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recession is not restricted to manufacturing industry. It has affected the south and also service industries--the industries that we have done so much to encourage.There have been job losses and closures in advertising and public relations and even redundancies in the law, banking and estate agencies. Like other hon. Members, I see evidence of the recession in my area. In the past week, 612 jobs were lost in three firms in and around Hull. No doubt some of those firms faced the difficulty of selling into a $2-for-the-pound American market.
Today we have a combination of high interest rates, collapsing demand and the approximate $2 exchange rate. That is causing great difficulties for many companies. I am worried about the effect that that combination of factors is having on many small and medium-sized firms. No Government have done as much for the small business sector as this Government and no one has done more to recreate the enterprise culture than my right hon. Friend the Member for Finchley (Mrs. Thatcher), the former Prime Minister. However, many small and medium-sized businesses are struggling and going to the wall. Some have already gone out of business.
Mr. Mark Wolfson (Sevenoaks) : Will my hon. Friend give way?
Mr. Townend : No, I only have 10 minutes in which to make my speech.
Unless we act now, more businesses will go to the wall and much of the enterprise culture that we have so painstakingly built up over the past 10 years will be lost, perhaps never to return. How right was our former Prime Minister to oppose entry into the ERM. If we do not act now, at worst we might face a situation similar to when we joined the gold standard before the second world war. We need interest rates to come down quickly, not by 0.5 per cent., but by 2 or 3 per cent. I accept that that will be a difficult decision, but such action is clearly not possible if we maintain our position in the ERM. I should like us to leave the ERM as I believe in floating rates, but I accept that that may be politically impossible. Therefore, there must be a realignment within the ERM.
I challenge those who say that the market would lose confidence in Britain. The markets will lose confidence in Britain if we let a large section of our industry and business go into liquidation. I accept the argument that lower interest rates would reduce the rate at which inflation will decrease. However, the figures that I have quoted show that the rate of inflation is dropping so quickly that perhaps a slower rate might be better. We are now paying for the desire of my right hon. Friend the Member for Blaby to see sterling fixed to the deutschmark.
The current recession has been made worse by the Gulf war, which has had a significant effect on service industries, tourism, airlines, travel and hotels. It is now gathering speed so quickly that, even if interest rates were cut by 2 or 3 per cent. in the near future, the recession would continue to increase for some months before there was an upturn and businesses would continue to fold. There would not be an upturn before the end of the year.
I do not have time on my side, and as a country we do not have time on our side. Industries cannot afford to have the Government wait, and similarly the Conservative party cannot afford to have the Government make the ERM the overriding factor of economic policy. My right
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hon. Friend the Chancellor of the Exchequer is a sensitive man. He inherited our membership of the ERM. He appreciates, even though some of the Treasury mandarins do not, the depth of the recession. He appreciates the pain that small businesses in his constituency are suffering. I know that he wants to do the right thing and I beg him not to be deterred by what our European partners might think and either come out of the ERM or opt for realignment.Having seen how membership of the ERM has placed our economy in a straitjacket, having seen how disunited Europe has been over the Gulf and how slow Europe has been to give adequate support to Great Britain and the United States, I believe that we certainly should not put our economy and industry at risk on the altar of being good Europeans.
6.38 pm
Mr. Elliot Morley (Glanford and Scunthorpe) : The Chancellor said earlier that the effects of the recession were exaggerated. Last Thursday, in my constituency, Sooner Foods shed 400 jobs. Last Friday, in Brigg, British Sugar announced that it was closing its factory, with the loss of more than 100 full-time jobs and more than 200 seasonal jobs. This morning, the major employer in my constituency, British Steel, announced that 850 jobs are to go. That amounts to more than 1,400 job losses in the area in less than a week. I do not think that that exaggerates the scale of the recession. It is a recession for which the Chancellor, the Prime Minister and the Government must take responsibility because of their economic mismanagement and their sledgehammer approach to the economy. Each of those three firms was successful, had good management, and worked with the unions to try to minimise the human effects of those job losses. Nevertheless, the root of their problem is the fall in demand through recession, cripplingly high interest rates, and the exchange rate mechanism. The Government entered the ERM at the wrong time for the wrong reasons.
Ms. Abbott : And at the wrong rate.
Mr. Morley : It was certainly at the wrong rate. That has added to the detrimental effects on our manufacturing base.
It is amazing that the Government are more interested in giving tax cuts to the well-off than they are in building our training, investment and industrial base. It is amazing that the Government, who have had the benefit of North sea oil and the benefit of privatisation proceeds-- although those assets were sold off on the cheap and below their real value --are in such an economic mess compared with our main industrial rivals. People in Glanford and Scunthorpe are paying the human cost of that neglect and mismanagement.
