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more investment in education and training. Where will that money come from? There is already a growing public sector borrowing requirement and the Government are committed to higher public spending. A Labour Government would have to do without the proceeds of privatisation. Labour's policy would be a disaster, and that is why I support the Chancellor's economic policy.8.3 pm
Mr. Doug Hoyle (Warrington, North) : The effrontery of Conservative Members, and especially of the hon. Member for Beaconsfield (Mr. Smith), is unbelievable. The Government's economic policy is in tatters. Conservative Members may smile, but unemployment is rising faster in this country than in any other country in Europe. It increased by about 70,000 last month. Even using the Chancellor's own figures, investment will fall by 10 per cent. on last year. Output is also falling. Where is this great success story that we keep hearing about? The Government are adept at passing the buck from one person to another, as we saw over the BCCI failure.
Mr. Tim Smith : Perhaps the hon. Gentleman could tell us about manufacturing industry.
Mr. Hoyle : The hon. Member for Beaconsfield is an expert on the City, but he is certainly not an expert on manufacturing industry. I suspect that he has never been in a factory, so I shall concentrate on a matter that he knows a little about, the collapse of BCCI. The Governor of the Bank of England will be the fall guy, but responsibility rests with the Government and especially with the Prime Minister, who in January 1990 was Chancellor of the Exchequer. At that time, it was drawn to his attention that two executives had been laundering in Florida money that had come from drugs. On that occasion and on two others, the then Chancellor's attention was drawn to such matters and one would have thought that he would take a greater interest in what was happening in the bank. But none was taken until the crash. Many small investors have been ruined because of lack of action by two Chancellors of the Exchequer, one of whom is now the Prime Minister. They should be condemned for that.
Mr. Haynes : The hon. Member for Beaconsfield (Mr. Smith) is a City adviser.
Mr. Hoyle : That is right and, of course, he is not alone in that : the Prime Minister used to be a financial adviser, as was the Chancellor. We have a Government of the City, for the City, but they are certainly not for the people of this country.
The hon. Member for Beaconsfield invited me to turn my attention to manufacturing industry. Why have the Government been so silent about the Hanson bid for ICI? ICI employs 56,000 people, 50 per cent. of its output is exported and it spends 4.5 per cent. of its output on research and development. It could be taken over by a company that spends a total of £34 million, which is 0.5 per cent. of its total output, on research and development. It has taken over other companies and stopped their research and development and, in the case of Ever Ready Batteries, it sold off marketing.
Hanson threatens the most successful manufacturing company in this country, but what do the Government say about that? They say nothing. Compared with the
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Secretary of State for Trade and Industry, the Prime Minister has charisma, so it is hardly surprising that we hear nothing about that takeover bid. No other European country would stand by and see its most successful manufacturing company threatened in that way. A few days ago, the Chancellor praised the motor industry and spoke about its export achievements. However, that industry now faces a downturn in every part of Europe except Germany. The downturn in Spain and France is about 16 per cent., which is beaten only by the downturn in this country because the home market has collapsed by 25 per cent. The sales in the motor industry in June were the lowest since 1970. Where is the success story in that? The motor industry is being crippled by the Chancellor's actions. The fact that the Government have introduced a car sales tax of 10 per cent. and increased VAT has depressed the home market, and more people will lose their jobs unless some action is taken.The sooner we have an election the better, because the Government are inept, indolent and incompetent. As long as they remain in power, far from the economy recovering, it will grow worse. I not only echo what my constituents in Warrington say but speak for the whole country. The hon. Member for Beaconsfield seems to be amused when we talk about people being unemployed and output falling. Unfortunately for him, that is happening not only in the north and the midlands but in the south of the country. When the time comes, many Conservatives will deservedly lose their seats. Therefore, the sooner we have a change in Government, the better it will be for the country and for industry generally.
8.11 pm
Mr. Ian Taylor (Esher) : We have just heard a classically depressing speech from the hon. Member for Warrington, North (Mr. Hoyle). The problem throughout the debate has been that Opposition Members have concentrated on the problems of the economy without proposing any solutions, so they have been negative in their approach.
One would not credit the opening speech of the right hon. and learned Member for Monklands, East (Mr. Smith), who was not prepared to go into detail about the heavy burdens that a Labour Government would put on British industry. He gave no details of the problems that they would cause to the exchange rate, because the Labour party will not accept the proper discipline of the exchange rate mechanism. Nor did he mention the problems that a Labour Government would cause in terms of public expenditure because of the £35 billion-worth of pledges that the Labour party has made. If Opposition Members dispute that figure, I should be grateful if they would provide proper costings of their proposals.
