House of Commons Hansard Debates for 7 Nov 1991

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I am not attributing the whole of the recession of the last 18 months or so simply to our membership of the ERM. But I am saying deliberately that it has accentuated and deepened the recession. Our membership of the ERM denies us one of the most important instruments of policy, and that is control over our exchange rate and interest rate policy by which we could have hoped to ease the recovery of our industry, growth rate and so on.

I believed at the time, and I still believe, that we joined at the wrong rate in October 1990, at DM2.95 to the pound, and that we joined, in a sense, against inadequate criteria for membership. The missing criterion in the series of criteria which the right hon. Member for Finchley (Mrs. Thatcher) laid down in Madrid was basically about inflation. Our inflation rate had to narrow to the rates in the Community before we could join, and she added some other criteria. The most important missing element was that we should have taken account of our trade and payments current account.

If we had deferred joining the exchange rate mechanism until we had reached an approximate balance in our current account, we would have been much better served, and a much better judgment about the rate would have emerged. A fixed rate in the ERM which is apparently consistent only with an unemployment level of 2.5 million--roughly the current level--a period of nil growth in GDP and falling investment is hardly the rate at which we should have joined.

Let us suppose that, when we joined the ERM in October 1990, the rate had been perfect. What could we say about that rate as the months and years go by? We are very much concerned with our relative progress against the dominant German economy and currency inside the ERM. If we take 1989--not a bad year--as the base of 100, industrial development in Germany hit 110 in that year. It is certain to reach over 120 this year, and the IMF forecast for year three is 126.9. In other words, in three years the Germans will have increased their industrial investment by just on 30 per cent. By the same IMF calculations, the British figures are modestly down from 100 in 1989 to 99.3 in 1990, 87.4 in 1991 and the forecast for 1992 is 85.6. Therefore, the Germans will have increased industrial investment by 30 per cent. in three years, but we will have suffered a decline of 15 per cent.

What would the effect of that be, particularly if it were to continue for some time? Our competitiveness will be deleteriously affected by the relative performance of the two nations in terms of industrial investment, which is one of the crucial elements for efficiency and competitiveness.

Mr. Quentin Davies : I have been listening with great interest to the figures for investment in this country and Germany. Does not the right hon. Gentleman realise that the pattern that he is describing is a reflection of the fact that Germany and Britain are at different stages in the economic cycle? Had he chosen the three years previous to 1989, he would have found that a reverse picture emerged, in which we had a much faster rate of growth and investment than Germany.

Mr. Shore : I chose those three years not to give a distorted impression but because they are the three years since we joined the exchange rate mechanism. I could not take 1990 as the base because that was the year in which

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we joined. Regardless of the different stages of the cycle, those are the facts that will have crucial effects on our competitiveness and costs.

At the heart of the argument about fixed exchange rates is the fact that different parts of an economic area or different countries in the trading world progress at different levels and achieve different levels of efficiency and competitiveness. If one country locks itself in for a period with another economy that is more efficient, as the German economy is and is continuing to be, it is bound to suffer closure of firms in its own domain, the growth of unemployment and, ultimately, the migration of labour to areas of new investment and higher competitiveness.

I fear that we shall find ourselves in that position. That is the argument against permanently fixed interest rates. The experience that I have related can be replicated all over the world. Nobody in their right senses thinks that the Americans should permanently fix the exchange rate of the dollar against the yen. Any such proposal would be greeted with hilarity. Japan's economic efficiency, based upon a huge industrial base and decades of high investment, is going ahead much faster than that of the United States. United States industry under those conditions would be progressively eliminated by the pressures of competition from the yen. The Americans are sensible enough to keep their currency in their own hands and adjust the dollar against the yen and any other currency.

I would have thought that we should be thinking hard about the experience of the past year and of how we are to deal with the problem in the time ahead. I believe that it would be excellent for not only Britain but probably most European countries if the German mark revalued and we all gained a certain benefit from that. I do not think that that will happen and we must take action if we conclude that it is necessary to do so. I fear that no action is being contemplated for the period ahead. We are imprisoned within the ERM at the present rate and within the first stage of EMU and the commitment to make a fixed exchange rate a permanent feature. We are facing the prospect of a single currency where there is no chance of any change in the rate of exchange. That is the major part of the treaty on economic and monetary union, and it has serious consequences for us.

I regret that we have not heard more from either Front Bench spokesman about the serious problems that will have to be faced in the next few weeks leading up to Maastricht on 7 December. Yesterday, I drew the Chancellor's attention to clause 109(b) in the draft treaty and the related protocol dealing with what is called "Excessive Government Deficits". The relevant articles describe what excessive budget deficits are. A budget deficit that is more than 3 per cent. of GDP will not be tolerated.