As has been pointed out, we need not only a cut in interest rates but a deep cut in interest rates, and not just one approach to controlling inflation but a much more sophisticated approach to controlling inflation. I fear that much of our economic base will never recover from the ravages that are being imposed on it by the Government's economic mismanagement.
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6.41 pmMr. Nicholas Ridley (Cirencester and Tewkesbury) : On 30 March 1981, 364 economists wrote to The Times and said :
"There is no basis in economic theory or supporting evidence for the Government's belief that by deflating demand they will bring inflation permanently under control and thereby induce an automatic recovery in output and employment."
On that occasion they were wrong. That statement was followed by seven years of low inflation and very high growth. This morning, six economists-- many fewer--wrote to The Times and said that they feared that the depth of the recession would be deeper and longer than anybody expected and that an immediate cut in interest rates was required.
What is the difference between now and 10 years ago and the two circumstances in which the economists wrote to The Times ? Both were periods in which inflation had to be killed, and I believe that both will successfully kill inflation. Both, of course, cause distress--for example, unemployment and bankruptcies--which is the miserable but necessary price of reducing inflation. The difference is that, in those days, my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) was allowing the pound to go where it would, whereas the pound is now constrained in the exchange rate mechanism. That brings me to the central questions that I hope that my right hon. Friends on the Treasury Bench will think more deeply about, although they have already thought about them deeply. What is the objective of the squeeze? What do they seek to achieve by high interest rates? We cannot have two objectives, and we cannot have two priorities. There must be one top priority. As between the priorities--defeating inflation or maintaining a certain exchange rate--there must be a choice. I quote no less an expert authority or high priest of European monetarism than Karl Otto Po"hl, who said : "Interest rates should be set according to domestic monetary conditions, and the exchange rate should be left to go where it will."
More recently, he said :
"In my view it would therefore be desirable to embody in the statute of a European central bank a clause to the effect that domestic stability must have priority over exchange rate stability." I say amen to that. He put his finger on the defect in the exchange rate mechanism, although he is the high priest of that very mechanism.
How can one be a member of the exchange rate mechanism and yet give priority not to the mechanism but to domestic stability? I expect that Mr. Po"hl was referring to the management of some future European currency as against the dollar or the yen. I am sure that he would say that those are different economies with different problems, different states of development and different rates of growth and that, of course, one must have an exchange rate between them, but that must not be the priority.
Of course, within the ERM there are different economies, different rates of growth and different levles of productivity. Just as our economy is different from Germany's, so we are faced with the choice of whether to keep entirely to the German rate of progress by our relationship with the deutschmark in the ERM or to look after domestic monetary conditions instead. That has the unfortunate consequence as well of putting us into the
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wrong parity against the dollar, which is not a member of the exchange rate mechanism ; nevertheless, half our exports go to dollar countries.Why is it that the people who criticised the Government in 1981 for their very tight monetary squeeze now support the exchange rate mechanism and the present maintenance of high interest rates, whereas nowadays those who supported the Government in 1981 are critical of the Government for their present severe squeeze? The answer is that those like myself who supported the Government in 1981 but are worried about the present situation put as our top priority the defeat of inflation and no more, whereas others of my right hon. and hon. Friends seem to put as their top objective the maintenance of some position in the ERM for primarily European foreign policy reasons and not for economic reasons. That shows how dangerous it can be to get one's priorities wrong.
The 0.5 per cent. cut in interest rates is welcome, but, as many have said, it is too little, too late. The Government have demonstrated that their objective is to do the least possible so as not to disturb the value of the pound in the ERM. As my right hon. Friend the Chancellor has said, his primary objective is to do that. His primary objective should be to kill inflation, but not to have over-kill. Six of the best economists wote to The Times and we had 0.5 per cent. off interest rates, in which case, I shall encourage those six economists to write again on another three days. Three or four more such letters should get us to where we should probably be. It is not necessary to follow inflation down with successive cuts in interest rates. If the money supply is too restricted and M0 is running at only 3 per cent., as I believe that it is, it is right to address the need to get the money supply right, not necessarily to tie it to some indicator such as the RPI, which is meaningless in this context. The RPI measures the inflation of the past 12 months, not the inflation of the hour or the day. Therefore, one is measuring something that is of no relevance to the current state of the economy. We should forget the idea of chasing inflation down with interest cuts. Inflation is coming down very fast indeed, although that will not show because we always have the baggage of the past 12 months within the index.
I urge the Government to use interest rates--if I may again quote Herr Po"hl--
"according to domestic monetary conditions".
