House of Commons Hansard Debates for 5 Dec 1991

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I am not sure how one does that, but I am quoting exactly what the Prime Minister said, and it must be right because it is in The Daily Telegraph. He went on :

"Anecdotally you look around you, you find lots of those For Sale boards now have Sold stickers on them."

To help the comprehension of the readers of The Daily Telegraph, there are photographs of signs with "Sold" stickers on some of them.

Mr. Den Dover (Chorley) : The right hon. and learned Gentleman says that signs of recovery are hard to find. Can he explain why unemployment in Chorley has gone down in the past two months and why several of the builders are doing very well?

Mr. Smith : The hon. Gentleman should look at the figures for the country as a whole. If he does so, he will find that that is not an encouraging sign. Some 850,000 people have been put out of work in the past 18 months and that is the figure about which the hon. Gentleman should think. If we are conquering the unemployment problem, why do vacancies keep falling? Vacancies have fallen again from 106, 000 to 103,000. There are now 24 claimants chasing every notified vacancy and the number of vacancies in Greater London has almost halved, leaving a remarkable 84 claimants for each vacancy. Anyone who thinks that that is a satisfactory state of affairs has a lack of ambition for our economic success.

I return to the Prime Minister and the "Sold" signs all over the area at which he looks anecdotally. At this point one wonders what world the Prime Minister lives in, as repossessions mount to a record level, projected to be 100,000 in this year alone, and as the housing market remains wholly depressed.

No doubt encouraged by the Prime Minister's reassuring anecdotal ventures, the Chancellor continued into the early autumn promising recovery around the corner. He told the Financial Times in an interview on 16 September :

"Britain is coming out of recession. The statistics are highly encouraging and pointing very much in the right direction." A month later, at the Conservative party conference in Blackpool, the Chancellor told the Tory faithful :

"the green shoots of economic spring are appearing once again". I must bring the House rapidly up to date.

Interviewed by Mr. Walden last Sunday, the Chancellor appeared to be sadly bereft of statistics or even of anecdotal sightings of recovery. Rather lamely, he claimed :

"I have never changed my view about how I saw the path of the recovery so far things have turned out very much as I expected". In what I find an astonishing backtrack, he then told Mr. Walden : "We are not assuming, in our view of the future, that there will be a great and sudden revival necessarily of the housing market we are not assuming that housing is leading the economy out of the recession on this occasion".

The words "on this occasion" should be translated as "in this interview". It was precisely the housing market in which the Chancellor claimed to detect the "vague" and faint "stirrings" which led the Prime Minister off on his anecdotal trail.

Will the Chancellor now admit that what he said in June on TV-am about "vague stirrings" in the housing market and what the Prime Minister told us about "Sold" signs everywhere was rubbish then, as it is rubbish now?

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What is most revealing is that if we accept that Ministers believed what they said at the time, they were woefully ignorant of the catastrophic effect that their policies were having on the housing market and on the construction industry generally.

Ministers appear to have no concept of the mortgage misery and the consequent alarming surge in repossessions and lost homes, which are the direct result of their economic mismanagement. The collapse in the construction industry simply cannot be talked away. I noticed an article by Mr. Andrew Taylor in today's Financial Times which said :

"Bad news continues to pour out of the sector with no sign of the recession loosening its grip on residential and commercial property markets."

The article quotes Sir Clifford Chetwood, chairman of Wimpey, Britain's second largest housebuilder, as saying :

"I have been in the industry 42 years. These are the worst conditions I have experienced."

The article goes on :

"Tarmac, the country's biggest housebuilder, said this week that trading conditions had deteriorated substantially during the last two months."

That is, the "last two months" in which recovery is supposed to be happening before our very eyes. Where are the encouraging statistics which are pointing very much in the right direction?

In his Mansion House speech given this year at the Guildhall, the Chancellor told us that the good news was that

"In Britain we are now on the road to recovery. Retail sales are on an upward trend."