A Labour Government would create problems for British industry through their complete and unquestioning acceptance of anything that comes out of the European Community's social action programme. They would create problems for the economy because they are prepared to spend taxpayers' money on renationalising industries without thinking about the cost to the current public expenditure budget and the problems that such a policy would create for the companies that would be brought back into the Government net because of the restraints on capital expenditure of the external financing limit. I wish
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that they would deal with that matter and come clean on it. Constituents throughout the country would be extremely worried if utilities that are now in the private sector and benefiting from access to the private market suddenly found that they were subject to the Chief Secretary and the external financing limit.A Labour Government would grind British industry down, destroy the prospect of an economic recovery and, through the operation of a minimum wage policy to which the Labour party is so beholden, worsen the social and employment prospects of those most
exposed--semi-skilled or unskilled young people and people in the older age range who are seeking jobs. The Opposition have proposed no solutions. Indeed, all their proposals are likely to make the economy worse. I hope that the British public realises exactly what is being offered in the false prospectus of the Labour party so that, in the coming months, we can make it absolutely clear that the Government's sound, sensible policies are the only proper way forward for this country.
It was typical of the right hon. and learned Member for Monklands, East that nowhere in his speech did he note the full implications of the worldwide pattern of recovery for this country. There have been some significant and positive statements as a result of the G7 talks. They have shown that the economies of the leading industrial countries of the world are recovering, which will undoubtedly help the recovery in this country. The credit crunch that was widely feared in the USA has not been as severe as first expected. Furthermore, in several nations, both within the Community and, for example, Japan, there has now been a fall in interest rates, which will benefit this country, too.
Domestically, an important factor is at work. It will take time, but it is, nevertheless, important. It is the use of the automatic stabilisers. By allowing them to take effect, the Government have eased conditions and created the prospect of economic growth. As my hon. Friend the Member for Beaconsfield (Mr. Smith) has just said, that effect will be assisted in terms of the public expenditure round by the impact of BT's settlement with the regulators. That is a signal triumph for my right hon. Friend the Secretary of State for Trade and Industry, because he backed the regulators, which means that the customer will benefit. At the same time, however, it clears the way for further BT privatisation, the net proceeds of which will be useful for reducing the public sector borrowing requirement for this year.
Other factors should also encourage us. Low stocks in industry will mean that any pick-up should work straight through to production. The figures that my right hon. Friend the Chancellor gave in his opening speech on monetary supply now appear, in terms of M0, to be moving up to above the middle of the range that has been set by the Treasury. I believe that the latest figure is 3.25 per cent., which shows that monetary policy is beginning to create the circumstances in which growth could resume during the second half of the year. Other factors, such as the fall of the pound against the dollar and the modest pick-up in retail sales prices, will undoubtedly assist.
The moral is that the Government are right to have kept calm and been consistent in following through the policy set by membership of the exchange rate mechanism. I have raised that question many times before in the House and am a fervent advocate of the discipline set by the ERM. I can only give the Government credit for their
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consistent policy of waiting for the right moment to reduce interest rates, doing it gradually, giving industry the confidence that the direction and trend of interest rates is downwards, but not giving in to the siren voices of Opposition Members, who wanted to rush to a fall in interest rates. That would have led to a dramatic rise in interest rates in the latter part of this year, when an international lack of confidence in the Government and sterling would have resulted. The Government, therefore, have pursued not only the right policy but one that is more likely to lead to a greater fall in interest rates for any fall in the rate of inflation, as international confidence in the pound continues.Naturally, I am aware that businesses are experiencing difficulties, but the way to help them is, first, to reduce inflation and, with it, interest rates on a much more stable and permanent basis. Secondly, we should not try to reflate the economy in a panic. Rather, we should take targeted measures that would assist businesses to respond better to the signs of economic recovery that is now occurring. We should not underestimate the measures in the Finance Bill, which were foreshadowed in the Budget. They include specific assistance to industry such as the reduction in corporation tax, an easier payments system, easier methods of VAT collection and less harassment by the Inland Revenue. All those measures will assist businesses. Once their confidence returns, they will begin to realise that the benefits that the Government have introduced in the Finance Bill will have a dramatic impact.
