House of Commons Hansard Debates for 5 Dec 1991

Mr. Lamont : As the right hon. and learned Gentleman knows, a recession is defined as falling output. Total output has ceased to fall and it rose in the third quarter. In that sense, technically, the recession has ended, as I have said publicly before.

Mr. George Foulkes (Carrick, Cumnock and Doon Valley) rose --

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

There are good reasons for believing that growth will gather momentum during coming months. Real incomes have been rising, consumer expenditure will increase as the full impact of lower interest rates works through to demand and, as world growth picks up, exports will increase further.

The right hon. and learned Member for Monklands, East and his hon. Friends seem confused. Today the right hon. and learned Gentleman talks of nothing but recession ; in September, he absentmindedly started to use the word "recovery". Not only that, he and his right hon. Friend the Leader of the Opposition were so alarmed at some of the accounts appearing in the newspapers that the Leader of the Opposition said that Britain was heading for a short-lived boom fuelled by consumer credit. Which is it, recession or boom? The right hon. and learned Gentleman should have made up his mind.

Even during a boom, firms fail and people lose jobs--so it is not surprising that, as the economy emerges from recession, the right hon. and learned Gentleman always manages to come up with plenty of gloomy quotes, but his picture is highly selective. He should listen to the words of those who know far better than he does what is going on in the economy. Professor Doug McWilliams, chief economic adviser to the Confederation of British Industry, agrees that the economy "is edging up slowly." The president of the Association of British Chambers of Commerce said :

"Commerce and industry is on the road to recovery."

Even in the depressed housing market, the chief executive of Abbey National says that the worst is over.

The right hon. and learned Gentleman says that I am wrong, but does he think that all those people are wrong as well? He went on about retail sales again this afternoon, but they rose in the third quarter. It is true, as he said, that they fell back in October. Instead of talking so much about how bad business is, he should listen to some people in business.

Mr. Desmond Pitcher, the chief executive of Littlewoods, said : "I am sure we have turned the corner."

Mr. Colin Evans, deputy chairman of Austin Reed, said : "I believe the turnround has arrived."

The CBI's last survey of the retail trade said that the "slow upturn in retail sales is now starting to gather momentum."

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That does not mean that all retailers view the position in the same way and that all retailers are experiencing the same conditions. Clearly, there are business men who believe that conditions are improving.

In the months ahead, there will be weeks when the figures are encouraging and weeks when they will be less so. Does the right hon. and learned Gentleman seriously think that the way to run the economy is to try to manage demand, quarter by quarter and week by week, changing our policy as each new statistic is published? What sort of stability is that for industry?

Mr Foulkes : As the Chancellor knows, I am a simple sort of soul. I do not know all the professors and chief executives to whom he refers. Every week I spend Friday, Saturday, Sunday and Monday in my constituency. I talk to the textile manufacturers, who tell me that they are in a slump. I talk to the motor sales men, who tell me that things are pretty bad. I talk to all of the people in my constituency, people who see the reality of rising unemployment--then I come back to the House and hear an entirely different story, divorced from reality, from the Chancellor. Does not he think that it might improve his credibility if he were to admit what is really happening outside, and say what he intends to do to resolve the problem?

Mr. Lamont : I am sorry that I gave way to the hon. Gentleman. He is not such a simple soul--only a bit of one. His intervention would have been more telling if he had commented on some of the facts and statistics that I have given. He made no attempt to reply to those. The right hon. and learned Member for Monklands, East wrote me a letter last week--I have it here somewhere--calling for what he referred to as a "change of economic course". What change of course is he suggesting? Today he offered nothing in the way of serious policy proposals. He talked a great deal about recession, but did not say what alternative policies he would pursue, apart from training. What is this mysterious change of course that he keeps talking about? He implies that it exists, but he does not specify, or tell anybody, what it is. At the time of the Budget, the right hon. and learned Gentleman refused to say what his tax policies were. Now he tells me to change course. What does he want? Now is the time for him to tell us. Does he think that taxation is too high or too low?