I suspect that they never believed that the slump would be as bad as it is obviously going to be. The autumn statement itself said : "GDP is expected to recover through 1991."
I do not think that GDP will recover through 1991 unless the Government are prepared to make that their main objective. 6.50 pm
Mr. Austin Mitchell (Great Grimsby) : It was a fascinating spectacle at the beginning of the debate watching the Conservative Benches fill with Members who wanted a little hope and good cheer from the Chancellor ; they had hope in their eyes and were quietly humming to themselves
"Lead, kindly Light, amid the encircling gloom"
until the Chancellor began to speak. What did he offer them? Absolutely nothing. The only definite prospect he
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offered them in that long speech was that what goes down must come up, some time ; we do not know where, we do not know when, we do not even know why.That is the question. Why must what goes down come back up eventually? Why is it not possible that, on the contrary, we are locked into a downward spiral of more bankruptcies, more unemployment deflating demand and therefore leading to more bankruptcies and more unemployment--a process which goes on until it reaches a credit crunch in which banks and building societies begin to demand the return of assets which cannot be sold at prices justified by the borrowing, so increasing the burden of debt?
Far from recovering from the depression, which will be hard, severe and long, it is possible that we are on the brink of worse. Confidence, which has been buoyed up by the Government's hopes and by the 0.5 per cent. cut in interest rates, is poised on a knife edge. The stock market is buoyed by hopes--but hopes of what? Asset prices are kept up because no one dare pull the plug, but we are precious near pulling the plug. The foreign exchange rate, which has been very low against the deutschmark, may go down further, forcing an increase in interest rates. That is the knife edge on which we are balanced. It is no use the Government exuding hope and good cheer without telling us that something will be done. We are in a uniquely disastrous position. The economy is not well prepared to face it. Industry has over-borrowed ; everybody has over-borrowed. We have had the biggest increase in the borrowings-to-earnings ratio of any country in the advanced industrial world. The ratio is now among the highest, if not the highest. Therefore, we are perilously exposed to a credit crunch.
Our economic statistics are the worst of the Anglo-Saxon world which has been cited in defence of the proposition that the problem must have been caused externally. Although the United States is in difficulty, it is interesting that, because its exchange rate has come down, its exports are doing very well, thus offsetting the decline in the domestic market. That is not happening here. There is no way out through that channel.
We are in a worse mess than the Government are admitting, with no sign or glimmer of a recovery, or even an indication from the Government that they will help the recovery. In those circumstances, we have to ask what the role of the ERM is. The Chancellor gave the easy answer that the ERM did not cause the depression. Nobody said that. What ERM membership does is lock us into the depression and screw down the lid, by removing our ability to use the weapons which we have always had in the past to get us out of the depression. In the past, we had the ability to reduce interest rates to stimulate the economy and to relieve the pressures of debt. All that has gone. We have abandoned control to Brussels. It is always a mistake to make an externally determined exchange rate, particularly an exchange rate determined by competitors who have a vested interest in seeing it overvalued, a central instrument of management. It is like trying to improve the weather by nailing the needle on the barometer : it cannot be done. It is an even bigger mistake to do that at a time when the cycles are out of kilter. The Chancellor said that Germany was still growing. That is true, but the Germans want to dampen that growth. They want an increase in interest rates. We need a reduction in interest rates, because our economy is so depressed.
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It is impossible to merge the economic policies of two countries which are at different stages of a cycle and make the stronger one dominant, as has happened with the deutschmark. That is a mere mistake, but the absolutely daft decision of the Government was to go into the exchange rate mechanism at a rate which was grossly overvalued. It was up about 20 per cent. in real terms on the exchange rate at the end of 1986. Even if industry cut wages, it could not overcome that burden and become competitive. It is double-talk and nonsense to expect industry to hold wage increases. If wage rates were cut, industry would still not be competitive on the exchange rate as it was at the end of 1986.We are overvalued. We are grotesquely overvalued against the dollar. The result will be decimation of our exports on the American market. We have already seen our manufacturing trade with the United States turn from a £1 billion surplus in 1986 to a £3 billion deficit last year. That turnround was caused entirely by exchange rate variations. The position will get worse. We will lose that market. We depend more than any other country in the Common Market on exports to America.
The Government have managed to get the balance of payments deficit down by deflating the economy, but that means that permafrost will be the permanent state of the economy. If that is the only way to rectify the balance of payments deficit, the Government have to keep deflation and they have to keep wage demands down. Otherwise, everything will take off again, particularly the balance of payments problem. The Government are telling us that we have a limitless future of permafrost depression and deflation.
