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hand the views of businessmen ; they are a valuable addition to the information available from official statistics which are, inevitably, only available with some delay."

I hope that the right hon. Gentleman took account of the robust observations of the president of the Housebuilders Federation. If he genuinely values the opinion of business men--who am I to doubt that?--he no doubt took note of what was said by some of them in a recent edition of a paper called The Kingston Informer. This useful publication was sent to me by Mr. Robert Markless, the excellent prospective Labour candidate for Kingston-upon-Thames. The article, under the banner headline "Lamontable", carried a sub-headline : "Businessmen Blame MP Norman Lamont for Biting Recession". That is bad enough, but the copy starts :

"Kingston's leading businessmen this week lashed out at the borough's MP, Chancellor of the Exchequer Norman Lamont, claiming the future is looking bleaker than ever."

That is only this month, 12 July. The copy continues :

"Former President of the Malden and District Chamber of Commerce John Hauxwell, is so angry, he has resigned from anything to do with the Conservatives.

The builders' merchant managing director stormed :

I have been voting for the Conservative Party for 35 years, but I have resigned from everything since last October. I am so bitter at the loss of opportunities. The Tories have wrecked everything in the last three years. I don't believe there's anything that can have any effect inside 12 months. I think this recession is as bad as the 20s. The future is looking very, very bleak for Kingston businesses.' " The article continues :

"President of the Kingston Chamber of Commerce and managing director of a local printing company, Peter Jarvis, said : I am pessimistic in the short- term. The message to businesses is just hang on. I would certainly say in my 33 years experience of trading in Kingston, it's the worst it has ever been.' "

I hope that the Chancellor writes back and deals with those criticisms which come from his constituency. I suggest that he opens his letter with :

"I am always pleased to hear first hand the views of businessmen." This debate gives the Chancellor an opportunity to tell us when the much talked about recovery is to happen. I hope that he will take that opportunity today. In particular, when will unemployment start to come down, instead of rising month after month? Can he tell us whether he agrees with the gloomy assessment made by his colleague, the Economic Secretary, when he told "Channel 4 News" on Friday 12 July--the same day that The Kingston Informer hit the streets : "I think you are not going to see significant growth until next year."

[Interruption.] --We shall check up on that because I do not want to misrepresent the Economic Secretary in any way. I am pretty sure that those were his remarks. Indeed, I heard them myself and I am inclined to believe my own recollection. If the Economic Secretary's remarks are right, how can there be recovery without significant growth? How can any economy survive the consequences of the plummeting fall in investment that is now occurring?

Recent Central Statistical Office figures officially confirmed for the first time that the level of manufacturing investment for this year will fall once again below the level achieved by the last Labour Government. It took the Conservatives nine long years to push manufacturing investment back up above the 1979 level, but I am sorry to say that it is now falling dramatically below that level again.

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Because of that collapse in investment, Britain faces a serious capacity crunch. The National Institute of Social and Economic Research warned in its latest review, published only in May this year, that the level of manufacturing capacity will be reduced by some 5 per cent. by the end of this year. The institute comments : "The loss of manufacturing capacity in the early 1980s must be partly to blame for the overheating of the economy at the end of the decade It is only too likely that the present recession will create conditions for just the same kind of overheating to occur again sometime in the 1990s, if nothing is done to compensate".

The Government have ignored those warnings made by the National Institute of Social and Economic Research, the Labour party and many others because they have convinced themselves that recovery is simply the automatic product of lower inflation and the gradual reduction of interest rates from the high levels that they have maintained in the past two and a half years.

One must ask what kind of recovery the Government are looking for. The Chancellor keeps repeating that recovery will come as lower inflation and interest rates boost consumer confidence and then consumer spending. His most revealing explanation, however, occurred last month. Speaking after the OECD Finance Ministers meeting in Paris, he said :

"Consumer spending led us into recession and I expect it to lead us out."

I notice that the right hon. Gentleman is nodding. At least he remembers what he said, which is more than I can say for the Economic Secretary.