In that sense, although hon. Members may find it depressing talking to business men who as yet see no evidence of the upturn, there is no doubt that if, as I have tried to show, the framework of that recovery is already upon us, we will quickly find that industrial confidence will turn round. By the time the House reconvenes in the autumn, we may see a more upbeat response from British industry and, therefore, much more positive support for the Government's overall philosophy.
Even those who are concerned about the current situation of the British economy should not ignore the dramatic impact of the reforms that the Conservative Government have introduced successfully of the economy since 1979 for investors outside Britain. The flow of investment into Britain from OECD members who are outside the EC has been quite dramatic. In response to an oral question of mine on 27 June, my right hon. and learned Friend the Chief Secretary said : "Between 1984 and 1988 the United Kingdom received about one third of all inward direct investment to the EC Inward investment in 1988 was £10 billion. In 1990 it was£19 billion."-- [ Official Report, 27 June 1991 ; Vol. 193,c. 1131.]
Much of that has gone to the regions, and in that sense it has helped jobs that would otherwise not have existed.
Inward investment depends on the continuation of the Government's policies. It depends on policies which are ultimately in the long-term interests of British industry and on our maintaining a positive role within the economic and monetary union in negotiations that are now taking place. The Government are right to be cautious in their actions. When the House reconvenes in the autumn we will see a much more positive economic picture.
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8.21 pmMr. Ted Leadbitter (Hartlepool) : The hon. Member for Esher (Mr. Taylor) said that it was important to reduce inflation in order to help industry. My retort to that is simple : the Conservative party should have stopped inflation rising.
The temptation today has been to give historical tutorials, going back even to primitive man if that were allowed, in order to escape the responsibility for what has happened in recent times. In an intervention I asked the hon. Member for Bridlington (Mr. Townend) whether the Government were prepared to accept responsibility for anything. I asked him if he would rebut his friends in the other place who, in a majority, in a report from the Select Committee on Science and Technology in May this year, made it abundantly clear and in precise terms that if the Government carried on in the way that they were Britain would have no home-owned manufacturing base. The report also said that the Government had no policy for industry and no industrial policy in the national interest. That was the considered view of a Committee that sat for a considerable time listening to witnesses from industry, the CBI and so on.
Yet the Government have no sense of shame whatever. We have not seen that since 1979. We have had the Westland scandal and all sorts of other scandals, but one never sees members of the Government blushing at any time. They have no sense of embarrassment. Yet the Government's amendment to the Opposition motion says that the House "congratulates Her Majesty's Government on its pursuit of sound economic policies".
I can only assume that they have not caught them yet.
It is fascinating that when the Opposition seek to depict in the House of Commons the present situation it is difficult to get hon. Members, certainly on the Government Benches, to apply their minds to it. They try to tell us that we would not be successful in dealing with Britain's industrial problems. What neck--as a famous Prime Minister once said in the House of Commons--when there were 23,000 bankruptcies in the first half of this year. By my reckoning, 23,000 is an awful lot.
Moreover, most proprietary companies, certainly most small companies, and a substantial number of large companies--the latter with a capacity to outlast a recession over a three or four-year cycle but nevertheless finding their profit margins falling--are frightened of the bank manager telling them that their cash flow or their cash supply is in difficulty and that the bank will have to foreclose on them. There are a number of employers in those categories who cannot make any planning projections, let alone forward investment or projections of any kind in such circumstances. Therefore, we must ask why the Government have the audacity to table such an amendment when we know, in the words of another Prime Minister, that they are frit. If the economy is in as good a state as the amendment suggests, if it is meant to be taken at its face value, I should have thought that the Government would be anxious to go to the country. I should have thought that in June, which is just behind us, we would have had an election.
If the policies that the Government are now proclaiming were successful, the Conservative party would not be frightened of the electors' vote. No one is ever frightened of the electors' vote if the economy is right and
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the social structure is healthy, with the education and health services working to the benefit of people rather than in pursuit of profits. It is interesting that the Government's citizens charter talks about reducing waiting lists to two years. What a fantastic admission to make. It is like a confessional.The Government's failure to go to the country in June is a signal that they are scared stiff of how the electorate will vote. How can the Government and Conservative Back Benchers think that they have any credibility in the country when they can get rid of a Prime Minister with 204 votes and get another one with 185? How on earth dare they go to the electorate?