The Chancellor felt so strongly about that matter that he waxed indignant in our previous debate. Indeed, he challenged me to withdraw my sceptical remarks about his statistical justification. Unfortunately for the Chancellor, since that debate the release of the latest figures for October shows a 0.5 per cent. fall in retail sales for the month, a 0.3 per cent. fall for the August-October quarter over the previous quarter, and even a 0.3 per cent. fall compared with the equivalent period a year ago. On 19 November, the Financial Times reported :

"The Treasury agreed that sales had been flat for the last three months."

It quoted a Treasury spokesman as saying :

"On the face of it the figures are a bit of a disappointment." We cannot look for recovery in that quarter--certainly if the Treasury assures us that it is not happening.

Construction is a disaster and retail sales are poor. What about industry? The Government claim that we should be encouraged by a 0.3 per cent. rise in GDP in the third quarter, a rise which has occurred exclusively, as they well know, because of the full resumption of North sea oil production after a period of interruption. However, in the onshore economy, non-oil GDP continued to contract by 0.3 per cent., with manufacturing flat and services falling. Over the past three months--sad to say--both the value and volume of exports have declined, and manufacturing output, which constitutes about a quarter of our GDP, has barely moved since April. Car production in October fell by 27 per cent. and sales of new cars plunged by 22.5 per cent. in the same month.

Perhaps the most worrying feature of all is the alarming growth in liquidations and the rise in unemployment. The Association of British Chambers of Commerce revealed last week that companies are going out of business at a faster rate than at any time in the past five years. Dun and Bradstreet tell us that, in the first nine months of this year,

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business failures are running at a rate of 930 per week--a 70 per cent. increase over the previous year and the largest increase for 11 years. Other alarming figures, from the real economy in which our constituents live, are that, in the past 18 months, unemployment has soared by 850,000 and 100,000 homes are being repossessed this year alone.

Against that tragic background, is it any wonder that consumer confidence has been slipping in successive months ever

downwards--September down on August, October down on September, and November down on October? I agree, none the less, with the Chancellor on one point. In his Budget wind-up speech, he said :

"It is better to put the facts before Parliament and the country."--[ Official Report, 25 March 1991 ; Vol. 188, c. 698.] In the absence of candour from the Government, that is just what this debate is about.

Mr. Peter Thurnham (Bolton, North-East) : The right hon. and learned Gentleman has mentioned putting the facts before Parliament and the country. Will he put the facts before the country about Labour's spending pledges? Will he comment on the remarks of the right hon. Member for Manchester, Gorton (Mr. Kaufman), who said that he would increase overseas aid to 0.7 per cent., which would cost £2.3 billion? How does that square with Beckett's law that only old-age pensions and child benefit would go up?

Mr. Smith : I can understand the hon. Gentleman's anxiety to talk about almost anything except the recession. I have made our spending plans clear on innumerable occasions. We are discussing--I really must keep in order--the recession from which this country is suffering, even if there is a disinclination among those responsible for it to want it discussed in Parliament.

I ask the Chancellor how he can conceivably justify his claim earlier this year that the recession would be over "somewhere around the end of the second quarter." That is to say in the middle of this year. There is no doubt that he claimed that, and there is no doubt that that has not happened. Here we are, approaching the end of the fourth quarter, and the very best that one can say is that we are bumping along the bottom of a deep and damaging recession. That is all too clearly understood by those at the sharp end in industry, commerce and finance, as well as by our constitutents.

The repeated claims of recovery around the corner, which are not fulfilled and which have been the Chancellor's stock-in-trade month after month, have fatally damaged his credibility and that of the Government as a whole. Indeed, the Chancellor's efforts are now regarded as risible as well as incredible. At the recent royal variety performance, Mr. David Frost, who was compering the proceedings, told the company that the Chancellor could at last give a completely firm forecast of when the recovery would occur-- he said that it would happen definitely in the fifth quarter of the year. That statement has some aptness, because Mr. David Frost elicited the "vague" and "faint" stirrings that the Chancellor detected in the housing market.

