pay agreement from one year to the next is not satisfactory. I am not suggesting that the public sector should be dealt with unfairly. If inflation continues, everyone suffers, but we must achieve a gradual decline. Despite all the Government's preoccupations with the Gulf war, the European Economic Community, and a single currency, they ought to give priority to that aspect. My right hon. Friend's basic message this afternoon was that his policy, within the ERM, of bearing down on inflation will continue, and be brought to a successful conclusion--and that necessarily means that interest rates cannot be lowered until the market views that as a prudent action, and downward pressures are not exerted on the exchange rate.
I believe that the market grossly underestimates the extent to which there is already downward pressure within the economy. The recession figures themselves show that clearly. However, against the general background of my right hon. Friend's policy, the autumn statement naturally looks rather different from the way that it looked last November, and we await with interest the official forecasts that will be published when my right hon. Friend presents his Budget on 19 March--which will, I am sure, take into account the points that I thought it right to draw to the attention of the House.
5.24 pm
Mr. A. J. Beith (Berwick-upon-Tweed) : We are in a serious recession --more serious than the Government anticipated at the time of the autumn statement. That is the difference between how we view it now from how it appeared, at least to the Government's own supporters, on the day it was published. That point was also made by the Select Committee.
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The anxiety that is felt about the Government's policy response stems from the belief that continuing high interest rates will make the recession worse. I share that fear. Interest rates must come down, but in a way that does not serve to increase inflation and lead to the reappearance of the very problems that caused them to be so high in the first place.The only alternatives offered so far are to reduce interest rates and hang the consequences, as advocated by the right hon. and learned Member for Monklands, East (Mr. Smith), or to reduce them in the knowledge of the consequences, which is the preferred option of some Conservative Members-- the consequence in that case being devaluation of the pound and the abandonment of sterling's place in the exchange rate mechanism. That, too, would lead to continuing fears about inflation, and unremitting pressure to increase interest rates yet again. Commerce and industry need not just a reduction in interest rates but a sustainable reduction--and a pattern that more closely matches that of our competitors.
Earlier, there was an interesting exchange when the Chancellor rejected the devaluation option, saying that the strongest economies in the world have strong currencies. The hon. Member for Birmingham, Selly Oak (Mr. Beaumont- Dark) added sotto voce--in so far as he ever utters anything sotto voce-- "and low interest rates." One could also add the words, "and low inflation". The strongest economies manage to combine all three.
However, the Government did not give us low inflation, or price stability, but they are still promising that interest rates will remain higher than in our competitor countries. The Government forecast--to the extent that they ever forecast it--that underlying inflation, which is something on which Chancellors have always laid great stress, will not fall that much. The Chancellor referred to a fall, but he is not forecasting that it will be below 6 per cent. I will be really generous and suggest a figure of 5.5 per cent. One is referring to a rate of inflation from which mortgage interest is excluded--the rate by which Chancellors and other Treasury Ministers set so much store.
The rate will remain worryingly high even when the supposed effectiveness of the painful cure begins to show itself in the economy. The Government's credibility problem will not disappear, except to the extent that markets take the headline inflation figure as being the whole story. If they do that, the Government may be lucky, and their credibility may increase to the extent that greater interest rate reductions than now seem likely become possible.
Mr. John Smith : I recollect that, in debates last year, the hon. Gentleman opposed a cut in interest rates. Will he make it clear whether the Liberal Democrats are in favour of a 1 per cent. cut in interest rates?
Mr. Beith : My argument is that interest rates should be cut, but that, if they are to be reduced by any significant amount, other policy proposals must accompany that action.
The Chancellor reduced interest rates by half of 1 per cent. today. He decided on such a small reduction because he feared, understandably, that if he made a larger cut there would be dangerous inflationary consequences, arising from a loss of market credibility. I would have used the same reasoning, unless the measures that I am about to advocate were taken to ensure that the economy's
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credibility is enhanced, and that the Government are seen to oppose inflation. I want interest rates to come down, but I want them to stay down. If that is to be made possible, inflation must be defeated.Mr. Budgen : How can the hon. Gentleman be sure that any policies that he advances to accompany a reduction in interest rates would be acceptable to speculators, as being likely to make the pound more attractive than the deutschmark? If everything is governed by the unpredictable relationship between the pound and the deutschmark, how can any of us be sure which particular factor acts on the minds of any one speculator, or on the minds of speculators generally? We keep hearing from the Chancellor and the Prime Minister that the pound will strengthen as inflation drops. It may--but no one can tell. It is like suggesting that the Prime Minister knows which horse will win the grand national.
Mr. Beith : It is a reasonable assumption that the greater strength of the deutschmark is related to the belief that it is stable and that prices are stable. It is not likely to be devalued and the worth of holding it is not likely to be reduced because it loses value in the economy of which it is a part. If we can change the perception of sterling so that it is viewed in a similar light, there will not be such a premium on the holding of sterling. Our present level of interest rates is the premium that we pay people who believe that this country is not as good at controlling inflation as Germany and other countries--that is manifestly the case.
We have to remove that premium, and the Government have totally failed to do so. The Government have been in power, committed to price stability and getting rid of inflation, for more than a decade, and they are still suffering from the problem that they came into power with. That is why the Government are unable to reduce interest rates by a greater amount.