I shall be retiring at the next general election. After some 28 years here, I think that I have heard it all before. This is a wonderful place, but I have found something strange : it is much easier to pursue a lie in the House of Commons than to expose the truth. It is fantastic that Members of Parliament are not good at admitting the truth. There are some fundamental reasons for that, but it is an interesting facet for older Members to deploy when we seek to wheedle out what the Government are up to.
The ramshackle training systems are principally meant to box up the figures --figures that have been tampered with 30 times--and real unemployment is nearer 4 million than 3 million. Some people are earning incomes that are so low that I wonder how they manage. A lady came to my surgery who was looking after her mother. Her slice of the total household income was £23. That was all that she was allowed to possess--not the price of a decent pair of shoes.
I listen to Members of Parliament prattling on about their incomes and to certain people in industry who are so blatantly greedy and grasping that even in the recession they cannot keep their hands out of the utility till. Chairmen of industries have received 100 per cent. salary increases-- greedy, grasping, indecent people--and we expect the voters to support a Government who pretend that they did not know that that would happen. Yet Conservative Members play the merry devil about workers getting salary increases a point above inflation.
I could have spoken for a long time, but time is against me. 8.30 pm
Mr. Quentin Davies (Stamford and Spalding) : It is always a pleasure to follow the hon. Member for Hartlepool (Mr. Leadbitter). I am sorry I shall not be able to look forward to that pleasure after the next election. I shall attempt to follow his precept and to throw a little light on the truth.
There is an issue that has been of growing concern to Conservative Members, industry and the country in the past few months. It should also be of growing concern to Labour Members. As a result of today's debate, it has taken on a new dimension of seriousness. I speak of the statutory minimum wage. It was clear from the performance of the right hon. and learned Member for Monklands, East (Mr. Smith) that the Labour party is wedded to a policy the consequences of which it has not begun to understand.
That was brought home graphically by the fact that, in introducing his remarks on the subject, the right hon. and learned Gentleman made two fundamental mistakes. One
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was a mistake of fact and the other a mistake of understanding. The mistake of fact was to say that all other members of the European Community have a statutory minimum wage. That is not true. Germany does not have a statutory minimum wage. That is an elementary but important mistake of fact. It is of more concern that the leadership of the Labour party has embarked on the policy without having carried out elementary research on the position in other members of the Community, with which we must compete.The second mistake, which could have been a slip of the tongue were it not for the fact that the right hon. and learned Gentleman drew specific conclusions from it, was to quote from an OECD report about France, which has a minimum statutory wage. I think that I quote correctly, and verbatim, the words of the right hon. and learned Gentleman, who said that the statutory minimum wage's impact on the elasticity of demand for labour in France was zero. I am afraid that that rather showed that the right hon. and learned Gentleman had not understood the purport of the words, or that he was unaware of the meaning of the concept of elasticity. Elasticity is a measure of the rate of change of demand for a commodity in response to any change in price. It is a measure of the slope of the demand curve, not a measure of volume.
It is a dangerous illusion to suppose that the price of any commodity, including labour and wages, can be increased without, ipso facto, reducing demand for it. The idea that one can have one's cake and eat it is wrong. If a statutory minimum price were introduced for motor cars, as sure as night follows day the demand for motor cars would be reduced. We can argue about the extent to which that demand would be reduced, but let there be no illusion ; demand would be reduced.
The right hon. and learned Member for Monklands, East is either naive or did not do enough home work. I am sorry that a Labour Front-Bench spokesman should try to pretend that a statutory minimum wage could be introduced without increasing unemployment and reducing the demand for labour.
The second point that I hope that the Labour party, even at the 11th hour, will address--it is obvious that it has not thought it through--is that a statutory minimum wage will reduce the demand for labour and remove the employment of those whose wages are less than the statutory minimum wage. In addition, as the trade unions, who are so well represented by Labour Members, insist on pay differentials, demand for higher wages will be created throughout the economy. That will lead to higher inflation, higher unemployment or a mixture of the two. Unless the Labour party wishes to wed itself to a policy that will cause higher inflation and higher unemployment, it should think carefully and seriously about the crazy idea of a statutory minimum wage before taking it any further.
That is not the end of the story. There is a third point that I hope that Labour Members will consider. The inept policy of a statutory minimum wage will reduce employment and output--the output of people who will no longer be employed in the economy--but will it help those at the bottom of the wage and salary scale, whom it was presumably designed to assist? The answer is that it will not. Even if employers are induced to increase the lowest wages, pari passu family credit and housing benefit will be reduced for those people. Considerable economic and human costs will be incurred, which will not benefit those whom the policy was intended to advantage.