What is deeply disturbing for Parliament and for the country is the "wait and see" attitude, which is the Government's substitute for a policy for recovery from recession. They hope for a consumer-led recovery. Indeed, on 4 June, the Chancellor told the OECD conference in Paris :

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

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Many people might think that high interest rates led us into the recession, but I let that point pass for the moment.

In the Walden interview, the Chancellor even seemed to lose confidence in that hoped-for salvation. On the retreat once again, he said :

"We are looking for part of the recovery to come from consumer demand, but by no means all It does take time"

--we have heard that before--

"what we need is what Disraeli once called the alchemy of time." Intrigued by that reference to alchemy, which I did not think was all that honourable an occupation, I consulted "Collins English Dictionary", which I have in the office. According to that dictionary, alchemy--alchemy of time is what we are relying on--is

"the pseudo-scientific predecessor of chemistry that sought a method of transmuting base metals into gold : an elixir to prolong life indefinitely : a panacea"--

it is hardly believable--

"or universal remedy."

The Chancellor was being even more percipient than he realised. The truth is that, after 12 years in power and with an election fast approaching, the Government are merely hoping that something will turn up. In no sense is that an economic policy for this country. What we need surely is an investment-led recovery which recognises the fast-approaching challenge in the form of the single market after 1992 and which seeks to rebuild the industrial capacity on which this country depends. Over the Conservative years, we have seen the persistent reduction in the capacity of our manufacturing sector, which, after all--we repeat it endlessly, but it is a fundamental truth about our economy which should be appreciated by the Conservative party--is our fundamental wealth creator and the indispensable internationally tradeable part of our economy. For a country which has a tendency both to inflation and a balance of payments deficit, the overriding objective of policy must be to enlarge our capacity to produce the goods that customers wish to buy, both at home and abroad. That is exactly what is not happening now.

Mr. Phillip Oppenheim (Amber Valley) : The right hon. and learned Gentleman is correct to say that manufacturing is important, but is he aware that, according to the OECD's six-monthly series figures, manufacturing output fell under the last Labour Government, whereas it has risen by a quarter under this Government and rose faster in this country in the 1980s than in any other major country in Europe? Will he cast his mind back to the time when his party last implemented its industrial policy-- when British Leyland was the butt of international jokes ; when British Airways was rated beneath Aeroflot and when British Steel was the world's largest loss maker? As the right hon. and learned Gentleman has never manufactured anything except dodgy policies, how can he do any better?

Mr. Smith : As he often does, the hon. Gentleman has once again traded in bogus statistics. He is quite wrong about that--

Mr. Oppenheim : No.

Mr. Smith : As I recollect it, manufacturing investment is now lower in real terms than in 1979, which is pretty well the end of that argument.

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We do not have an investment-led recovery now--

Mr. Oppenheim : The right hon. and learned Gentleman is denying OECD figures.

Mr. Smith : To show that that is not just a view that is held uniquely by the Opposition, I shall quote from the National Institute Economic Review of May 1991, which argued--in my view, persuasively--that

"the loss of manufacturing capacity in the early nineteen eighties must be partly to blame for the overheating of the economy at the end of the decade and the consequential problem of inflation and payments imbalance. It's only too likely that the present recession will create the conditions for just the same kind of overheating to occur again sometime in the nineteen nineties if nothing is done to compensate".

So what is being done to compensate? Seemingly nothing. Let us take the projections for investment, the very life blood of economic development. After a dramatic fall this year in gross fixed investment, which the Chancellor conceded in his autumn statement to be almost 11 per cent., the consensus of economic forecasts, which was helpfully compiled by the Treasury, shows an even further fall in gross fixed investment next year. According to the International Monetary Fund, the United Kingdom will be bottom of the investment league of the G7 countries next year and, according to the Confederation of British Industry, manufacturing investment, which is already falling this year by around 15 per cent., is expected to fall again next year by almost 4.5 per cent.