At the time of the autumn statement, I asked him whether he thought that public expenditure was too high or too low. He asks us to change course, but what does he want? He will not say. I asked him a few weeks ago if Government borrowing was too high or too low or just about right. He calls for a change of course, but he will not tell us what he thinks the three main levers of policy--spending, taxation and borrowing--should be or how they should be used differently. He will not tell us because he has not got a clue.

Conservative Members have learnt the folly of fine-tuning, even if the right hon. and learned Gentleman has not. The sort of quick fix that he implies exists does not exist and could only undermine stability for business. It would encourage the illusion that Governments know best, that Governments produce economic recovery. As the history of Labour Governments shows only too well, attempts to pump up demand in response to short-term statistics end only in disaster. Businesses generate economic growth and prosperity. That is why we say that

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the Government must stick to doing what only they can do--providing the framework within which businesses can plan and invest in the expectation of a sustained recovery, something that never happened and never could happen under Labour.

The Government have kept control of public spending ; under Labour, it ate up almost half the nation's wealth. The Government have cut taxation rates. We now have the lowest corporation tax rates in the Community and among the G7 countries. That is why we get more inward investment than anywhere else in Europe. All Labour wants to do is to put up taxes again. The Government take a long-term view of measures to promote competitiveness. We cut unnecessary regulation and help markets to work better.

The right hon. and learned Gentleman wants to smother business in bureaucracy and restore trade union power. The Government have brought inflation down--it is now 3.7 per cent., half the lowest rate that the last Labour Government ever achieved. Most important of all, by joining the exchange rate mechanism and sticking to its disciplines, the Government have demonstrated their determination to keep inflation down to levels comparable with the best in Europe. Above all, it is our determination to secure low inflation that is laying the foundations for sustained recovery. Retail price inflation is down by two thirds. Underlying inflation, which never rose as high, has fallen less dramatically, but will fall further during the coming year. Factory gate inflation has fallen even faster than expected and by the end of the year should be down to the lowest level in more than 20 years.

As usual, the right hon. and learned Gentleman managed to go through a speech on the economy without mentioning inflation, exactly as his right hon. Friend the Leader of the Opposition did in his interminably long speech at the Labour party conference. There was not a word on inflation. We have been trying to get inflation down. All that the right hon. and learned Gentleman does is to try to get everyone down. His refusal to accept that the defeat of inflation must be the first priority--and, what is more, his refusal to understand and support the measures necessary to deal with inflation--would have led us to a far deeper and more damaging recession.

No matter what the level of interest rates, for years the right hon. and learned Gentleman has been arguing for a cut. In October 1990, when inflation was 11 per cent., he was calling for interest rate cuts. In October 1987, when interest rates were 9.5 per cent., he called for interest rate cuts. In March 1988, when interest rates were 8.5 per cent.-- many people with hindsight believe that they were too low--he called for interest rate cuts. The right hon. and learned Gentleman proclaims his undying devotion to the ERM, but has never stopped him calling for interest rates to be cut further and faster. He never fails to choose soft options and easy answers. If I had taken his advice, it is all too clear what would have happened to the pound in the last few weeks.

In July, when the right hon. and learned Gentleman was asked about the effect on sterling of his policies, he made this extraordinary remark to "Newsnight" :

"All I would have to do is pick up the phone and talk to someone on first name terms."

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I wonder who that would be. I have been thinking about it. One can imagine the conversation, "Allo Jacques, is that you? How are things in Brussels? Listen Jacques, I've got a bit of a problem here. Can you help? Yes, I know you had to bail us out last week, but the colleagues keep spending it--yes, all of it. Yes, I'm sorry Jacques". But even the right hon. and learned Gentleman must have realised that first name terms might not deliver the goods-- [Interruption.] Two weeks ago he seemed to be having doubts about his own abilities because he said, in answer to a similar question, that before doing anything, he would have to take advice. A lawyer's cry. Advice from whom? I can give him some advice, though I do not think he will thank me for it. His death-bed conversion to monetary prudence will not convince anybody, least of all the foreign exchange markets. They have heard him week in, week out talking of lower interest rates. The truth is that his policies inevitably would have led to higher inflation and higher unemployment in the long run.