Like so many of the Chancellor's throwaway lines, that casual remark tells us all we need to know about Conservative economic strategy. They have no interest in a lasting recovery or real economic performance, but only in a short-term revival in consumer spending. They want to take us back to the familiar cycle of boom and bust ; of a consumer spending spree followed by an interest rate crunch and rising unemployment ; of consuming today what we should be investing in tomorrow. It is a recipe for a repeat performance of the 1980s and for another decade that begins and ends with a recession, with an inflationary boom in between. That, I fear, would be the predictable result of a fourth term for the Conservatives, and it would be a disaster for the country.

All that is desperately important because of the unique challenges that Britain faces in the single market after 1992. At one and the same time, we must face the challenge of severe competition while moving decisively to the more competitive and productive economy that some of our European partners have already achieved. To do that, recovery in the British economy must be investment-led. There must be investment in new plant and machinery, new technology, new products and new processes. There must be investment in the regions and, above all, in new skills to create the world -class work force without which success can never be obtained.

Interest rates need to be lowered to the levels of our competitors in Europe if we are to restore investment to proper levels.

Mr. Tony Marlow (Northampton, North) : May I remind the right hon. and learned Gentleman of what the hon. Member for Dagenham (Mr. Gould) said yesterday

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following the statement on local government finance? He asked how my right hon. Friend the Secretary of State for the Environment could

"justify the denial to local government of £2 billion which they need simply to maintain services even at their present level?"--[ Official Report, 23 July 1991 ; Vol. 195, c. 1054.]

The hon. Member for Dagenham wants to spend £2,000 million extra on local government. Will he attain it through increased community charges, increased taxation or increased borrowing? If it is to be through increased borrowing, what impact will that have on interest rates, which the right hon. and learned Gentleman wants to bring down?

Mr. Smith : We could have had £2 billion years ago if the Government had not introduced the poll tax-- [Interruption.] I am not in the mood to take lectures from Conservative Members about financial management.

I was arguing that fiscal policy must be used to encourage investment in new plant and machinery in our vital manufacturing sector. We must also seek to raise the levels of investment in research and development.

Mr. Nicholas Budgen (Wolverhampton, South-West) : Will the right hon. and learned Gentleman give way?

Mr. Smith : I have given way plenty of times and I must get on with my speech.

To combat rising unemployment we need a proper temporary work programme based on three days' employment, one day's training and one day's job seeking. I am surprised that the hon. Member for Canterbury (Mr. Brazier) finds that amusing. Such a programme should be introduced to deal with rising unemployment, which is afflicting so many people-- [Interruption.] The hon. Member for Canterbury might be doing some job searching of his own after the forthcoming event. The most important investment that the country needs to make is in our people, particularly young people. It is staggering to consider that, in recession-gripped Britain, many companies face serious skill shortages. As today's Association of British Chambers of Commerce survey comments :

"Particular problems of skill shortages exist in regions such as the West Midlands, where even though nearly half of manufacturing employers are shedding labour, nearly a third are reporting recruiting difficulties".

The recent National Economic Development Office report entitled "Partners for the Long Term : the Lessons from the Success of Germany and Japan" highlights the lower level of investment in what it calls human capital relative to other advanced countries. The report says :

"Not only does a higher percentage of 16 to 18 year olds remain in full- time education in Germany (47 per cent. in 1987), and Japan (77 per cent. in 1988) compared with the UK (35 per cent. in 1988), but the availability of part-time education and training in craft skills is greater"

in those countries.

It is little wonder, when we consider such facts, that this month's OECD Economic Outlook which, after all, the Government co-operates in compiling, drew attention to the United Kingdom's

"chronic skill shortages and inadequate training of the labour force".

The OECD went on to argue that

"an upgrading of vocational and general training levels would appear essential".

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Given the mild language used by the OECD, which must have its copy approved by the Treasuries of the individual countries with which it deals, that is an astonishing statement.