However, in this situation, the Government do not propose any action to bridge the investment gap. We appeal to them, before even more damage is done, to reconsider their rejection of the case for fiscal incentives to encourage company investment in manufacturing by increasing capital allowances and by introducing tax credits for research annd development expenditure to stimulate the adoption of new technologies in British industry. Those proposals are backed--

Mr. David Shaw (Dover) : Will the right hon. and learned Gentleman give way?

Mr. Smith : I am sorry, but I have given way frequently and I really must get on.

Those proposals are backed by a wide consensus in industry. The excellent House of Lords report, "Innovation in Manufacturing Industry" of January this year, argued strongly for the principle of such fiscal incentives. It is also supported, as the Chancellor well knows, in Budget submission after Budget submission by the Engineering Employers Federation, the CBI and the Trades Union Congress. I have no doubt that, in anticipation of next year's Budget, the representations will be resumed with even more urgency than before as our industrial situation deteriorates even further. I hope that the Chancellor does not, on this occasion, turn a deaf ear. What is galling for our industry is that, allegedly in the name of creating a level playing field, the present Government have created a situation in which, in the context of international competition, our industry has to play uphill in both halves against competitors whose Governments specifically encourage industrial investment. I make no apology for once again urging the compelling case for a new approach to education and training. In "Training Statistics 1991"--the Chancellor seems to find this amusing, but the skills shortage is the most serious problem that this country faces and should not be a subject for amusement. "Training Statistics 1991", issued recently

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by the Department of Employment, again reveals the astonishing prevalence of serious skills shortages even at a time of severe recession and high unemployment. It takes a bit of believing, but in the past 12 months, according to the Department of Employment, 24 per cent. of all enterprises reported skills shortages. The figure rose to 41 per cent. in high technology sectors, such as mechanical engineering.

The amount of training that employers are planning to provide has fallen dramatically. The balance of large manufacturing firms plans has become negative, falling by a staggering 67 per cent. between October 1989 and July 1991, with a balance of 20 per cent. of those firms planning to decrease training in the next 12 months. That is further evidence of the baleful effect of savage recession on industrial companies which are forced to cut essential investment and essential training simply to survive. According to the Government's own report, fewer than half the participants in employment training complete the course ; 55 per cent. go straight back into unemployment ; and only 23 per cent. find a full-time job at the end of it. That is no doubt why the Treasury quarrelled with the Department of Employment about giving it more money for schemes that achieve such poor results.

Perhaps most damning of all are the international comparisons. Our weakness in developing intermediate skills is starkly revealed in a paper by the National Institute of Economic and Social Research, which was published in January this year. It shows that, in Britain, 31 per cent. of technical workers in manufacturing had no vocational qualifications. In Germany, the figure was only 8 per cent. At higher levels of qualification, only 14 per cent. of British technicians were qualified, while in Germany the figure was 36 per cent. It is absolutely clear that to compete, against Germany and others, in the single market after 1992 and in the world of constant technological change, those investment and training gaps must be closed. The Government can no longer shuffle off responsibility for training on to companies, particularly companies that have been debilitated by the recession. The Labour party believes that it is in the necessary marriage of technology and training and in the continuous enhancement of investment, particularly in manufacturing, that we can find the way forward to the competitive and productive economy that alone can guarantee our economic progress and support our standard of living.

As is often said, it is quite true that we need a recovery of confidence before we will see an end to recession. The Opposition believe that such confidence can be secured and maintained only by an investment-led recovery. Once this country starts investing in enlarging its industrial capacity, in enhancing its technological capability, and in developing the skills of our people, there will be a sound basis for self-confidence in our economic future. There is no sign whatsoever that this Government and this Chancellor comprehend those realities. That is why, after 12 years of failure, they will soon be relieved of the responsibilities of government.

4.47 pm

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

"welcomes Mr. Chancellor of the Exchequer's Autumn Statement, which reaffirmed the Government's forecast of a

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modest recovery in the second half of 1991, with growth gathering pace in 1992 ; notes that the total output of the British economy rose in the third quarter of 1991, providing further confirmation of this forecast ; and congratulates the Government on its sound and prudent economic policies, which have reduced inflation from nearly 11 per cent. to under 4 per cent, have allowed interest rates to be reduced from 15 per cent. to 10 per cent, and have laid the foundations for sustained non-inflationary growth.".