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If that is not a crazy policy, I do not know what is. The Labour party has not begun to think through the consequences of the statutory minimum wage, to which it appears to be wedded. So much the better for us if it fights the next election with a manifesto that is so fundamentally flawed that it contains such nonsense, but it will not be to the advantage of the country if, by any mishap, it were to come to power. I therefore beg it, at the 11th hour, to rethink that crazy policy, which can only bring even greater discredit on it than its other economic policies.8.39 pm
Mr. Geoffrey Lofthouse (Pontefract and Castleford) : Conservative Members, including the hon. Member for Stamford and Spalding (Mr. Davies), have said that the Labour party has no solution to this country's economic problems. The Conservative party, which has been in office for 12 years, has the gall to say that it has the solutions to the economic mess. Everyone agrees that the country is in a deep recession, but Conservative Members have failed to say who has been responsible for it. It cannot be the Opposition--it must be the Government. If the Government have failed to come up with the answer in 12 years, I cannot believe that the British public will put confidence in them and re-elect them.
It is no good attempting to pull the wool over the public's eyes by saying that there are improvements around the corner and that things would be much worse under another Government. I am not an economist and I cannot come up with some magic answers, but the problem must be solved. The Government attempted to solve it by just one means--high interest rates. Even primary school children understand that inflation must be controlled and know what will happen to the economy if it is not, but what matters is how it is controlled.
The Chancellor may have been flippant when he said that unemployment created by high interest rates was a price worth paying. That is his judgment. I want to highlight what high unemployment means. Many hon. Members representing constituencies in the south-east of the country have no experience of what it means, although some are beginning to know. Some hon. Members who until recently have shown little interest are beginning to panic. I remember the posters during the 1979 election showing dole queues, with the words "Labour isn't working". Unemployment then was slightly more than half what it is today. Does that show 12 years of Government success in dealing with unemployment? It certainly does not. The problem will not be solved by one side of the House saying, "We saw those details in the Red Book last year," or talking about what someone else said last week. After 12 years, the Government are not equipped to solve the problem.
I know what unemployment means. Since 1984, constituencies such as mine have experienced a rapid rise in unemployment because of the rundown in the coal industry. No efforts have been made by the Government or anyone else to find alternative employment for those workers. There is a threat that the few remaining pits will be wiped out. Youngsters cannot find employment and are desperate for work, which means that idle hands make mischief. The crime rate, most of it petty crime, is rapidly increasing in my area and mostly unemployed youngsters are involved. I do not condone that. The West Yorkshire
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police force is more than 200 policemen and civilian staff short of establishment levels. The crime rate, which was at record levels last year, is increasing. Those are the results of unemployment and of central Government control of local government finance.Many long-established small businesses are rapidly going to the wall. Recently, a gentleman and his wife came to see me at my surgery. They told me about a small, 60 or 70-year-old business which once employed 14 men now employing only three and that they did not expect that it would continue. A few months ago, I wanted a small drive at my home tarmacked, so I rang a small firm that had been established for may years and was surprised when I was told that the men would be there in the morning. Nine men turned up to do a job that did not cost more than £1,000. The contractor told me that if they had not done that job the men would have been laid off within two or three days. Needless to say, they have since been laid off. All that is happening because of the policy of controlling inflation through unemployment. It is all very well saying that there is sunshine around the corner and that many businesses will pick up when the upturn comes, but that is not much consolation to firms that have gone out of business because of the Government's policy. A week last Monday, I went to meet the Princess Royal who was opening extensions at Pontefract racecourse. I spoke to two or three people whom I always knew to be strong Conservatives and they told me about their worries. One man who ran a reasonably sized business was worried about the increase in VAT. He said that last year in his firm, the "tax collectors" had taken £17.5 million in VAT for the Government. He said, sadly, that the Conservatives will lose the next election and that they deserve to do so.
Another man, from the brewing industry, told me that he would never vote Conservative again because his business had been wrecked--
Madam Deputy Speaker : Order. The hon. Gentleman has had his 10 minutes. I am sorry to have to ask him to resume his seat. 8.49 pm
Mr. Richard Shepherd (Aldridge-Brownhills) : There are moments when one recognises that we have a severe recession. It would be wrong to pretend otherwise. My background is that of a small retailer. We retailers are aware that we have borne the brunt of this recession, which has eaten into domestic demand in a way that I have never seen before.