Hon. Members know from their own experience that hardly a day goes by but someone, whether it is an industrialist, a business man, a trade unionist or a teacher, tells us what he or she knows to be true : that our training is wholly inadequate to meet the needs of a modern economy and an ambitious society. Nearly every international comparison shows, with frightening repetition, that we are not only behind the rest of the European Community, but we seem so complacent that further slipping behind is inevitable. The Government have still not restored the resources available to their previous inadequate levels. They still do not appear to accept that they have a responsibility to foster training among the employed work force as well as for the unemployed and young people. The Government say that they have no responsibility for helping to train the existing work force. Could anything be more foolish? They need urgently to revise their assessment because the other countries in the European Community do not hesitate to invest in such training. Investment in people, technology and the regions is the key.

In the 1990s in post-ERM Britain the economic agenda needs to be principally concerned with improvement in our supply side. Improving our productivity capacity and performance through investment will enable us to reduce the productivity gap between our country and our more successful competitors. It is through investment that we can create the wealth which alone can sustain higher living standards for our people and provide proper resources for our essential public services.

I say with genuine regret that that priority was absent in the locust years of the 1980s. We wasted the opportunities that were presented by North sea oil revenue. We consumed instead of investing. The House will recall that demand was stimulated by a credit free-for-all and by tax cuts for the rich. Year after year, as we went from bust to boom to bust again, crucial investment in the infrastructure, the transport system, the public services and in training and manufacturing industry was persistently neglected. We cannot afford to make those mistakes again in the pivotal decade that lies ahead. That is why, under a Labour Government, the thrust of fiscal and monetary policy will be to create the economic conditions that will maximise investment in our productive economy. We shall aim, as the Government failed to do, at macro-economic stability instead of practising the rollercoaster economics of boom and bust. [Interruption.] Conservative Members do not like to hear that. Not only they but the public will hear it between now and the next general election.

We will promote a supply-side strategy that will improve the capacity of our industry and the skills of our people. Above all, ours will be a strategy for the long-term sustained recovery of our economy. Compare that, as the public will do in the months ahead, with the wing-and-prayer antics of a beleaguered Government desperately seeking to create the illusion of recovery, no matter how insubstantial and--to borrow a phrase from the Chancellor--however shallow and short-lived. Britain deserves a better way forward for the 1990s. The opportunity to choose cannot be long delayed. We say, "The sooner the better."

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5.42 pm

The Chancellor of the Exchequer (Mr. Norman Lamont) : I beg to move, to leave out from "House" to the end of the Question and to add instead thereof :

"congratulates Her Majesty's Government on its pursuit of sound economic policies ; notes that those policies have led to a large fall in inflation ; notes also that as inflationary pressures have eased, interest rates have been cut substantially, while the £ sterling has maintained its position in the ERM ; and calls on the Government to continue with its prudent policies, which will lead to a resumption of sustained growth.".

We have been amused by the right hon. and learned Member for Monklands, East (Mr. Smith). We always enjoy his speeches and he always enjoys these occasions. So do I. This is an important debate, and if the economy was in as serious a state as the right hon. and learned Member says, it would have been much more enjoyable to hear the views of the Leader of the Opposition on economic policy. His name is at the top of the Opposition motion, and it is a mystery why he cannot lead his party in an economic censure debate and give the House his carefully considered views.

The right hon. and learned Member for Monklands, East presented his usual list of selective quotations by me. I am certainly optimistic, unlike the right hon. and learned Gentleman who engaged in gloom-mongering. If he had made any effort to provide the House with an accurate representation of what I have said, it would be clear that my statements about what would happen to the economy have been consistent. I set out my view in evidence to the Treasury Select Committee in December, in the Budget in March, and in what I have said more recently. That view has been that recovery would begin in the second half of this year. I reiterate that and shall give my reasons.

Mr. Giles Radice (Durham, North) : Will the right hon. Gentleman give way?

Mr. Lamont : I shall do so in a moment.

Since 1979, the Government have made it clear that their central objective in economic policy is the control of inflation. We promised that we would beat inflation, and that is exactly what we are doing. In recent months we have achieved some remarkable successes. Every serious measure of inflation is on a firm downward track. Even at its peak of 10.9 per cent. last October, inflation was over 4.5 percentage points lower than the average rate under the last Labour Government. Headline inflation has fallen by over 5 percentage points since October to 5.75 per cent., the lowest figure since August 1988 and lower than the last Labour Government achieved in any month in any year of their term of office.