The only way to cure the problem is to have a competitive exchange rate. After all, the exchange rate is only a market clearing mechanism. If we had a competitive exchange rate, we could balance our trade, which we are not doing. That in itself indicates that we are not competitive. With a competitive exchange rate, we would have full employment and a high and sustainable rate of growth. That should be the central measure of economic strategy.
Inflation is irrelevant. As the right hon. Member for Blaby (Mr. Lawson) once pointed out, the only aim of economic policy is to make the country richer. That is what it is all about. It is not about making the country depressed, deflated, unemployed and bankrupt. That is not the measure of economic policy.
The only way to recovery is a competitive currency. We need that desperately. Exports as a share of GDP went down in the 1980s by about 3 per cent. Our industrial base has shrunk so far that it is barely viable. It must remain viable. The only way that we can recover from the balance of payments problem in the long term is to expand manufacturing industry. That means a competitive exchange rate and the ability to invest--both denied by the high interest rate policy. We are taking our front line troops-- manufacturing industry--in the battle for survival against the rest of the advanced industrial world it is a war we are engaged in--and shelling them, putting them out of work by high interest rates. That way lies disaster, a decline in which the country will be reduced to the poor periphery of a wealthier Europe. We will have a decline in tax revenues as corporation tax goes down,
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and a loss of capacity and jobs which will never come back. Our industrial base is already dangerously contracted. That way lies a graveyard.The only way the Government will achieve lower inflation is by graveyard economics. That is what they are doing. They are putting people out of work, closing capacity and cutting investment. All that is happening now, just to keep us surviving. We shall end up with peace, the peace that passeth all understanding, the peace of the graveyard.
There are ways out. I do not have time to deal with them all, but we certainly need an expansionary Budget which borrows and spends on the essentials--on housing, on the shabby rundown public sector, on public transport and on all the things that need to be done. We need to control credit by requiring substantive reserve ratios from banks deposited with the Bank of England. We need--not now, but soon--an incomes policy. That is the only way we can expand and ensure that inflationary pressures do not choke off that expansion.
Above all, we need devaluation. What is wrong with letting the market decide the exchange rate? Why should we always think of devaluation as a moral crime? Why cannot the exchange rate be decided by the markets? On that basis, our exchange rate would be substantially--about 20 per cent.-- lower. Why should sterling not be able to follow the dollar down as it would have done outside the exchange rate mechanism?
Now that we are within the exchange rate mechanism, why should we not be able to say that we are experiencing teething troubles and admit that we have made a mistake? Everyone else had a chance to make substantial adjustments to their exchange rates initially ; why cannot we do so? Why should we adhere to the Government policy when all that they have said today is that at this stage in the economic war we need a futile gesture? They are giving us more closures, redundancies, unemployment and loss of capacity and are whittling down our ability to survive and pay our way in the world just to support their fanatic enthusiasm for deflationary economics and the exchange rate mechanism.
7 pm
Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak) : I shall say only a few words, because many hon. Members want to speak in the debate and there is always a danger that we shall repeat each other. The right hon. and learned Member for Monklands, East (Mr. Smith) should remember the well -known Scottish saying that fine words butter no parsnips. It is easy for those who are in Opposition or are Back-Bench Members of Parliament to give advice or consent, because they do not have to govern. It is with that genuine sense of humility that I shall give a few words about the problems facing manufacturing industry.
Various Chancellors during the past 11 years have said that I am a Brummie and talk only for the metal bashers, which is basically true. I come from a manufacturing district. My family has been in Birmingham for generations and, over the years, we have been through bad, bad, good, bad and good times. During my political life--30-odd years--in the city of Birmingham, I have come to realise that manufacturing industry does matter.
The right hon. Member for Blaby (Mr. Lawson) once said to me--it was not in private so I can repeat it in public
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--that he did not care how jobs were created, as long as they were created. He said that service industries were fine. Of course service industries are important, but he thought that I concentrated too much on manufacturing industry. I believe that manufacturing industry is the fibre that holds the cloth of a country together. We all use things when going about our lives, whether we are riding a bicycle, driving a car, opening a fridge door, putting something in the oven, sweeping the carpet or going to bed--and everything has to be manufactured.I agree that I am preoccupied, and almost obsessed with manufacturing, but when I see the balance of payments deficit running into hundreds of millions of pounds, I have to be preoccupied with manufacturing. It matters who manufactures the goods. As someone who is fanatical, I find myself buying too many foreign products. Why do I do so? Because often I can buy only foreign products. I am preoccupied with manufacturing industry and shall continue to be so, because if this country is to thrive, it must manufacture to survive.