It seems to me that the management of the economy comes down in the end to judgment--judgment at critical moments about the management of supply and demand and of the money supply. I regret some things from the past 10 years. When I was first elected, the idea of a floating exchange rate was central to our policies. I still hold that that is the best way to manage an economy, but I have seen the judgment change in my party, and I know that those who exercise that judgment will hold themselves accountable for its consequences.
In the past four years or so, at certain critical moments, such as black Monday, the Government's responses were the responses that I too would have made. Some of them may have been wrong, but I supported them. After black Monday, I thought it appropriate to be more generous with the money supply. The intention behind that liberality was clearly good. The Government decided that
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they wanted to maintain industry and output and support the economy. On balance, perhaps the Government were too lax. I listened carefully to the shadow spokesman on the economy, the right hon. and learned Member for Monklands, East (Mr. Smith), and I noticed that in his judgment we should have been even laxer. Perhaps we are too rigorous in my party. A great friend and colleague of mine, my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen), often berates the Government for the way in which they approach these matters, but I am sure that he would have berated the management of the economy by the Opposition, had they been in power, even more. The right hon. and learned Member for Monklands, East, as I say, thought it right to be even more lax. But every consequence since black Monday would have been even worse if the right hon. and learned Gentleman had been in the driving seat.However much I may believe that the rate of our entry to the ERM was wrong, and however wrong in principle it may have been, I cannot agree with the argument of the right hon. and learned Member for Monklands, East that interest rates should be depressed faster. As a retailer, I would give a cheer for that, but the intellectual argument flounders because interest rates are now a reflection of membership of the ERM. Lowering interest rates affects the external value of the currency. Since that is now the guiding principle of the Government's economic management, we cannot lower interest rates at the same time as maintaining the central rate of sterling against the deutschmark. That is what worries me. Is the right hon. and learned Gentleman saying, covertly, that he would devalue? Is that Opposition policy? I do not understand how one can reconcile lowering interest rates more quickly while maintaining sterling in the central band of the ERM.
From the earliest days of our membership of the ERM the Government have straightforwardly made their position plain, but I have not heard an exposition by the Opposition of the consequences of membership and of the disciplines implicit in it. I have to ask myself in a reasonable way whether I would veer towards the Opposition or towards the Government in matters affecting the administration of economic policy. Unusually for me, perhaps, I believe that the Government have set out their arguments the more clearly and to the advantage of the broad management of the economy. This has been a dire recession, in which the consequences have moved outwards from the south-east right through the economy. We sometimes lose sight of the fact that the Opposition do not believe in economic cycles in industrial societies, but nothing has ever convinced me against the idea of a cyclical approach to life. A farmer recognises that crops are poor in bad weather and plentiful in good times. Similarly, economies go through good and bad times. We are at the bottom of a deep recession, but there are clear signs of improvement. Interest rates are declining in Japan and the United States, thereby removing one of the threats to our interest rate management. As world interest rates come down, so do ours. If I could change Government policy, I would take Britain out of the ERM because I do not believe in a fixed exchange rate on which all else is predicated to the extent
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that we narrow our economic endeavours to merely supporting the exchange rate. That is quite wrong, but it is the central intent of the Government. I also, however, recognise the consequences that flow from the Government's judgment and from lower interest rates. Interest rates are central to the economy at this stage of the management of the cycle.Mr. Ray Whitney (Wycombe) : Does my hon. Friend agree that the right hon. and learned Member for Monklands, East (Mr. Smith) misrepresented what happened in the 1980s? He mischaracterised the decade as two recessions linked by a false boom. That so-called false boom was actually eight years of record-breaking growth, which represented a unique upturn in the economic cycle. Anyone with a pride in this country should take pleasure in that--unlike the right hon. and learned Gentleman and the Labour party.
Mr. Shepherd : With the greatest respect, great progress was made during the 1980s, but there were also mistakes. Increasing the money supply had dire consequences. There are certain internal faults in our economy. There is the belief, often commented upon by Germans, Americans and others, that there is a get-rich-quick view in British business ; the belief that one does not invest for the long term. That has been confronted by the Opposition in the past. There is the membership of Lloyd's, where it is thought that money flies to people, and there is the aggrandisement of wealth by British companies and industry, without the long building-up process.