Not only that, but the Commission is giving itself power to take penal action against any offending country. Article 10 of the relevant protocol lists the measures that are being proposed. For example, an offending member should be made ineligible for European investment bank borrowing. An offending member should be required--this is interesting--to make a non- interest-bearing deposit of an appropriate size with the European bank in the same way as the Bank of England used to call up deposits from the commercial banks when we thought that that was a good way of correcting over-generous activities. The

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Commission will impose fines of an appropriate size and suspend new commitments by the structural funds, including the regional fund, until the

"excessive deficit has, in the view of the Council, been corrected."

I am sure that I carry the House with me in asking whether we are really going to subject ourselves--this country, this Parliament and this people-- to instructions and rules as though we were a rebellious, irresponsible council? Are we really to say that we are not fit to govern ourselves and that these disciplines must be imposed on us? My right hon. Friend the Member for Llanelli (Mr. Davies) referred to the International Monetary Fund, which came to Britain to get agreement and stayed away after only a few weeks. This proposal imports the European Commission, with all its bureaucracy and authority, into our country permanently. It will be sitting at the Cabinet table dictating to the Chancellor what he should do. What is the Budget judgment other than the fiscal stance or the extent of the public sector borrowing requirement? I pointed out to the Chancellor yesterday that next year's borrowing requirement will certainly be 3 per cent. of GDP, and I am pretty certain that it will be higher. It may even hit 3.5 per cent. or 4 per cent. That is no sin. The country is in a state of deep gloom and depression and needs stimulus. Anyone who has the slightest knowledge of how economies move and to what extent they go into cyclical periods of slump and boom knows perfectly well that to regulate the economy effectively and make it serve human and national purposes, there must be the power to deal not only with booms and to slow them down but with slumps and to lift people and industry.

That is only one of the constraints. The other is the establishment of a central bank. The Bank of England will become a branch of the European central bank, no longer capable of deciding interest rate policy or exchange rate policy. We shall even pool our reserves. Under the rules that are being prepared, and under the treaty provisions, we will not exist as an economic entity. Some people say, "Perhaps we could bring the European bank under collective ministerial control." My right hon. Friend the Member for Llanelli and the right hon. Member for Worthing (Mr. Higgins) properly referred to such rather vain hopes. We know that it is difficult for the Treasury sufficiently to control the Bank of England, but it will be much more difficult to control as one of 12 finance Ministers in an ECOFIN council. How absurd it is.

In addition, the European central bank is forbidden to take instructions from any organisation. The Community or the national states sign a pledge that they will not seek to instruct, to govern or to erode the independence of the European central bank. What does that leave? They can talk to each other and express opinions, but that is not good enough. That is the danger in merely these two provisions.

I have one or two points to make--these matters are of much importance not only to every hon. Member but to the country--not only to the Government but to my own Front Bench. Labour produced a document called "Labour in Europe" on 31 October. It clearly was meant to be more accommodating to Europe and to its development than the Labour party has been in the past. It seems to labour under certain misapprehensions about what is in store. It says :

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"The establishment of a monetary union would not require a uniform economic policy throughout the whole Community. The Commission has conceded that there should be no binding rules dictating the fiscal position of member states."

Those binding rules are contained in the treaty, yet the authors of the document have misled themselves into believing that there would be no binding rules.

The document refers to the importance of ECOFIN and how it will be a necessary and important political counterpart to Eurofed. It says that it is heartening to see that Labour's proposals have been taken up by the French Government and belatedly by the British Government. Is that part of the Government's proposals? I am not aware of any French pressure to subordinate the European federal bank to the ECOFIN Committee. If that is true, it has failed to emerge in the draft treaty that is due to be signed in four weeks' time at Maastricht.

I take it as inconceivable for any British Government to accept such draconian, alien authority over such intimate and important matters governing our national affairs. I take it to be doubly inconceivable that any Labour Government, who believe most strongly in intervening in the economy and using powers of economic management, would find it other than terrible and tremendously difficult to accept any such restraints. I am sure that the document was prepared before the draft treaty appeared, and I very much hope that I shall receive a reassurance from both Front-Bench spokesmen before the end of the debate.

8.26 pm

Mr. Kenneth Warren (Hastings and Rye) : It is an honour to follow the right hon. Member for Bethnal Green and Stepney (Mr. Shore). I may not agree with many parts of his speech, but it was in the finest traditions of the House. The Conservative party is lucky that he is not displaying his intellect on Labour's Front Bench. The Labour party needs him badly, even if we do not agree with him. I hope to be able to deal with some of his comments because, as Chairman of the Select Committee on Trade and Industry, I share his grave concern about the future of manufacturing and trade in this country. My business interests are declared, but, contrary to some popular media suppositions, I am not connected with the Lonrho organisation. The Gracious Speech offers a vision of the future that Conservative Members, and I believe the country, will welcome. Inflation is coming down ; trade is going up and confidence is apparent. As Chairman of the Select Committee, I find that many people offer me their views and I am delighted to be able to report to the House that in the past several months those views have become not only more positive but aggressive in terms of the opportunity that Britain has to develop its trade and industry.