Mr. A. J. Beith (Berwick-upon-Tweed) : Does the Chancellor see much prospect for lower interest rates in the coming months? Is he prepared, if necessary, to allow higher interest rates if there is pressure on sterling?

Mr. Lamont : The hon. Gentleman knows that I never comment on the trend of interest rates--[ Hon. Members :-- "Answer."] I will answer his question by saying that we shall do whatever is necessary to sustain the pound's position.

Mrs. Dunwoody rose --

Mr. Lamont : I have given way several times.

The one policy that the right hon. and learned Gentleman always puts forward in answer to every problem, short term or long term, is training and investment. That is the one phrase he always uses. He became rather cross when, in a previous debate, I compared him with a parrot which knew only that one phrase--training and investment. Whatever the question, the answer is always the same from the right hon. and learned Gentleman-- training and investment. When he was asked on the radio the other day how he would keep inflation down, he replied :

"We need a programme of investment and training."

In another broadcast, he said that the United Kingdom was in a poor competitive position, and he gave as his remedy more money for training and investment. When asked how he would keep the pound in the ERM, he replied that it would be done through

"a programme of investment and training."

When asked how Britain would be able to be ready for monetary union, he replied :

"A programme of training and investment, of course."

The right hon. learned Gentleman's letter to me last week called for action to initiate a programme of training and investment. That really will not do. He has refused to answer questions about taxing, spending and borrowing. We know why he refers to training and investment--because it is less embarrassing than talking about the things that other people want to talk about. Someone at some time should let him in on the secret that next year we shall be spending over two and a half times as much in real terms on training, enterprise and vocational education as in 1978-79.

Perhaps someone will tell the right hon. and learned Gentleman that employers' training expenditure is now

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running at record levels and that under the Conservatives the share of our total resources going into investment has reached record levels, far above anything achieved under Labour. Even with a fall in investment--and it always falls in recessions--the investment-GDP ratio will be far higher this year than at any point under the last Labour Government.

The truth is that the right hon. and learned Gentleman's much-vaunted programme for training and investment would only make it more difficult for business to train and invest. How would he pay for it? His hon. Friend the Member for Derby, South (Mrs. Beckett) tells us that the Labour party has only two spending commitments--increasing pensions and child benefit.

"Everything else is regarded as a desirable aim",

she tells us, and will have to be paid for "as resources allow" out of economic growth. So there we have it--Labour's main policy to create growth will have to wait until there is growth. Under Labour it would be a very long wait indeed.

Where will the right hon. and learned Gentleman find the money to finance the training and investment? He has talked in the past of financial incentives and tax credits, but he knows, or he should know, that one business's tax break is another business's tax increase. We have reduced corporation tax from Labour's 52 per cent. to 33 per cent. He would have to put the rate up again. He would be taxing away the money that businesses already use to finance training and investment.

The right hon. and learned Gentleman always forgets that people invest in the hope of making profits, but does he ever talk about making profits--not in our hearing. In the 1980s, profitability increased markedly. The result was that, contrary to the famous prediction that the right hon. and learned Gentleman made in 1985, business men invested on a vast scale. Business investment under Labour increased by barely 1 per cent. a year ; under the Conservatives it has grown by over 2.5 per cent. a year. Despite the recession, business investment in plant and machinery is 50 per cent. higher than in 1979 and business investment will rise again next year as profitability recovers. Who is the right hon. and learned Gentleman to talk about investment? As I say, it is easier for him to talk about investment and training than more difficult issues such as taxing and spending.

Another point to which the right hon. and learned Gentleman never refers is the fact that the best way to get more investment is to have more savings. That is one of the first things students learn in economics, though not, apparently, in the Labour party. The more we save, the more investment we can have and the more interest rates can be lowered. We have had 10 years of cutting taxes on savings. What a contrast to the position of Labour Members, who still refer to income from savings as unearned income ; they believe in taxing it as heavily as possible.