Mr. Radice : Will the right hon. Gentleman give way?

Mr. Lamont : I shall give way when I have made more progress. The underlying rate of inflation never rose as far as the headline rate so, of course, it has not fallen as quickly, but here, too, the trend is clearly downward. The rate of increase in the retail prices index, excluding mortgage interest payments, has come down by more than 2.5 percentage points since the autumn. That is good news. Mr. Radice rose --

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Mr. Lamont : I shall give way in a moment. The hon. Gentleman should contain himself. I shall not give way if he persists in interrupting.

The fall in the rate of increase of the RPI is not good news for the Opposition, but I have worse news for them. Inflation will continue to fall in the months ahead. The last two CBI surveys of expected price changes have, for the first time since the 1960s, shown a zero balance. That is an excellent guide to the sort of inflation that we can expect later this year and at the end of the year.

I know that many firms have had a hard and painful struggle, but we are firmly on course for an inflation rate of 4 per cent. by the last quarter of 1991. Ours is the only major industrialised country in which inflation is lower than a year ago, and by the end of the year I expect our inflation rate to be below the EC average. That will be a remarkable achievement and should be welcomed by everyone in the House.

Mr. Radice : In his Budget statement, the Chancellor said : "there are good reasons to expect that the recovery will begin around the middle of this year".--[ Official Report, 19 March 1991 ; Vol. 188, c. 165.]

We are now in the middle of this year. Has the recovery begun?

Mr. Lamont : The hon. Gentleman's naivety is astonishing. We are only a few weeks into the second part of the year and the statistics for output in the second quarter have not yet been published. There are some encouraging signs, such as the excellent retail sales figures which were published earlier this week. I certainly stick by what I said in the Budget statement and to the forecast at that time that the recovery would begin in the second half of the year. I expected some hon. Members, although not the hon. Member for Durham, North (Mr. Radice), to ask within a few weeks whether the recovery had started. It is extraordinary that the hon. Gentleman should ask such a question.

German inflation is expected to rise and, by the end of the year, our inflation rate may be lower than that of Germany. The right hon. and learned Member for Monklands, East did not speak about that. In an interview published in The Sunday Telegraph, the right hon. and learned Gentleman described himself in a memorable phrase as a "German nut". Surely he is impressed by the fact that, with any luck, our inflation rate will be lower than that of Germany.

Mr. Robert Sheldon (Ashton-under-Lyne) : I fully understand that the Chancellor is committed to reducing inflation. There is no question about that. But it is almost 12 years ago that the same claim was made in the medium-term financial strategy--that this was a Government determined to reduce inflation. I have a copy of the document in front of me. The Government have had 12 years and at the end of that time they have the same objective as they had at the beginning. What happened meanwhile?

Mr. Lamont : I am grateful to the right hon. Gentleman for drawing attention to the fact that over the whole of this decade we have reduced inflation and reduced it massively. We reduced it far below the level of the Labour Government and, as I said earlier, the rate that we have now is below the rate achieved in any month of any year by the last Labour Government.

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Mr. George Foulkes (Carrick, Cumnock and Doon Valley) : Will the right hon. Gentleman give way?

Mr. Lamont : I will give way in a moment.

We should be proud of that success, because the reduction in inflation is not just temporary. We are in the process of making Britain a permanently low inflation country.

Unemployment is still rising, as one would expect at this stage of the cycle, but the rate of increase has slowed. They key to minimising the rise in unemployment and reducing it thereafter is labour market flexibility. The faster wage bargainers adjust to low inflation, the better the medium- term prospects for employment. Our trade union reforms, pursued in the teeth of opposition from the Labour party, have transformed the attitudes of managers and workers. More and more, there is evidence that workers are looking beyond the size of their pay cheques to take account of the long- term future of their company. If they continue to do so, employment prospects will recover relatively quickly once the recession is behind us. However, considerable damage to long-term job prospects would be done if we were to accept a minimum wage, advocated by the Opposition, which would price hundreds of thousands of people out of their jobs, or if, as the Opposition suggest, we signed up to the social charter lock, stock and barrel.