I should like to deal with three matters in the Gracious Speech, which I thoroughly support, where we can develop our ability to be more efficient, more constructive and more capable in the world of trade and industry. The first is where a company and the Government have a constructor-customer relationship, such as in the information technology industry, where annually the Government purchase £4 billion-worth of goods and

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services, half of which goes to the Ministry of Defence. Obviously, the Government's purchasing power is very important.

Secondly, the Government are a catalyst on which the efficiency of enterprise depends. Although I welcome yesterday's announcement in the autumn statement about increased investment in transport, greater consideration should be given to the value of efficient transport and to the efficiency of enterprises in general. Thirdly, the Government and enterprise are sponsors of economic development, as in research. Whatever the political to-ing and fro-ing on manufacturing industry, we must remember that we have been suffering from a problem which has developed throughout the 20th century. At the beginning of the century, this country enjoyed 33 per cent. of world trade, but the level is down to 5 per cent.-- the good news is that it is growing again. The Germans started at 22 per cent. and are now at about 12 per cent. ; the Japanese started at 2 per cent. and are now at 15 per cent. ; and the Americans started at 12 per cent. and are now still at 12 per cent. Most countries have managed to keep up their share. Unfortunately, we have suffered decreases. It is interesting that, in the post-second world war era, the main falls occurred at precisely those times when the Labour Governments devalued.

In looking at the Gracious Speech and the autumn statement, I welcome the increased receipts for the Department of Trade and Industry from the launch aid levy on airbus deliveries--the airbus is a magnificent aircraft, selling worldwide. I am pleased that the innovation budget will be increased from £100 million to £120 million, and that brings me to my second point about the relationship of the Government and those who supply them.

The top technologies in the United Kingdom could be listed as pharmaceuticals, chemicals and aerospace, and in those respects this country has an enormous, unchallenged capability in the world. There is some stiff competition, but no one doubts our capability. The tragedy lies in the second-order technologies--white goods, cars and so on. We have lost markets to companies that have shipped their goods across the world to take advantage of what, at one time, were our well-preserved domestic markets.

There is no doubt that, well led, the British worker and British management are unchallenged. They are not just blips on a screen--major achievements have been recorded. There is British Steel at Llanwern and Port Talbot. There is Nissan at Sunderland. There is also my old company, GEC Avionics at Rochester, which I left many years ago and which has managed to achieve far more without me than it did when I was there. We have many capabilities which are well worth acknowledging and we should not talk ourselves down when thinking about what we can do.

I should like to offer the House two maxims : good suppliers listen to their customers, and good customers listen to their suppliers. I hope that the Government will always take account of the problems that have beset us during this century and are still with us. We have had a declining share of the world market. Throughout the period of our membership of the European Community, imports have steadily grown in relation to exports. We must now consider the reasons. The past 15 years are important in terms of the growth of industrial power in the world. That power is

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increasingly shifting towards the western Pacific rim. Jobs in manufacturing industry in the United Kingdom have steadily been lost and we now have only about two thirds the number 15 years ago. The Japanese have retained about the same level of employment in manufacturing industry. Japan and other countries such as Germany--which has retained its manufacturing capability--have managed to achieve a substantial positive balance of payments.

I am in favour of doing all that we can in the service industries. We in this country are successful, particularly in terms of financial services in the City, in ensuring that we capture and hold world markets. We must consider why our manufacturing capability appears to be dropping away, bearing in mind the quality of the management and workers, whom I have cited as examples. Manufacturing does not deserve that decline.

I should like to direct the House to one approach which was suggested to me. I seek information all over the place in industry. This approach comes from a group which I know well, the Society of British Aerospace Companies. I worked in that industry for many years. I asked the society what its relationship with the Government was like. It is particularly important for an industry involved in leading-edge technology to understand what should be, what can be and what is the relationship with its largest single customer, the Government.

The group expressed some concerns which I wish to pass on to my right hon. Friend the Chancellor and his colleagues in the Treasury, the Department of Trade and Industry and the Ministry of Defence as a customer. The group has already put those concerns to the Government, but they are worth retelling. The people involved are not looking for handouts or subsidies ; they keep on saying that they want a dialogue--a dialogue of benefit to them and to the Government. The Government are both customer and, in the case of the civil aircraft industry--I referred earlier to the airbus--sponsor. They want a dialogue with the Government to find out what they can do to be even more successful and to work to the customer's advantage.

During the summer, there was a defence review. Ministers assured the trade association through the Defence Industries Council that industrialists could discuss matters relating to the economic, technological and defence implications of possible changes to the defence equipment programme. Unfortunately, that did not happen, which is sad. Some 200,000 people are employed by that business and probably another 200,000 depend on it.

We should not just say that we will do something. We should ensure that there is a dialogue so that those who want to sell know what they can do. While we are all enjoying the decline in defence requirements, it is particularly important for the highly skilled and highly qualified scientists and engineers to say how they would be better employed as we take advantage of the changes in "Options for Change".