The Labour party wants to introduce a new tax on savings, disguised as national insurance contributions. That proposal, together with all of Labour's other tax increases, would slash the return on savings. As a result, savings would fall and so would investment. A Labour Government would end up, as they did before, with a miserable investment performance. As always, there is a yawning gulf between rhetoric and reality. In every area, the right hon. and learned Gentleman is determined to repeat the mistakes of his predecessors.

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Nowhere is that more true than on public expenditure. All over the country the right hon. and learned Gentleman's colleagues have been pledging extra spending--£35 billion worth of pledges at the last count, and still rising. Who is to pay for it? That is the key question. We do not know, they will not answer, they do not have an answer and they never will have an answer. There is a gaping hole in Labour's accounts, the same hole which last time they filled first by borrowing and then by running to the International Monetary Fund. At the last election, at least the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) was frank and honest. He told basic taxpayers where they stood--that they would be hit hard with higher rates. This time, the right hon. and learned Member for Monklands, East talks mysteriously only of new tax bands. We are told that they would not make basic-rate taxpayers worse off. What on earth is the point of introducing bands if they are not to take money from some people and give it to others? We do not get any answers.

On economic and monetary union, it is the same story. Is Labour in favour of a single currency? We have had no answer--or rather, we have had two answers, yes and no. Labour's leader opposes the opt-out clause that we want, but its shadow Chancellor refuses to make a commitment to a single currency. They think that things are better seen in perspective--facing both ways.

The Opposition called this debate on the economy today. I am more than happy to respond by expressing the confidence of the Government that the policies that we are following are right. Is not it extraordinary for the Opposition to use one of their parliamentary days to call for a change of course, then advance scarcely a single positive proposal or suggestion in the debate? Is not it amazing that they come to the House crying loudly for what the right hon. and learned Gentleman called in his letter a "change of course", without being able to give the slightest detail on that change of course or how the Labour party would make such a change? Perhaps it is all training and investment.

We know what a change of course really means. We have cut tax rates, controlled public borrowing, reduced inflation and brought down interest rates. The Opposition would change course all right--they would put up taxes, borrowing, inflation and, ultimately, interest rates, too. They are not only devoid of positive policy proposals for economic success, they actively hope for economic failure. They will be disappointed, and no amount of gloom, depression and hand wringing will stop the recovery gathering momentum. That recovery will be produced by policies that are clear, consistent and firm, not diverted or abandoned because of each passing statistic ; policies designed to ensure sustainable growth in the future, on the firm base of stable, low inflation. Every hon. Member knows that those policies are right.

The only threat to renewed growth would be a return to office of a party that is reckless with inflation and profligate with taxpayers' money. Britain's economic recovery can survive the cultivated gloom of a Labour Opposition, but it certainly could not survive a Labour Government. That is why we shall continue with policies that have created the opportunity for renewed growth and increased prosperity. Our policies have laid the foundations for recovery and they deserve the support of the House.

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5.30 pm

Mr. Robert Sheldon (Ashton-under-Lyne) : There were two surprises in the Chancellor of the Exchequer's speech, but the one that struck me most was that he wants more saving. There seems to be some schizophrenia, because I understood that the Government's policy was to encourage people to spend, that they wanted a consumption boomlet that would last until the election. The right hon. Gentleman now says that that is not what was in his mind--that he is really trying to reconcile what he has been saying for many years.

It is unwise to make comparisons with past predictions, because in 1979 the Government increased VAT from 8 to 15 per cent., saying that it would not increase prices. I found that astonishing then, and I still find it astonishing. We need reasonable forecasts, not because we expect them to provide blueprints for the future but because they provide a guide so that policies can be changed. The Government, however, see the trends and continue to make the same forecasts. If they were realistic, they would admit that they need to change their policies, as my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) has proposed.

The Financial Secretary to the Treasury (Mr. Francis Maude) : What can we understand the right hon. Gentleman to be proposing?