As inflationary pressures have eased, we have been able to cut interest rates--not just once or twice, but seven times since the peak last October.

Mr. Foulkes : Will the right hon. Gentleman give way?

Mr. Lamont : If I had predicted last autumn that inflation would fall from 11 per cent. to under 6 per cent. that the pound would remain strong against the deutschmark and that we would cut interest rates from 15 to 11 per cent., the Opposition would have howled with derision. Yet that is exactly what we have achieved.

The effects of our interest rate cuts on business finances and household budgets have been considerable. Overall, industry's annual interest bill has been cut by more than £5 billion, and a family with a typical mortgage of £30,000 will see its disposable income increase by about £60 a month.

Mr. Foulkes : At last. I am grateful to the right hon. Gentleman. The Chancellor has rightly said that the level of inflation, has gone down, but it has gone down at a substantial price--a huge increase in unemployment. Does the Chancellor still think that is a price worth paying?

Mr. Lamont : As the hon. Gentleman knows, I have repeatedly made it clear that there is no conflict between fighting inflation and the long- term prospects for employment. If we give up the fight against inflation, that will be bad for long-term employment prospects. It is precisely because the Opposition are not remotely serious about fighting inflation that we do not take them seriously when they talk about unemployment. The reintroduction of unemployment in the speech made by the right hon. and learned Member for Monklands, East was noticeable. In debate after debate, when unemployment was falling for some 44 months, the Opposition never mentioned unemployment. Only now has the right hon. and learned Gentleman reintroduced it. Our cuts in interest rates have been measured and prudent. They have not endangered sterling's position in

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the exchange rate mechanism. Against the deutschmark, sterling is trading at almost exactly the level of last October. Nevertheless, we have reduced interest rates by four points during a period when German interest rates have increased. The differential between British interest rates and those of Germany is at a 10-year low and United Kingdom interest rates are now less than 1.5 percentage points above those of France.

Real interest rates in the United Kingdom are below those in France and Germany, but that does not stop the Opposition demanding yet more and larger interest rate cuts. Those are the same people who endorsed our membership of the ERM and professed to want low inflation. They cannot have it both ways. It is utterly naive to claim that we can cut interest rates more quickly and stay in the ERM and keep inflation down at the same time.

Everyone knows that Labour's policies and the disciplines of the ERM would not mix. Some Labour Members are honest enough to admit that. I could not put it better than the hon. Member for Great Grimsby (Mr. Mitchell) who said :

"The first act of a Labour Government will have to be a devaluation. We can't say it publicly and we shall have to appear as respectable. Scout's honour we wouldn't do such a thing."

Policy remains tight, as it must do, to consolidate the dramatic progress that we are making on inflation. But success in the fight against inflation has enabled me to loosen monetary conditions substantially. But after every interest rate cut, the right hon. and learned Member for Monklands, East demands another. However, he does not seem to acknowledge that monetary policy operates with a substantial time lag. After every interest rate cut he demands another, even before the first has had time to have effect. Just as we forecast in the Budget, lower inflation and lower interest rates will lead to recovery. Recent statistics published are consistent with the view that I took in the Budget.

Mr. Marlow : As my right hon. Friend has already said, and as has been pointed out several times, the Opposition have a policy of spend, spend, spend. If they spent all those thousands of millions of pounds, how could they cut interest rates as well?

Mr. Lamont : My hon. Friend is correct. The Opposition have not the slightest hope of containing either interest rates or the level of taxes, which would have to shoot up dramatically as a result of their spending.

Recent statistics are consistent with the view that the pace of recession slowed in the first half of the year. GDP fell by about 0.5 per cent. in the first quarter, a little less than in the last quarter of 1990 and significantly less than in the third quarter of last year. We expect the total fall in output to be about 3 per cent., significantly less than the 5 per cent. fall in the 1980-81 recession. That fall should be set against the rise of 28 per cent. seen in the long upswing of the previous decade.