Aerospace employs 10 per cent. of the national manufacturing work force. It has a turnover of £12.5 billion. In the past year, more than £8 billion of goods was exported--in other words, two thirds of the industry's capability. As in France, Russia and the United States, we have an industry that is self-sustaining. The Department of

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Trade and Industry should listen closely to industry

representatives, and I hope that the Department will pass their views on to the Treasury.

My right hon. Friend the Secretary of State for Trade and Industry is in St. Petersburg today. I hope that he can also go to the Strand and Stanhope Gate, if a little alliteration may be allowed. British Aerospace and GEC are two examples. They would like to have a closer dialogue with the Government, and I hope to have the opportunity to talk about that matter with my right hon. Friend when he returns. I said that I wished to refer also to the interface of business with government. It is not just a matter of the number of Ministries. I hope that, when I have my chance to stand down at the end of this Parliament, the Conservative party manifesto will call for the removal of all sorts of Ministries, such as the Department of Energy, that it will take training out of the Department of Employment and that it will get rid of the industry component of the Department of Trade and Industry and let trade stand on its own.

There are many jobs that do not need to be done in the Government nowadays. However, there is much more work to be done by the Government on the quality of communications, and that was touched on in the statement yesterday. I welcome the investment in railways, but there are so many people on the roads, at least when I am there. I should like a more innovative approach between the Ministry of Transport and other Departments to discover what the Government can do to facilitate transportation. It is not as if the roads are not there. One has only to look around Westminster to see masses of bus lanes, most of which are empty at all times. Perhaps a traffic authority for London would be welcome.

Let us consider an area to the east of Westminster. Today, I went on a tour of docklands. One would think that that area was designed as if no one understood that the motor car had been invented. There is a need for co- ordination among Departments--the Treasury and the Departments of the Environment, of Trade and Industry and of Transport--of an order that has not yet been achieved.

Another area in which the Government are a catalyst is the Export Credits Guarantee Department. I hoped that the Treasury would understand the necessity for British companies to be able to export successfully to the new markets of eastern Europe, including the Union of Soviet Sovereign States and Mongolia which said, "We have got rid of the communists, but you seem to have forgotten us. We have China on our border." Those places do not have the cover necessary for us to be able to export to them, but there are some major opportunities there. The Germans and the French know that.

Mr. Quentin Davies : Does my hon. Friend agree that it is very demoralising and demotivating for industrialists if they feel that their Government are not prepared to back them in, for example, export credits at least to the extent to which their competitors in the other major western countries are being backed by their Governments?

Mr. Warren : I endorse my hon. Friend's remark. We are in a very competitive world, and where the Government are a catalyst, they must play the part that only Government can. I am not an interventionist, but there is no question but that there will be a problem with

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ECGD and Iraq. I am certain that terrible losses will suddenly be revealed in trading with that country. However, the ECGD with its best endeavours believed that it should back companies that regarded Iraq as a good country to which to sell. I should not blame ECGD or the Government if major losses were announced suddenly. The point is that it was done, and the Government must support industry without qualification.

Another issue to consider is research, in which the Government are a sponsor in part if not in whole--certainly not in whole. Yesterday, the Chancellor announced a 3 per cent. increase in the research budget, which I welcome. However, it is worth mentioning the problem we face with the research base to ensure that industry--with the Government as catalyst through the ECGD and through the companies that I described earlier-- achieves success during the next five to 15 years.

We have approximately the same population as Germany. The population of Japan is approximately double that of ours or Germany's and that of the United States is approximately double that of Japan. Let us consider the amount spent on research and development and acknowledge the fact that development usually accounts for 90 per cent. of all that is spent on research and development. There are some interesting figures which are worth retaining.

In the United Kingdom, we spend £212 a year per capita on research and development ; the Germans spend £381, the Japanese £370 and the Americans £390. If we subtract from that the military component, the net amount spent on research and development in this country is £170 a year. In Germany the figure is £363, in Japan £368 and in the United States £379. In other words, we spend only 50 per cent. of the per capita spending of our major competitors.

If we add up the figures and take account of the volume of their populations, we discover that Germany is spending four times as much as we spend, Japan eight times as much and the United States 16 times as much. Of course, one cannot cover everything in one's research, but if we compare ourselves with, for instance, Germany, we realise that we must make greater efforts.

I hope that my right hon. and hon. Friends at the Treasury will consider what incentives they can generate in collaboration with trade and industry to encourage the further investment in research which we lack at the moment. We know that the research payback over 10 years is about three times that required from Japan, but the problem can be solved and I should like the next Government to tackle it. I have no doubt that a Conservative Government will be in office after the next election. I say that in apolitical terms, as I have heard the right hon. and learned Member for Monklands, East (Mr. Smith) today--it is inadequate for what is required for trade and industry.

The Government must understand that they are the largest single customer and they must therefore consider the way in which they purchase goods and services to make themselves a quality customer. What endears suppliers to Marks and Spencer and to Boeing and makes people queue up to sell to them is that they know that they are selling to quality customers and will be better off for that. That aim can be achieved. It would not be intervention but

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an acknowledgement of the Government as a catalyst and an acknowledgement of the fact that there are things that only the Government can do.