The Governor of the Bank of England, who would be our master if we gave him entire freedom, as I said in an intervention during the speech of the hon. Member for Berwick-upon-Tweed (Mr. Beith). The German banking system has much to recommend it. The German banks do not merely lend money for a glad, happy, quick return, but invest in their industry. They might have done so accidentally in the 1930s, but now they do so gladly. This week, the Bank of England encouraged the original concept of converting some overdrafts into preference capital or any other capital. That policy has a lot to recommend it.
Mr. Wolfson : I support my hon. Friend's point. Does he agree that the fact that German banks involve themselves more directly in industry than our banks, also brings management skills from German bankers into the management of industry? That may well be one reason for their greater effectiveness.
Mr. Beaumont-Dark : I agree with my hon. Friend to the extent that the German system is important because it brings the management of banks into a much more realistic accord with the management of manufacturing industry. Too often, banks lend hundreds of millions of pounds for a glamorous property or financial settlement, because it will give a quick, glad return.
If this country is genuinely going to thrive, it is not just up to Governments. It is nonsense to suggest that my right hon. Friend the Chancellor or, God forbid, a future Labour Chancellor, can say to industry, "You are going to survive, thrive and be hugely successful." Governments are not the grit that makes the pearl, but rather the shell that too often clamps shut, preventing the grit--of those who have to work--from succeeding. If there is any money to give away in the Budget, we should encourage initial allowances and new businesses and help business to prosper through tax concessions. We should not use the money to subsidise jobs or industry, but to encourage the British will to survive and manufacture to be more fruitful.
The second use for the money, which the Governor of the Bank of England is now taking up, is to encourage banks, not shut down manufacturing industries because they have short-term problems. As we have all seen in many of the Sunday papers that have concentrated on the issue, firms should not be shut down because of short-term
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cash flow problems. Some of the loans should be converted into genuine capital and the businesses should be given help, encouragement and support. I am not after lame dogs, but after helping the dog that has a temporary problem.All hon. Members should realise that manufacturing industry is of huge importance. It matters how jobs are created in this land of ours. It matters that I, as a xenophobe who buys British if I can, often have to buy foreign goods. Let us reverse the tide of foreign goods, not by restrictions but by encouragement for those people, not just in Birmingham, but in the north and now the south, who want to manufacture and prosper. The day of the manufacturer should come. If it does not, the day of reckoning will come for this country. 7.8 pm
Mr. Eric Martlew (Carlisle) : It is sad that this country's economic climate is far bleaker than the weather outside. Although we can look forward to a thaw in the icy weather conditions, all that we can look forward to from the Government is another economic blizzard, heavier unemployment, more bankruptcies and more house repossessions. Daily, throughout the country, in my constituency and--more important for the Government--in Conservative constituencies, there are 3,000 job losses. Every day, 100 businesses fold up and go bankrupt and 150 homes are repossessed by the building societies and banks. Although the cold weather can be put down to an act of God, the economic climate can be attributed only to an act of criminal neglect by the Tory Government, particularly the right hon. Member for Blaby (Mr. Lawson), whose ghost seemed to haunt the Chamber this afternoon, especially among Conservative Members, who did not have a friendly word to say about him. It would be wrong to blame the right hon. Gentleman, because in 1988 the Chief Secretary to the Treasury was none other than the present Prime Minister. The sorcerer's apprentice is now in charge.
The 1988 Budget was a giveaway Budget to the super-rich. It sucked in a massive volume of imports and started the spiral of inflation. I am sorry to criticise the right hon. Gentleman when he is not in his place, but he is rarely in his place these days. He quickly swapped the leather of the Front Bench for the plush seating of a dozen boardrooms. Never has failure been so greatly rewarded as in his case. I understand that he has declared that he will not stand at the general election. I am sorry that he did not decide that before the previous election because it could have prevented the suffering of many of my constituents.
Let us return to the fact that the right hon. Gentleman's right hand man was the present Prime Minister. My constituents and the rest of the country are now at his tender mercies. I fear for them, because pain and misery being inflicted. In my constituency are, companies of various sizes are suffering badly. Ferguson Fabrics, for example, an old established, family firm of textile printers which has been going for 150 years, has been taken over. It survived the last Tory slump. I visited the factory about six months ago. It has modernised and invested in new plant and undertaken top- of-the-range printing, yet it has paid off 150 people and the rest are on short-time work. I hope that that company will survive to boom again, but it will find it difficult.