Mr. Budgen : My right hon. Friend says that monetary policy has been substantially eased and of course it is true that there will be a considerable time lag between the easing and the time that it takes effect. But surely, at the very least, the easing of monetary policy ought to be seen in the M0 figures, and M0 is increasing by only 2 per cent. at present. Does not that argue against what my right hon. Friend says?

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Mr. Lamont : I fear that my hon. Friend is not correct. I intended to come to that specific point. The M0 figures show a marked increase this month and I shall be referring specifically to that. But my hon. Friend is right to say that the evidence of interest rates working is when they affect the monetary aggregates. As he well understands, it takes time for that to happen, but the evidence that it is happening on the narrow definition of money is there.

Unemployment has continued to rise, as one would expect at this stage of the cycle, but the rate of increase has slowed noticeably. The rise in June was the smallest since January. Manufacturing output continued to decline into the second quarter, but, again, at a much slower rate. Manufacturing industry has held up relatively well in the recession. The fall in output is expected to be only half that of the 1980-81 recession.

There has been some excellent news in the past week. Retail sales rose by 1.25 per cent. in June. They reached the highest level since last December, excluding the abnormally high March figure. In addition, the United Kingdom ran a current account surplus in June for the first time since 1987. That improvement was not due to a sharp fall in imports ; it reflected the excellent performance of British exporters.

In the past two years, manufactured exports have increased by no less than 18 per cent. in volume terms. We have heard little from the Opposition and from the hon. Member for Dunfermline, East (Mr. Brown) about those good statistics, yet he normally appears on the television when the trade figures are announced each month. One of the newspapers compared him to a vulture with an appetite for carrion. The hon. Gentleman will be rather lean and hungry in the next few months, because the news will get better and better. We expected business investment to fall throughout most of this year. In fact, in the first quarter it was unchanged from the last quarter of last year, and still more than 40 per cent. higher than the level that we inherited from the previous Labour Government. Interpreting economic statistics is particularly difficult because of the effects of the Gulf war. The evidence that we have is consistent with economic recovery in the second half of the year. To deal with the point that my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) made, the six-month growth rate of M0 has increased from about zero at the end of 1990 to 3.75 per cent. at the end of June. Consumer confidence, as measured by the EC- Gallup survey, is increasing. Output expectations--historically, a good indicator of manufacturing output and non-oil GDP--show signs of recovery. Indeed, several other surveys, including that of the Association of British Chambers of Commerce, show the same signs.

The right hon. and learned Member for Monklands, East referred to that survey. He said that he was prepared to quote all of it. He might have quoted the part that says :

"Business confidence continues to rise across the country." He might have quoted the part that says :

"The signs of the end of the recession are certainly more pronounced and less elusive this quarter."

The right hon. and learned Gentleman was very selective in his quotations from the survey.

Much of economics consists of the search for the perfect leading indicator- -the crystal ball that foretells the future. As my hon. Friend the Member for Wolverhampton, South-West will know, fashions change ; one indicator

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comes and another goes. In the past 12 years, there has been one infallible indicator of recovery--the apocalyptic prophecies of the Opposition. Ten years ago, the right hon. Member for Leeds, East (Mr. Healey) told us :

"there is no light at the end of the tunnel."

We know what happened next. The second quarter of 1981 duly marked the start of the recovery, and the economy turned in eight years of sustained growth averaging more than 3 per cent.

We heard many of the opinions of the right hon. and learned Member for Monklands, East on our forecast. He did not mention the hon. Member for Dunfermline, East, who said in 1986 that there was no chance of an improvement in unemployment. Not surprisingly, that pronouncement was followed by 44 consecutive months of falling unemployment. It fell by more than 1.5 million, yet the Opposition hardly mentioned the subject. I am not saying, "Do not listen to what the Opposition say"--by all means do so--but just remember that the opposite is bound to happen.