Unfortunately, the flood of money into the economy and the fact that we were too lax had consequences. We saw the rise in property prices. I have always believed that one of the basic indicators of any economy is the way in which house prices rise. They flew out of the window. Anyone who bought a house in London at the end of the 1970s--that includes myself--for about £50,000 saw its value multiply 10 times. That is not real money, and we know it : it is a reflection of the increased money supply. That is why I judged harshly the right hon. and learned Member for Monklands, East when he was urging yet further increases in the money supply.
We are suffering the consequences of an over-generous response. That is why I do not think that there has been one upward curve over the past 10 years. I have seen the anxieties and difficulties that follow when the balance of the argument is wrong.
Mr. Whitney : That is the point that I was making. My hon. Friend and the right hon. and learned Member for Monklands, East (Mr. Smith) should not disregard the eight years of record growth. I am sure that my hon. Friend does not disregard it, since it was outstanding. There were mistakes and, quite uniquely in the political history of the country, the Government recognised that mistaken assessments were made in terms of releasing the money supply. However, the Labour party at the time did not say that the Government were reducing interest rates too far or too quickly ; it said, as it always does, that interest rates should be 1 per cent. lower than the current level. That is the standard view of the Labour party.
Mr. Shepherd : The cheer of politics is that we hold Governments accountable and, as parliamentarians, we try to demonstrate why Governments may be wrong.
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I agree with my hon. Friend the Member for Wycombe (Mr. Witney) to the extent that the 1980s saw great structural changes, some of which were beneficial. The underlying improvements that have been beneficial and will be beneficial should the Opposition form a Government seem to be common cause among the two Front Benches. We are concentrating our efforts on the supply side, and there are reforms in place for training and education. We all accept that there is a great deal of work still to do, and the Government are leading the way. We recognise that there have been advances and some setbacks. The attitude of many of our producers is now much firmer and more competitive. That can be seen in the improvement in our export trade, which we hope will be sustainable. That was an interesting feature of this week's figures.The right hon. and learned Member for Monklands, East believes in the lowering of interest rates in the face of the ERM mechanism. I cannot understand that unless he is calling covertly for devaluation.
9.1 pm
Mrs. Margaret Beckett (Derby, South) : This is the last full-scale economic debate before the summer recess and, for all we know, it may be the last before the general election. It gives us a chance to glance back over the 12 long years of the Government's term in office. When they came to power, they inherited inflation at the European average. Today, it is above the European average. They inherited a balance of payments that had dipped marginally into deficit--about £500 million--although manufacturing trade still had a surplus of almost £3 billion. Today, in the depths of recession, the deficit is still registered in billions. The Government inherited the fruits of investment under a Labour Government which resulted in substantial revenues from North sea oil. They inherited unemployment at just over 1 million and it was still falling.
As my hon. Friend the Member for Pontefract and Castleford (Mr. Lofthouse) mentioned, one of the most effective slogans of the election campaign that brought the Conservatives to power was the Saatchi and Saatchi-inspired, "Labour isn't working". That slogan placed the responsibility for the levels of unemployment directly at the door of the then Government. Today, with about one vacancy for every 20 unemployed, unemployment is double the level this Government inherited and rising fast. Most commentators predict that it will touch 3 million and some predict that it will go even higher. Whose responsibility is it now? To listen to Ministers, one would almost think that it was the responsibility of the next Labour Government. The one skill that the Government have honed to a fine degree in their 12 full years is that of passing the buck, in the same way as children pass the parcel. And what a buck it is. The inheritance of the next Government will be an economy which, at best, is just emerging from recession. It is the second recession of the Government's 12 years in power and it is shaping up to be as bad and as deep as, and even more long-lasting than, their first. Recovery must come at some stage, but the House will know that the Association of British Chambers of Commerce--much quoted in this debate-- predicted this week that there would be no recovery until next year and that the manufacturing industry--the source of our tradeable wealth--will not be in recovery until that
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summer. Many hon. Members will have seen the forecast by Phillips and Drew entitled "An L of a Recession", which states that the signs are that the economy has hit bottom, but that it has every intention of staying there.The Association of British Chambers of Commerce also said : "Orders, deliveries, employment, investment and the number of firms working at full capacity are continuing to fall."
The head of the corporate department of KPMG Peat Marwick, the accountancy firm, said that there was no evidence yet of an upturn in the economy. He continued :
"I think we're going to scrape along the bottom for quite a considerable period of time."