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Another company, Copy Consultants, which would be called a yuppie company down south, is in trouble. Its managing director drove a Porsche and sold his furniture and equipment, all of which were made in Japan. Nevertheless, the company employed 500 people. Only two years ago, the company approached me for help to get bigger premises. Today it is in the hands of the liquidator. If we are lucky, we shall salvage some jobs from it.We may talk about companies, but we do not get to the heart of the problem- -the personal tragedies of job losses and bankruptcies. Like any good constituency Member, I read my local newspaper. Over the past year it has seen a change. We used to have births and deaths, but now we have births, deaths and bankruptcies. I suspect that that is the case throughout the country. I hope that the Chancellor of the Exchequer will consider that.
An insolvency notice in a paper tells a great deal about human tragedy. There is one in this, the paper that I have here, but I shall not add to the individual's tragedy by naming him. The case is before the Cumbrian county court and the individual is now classed as unemployed. Those of us from the area know from his address that he is living on a council estate-- there is nothing wrong with that--whereas it is clear from his former address that he used to live on a private estate. His tragedy is that he has lost not only his employment but his house.
The individual is a builder. I understand that 30 per cent. of bankruptcies involve building firms. They have been hit harder than any others. Last week my local paper also listed a grocer and a road haulier who had gone bankrupt. All those people believed in the enterprise culture, but they now face the bankruptcy court. At the bottom of the paper is the name of the official receiver--the official undertaker for that particular business.
Those are the results of high interest rates and reduced demand. It is not just a case of, "If it isn't hurting, it isn't working" ; it is a tragedy. If ever a callous comment was made by a Prime Minister, that was it, and I suspect that it will be remembered long after all the other words of this short-lived Prime Minister. We must assist the economy.
It is a good job that we stopped locking up debtors, because if we had not, we would need a prison as big as Manchester. The real criminals are sitting on the Conservative Benches. The individual mentioned in the insolvency notice could have lost his job during the slump of the late 1970s and early 1980s--perhaps at a steel works on the west coast or in train manufacturing in my constituency. He was then beguiled into the business sector by those posh adverts put out by the Department of Trade and Industry, entreating people to be independent, to be entrepreneurs and to get £40 a week enterprise allowance. Those adverts said nothing about going bankrupt. What do I say to that individual? I do not say, "Well, it's your fault." I do not think that it is. He has probably tried his best. He has not been a bad manager. He is the victim of macro-economics outside his control, and the bank has told him that his company is no longer viable. The irony is that probably many more companies are in a worse state than his, but they are so big that the banks cannot pull the plug on them. Earlier in the debate, complaints were made about big companies not paying bills. The fact is that many big companies are having
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difficulty paying wage bills, never mind suppliers' bills. We must tell that man that the Government are the problem. He is just another Major bankruptcy.The man probably voted Conservative last time because he believed in the enterprise culture. He probably cannot understand why the Tory generals now tell him that he must be shot by his own side in order to win the war. The only war that interests Tory Members is the one for their re-election. That is what they are about. They have got the economy into a mess and they have decided that he must be a sacrifice. I hope that that gentleman recovers, starts in business again and votes Labour. I hope that he has more sense than to believe the fancy advertisements which the Tories have made with public money. The cost of the political propaganda which they have broadcast on television under the guise of the enterprise scheme runs into billions of pounds.
I also have a word for those on my Front Bench. When we win the general election--it cannot be far away now--we must quickly heal the wounds. We must get people back into work and back on the housing ladder. We must give those who are now in debt and bankrupt, but who have the ability to go back into business, a fresh start. If we do not, by next century Britain will be the poor man of Europe. 7.18 pm
Mr. David Howell (Guildford) : Like almost everyone else, I strongly welcome the 0.5 per cent. cut in short-term interest rates announced today. It is small, but I hope that it is the beginning of a long and sustainable downward step movement of interest rates, following the inflation rate down which will now descend fast to levels that may for once even exceed the Treasury's estimates to the good and be lower than the 5.25 per cent. projected for the last quarter of the year.
My other hope about the process is that it will be conducted at a pace dictated by sound monetary considerations and by the Government and policy makers, not by pressure from the Confederation of British Industry, the media or even Back-Bench Members. I hope that the Government will establish that they are moving at all stages in this reduction of short-term interest rates at a pace consistent with domestic monetary considerations. That is absolutely vital, because if there is to be any gain from the miserable pain about which we keep talking, it must be to establish, once and for all, and after years and years, that sterling is a serious and potentially hard currency. We must pursue the sort of policies that Ludwig Erhard pursued in the Federal Republic of Germany in the 1950s. We must establish the pound not as a long-sliding currency--the byword for devaluation and inflation above all other European and international currencies--but as a sound, tough and strong currency underpinned by firm domestic monetary conditions.