I support the proposals in the Queen's Speech, and I believe that the amendment is as ridiculous as one would expect.

8.46 pm

Mr. Geoffrey Robinson (Coventry, North-West) : It is always interesting to follow the hon. Member for Hastings and Rye (Mr. Warren). It is a pity that he will not continue to offer his services in Select Committee or in the Chamber. I feel that it must be something to do with his frustration with the Government over the past 10, 11 or 12 years, because his speech is in marked contradistinction to everything that they have said for most of that period. The Government have been singularly out of tune with the feelings and aspirations of manufacturing industry, which, as he says, wants not handouts but dialogue. It would perhaps go further and say that it wants above all an even playing field. We cannot allow the continuing exposure of our industry to unfair competitive practices which, as he knows from his experience as Chairman of the Select Committee on Trade and Industry, is very much par for the course in much of the industrial in-fighting.

The debate takes place against the background of the second deepest recession that the country has endured since the second world war. It is the second recession engendered by this Government. There has been immense social and industrial damage. Let us consider the social aspect. There have been 85,000 repossessions and 45,000 businesses have gone to the wall. Those of us who are close to our constituencies know what that means to the individuals with whom we deal at our surgeries and to our other contacts in industry. I shall not follow other hon. Members who have discussed the personal and social difficulties.

In the west midlands, we remain rooted in our conviction and commitment to the manufacturing sector. I emphasise the fact that, when we talk about manufacturing, it is not to denigrate the importance of the service industries such as tourism or banking. Indeed, Coventry city council--I have the honour to represent that area--has done an enormous amount to diversify and spread the manufacturing base with great success. I am sure that even my right hon. Friend the Member for Llanelli (Mr. Davies), who made a remarkable critique of the service sector and who tended by comparison rightly to emphasise the relatively greater importance of manufacturing, did not seek to downgrade the importance of the service sector. The most remarkable single achievement by this Government has been the creation of a recession on an unprecedented scale in both the servicing and manufacturing industries. Our greatest charge against the Government is their malign neglect of manufacturing over the years. There has been no strategy to harness national resources along the lines suggested by the hon. Member for Hastings and Rye. There has been no attempt to have a dialogue with industry, or to use constructively the Government's purchasing power and interface with industry. All that is beyond them. We do not want them to do things that are almost intentionally designed to hurt the manufacturing sector. The hon. Member for Hastings and Rye referred to the attack, on the Export Credits Guarantee Department.

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That was a Treasury-inspired attack which hurt one of the organisations that was still helping our exporters. Why does there have to be such an unnecessary, wanton attack upon a highly expert, professional and efficient organisation?

We know that the United Kingdom car industry is 22 per cent. down. I declare an interest in the Jaguar car company, which is located in my constituency. I am also the chairman of a company that is heavily involved in manufacturing. What a time to persevere with a 10 per cent. car tax. What a time to mount another attack on the benefits of having a company car. The attack has been mounted at a time when the industry is at rock bottom and when one of our prestige companies, privatised only a few years ago, is reeling under the collapse of its market in the United States. What a time to take on that industry and try to destroy it. It is a well-known statistic--I am sorry to have to mention it--that Jaguar sold only 64 vehicles in July of this year. Silly things like that inevitably lead to damaging consequences, from which Coventry and other industrial areas are still suffering. If time permitted, I should have read from the excellent report that has been sent to all hon. Members by the Society of Motor Manufacturers and Traders. It points out that one of the highest levels of car tax in the world is levied on the British consumer. No wonder that car manufacturers were 22 per cent. down at home and that those which survive are suffering from enormous cash flow difficulties and have had to make many people redundant.

Another example is the privatisation of British Airways. I refer to the interface between Rolls-Royce and British Airways. Would any other country have allowed a whole new generation of large, 90, 000-plus thrust turbine engines to be placed with a United States company? I cannot believe that any other country would have allowed that to happen. The Government washed their hands of it and said that it was no concern of theirs. The consequences for Rolls-Royce will be dire--they may even turn out to be terminal.

At one time, we had a market in machine tools, but there has been a 50 per cent. drop in orders and the industry is in dire straits. Again, almost indifferent, malign and neglectful policies are at work. Why abolish 100 per cent. capital allowances? They have good effects. They provide money much more quickly, therefore easing cash flow and profitability problems and the financial deficit of the corporate sector from which manufacturing industry is suffering. If the money comes back more quickly, there is every incentive to invest. We are still living with the consequences of the Government's abolition of 100 per cent. capital allowances.

The west midlands welcomes overseas investment. The Labour Government laid many of the foundations upon which successful investment here by the Japanese has been built. However, Japanese investment can never be a substitute for our own domestically owned manufacturing companies. We do not have control over research and development, or manufacturing technology, or product development. At the end of the day, we do not have control. We welcome Japanese investment. I have to declare an interest, in that I am trying to promote a joint venture in the United Kingdom with a Japanese company. We want that to happen, but that can be no substitute for having our own nationally owned industries.