We can be confident. We have no intention of changing course and giving an unjustified, artificial boost to demand. Recovery will come, as it always does, from businesses controlling their prices and costs and from wage bargainers adapting to low inflation. On the high streets, stores are cutting prices. That is how firms can help to beat the recession and to boost demand. The consequences of a phoney stimulus would be just as damaging for our economy as a prolonged recession. Taking the easy course might lead to a short-term boost, but in the longer term it would mean higher inflation and higher unemployment.

Our consistent refusal to take the short-term view has enabled us to achieve the success of the past 12 years. When the dust of this recession settles, the gains of the 1980s will shine through again. The 1980s was the first decade since the second world war in which the United Kingdom grew faster than France or Germany. Manufacturing productivity grew faster than in any other major industrial country. Our share of world trade in manufactures has risen in each of the past two years for the first time since records began. Perhaps the Opposition think that that is failure.

Real personal disposable income is up by more than a third since 1979. Real wealth is up by 60 per cent., and the number of shareholders has tripled. Conservative Members do not regard that as failure.

The persistent refusal of the Opposition to see anything but misery ahead is predictable but not very admirable. What I found truly mystifying about the speech of the right hon. and learned Member for Monklands, East was the gaping lack of any attempt to present a coherent alternative policy. When he became shadow Chancellor, it was hoped that he would make a better fist of it than the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). It would have been difficult to do any worse, but all we heard from the right hon. and learned Gentleman was waffle--superior to that of the Leader of the Opposition, but none the less waffle was what it was. We used to know what the alternative strategy of the right hon. and learned Gentleman and the Labour party was. In 1983, it had an alternative economic strategy of exchange controls, import controls, massive increases in Government spending to boost demand, and the whole apparatus of planning. We must not forget that the right

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hon. and learned Gentleman was among those who spoke up for those policies. What has made him change his mind? It must have been what he described as eight more years of disastrous Tory policies. The terrible failure of those years convinced him that he was wrong and we were right. That was the result.

The right hon. and learned Member for Monklands, East knows how to memorise his lines. He says that he recognises that the Government's responsibility is to get inflation down. He supports membership of the exchange rate mechanism. We even hear him talking of supply side policies. I am not entirely convinced by this puzzling, mystifying and sudden conversion. There is one real divide on economic policy between the parties--between Conservative Members, who are prepared to take the tough decisions that we know to be right, and Labour Members, who are prepared to will the ends but not the means.

The right hon. and learned Member for Monklands, East proclaims the virtues of low inflation, but he is not prepared to do what is necessary to achieve it. All of us know that the way to control inflation is to control demand, and that the way to control demand is interest rates--all of us apart from the right hon. and learned Gentleman. He is on record as saying on television, astonishingly : "We will not be using interest rates for controlling demand." Yet the Opposition's motion specifically calls on the Government "to take immediate action to promote economic recovery and an early end to recession by lowering interest rates"

and manipulating demand.

The right hon. and learned Member for Monklands, East says that we should cut rates by a full percentage point. That was his policy in October 1987, when interest rates were 9.5 per cent. It was his policy in March 1988, when interest rates were 8.5 per cent. It was his policy in October 1990, when interest rates were 15 per cent. It is his policy today. Interest rates are always 1 per cent. too high. The right hon. and learned Gentleman has another string to his bow, but, like most Labour policies, it is inefficient, ineffective and unfair : it is credit controls, which would do nothing to increase savings or to reduce demand. Credit controls cannot reduce the overall level of interest rates, only the distribution of credit. Some people--the well advised or the wealthy--get all they want. The rest--ordinary people at the back of the mortgage queue--get nothing. Perhaps the right hon. and learned Gentleman could explain how stopping people borrowing is a painless way of reducing demand. The right hon. and learned Gentleman claims that he is ready to answer the hard questions of economic policy. Perhaps he will answer this question : how would he deal with the inevitable sterling crisis that Labour's fiscal and monetary irresponsibility would precipitate? He has obviously given that question serious thought, because earlier this month he told the Financial Times the answer :

"There will be no sterling crisis when we take power. But even if there were, all I would have to do is pick up the phone and talk to someone on first name terms."

They probably know him as John. I only hope that they remember which John.

There we have it. Now we know where the right hon. Member for Leeds, East went wrong when the last Labour

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