I must say--this will not endear me to all my colleagues--that it would be very much easier to establish that policy if it were not Ministers and the political wing of Government who were making the interest rate decisions at every point. I accept that some people will say that they are vital decisions, and that those who take them should be accountable to Parliament. That is true, but the fact remains that the extent to which they are taken by politicians, at funny times and whether justified or not by monetary policies--and inevitably surrounded by media
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comment--means that their effectiveness in international currency markets is weakened. The credibility of monetary policy in the United Kingdom is permanently lamed and hobbled by the style and method with which we conduct it.I feel quite sorry for my right hon. Friend the Chancellor and for previous Chancellors, when out of their mouths must come the statement, "I have decided to cut interest rates," or, "I have decided not to cut interest rates." It is a hopeless message for international currency markets. It immediately tells them that decisions are being taken by a Minister, perhaps for reasons--I do not know, and we might be judging him unfairly-- other than domestic monetary conditions.
I look back over the past 10 years to the time when I was in the Cabinet, and I have a sinking feeling as I remember hearing the confident forecasts of Chancellors in the early 1980s that they knew how to manage monetary policy. There was all that talk about the medium-term financial strategy : they knew how to do it ; it was just a matter of following a sound monetary policy. However, they did not know ; they could not establish, in the way that a separate monetary authority could, the full confidence of world financial markets in the monetary policy of this country. Chancellors in the Governments in which I served were wrong. The Treasury was persistently wrong, and has been wrong throughout the 1980s.
Even the distinguished economists who wrote a letter published in The Times today--many of them are personal friends whom I admire--have been spectacularly wrong. In their letter they say that they do not like the exchange rate mechanism but that everything would be right if we followed sound monetary policies. They, too, have not been able to define exactly how we can achieve that sound monetary policy. Indeed, one of the most prominent signatories to the letter, Sir Alan Walters, only a few weeks ago said loudly and clearly that the problem with the ERM was that we could not raise interest rates but would have to lower them to keep within the bracket. Yet a few weeks later the cry is that we should lower them, but will have to raise them to keep within the bracket. I do not especially criticise Sir Alan ; I am merely showing that the confident cries of Chancellors, economists and Treasury mandarins that they can deliver sound monetary policies by themselves turn out to be sadly wrong. That is why I believe--I am glad that my right hon. Friend the Member for Blaby (Mr. Lawson) reached this conclusion in his resignation speech, and others are beginning to reach it in increasing numbers--that we need, if not an independent monetary authority, a very powerful monetary authority that is seen by international currency markets to be setting the pace in monetary policy decisions. That would make it much more effective when we came to cutting or raising short-term interest rates. I want movement in that direction, but until there is, Britain will be at a disadvantage in the management of our short-term interest rate policy. The argument in this debate, and in the letter in The Times, is less about that--because people will assume, quite wrongly, that they can deliver a sound monetary policy if only they are allowed to do so--and more about whether the ERM is a terrible constraint on the pursuit of sound monetary policy or a reinforcement of such a policy. I come down on the side of those who believe that being in the ERM, within the present wide band, is a reinforcement. To put it the other way round, if we were
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not in the ERM, huge speculative forces would be building up against the pound, as they have done before, and vast walls of money would be ready to move in in an attempt to shorten the pound. Inflation and devaluation would be forced upon this country at a far faster pace than ever before.In a sense, I regard the ERM as far from the prison bars that prevent us from following some track towards lower interest rates--which invariably lead towards more inflation and devaluation, which is what the policy amounts to in the end--and as something that, in the eyes of the international financial markets, restrains us within a wide band. I do not believe that the ERM is anywhere near as important as hon. Members crack it up to be. We are driven by forces governing our monetary policy that exist anyway, and would exist whether or not we had the ERM support. At the margins, the ERM provides additional support to our efforts to establish sterling as a serious currency and to maintain the value of our currency internally.
The only respectable escape route would be, as hon. Members have rightly said, if the Germans decided to revalue and there was a general realignment, with the pound and the franc going one way, and perhaps the lire, the peseta and the deutschmark being revalued. That is still a risk, and anyone who thinks that it is not is blind to the fact that Germany has become a large borrower. The bill for East Germany is rising by the day-- another DM10 billion, according to today's newspapers. I have no doubt that the Bundesbank officials will be considering whether they need to raise interest rates again, or even to go for an outright realignment. We cannot change, order or persuade that if it happens, and it is a strong possibility. The question is what will be done to bring Britain out of the recession, and how deep that recession will be. Unlike my right hon. Friend the Member for Worthing (Mr. Higgins)--the Chairman of the Select Committee on the Treasury and Civil Service--I believe that there are counter- cyclical forces at work which, despite present trends, may make the recession a little less grim than some fear. First, there is the German boom, which continues with vast investment and virtual overheating in the German economy. Secondly, there is the prospect that the Gulf war will end on time and according to script, as I believe that it will--after which there will be a natural psychological boost to all sorts of investment projects that have been frozen around the world.