Mr. Sheldon : I shall come on to that in great detail. I shall go into greater detail than my right hon. and learned Friend the Member for Monklands, East had a chance to do on the kinds of investment that can be produced, rather than the consumption boom which the Chancellor hopes for.

The debate is intended to bring the Government to account. They must account for their management of the economy. Naturally, I do not expect the apologists on the Government Front Bench to criticise the Government's policies, still less to condemn their actions. However, some of them might have had it in them to refrain from congratulating the Government on delivering the two worst recessions of the post-war years.

How did the implementers of the monetarist nonsense which brought about the first recession manage to produce a second recession? The Government came to office in 1979, when my constituency, Ashton-under-Lyne, was a manufacturing area with a level of prosperity higher than the national average. It earned its living then, as it does now, by making things, and it had many small to medium firms.

It used to have less unemployment than the regional or national average. In the district that embraces both my constituency and Stockport, there were 20,000 skilled engineers, many of whom were made unemployed. Today, there are no longer 20,000 but 5,000. At a time when skills are in demand, they have been wantonly discarded. That is why my right hon. and learned Friend continually puts forward those proposals, and he has the full support of the companies in my area, which understand those problems.

In the two years 1979-81, one third of the firms in my constituency closed. That was a devastating blow from which the constituency is struggling to recover. My right hon. Friend is right to talk about the industrial capacity being too low to produce the recovery we need. It is a long-term, essential and immediate job to bring industrial capacity back to what it should be. I have never forgiven

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the Government for what they did to my constituency in those two years. The good medium and high-tech firms all flourished in Germany, Japan and the United States--indeed, in all countries. They had a good past and a reasonable future, but they were ruined by the highest interest rates this century and an unrealistic exchange rate, which lost them export markets and provided further competition in their home markets.

We now have the present long-lived recession, which is a further injury to deal with. It will be some time before I have the figures to show how serious the second recession has been--how many firms have closed, how many jobs have been irrevocably lost, and how the finances of the survivors have suffered. However, I know of repeated pleas for action and the despair of so many small firms, one of which resulted in yet another suicide of someone whom I knew, resulting from business failure. Meanwhile, closures of important firms continue. There is no question of a weeding-out process. Many are firms that expanded and invested with no expectation of 15 per cent. interest rates. Even prudent companies' reasonable expectations have been destroyed by the Government's actions.

The Chancellor gives selective statistics, but I suppose that all our statistics are, to an extent, selective. I visit many manufacturing companies and ask them about the state of their order books. I do not ask what hopes or expectations they have, or what they are dreaming of, but what they are experiencing. There is no question but that firms that expect recovery do not lay off workers. Firms that are hopeful about the future do not take such measures. Therefore, the rising levels of unemployment are a direct consequence of what those firms are experiencing, not what they are hoping for. That should be of concern to the Chancellor.

In such circumstances, it is effrontery that my right hon. and learned Friend the Member for Monklands, East and my hon. Friend the Member for Derby, South (Mrs. Beckett) should be attacked for what they might do, instead of the Government being brought to account for what they have done and continue to do. Opposition Members want to return to common-sense methods of running the economy, encouraging investment and skills.

When I hear the attacks on that modest, even cautious, and certainly prudent programme, I must compare it with the gross waste of public money in which the Government have indulged. They spent billions of pounds on the nightmare of the poll tax, and millions of pounds were lost to the taxpayer when they sold off publicly owned assets at well below valuation. In fact, some of them were not even valued, so anxious were the Government to get rid of them. They waste our public services, and essential repairs are not carried out. The fabric of our schools, public buildings and roads store up bigger and bigger bills for the future.

Meanwhile, the Government are busy opting out of industrial policy. I recently asked Lord King of British Airways about his decision to buy Boeing aircraft and United States General Electric aero engines--not only that, but the fact that he was giving them a foothold in Britain at the expense of Rolls-Royce. I asked him what he had told the Department of Trade and Industry, and he said that he had said nothing. I was astonished, and thought that he had misunderstood my question. I asked what the DTI officials had said, and he said that they had told him nothing. I could not believe that, but he confirmed it openly and readily.