After four days of not always very exciting negotiations in Brussels, it is a great pleasure to return to the light entertainment that is provided by the right hon. and learned Member for Monklands, East (Mr. Smith). As usual, he has given an assortment of selective quotations and short-term statistics. If he has any constructive thoughts about the economy, he is determined to keep them firmly to himself. He has not offered the House any policies--he never does, and he never will. He knows that, as each month goes by and as the economy moves out of recession, the Labour party's position will become more difficult. He is desperate to talk down the British economy, but his opportunities are fast fading.

Much of the right hon. and learned Gentleman's speech dealt with forecasts. He told the House of the Government's stunning inability to foresee even the immediate future, but the right hon. and learned Gentleman himself has a bit of a past at forecasting. He, too, has a track record. In fact, his speech today bore an extraordinary resemblance to the speech that he made on 12 November 1984, when he forecast that unemployment

"will go on rising relentlessly and remorselessly."--[ Official Report, 12 November 1984 ; Vol. 67, c. 435.]

In March 1985 he said :

"So long as the Tory Government remain in office, unemployment will continue to rise".--[ Official Report, 11 March 1985 ; Vol. 75, c. 104.]

What happened after that brilliant forecast? Over the next four years unemployment fell by more than a million.

Dr. John Cunningham (Copeland) : It has risen again.

Mr. Lamont : It is lower today than it was when the right hon. and learned Gentleman made his point.

The OECD said :

"Between 1984 and 1990, the UK had by far the best job creation record of the larger EC countries".

So much for the right hon Gentleman's forecast.

Mrs. Gwyneth Dunwoody (Crewe and Nantwich) : Will the Chancellor give way?

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

Far from being able to forecast the future, the right hon. and learned Gentleman has shown that he is singularly unable to forecast either the past or the present. In the same speech in March 1985 he was unable to do it. He said that he was amazed to be told that we were in the fourth year of economic recovery. What was happening? Between 1982 and 1985 growth had been running at more than 3 per cent. a year and the economy carried on growing for another four years after that. Not only did the right hon. and learned Gentleman not know where we were going ; he did not even know where we had been. So much for his ability to forecast. What about the favourite subject of the right hon. and learned Gentleman, to which he returns in every speech--investment? On 12 November 1985 he predicted that, "there will be a temporary upward blip in the figures. However, from 1987 onwards there will be a return to the downward trend."--[ Official Report, 12 November 1985 ; Vol. 86, c. 467.]

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That was an extraordinarily precise prediction, one might think, from someone who is so meticulous in his determination never to say anything. What happened? In 1987, 1988 and 1989 there was an unprecedented investment boom in Britain. Some downward trend! Even today, manufacturing investment is running at levels higher than those achieved in 1986. In view of those forecasts, is the right hon. and learned Gentleman in any position to give anyone lessons in forecasting? He does not even bother to make new mistakes ; he just repeats the same ones that he has made before.

Mr. Robert Sheldon (Ashton-under-Lyne) : While we are talking about the past and the nature of precise predictions, will the Chancellor recall the precise predictions that were made in 1985 about the way in which the money supply would diminish over the years and inflation would follow correspondingly year by year? The figures were precise--7 per cent., 6 per cent., 5 per cent., 4 per cent., year by year. That was the nonsense of all time.

Mr. Lamont : From the early 1980s inflation fell. The right hon. Gentleman knows that perfectly well. Inflation fell markedly and it has fallen again.

The right hon. and learned Member for Monklands, East and his hon. Friends have talked in the past of a recession made in Downing street. That is the phrase often used by the hon. Member for Dunfermline, East (Mr. Brown). My right hon. Friend the Prime Minister and I must have more influence than we thought because, as the right hon. and learned Gentleman knows only too well, throughout the industrialised world 1991 has been a year of either falling industrial growth or recession. Even in Germany industrial production is falling. Indeed, industrial production has fallen in the past year in every G7 country. The United States, Australia and Canada have been in recession for much of the past year. In Europe, Sweden, Switzerland and Finland are all in recession, while in turn growth is now slowing and unemployment is rising across much of the rest of Europe.