This Government have managed to engineer the second deepest recession in the post-war period. The first was

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between 1981 and 1983. If one took a view of that performance would as a manager, the Government's managerial performance have to be condemned as a dismal failure. The consequences should be dismissal. That is the sure and certain fate that awaits the Government whenever they have the courage to put their case to the electorate. 8.55 pm

Mr. Roger King (Birmingham, Northfield) : I welcome the reference in the Gracious Speech to the fact that the Government intend to privatise some of the railway services. I look forward to the publication of the White Paper. The autumn statement reveals that the Government are determined to ensure that investment in rail and roads takes place. I am happy about both. We need a balanced investment programme for our transport infrastructure. However, road development has not been given sufficient priority. There should be adequate investment in our roads programme. Manufacturers in the west midlands and elsewhere in the country are increasingly adopting lean manufacturing techniques which require the arrival of goods as they are needed on the production line. No longer are there large amounts of stock from which to draw. If the product is not there at the right time, production stops. Investment must continue, if not accelerate, in our roads system. I shall look closely at the Department of Transport and make sure that investment in the roads goes ahead. My hon. Friend the Member for Bromsgrove (Sir H. Miller) has been vociferous in previous debates in his defence of the motor car industry. I pay tribute to him for his work. He has become the chief executive of the Society of Motor Manufacturers and Traders. He will make an outstanding leader of the organisation and bring to it the benefit of his political knowledge, as well as an ability to speak on behalf of the industry.

The car industry has been mentioned by several speakers, but no hon. Member has referred to it in complimentary terms. The industry has performed outstandingly well over the past few years and has stepped up its exports. Without such a performance, the Chancellor's statement yesterday about exports having improved dramatically over the past few years would not have been possible. The industry has been able to expand its production tremendously because it is more productive and more competitive than ever before, and we are gaining the advantage of inward investment and the introduction to this country of Japanese manufacturing techniques. That advantage lies not only in the Japanese car factories setting up here, but in the transfer of manufacturing techniques to other United Kingdom car manufacturing companies--Rover is an outstanding example.

The kind of manufacturing techniques that the Japanese adopt are no secret. In some respects, we have refined them further. It is a vital part of our investment programme that Japanese manufacturing companies come to the United Kingdom. We have seen the continuing development of the Nissan plant in the north-east, and rising up on the borders between the west midlands and the east midlands is the massive Toyota factory near Derby. There is also the development of Honda's manufacturing facility at Swindon. By the year 2000, those three Japanese companies will produce nearly 1 million vehicles between them.

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I give my hon. Friend the Minister of State a word of warning. One of the problems of manufacturing industry is not the need for greater acceptability in the export market, but a decline in domestic demand. That decline, which has gone on far too long, is attributable partly to the recent economic position of the country, which is now progressing quite satisfactorily, and partly to the high taxation on the British car. There is the special car tax and VAT, now amounting to 27.3 per cent., which is higher than in any other European country except one, and twice as high as the German level. It is significant that German car manufacturers produce almost 3 million cars a year. Because of their dynamic home market, they can produce cars for the world market, too.

I ask my hon. Friend the Minister--and my right hon. Friend the Chancellor of the Exchequer, when he prepares his Budget in March, or whenever--to ensure that the tax burden on the British car industry is reduced. When the companies dependent on inward investment--Nissan, Toyota and Honda--become established and their manufacturing plants are up and running, it will not profit us much if United Kingdom plants are in difficulty because of the lack of demand in the home market. We have to get the two activities in phase. I am looking for some reductions in tax in the next Budget. That will be vital for the progress of the British car industry, especially in the west midlands.

Alas, the truck industry is in a bad position at the moment--again, possibly because of the effects of the recession in British industry and in the rest of Europe. The problems are common and the truck manufacturing position is the worst since 1954. As the economy picks up, that is bound to improve.

Some significant threats hang over the British car industry. We have heard rumours that petrol tax may be increased to persuade both business people and ordinary users to choose more fuel-efficient cars. I give one warning about that, especially in the light of what was said by the hon. Member for Coventry, North-West (Mr. Robinson) about Jaguar. If petrol prices go up, there will be an even more reduced market for the cars made by Rolls-Royce, Jaguar, Aston Martin and other specialist car manufacturers.

We must be careful about embracing extra taxes on fuel. They may have a significant and disastrous knock-on effect, to the disadvantage of large sections of the British car industry. By all means let us use the 10 per cent. special car tax. Let us reduce taxation, not increase it. If we wanted to encourage customers to buy more fuel-efficient cars, we could reduce that tax or abolish it altogether for such cars. There is a great opportunity there. The United Kingdom motor industry is our biggest manufacturing industry, and it is still in good health, but it needs help in the United Kingdom market. The retail sector is feeling the effects of a prolonged recession. Unless we re-establish demand and start building it up, we are likely to jeopardise the tremendous growth in exports that we have achieved.