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If the Department of Trade and Industry is dealing with one of the most important companies in our country, it should hold a view on what that firm should do or how it might be helped to overcome its problems. I am not talking only about the position in countries such as Germany or Japan, but about second or third-world countries. We are dealing with the issue of investment and the necessity for it--which, I regret to say, the Chancellor of the Exchequer did not seem to understand.

The Confederation of British Industry has come round and is now talking about 40 per cent. capital allowances. I do not think that that is enough, but I am delighted that my right hon. Friends have again and again spoken of the necessity for plant and machinery. We must recreate the industrial structure that we once had and wantonly destroyed.

Mr. Tim Smith (Beaconsfield) : Does not the right hon. Gentleman appreciate that, if we were to return to 100 per cent. capital allowances-- which I think he may want--it could have a damaging effect on the quality of investment decisions, which are at present made for good, sound, commercial reasons? When I worked in industry in the 1970s, people took investment decisions for tax reasons, which are the wrong reasons for taking such decisions.

Mr. Sheldon : There is no doubt that the best way to invest is with the intention of selling more of the goods that come from those investments, and receiving a greater return on them. However, does the present level of 25 per cent. provide a level playing field? I do not believe that it does. Anyone who buys a piece of plant and machinery and tries to sell it back to the manufacturer at 75 per cent. at the end of the first year will be laughed at, because the value will then be much less--in some cases it will not even cover the commission of the salesman who organised the sale. That provides not an incentive to invest but a disincentive--a penalty. I understand why the Government call for neutrality, but the present position is far from neutral. I am in favour of some incentive beyond that represented by depreciation, because new methods tend to encourage new ideas of production, which is so important.

Again and again, I hear people say that it is a pity that we who produced the great ideas of the world did not actually manufacture their consequences. The feeling is that we had the idea, which was the crucial element, and anybody could manufacture the product, but that is not true. The great skill of Japanese and German manufacturers is that they know how to make things efficiently and well, which is what we are so bad at. Manufacturing requires the necessary industrial investment to transform the ideas into the articles that can be sold in the keenest markets. We must be more than neutral, but at present we are not even that.

Meanwhile, the Government are busy opting out of industrial policy. I asked Lord King of British Airways about the decision to buy Boeing aircraft and United States General Electric aero engines, giving that company a foothold in Britain at the expense of Rolls-Royce. We must turn our attention to that. When industry takes such decisions, the DTI must be involved and must know what is going on. I am not even sure that the Department's officials knew, but if they did, and they took no action, they are culpable in the extreme.

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Mr. John Watts (Slough) : Will the right hon. Gentleman explain to the House more clearly what sort of involvement he would expect from the DTI? Should it twist the arm of British Airways? Should the company have been subsidised with taxpayers' money in order to buy a British product? What sort of distortion of the market is he recommending?

Mr. Sheldon : The market is being distorted : if General Electric wants to come into this country, it gives a price concession which damages one of this country's crucial companies. The DTI should at least have investigated the issue and asked questions. Its officials may not have come to exactly the same conclusions as I did, but they should have tried to find out. If they had agreed with British Airways, I could understand that they might have left the issue alone, but they might have come to different conclusions and taken different action. However, the Government leave it to the financial operations of others, and meanwhile the economy is run on the basis that one might be able to regulate but not to promote. I totally disagree.

We are now hearing that our outlook is so bad that we had better leave it to an independent central bank to decide the important aspects of our future. I find it strange that people with whom I have been associated should now accept that independent bankers control so much of our destiny. I would expect them to be more cautious. People point to the success of the German Bundesbank as a sign of the strength of the German economy. It is nothing of the sort. It is not the cause of German economic strength, but the consequence. Mercedes-Benz, Siemens and Bayer do not owe their success to the Bundesbank : the Bundesbank owes its strength to German industrial progress. Germany found itself facing an expansionist Europe and a booming industry. The strength of Germany derives from the skills of people in industry. It did not matter that so much plant and machinery, and so many factories, were destroyed in the war, because the skills of the people were not destroyed ; they remained, to recreate the industrial strength which we once again admire and respect. That is the task facing us.