Overall, 1991 is likely to show the weakest growth in the world economy in a decade. We know that Opposition Members are still locked in their isolationist world. It is wilful ignorance to imagine that that factor could have no impact on the United Kingdom. Of course, the last year has been a difficult one for the British economy. Some sectors and many individual businesses have been badly hit. However, the right hon. and learned Gentleman's portrait of ever-deepening recession is fiction.

In my Budget statement last March, I forecast that growth would resume in the second half of the year. So far, the economy has developed in line with that prediction, so when I presented the autumn statement a few weeks ago there was no need whatever to depart significantly from my Budget forecast. I have no reason to revise my view that GDP will show a modest increase in the second half of this year and that recovery will accelerate next year. That is what I said in the Budget and in the autumn statement. That is what I say now.

Mr. Giles Radice (Durham, North) : The Chancellor mentioned what is happening on the continent. Does he remember that the Governor of the Bank of England told the Select Committee that our recession was home grown?

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In view of the right hon. Gentleman's optimistic forecast, will he tell the House whether he believes that there will be a credit crunch this winter?

Mr. Lamont : I do not believe that there are reasons for thinking that there will be a credit crunch, if by that the hon. Gentleman means the inability of British banks, because of capital inadequacy, to meet the demands of borrowers, I do not believe that that is the position in Britain. Britain is better positioned in that respect than many other countries. I have demonstrated to the House that many countries are in recession and many countries are experiencing slowing industrial production. That plainly affects the world economy and the growth of world trade.

The right hon. and learned Member for Monklands, East did his best to suggest that my forecast for next year was over-optimistic, but my view is broadly shared by independent forecasters. Over half of the main City forecasters believe that growth in 1992 will be 2 per cent. or more and so do organisations as diverse as the National Institute of Economic and Social Research, the International Monetary Fund and the European Commission. The IMF forecasts that we will grow as fast or faster than Germany or France in 1992.

As for this year, the right hon. and learned Gentleman did his best to present my views and those of independent forecasters who support my views as unrealistic. However, he admitted that no one has ever suggested that we would see fast growth at this stage. In virtually every speech and public appearance that I have made since the Budget, I have made it clear that growth would be modest at first and that business conditions would remain difficult in some sectors for a while. I understand the frustration and impatience of business men who would like to see demand picking up more quickly, but it is simply not normal for the economy to move instantly from recession to speedy growth. Current conditions are exactly what one would expect to see at the turning point between recession and recovery. Mixed signals are inevitable but there are signs that the fall in output is behind us.

Industrial production rose by more than 1 per cent. in the third quarter. That was a larger increase than in the United States, Japan, Germany, Italy or France and larger than in all the G7 countries other than Canada. As one of my hon. Friends said, the rise in unemployment in October was the smallest for over a year. Unemployment fell in the north and Wales and fell in Scotland for the second month running.

Manufacturing investment, in which the right hon. and learned Gentleman claims to be so interested, rose in the third quarter for the first time in a year. Companies increased their stocks in the third quarter, again for the first time in a year. The narrow definition of money has moved into the upper half of its target range, again for the first time in a year. Manufactured exports are running at record levels and business surveys show that output, export and investment expectations are all up. After falling by 1 per cent. in the second quarter of this year, GDP rose by 0.3 per cent. in the third quarter. However the right hon. and learned Gentleman seeks to explain that away, it was the first time in a year that the total output of the whole economy had risen. Industrial production also rose in that quarter compared with the previous quarter, and by

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a larger amount than in other G7 countries. That fully justifies some of the remarks that I made in both the Budget and the autumn statement.

Mr. John Smith : Does the right hon. Gentleman accept that, as is reported in The Independent , he said in Washington on 29 April of this year that the recession would be over

"somewhere around the end of the second quarter"?

Is he saying that the recession is now over?

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