9.3 pm

Mr. Keith Vaz (Leicester, East) : Some things never change. Exactly a year ago, I was the last Back-Bench speaker in the six-day debate on the Queen's Speech, and

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I was followed by my hon. Friend the Member for Copeland (Dr. Cunningham). I spoke at 9.6 pm. This year I have done a little better, in that I am speaking at 9.3 pm.

I am often told that, as the youngest Opposition Beck-Bench Member, I should know my place, so I have decided to keep my words of wisdom until the very end. When my hon. Friend the Member for Copeland speaks, he will be able to sum up most ably.

I reviewed my speech of last year, which is always dangerous because one finds oneself wanting to repeat so much of what one said the previous year. So much should have changed and so much has not changed. A year ago, we were in the middle of a Conservative party leadership election, and I predicted that, no matter whether the present Secretary of State for the Environment or the present Prime Minister won it, the result would be the same--the devastation of our basic industries would continue over the ensuing 12 months. That is precisely what has happened.

I want to speak briefly about the footwear and textile industries, because I believe that the measure of the success--or lack of it--of our economy is reflected in the way in which those two vital industries are run. Representing a Leicester constituency, I know just how important those two industries are to Leicester, Leicestershire and the east midlands. The east midlands accounts for almost 30 per cent. of all the textile jobs and about 40 per cent. of all the footwear jobs in this country.

The hon. Member for Harborough (Sir J. Farr) and I have spoken about these two industries in many debates. The hon. Gentleman is chairman of the all- party textile committee. He knows very well what has happened over the past months and years, because he and I constantly have to react at local level to the devastating cuts in jobs in those industries. I was present to hear the hon. Gentleman's speech, and I must say that I agree with his view that there should be immediate cuts in the level of interest that industry pays on the money that it borrows from the banks. Those in footwear and textiles believe that only in that way can they cling to what is left of their industries.

Since 1979, footwear and textile employment nationally has fallen by some 46 per cent. That represents the loss of 203,000 employees--15,000 per year, nearly 1,500 per month, 75 per working day or around 10 every hour. By the time the debate on the Gracious Speech is over, still more jobs will have been lost in those two basic industries. My plea today is that the Government should look favourably on the industries because a favourable climate and favourable conditions are necessary to generate business for the kind of enterprise of which they are made up. The manufacturers' plea is that they simply cannot cope with the large number of imports that are coming into Britain. I recently obtained a list of aid given by the Turkish Government to the Turkish textile industry. A maximum of 40 to 50 per cent. is available in grant aid, depending on the geographical location. In respect of customs duty or VAT, exemptions are granted for the importation of fixed assets where those assets are used in the textile industry. In terms of investment incentives, up to 100 per cent. of corporate tax relief is available in the year of investment, and 40 per cent. thereafter. In terms of subsidised finance, 11-year loans are normally granted at subsidised interest

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rates and with four-year periods of grace. That is the kind of support that other countries give these two very important industries.

In Leicester and the east midlands, the industries do not want special treatment. They realise that they are private companies that need to compete, but they want to be able to compete fairly, and the way in which the Government have managed--or mismanaged--the economy has meant that they have suffered especially severely.

The knock-on effect is devastating. The closure of factories such as Corahs and Kemptons, in my constituency and in the constituency of the hon. Member for Harborough, have left whole families devastated. The history of the city of Leicester--and, indeed, the history of Nottingham and other east midlands cities--is enmeshed in the history of the footwear and textile industries. If the present trend, and the present rate of job loss, continue, in a decade and a half, there will be no footwear and textile industries left in Leicester. That is our serious message for the Government and the Leader of the House. I know that my hon. Friend the Member for Copeland is eager to give us a summary of what has happened over the past six days, but I wish, none the less, to make a short plea about the banking system. It would be strange, after all, if I did not mention the Bank of Credit and Commerce International. The closure of the bank on 2 December and its liquidation will result in billions of pounds of lost export orders and will have the knock-on effect of causing more job losses and affecting a large number of depositors.

There are 40,000 BCCI depositors in this country. Some of them are sterling depositors, but the majority are non-sterling depositors. Nine hundred members of staff have lost their jobs over the past four months.

The depositors protection association has produced a Bill today, and it has sent copies to several hon. Members. Indeed, I understand that a copy has been sent to the Chancellor of the Exchequer. If the Government adopt that Bill as part of their legislative programme, that will benefit our economy.