Thirdly, the Iraqis will have 1.5 million to 2 million barrels of oil a day that they will not be able to refine because they will not have any refineries left, so they will have to dump that oil on the world markets. That will mean a substantial fall in oil prices, which may hit our budget, but internationally will be stimulating and counter-recessionary. Fourthly, there will be vast reconstruction throughout Kuwait and the middle east, and the order has already been placed for that. Fifthly, there will be continual huge growth of foreign investment into this island, which is an amazing feature. All those things will mean that the recessionary forces may not be that severe.
I see the light winking at me, Mr. Deputy Speaker, so I shall simply repeat that the Government must accept domestic monetary conditions as its own master, and not be pushed by others. If they do, we will come out of the recession a little faster than the gloomy forecasts made in this debate have suggested.
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7.28 pmMs. Dawn Primarolo (Bristol, South) : It is apparent from today's debate that the Government's so-called economic policy is driving the British economy into a deep recession. If my constituents were asked for their verdict on the Government's handling of the economy, they would say that the Government had lost control of the economy and were inflicting pain on the working people of Britain for the sake of it.
The Bristol Evening Post recently reported that last year the number of companies in the south-west going into receivership increased by more than 200 per cent. That is the biggest year-on-year rise in the country. According to Peat Marwick McLintock, throughout the United Kingdom receiverships have more than doubled to nearly 2, 634. Since 1979, my constituents have seen the industries in which they have worked destroyed and decimated and they have been thrown on to the unemployment register.
In Bristol, South, between March and December 1990, there was a 21 per cent. increase in the number of people claiming unemployment benefit. Our unemployment rate, ignoring the Government's 50 fiddles, runs at 14.5 per cent. My constituents are being denied work by the Government's economic strategy.
The autumn statement contained a proposal to cut training through the employment training schemes from 520 million to 370 million. The cut presumed a fivefold increase in private sector contributions to training. But businesses in the south-west are making savings on training in an attempt to survive the recession in which they now find themselves. Privately sponsored training schemes have only reached 10 per cent. of the Government's target. In Avon, that has meant a reduction in the training budget from £5.7 million to £4.3 million.
Yesterday and today training managers have been told that training schemes will be closed from 31 March with no alternative. Community Service Volunteers, North Bristol ITEC, Youth and Training, Kingswood Training Services, New Careers Employment Training, Gordeno Training, South-West Training and Age Concern have more than 200 trainees each on placements and they are to close. The number of training weeks that can now be funded in Avon has been cut by more than half, from 15,000 to 7,000. The number of training places currently in Avon is 2,500 and that is to be cut by 1,600 because of the Government's proposals. Yesterday, training managers were given their redundancy notices and told to close 11 schemes. That is in an area with high long-term unemployment.
Those trainees, many of them my constituents, who were in the middle of obtaining City and Guilds qualifications, were told that the training schemes were being scrapped ; it was the end of the road. When my constituents asked what the alternative was, they were told it was the training and enterprise councils. But contracts have not yet been issued to the managers who will run the training schemes through the TECs. Moreover, it is not known how many places will be available and it has not been decided what training packages will be required. Therefore, training courses are being terminated with no prospect of any other scheme, and the trainees now have no chance of completing their qualifications in order to re-enter the employment market.
It gets worse. One trainee was told that he could have a training credit. That is a Government idea whereby training completed under one scheme will be recognised by
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another. But the Government have approved only 12 pilot schemes for transfer credits, and Avon does not have one of them.Trainees who have suffered unemployment under the Government have the meagre training arrangements that they have been granted terminated and their only alternative is to return to the dole queue, look at the vacancies in jobcentres and join the job clubs. They have no right to a job or to training. If that has happened in Avon, the massive 28 per cent. reduction in the money available nationally must amount to a training scandal which shows administrative incompetence on an enormous scale.
My constituents will have an opportunity to read the report of my speech, so will the Minister tell them what emergency steps the Government will be taking to secure the training places of those 2, 500 people on training courses in Avon, 1,600 of whom are to lose their places? We do not know what is to be done next year. We do not want to be told that the Government know that it is hurting. We want to know what the Government will do now to fulfil those training promises.
7.36 pm
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