When my right hon. and learned Friend the Member for Monklands, East rightly speaks of the essential nature of skills, training and investment, he has it exactly right. It is terrible that, for 45 years, we have not done that--that is the scandal of our time. It is about time that we started to realise that the financial centre of London is not the key to our success. I do not deny that it plays an important part, but the key to our strength is our industrial might. I find our love affair with the banking profession curious. From being the bogey of bankers, we are becoming the bankers' friend. I have played my part in defending the role of banks and the necessary role that they have, but I find myself a little outflanked by the new enthusiasm. If British industry were in the same powerful position as German industry, I might be a little more relaxed about economic monetary union, but I am worried about the time at which we are entering into new commitments.

The urge for an independent central bank and a proposed Euro central bank comes at a particularly dangerous time, when recessions, depressions and even a slump cannot be ruled out. We could be legislating well into the next century. Nobody can say that depressions were something peculiar to the 1930s. At times,

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Government intervention is required. This could be a time when Franklin Roosevelt's new deal, hated by bankers, could come into its own. It is a time for the Governments to act together to take charge of economics for the sake of the citizens that they, and only they, can represent.

I used to hold that an international depression was impossible because, faced with an economic catastrophe, the bankers, people and Governments would overcome their differences and co-operate with Keynesian methods to end such a disaster. There are goals other than conquering inflation. The Government and our times rightly attach great importance to conquering inflation, but it is not the only aim of a successful economy. Following the German inflation of the 1920s, there was enormous unemployment and the rise of Hitler. Nazism was the result not of inflation, but of the counter- inflationary measures that did so much damage. The trouble was that they voted against the large numbers of unemployed and voted for Fascist and Nazi Governments.

In 1945, the Bank of England was nationalised with some Conservative support because of the way it had handled the depression. Independence of the central bank would restore its power. I always thought that, if an international crisis similar to that of the 1930s were to recur, there would be international agreement to control such events. I cannot be sure now that that would happen. With a Eurobank, I would be even less sure.

My right hon. Friend the Member for Leeds, East (Mr. Healey) once told the Governor of the Bank of England that the latter had the better job. I do not think that he was joking. The power of day-to-day decision-making, even in a nationalised bank, is underestimated. How much greater would be the power of the Eurobank. Of course we cannot be excluded from progress within the Community. We must accept our position in the Community, which will lead to a greater alignment between us, but the main solution to our economic problems lies in ourselves. It lies in our will, determination and good industrial sense, wherein the Government have been found seriously lacking.

5.50 pm

Sir William Clark (Croydon, South) : It is always a pleasure to follow the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). We have all listened to his speech with great interest. He certainly convinced me, and I am sure the rest of the House, that he is diametrically opposed to a central bank. In those circumstances, he seems to be at variance with his own Front Bench spokesmen. I do not know whether that is a serious matter, but given the right hon. Gentleman's experience and standing, I should have thought that the Opposition Front Bench spokesmen would take careful notice of what he says.

The right hon. Gentleman spoke about his constituency. I agree that many jobs, particularly in manufacturing industry, have been lost since 1979, but one must remember that there was a great deal of overmanning in 1979. For example, in 1979 the steel industry employed roughly twice the number of people that it does now, producing the same amount of steel. That in itself meant that we took over an uncompetitive company. In order for it to remain competitive, jobs had to be shed.