In a modest way, that Bill would amend the Banking Act 1987 to raise the amount of money to be given to depositors when the deposit protection fund is triggered. The current limit of 75 per cent. of £20,000 is not sufficient. The Bill suggests that the figure should be raised to 75 per cent. of £75,000. The Bill's other main thrust is to ensure that non- sterling deposits are covered. That would be a direct benefit to the reputation to the City of London, because we have been very worried about the number of overseas investors who have threatened to withdraw their money from Britain because of the mean protection provided under the deposit protection legislation. As I said, some things never change. I have spoken for a minute longer than I spoke last year. My one comfort is that next year I will be speaking not from the Opposition Back Benches, but from the Government Back Benches. Instead of making the last but one speech, my hon. Friend the Member for Copeland will be the Leader of the House and he will make the final speech. By this time next year, we will have a Labour Government.

9.11 pm

Mr. Quentin Davies (Stamford and Spalding) : In my brief political life, I have experienced few things more unedifying than the sight and sound over the past few weeks of Labour Members hoping desperately that,

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despite everything, somehow the recovery of the economy can be postponed, and scratching around frantically trying to find a nugget of bad news about the British economy. That will do them little good. When the general election comes, the recovery in the economy will be palpable and incontrovertible and the British electorate, as before, will take a view of the Government's record as a whole over the past 12 or 13 years. As has been recognised internationally, that record has been remarkable by international standards.

The British people will also look for policies that give them confidence in the future. There are some striking contrasts between our policies and those of the Labour party in economic and other areas. For example, the Labour party remains as it has been throughout its history--the party of high and higher taxation. We are committed over time to a reduction in the tax burden on the economy. With regard to industrial relations, the Labour party appears to have learnt so little from its unhappy experiences of the 1970s. Labour is once again committed to reversing several crucial aspects of our trade union reforms, including the banning of secondary picketing.

We have already examined the minimum wage on many occasions in the House. There can be few policies so utterly perverse as the minimum wage. It is certain to bring substantial economic damage to the country, and it will not benefit those whom it is designed to help because since those people are, by definition, on the lowest incomes, they are beneficiaries of family credit and that would simply be reduced pound for pound in line with the minimum wage.

Above all, one great contrast between ourselves and the Labour party concerns inflation. That contrast has been made clear this evening. The Labour party never even mentions inflation. That is the most revealing point of all. Once again today, my right hon. Friend the Chancellor made an absolutely explicit commitment to achieve and to maintain price stability. My right hon. Friend, in his first speech as Prime Minister, made it absolutely clear that the central priority was to defeat inflation.

We never hear about inflation from the Opposition. All we hear about are policies that they have devised without taking account of the risks of inflation which inevitably would ensue if their policies were adopted--that is, their policies of higher borrowing, higher spending, and deliberately increasing the cost of industry, for example through the minimum wage proposals. The British people simply will not fall for that.

Inflation is a terrible scourge. It has a terrible human cost--a cost to those on fixed incomes and to those on private sector pensions which are not index linked. Inflation is a very cruel scourge for those most defenceless sections of the population. It also has a major social cost. Inflation inevitably causes everyone to panic because their real incomes are being eroded with every day, week and month that goes by. In a desperate attempt somehow to defend their real income, people find themselves almost forced into militancy and strife and into competitive strikes and competitive demands for increases in nominal wages to keep up with the terrible inflation that they are suffering. Socially, inflation is an extremely divisive and destructive disease.

Of course, inflation has fundamental economic costs. The fundamental economic costs that are referred to generally in text books concern the fact that inflation erodes the effectiveness of the price mechanism. Beyond that, it fundamentally changes the savings pattern of

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people in the private and household sector. It means that no longer are people induced to invest in productive assets. They are looking for stores of value that will somehow hold their real value despite inflation. We suddenly find people investing in residential property, real estate of various kinds, gold, works of art and

antiques--anything--but not in productive assets. Also, of course, inflation increases uncertainty in the economy.

Labour Front-Bench Members are not enjoying this, because they are rightly embarrassed by what I am saying. They have not even begun to address the dangers of inflation. They realise that that is an Achilles' heel of their policies, which will mean that they will be completely incredible during the general election.

Hon. Members are apparently agreed on the need for investment. We all talk about investment. I say "apparently" because the Opposition's policies would not generate a climate that is favourable to investment. Inflation is highly destructive, because investment depends on relative certainty or on a reduction in uncertainty within which investment decisions are taken. Anything that increases risk reduces the inducement to invest. Inflation creates a climate of uncertainty. It means that anybody who proposes to invest must look for even higher prospective returns to justify the enhanced risk. The Government have recently taken two vital measures to reduce the risk surrounding investment decisions. The decision to join the exchange rate mechanism has effectively fixed the parity and has reduced the uncertainty of one of the major variables in investment decisions--the exchange rate. Anything that produces the danger of a revival of the hyperinflation that we saw under previous Labour Governments would, as automatically as night follows day, lead people not to invest who might otherwise do so. Hyperinflation would undermine the confidence of industry upon which this country's prosperity ultimately depends.

Nothing has been more revealing throughout the debate than the fact that the Opposition have not said anything to give the slightest sign that they have any understanding of the dangers of inflation. That lesson will be learned by those outside the House who listen to our debates and it will be taken into account when they come to take their important electoral decision next year.

9.20 pm

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