Last week, this country hosted the conference of the Group of Seven countries. As my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) said, we are the bottom of the league of the G7 countries in growth, in investment and in job creation. Our economy is predicted to be the bottom of the G7 league for growth for four consecutive years. That is a record. That has never happened in any country before. Unemployment hit the highest monthly increase in March, and although the figures for subsequent months have, mercifully, been lower, those figures for April, May and June were higher than for any of those months in the past 40 years. That is a record, and, in the case of unemployment, it is a record achieved even after changes in the way in which the figures are collected and after the totals had been reduced 30 times.
Manufacturing output was predicted to be down 5 per cent. On the latest figures, it is heading towards being 7 per cent. down since April 1990. What of the true engine of recovery--not consumer spending, as the Chancellor says, but investment? Manufacturing investment has fallen 16 per cent. in the past year to below the levels of investment the Government inherited in 1979 and, indeed, back to the levels last seen in the 1960s. Not only can we not rebuild, but we cannot sustain a modern economy with such levels of investment, and all of that is the consequence of the Government's gross economic mismanagement.
President Truman was reported to have had a note on his desk saying, "The buck stops here." Where does the buck stop with the Government? It does not appear to stop with the Prime Minister, with the Chancellor or with the Chief Secretary to the Treasury who is, no doubt, too busy working on some of his excellent jokes to take receipt of any buck. We can be certain of one thing--in this Government, the buck never stops in the Cabinet of the day, no matter who is in it.
We all remember the claim about the economic miracle and, certainly, the Government's achievements in putting Britain firmly at the bottom of so many leagues--those for growth, investment and job creation--have been remarkable by any standards. Why did we end up at the bottom of the league after 12 years of unprecedented revenues from the North sea, unprecedented revenues from privatisation of assets and 12 years of uninterrupted power?
The House will recall that in previous debates--indeed, it has been mentioned today by the hon. Member for Aldridge-Brownhills (Mr. Shepherd)-- the Government have admitted to just one mistake. That mistake was the cut in interest rates in the aftermath of the stock market crash in October 1978, and it was made not only by this Government, but by all our main competitors. The
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Government have never been able--and they have never tried--to explain why, if that was such a mistake and if it was their only one, the effects in this country have been so much worse than those in any other country.Let us consider the inflation figures. The headline rate of inflation in this country is 5.8 per cent. compared with 4.5 per cent. when we cut interest rates in 1987. In Germany, the rate is 3 per cent. and in France, 3.3 per cent.--neither as good as in 1987, but not as high as ours. Growth in France is about the same as in 1987, and in Germany it is double what it was in 1987. In Italy it is down but still growing at 1.7 per cent. That is as good a rate as this Government averaged in 12 years in office, whereas the growth here has fallen by 2 per cent.
Mr. Whitney rose--
Mrs. Beckett : I shall give way in a moment.
On the balance of payments, Germany, with its enormous economic adjustments, is still in surplus on its balance of payments and France is in much the same position as it was. Italy is somewhat worse, but, even in the depths of recession, our balance of payments is worse than it was in 1987. In November 1987, when the Government made the one mistake to which they will cough, we did not have the highest interest rates in Europe. We have now, even after the cuts of recent months.
Mr. Whitney : Just for once, can we be clear what the hon. Lady and her party are saying? The Government have said that it was a mistake to reduce interest rates in early 1988. Does the hon. Lady say that it was not a mistake, or that when all her hon. Friends said that interest rates should be further reduced, that was a mistake? What is her position now?
Mrs. Beckett : This will be a lesson in possessing one's soul in patience : I am coming to that point.
Mr. Whitney : Opposition spokesmen always say that.
Mrs. Beckett : In my case, it is always true.
We do not argue that the 1987 cut in interest rates was the Government's main mistake. My right hon. and learned Friend the Member for Monklands, East and the rest of the Labour party argued at the time that this would be the consequence of the course of action that the Government were then planning but had not yet carried out. They made other later mistakes, from the £6 billion in income tax cuts for the wealthy in 1988, through the inflationary own goals of 1989-90 to their one-club policy of high interest rates.
If the Government feel that they dare not admit to more than one mistake, the interest rate cut in 1987 was not the one to choose. Their big mistake was made in 1987 all right, and it flowered into full glory in 1988. It was the biggest mistake that a Government can make--they believed that they were invincible and damned near infallible. That was the key. Drunk with the self-satisfaction of their third election victory, they thought that no matter what they did and what mistakes they made they were bound to get away with it. They stopped listening to anyone. They fell prey to the eighth deadly sin--culpable conceit.
We have only to recall the words of the Prime Minister in 1988, when he was Chief Secretary to the Treasury :
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