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Politicians often succumb to the danger of talking down the economy. For example, if a Gallup poll goes against the Government, sterling starts to shake. Equally, when Labour politicians talk down the economy, saying how bad it is, that has an effect on the foreigner. Therefore, I hope that they can be persuaded to stop. As my right hon. Friend the Chancellor said, the latest reports of the Institute of Directors and the CBI show that they are not pessimistic about the economy. In fact, they say that the increase in confidence has been the highest for some years. The chambers of commerce are not pessimistic. It does the economy no good for the Opposition continually to talk it down. Never once does one hear the Opposition say that, since 1981, manufacturing output is up 25 per cent., manufacturing investment is up by 33 per cent., and manufacturing production is up by more than 50 per cent.

Dr. John Marek (Wrexham) : The Government took office in 1979.

Sir William Clark : If the hon. Gentleman just thinks about what he is saying, he will realise that it takes a Government one or two years to bring the economy round. The economy cannot change overnight. It is ridiculous to suggest otherwise.

The Opposition never mention manufacturing exports, which are up 75 per cent. since 1981. The export of motor cars in the past nine months is 90 per cent. higher than last year. Those are all pointers for the economy. Why do we not start talking about some of our successes?

Mrs. Dunwoody : Would the right hon. Gentleman therefore care to suggest what I should say to those 420 workers in Rolls-Royce who have been ejected from their jobs with scant courtesy and with no idea why it has happened, who have all the skills required for building motor cars and are not to be given the chance to do so?

Sir William Clark : I fully sympathise with the hon. Lady's constituents, but one must face the facts of life : in a recession, and coming out of a recession, jobs are always being lost. In the third quarter of this year, our exports rose by 1 per cent. That is something that we should be talking about. There is a slowdown in destocking. Many manufacturing industries have been destocking during the past few years but now that is slowing down. That in itself is a sign that we are coming out of the recession. In the third quarter of this year, pay settlements were down from an average of 10 per cent. to an average of 6.5 per cent. In manufacturing industry, pay settlements were down from an average of 9 per cent. to 5.5 per cent. Those are all steps in the right direction to make us more competitive ; and if we are more competitive, we can obviously sell more of our goods.

As my right hon. Friend the Chancellor reminded the right hon. and learned Member for Monklands, East (Mr. Smith), he did not mention inflation once. He did not say that our inflation rate had been 10.9 per cent. and was now down to 3.7 per cent. It is just a little above that of Germany, but it is well below the EC average. Consequently, it is forecast that in 1992 our inflation rate will be below even the German average, which at the moment is 3.5 per cent.

In order to give people more confidence rather than surrounding them with gloom and doom, we should point

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out that, since 1979, GDP has risen 22 per cent. in real terms. There are 800,000 more jobs now than there were in 1979. The net income of an average family, a husband and wife with two children, is up by 37 per cent. in real terms.

Our corporation tax, which has already been mentioned, is the lowest in the EC. It is the lowest in the G7 countries. It has come down from 52 per cent. under the previous Labour Government to 33 per cent. now. Income tax has dropped from 33 per cent. to 25 per cent., and the top rate, a penal rate of 83 per cent., is down to 40 per cent. The investment income surcharge, which we abolished, had a top rate of 98 per cent.

The economy is also assisted by separate tax assessments for husband and wife. In many cases, that has given the family an added incentive and advantage.

Public expenditure is under control. In 1979, it was 44 per cent. It is now down to just over 40 per cent. Up to last year, we had repaid £26 billion of the national debt. That is unheard of. It is true that this year we have a public sector borrowing requirement of about £10 billion or £10.5 billion, but with the strength of sterling and of previous national sector repayments, borrowing, and debt, that is something we can meet.

I want to make a few suggestions to my right hon. and learned Friend the Chief Secretary about small businesses. Many of the new firms that started were under-capitalised and so went to the wall, but the net number has increased by many hundreds of thousands since 1979. One of the snags that confronts small businesses in particular is that of cash flow. They have orders--although perhaps not as many as they had--but also cash flow problems, because the companies they supply do not pay their bills on time.

It is time that the Government considered a system such as that operated by some of our retail stores. If one has an account at Harrods, for example, and does not pay one's bill by a certain date, a mandatory rate of interest is immediately added to the total.

Mr. Beith : Harrods does that?

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