I believe that we could achieve far greater interest rate cuts than this small half a per cent. cut, if it were accompanied by policies designed to ensure that people believe that we are serious about inflation. Why do I say that people are doubtful about our commitment to inflation? One reason is the way in which interest rates are reduced. Why did it happen today? The interest rate cut today was timed because of this debate, no matter how many days the Chancellor may have been thinking about cutting it. There is no doubt about it--the Chancellor is a politician to his fingertips. He knew that Government Back Benchers were uneasy and he wanted to provide some appeasement to that unease. I know that the hon. Member for Wolverhampton, South-West (Mr. Budgen), who nods, shares my view on this matter, because he is an accurate observer of the way that Governments behave.
There is clear precedent for that behaviour. When we entered the exchange rate mechanism there was a 1 per cent. cut in interest rates, which was timed for the opening of the Conservative party conference. We know, and it is on the public record, that the Governor of the Bank of England thought that that was an unwise moment at which to cut interest rates. He felt so strongly about it that he was not content merely to speak to the Chancellor, but wrote a letter to him about it, which is also on the public record. There was no way that he could express himself more strongly on the subject. He realised that it was a matter of political timing.
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Another opportunity for an interest cut of that type is coming up--on the eve of the general election. To a politician in government, that would seem the most opportune moment to remove some of the fears about high interest rates, and therefore it is quite likely. What is more, a great many other people believe that the Government may behave in that way. In a footnote to its report, the Treasury Select Committee points out that lowering interest rates at the time of ERM entry might have contributed to a loss of credibility.Industry needs larger interest rate cuts than these, but cuts which can be sustained, and that will not be the case unless they are accompanied by evidence of an anti-inflation policy. One of the most proven ways to contribute to that--I have argued this before in the House and I now find that the right hon. Member for Blaby (Mr. Lawson) argued for that when he was in government--is to entrust an autonomous responsibility for price stability to the Bank of England.
The arguments against that are not economic but political. Those who argue against do not do so because they do not believe that it would have the effect that I describe, but because they want the freedom to put interest rates up or down in the light of considerations other than price stability. That is a dangerous power, which may occasionally be used beneficently but may often be used in circumstances which lead to further inflation later.
It would be desirable to keep sterling within the narrow bands of the exchange rate mechanism, and if that could be achieved, although it is a difficult process, clearly there will be more firmness in our commitment to our currency and its stability.
Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak) : That is a most interesting argument. However, were we not told in Brussels to reduce wage inflation to 2 or 3 per cent? Some of us pointed out that that would mean 3 or 4 million unemployed, but the attitude there was, so what? The Bank of England, in its superb Georgian offices in Threadneedle street, with magnificent Louis Quinze furniture, could dictate any level of interest rate. Is the hon. Member for Berwick-upon-Tweed (Mr. Beith), who is a Liberal, willing to allow the Bank of England to make 3 or 4 million people unemployed so that it can achieve a virtuous financial circle? He would not win many seats with that policy.
Mr. Beith : The hon. Gentleman has not come to terms with the fact that the tendency to inflation within the British economy is the underlying problem, and the fact that our currency does not repose on price stability. As long as politicians continue to play around with the currency to suit their own short-term political ends, the currency will not do so. Germany's success by adopting another method of dealing with the problem--autonomous responsibility for price stability--is on the record as one of the achievements of post-war Germany.
I shall now mention some of the consequences of recession for other aspects of Government policy. Our present recession might not have been so severe in industry if the Government had taken a number of other steps that we have advocated for years, such as training measures ; correcting the mistakes of the 1984 corporation tax reforms, which hit companies especially hard in times of
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high inflation ; and legislation to counter late payment of bills, especially by large institutions, which has made the cash flow problems of small and medium-sized firms worse. I know that some Conservative Back Benchers have been sympathetic to the latter and that a Bill was brought in to deal with it.Other steps would be to attack monopolies more vigorously to ensure that prices are driven as low as possible by competition, and to reduce the burden of employers' national insurance contributions, which would be a less inflationary type of tax cut than those that the Government have made in the past. As well as those steps, which might have helped industry, key investment decisions need to be taken. At the time of the autumn statement, the wrong decisions were taken--and they will not be changed now because of the curious practice that we operate in this country where we consider public expenditure at one end of the year and raising the money for it halfway through the year. Governments seem unable to relate the two. Any Government could reasonably point out that the Gulf crisis has changed calculations and has to be taken into consideration, but it need not stop essential investment--indeed, it must not. The costs of the Gulf war, serious though they are, are containable, and other countries are contributing to them to a significant extent. The costs are not on a scale which ought to lead to the abandonment of other important spending. I was a little worried that the Chief Secretary, when he appeared before our Committee, gave some signs that savings would be sought in some areas to meet some of the increases that will arise because of the cost of the Gulf crisis.
Mr. George Walden (Buckingham) : Will the hon. Gentleman give way? Mr. Beith : I am a little concerned about the time that I have taken, and I want to keep close to Mr. Speaker's injunction.
Other key elements of investment need to be increased at this time if we are to get out of recession. Training is one area where the Government have made the greatest public spending mistakes of the autumn statement. The training budget has decreased every year since 1987-88 and continues to decrease. It has decreased in real terms year after year, and further cuts are planned during the next three years, supposedly on the ground that unemployment was decreasing, which is no longer the case. However, training is not about employment, but about having a more skilled work force, and we need more investment in training if we are to acquire the skills to get us out of recession.
The Department of Trade and Industry has gone down sharply and regularly. Regional aid to industry will have been cut by £65 million in the years up to 1994 and is virtually disappearing at a time when regions will start to feel the real impact of the recession. Funds for collaborative research have been cut by £38 million in 1991-92, a cut of about 35 per cent.
Essential investment in transport has been ignored, especially rail links to the channel tunnel. We have not tackled such links in the way that the French have, and there will be serious delays in linking the north of England by through freight and passenger trains to continental Europe.
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