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Sir William Clark : Yes, it does--if one does not pay within the stipulated time.
When a small company arranges to supply a bigger client, settlement terms of, say, 30 days may be agreed. Once that period is exceeded, a mandatory rate of interest should automatically be added. The small supplier would then not be in the hands of his bank. As it is, his overdraft increases, and so do the interest charges, at two or three points over base. That penalty should be paid by the firms which owe money to a smaller business.
I also want to point out that the Trades Union Congress, with 6.5 million members, has six representatives on the National Economic Development Council ; the National Federation of Self Employed and Small Businesses, with 5 million members, has none. I believe that organisation ought to be represented.
As to the capital allowance, I was interested in the point made by the hon. Member for Ashton-under-Lyne, and I agree with the comments made by my hon. Friend the Member for Beaconsfield (Mr. Smith) in his intervention. One hundred per cent. capital allowances could lead to investment decisions being made entirely for tax reasons. What else could be done? At present, a 25 per cent. reduction is given on a reducing basis. In terms of cash flow, it takes a business man eight or nine years to get his money back on any machinery, for example, that he buys.
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Would it not be easier to offer a straight- line reduction, giving 25 per cent. capital allowance over four years? That way, a business man making an investment would know that he would get his money back within four years.I hope that my right hon. and learned Friend will consider that suggestion. It would not cost the Exchequer anything more the first year, because a 25 per cent. allowance is already given. Only in the second year, when the allowance currently is 25 per cent. of 75 per cent., would any difference arise.
Mr. Sheldon : I am delighted that the right hon. Gentleman has come up with some further suggestions. There are probably many more. However, perhaps he could be more generous, given the present need for investment, and allow for a limited period, such as that which operated when the right hon. Member for Blaby (Mr. Lawson) was Chancellor. An allowance period shorter than the four years mentioned by the right hon. Gentleman might have an immediate and useful effect.
Sir William Clark : That is worth considering, but I am not completely sold on that idea. My right hon. Friend the Member for Blaby (Mr. Lawson) reduced corporation tax to 35 per cent., but at the same time he took away the 100 per cent. allowance. In that way, despite the fact that a company lost the capital allowance on the excess on its investment, it gained on the reduction in corporation tax, from--I believe it was--42 per cent. to 35 per cent.
During his 30-minute speech, the hon. and learned Member for Monklands, East did not once say where the money for his proposals--other than those on training and investment--would come from. Neither did he refute the two commitments made by the hon. Member for Derby, South (Mrs. Beckett) in respect of pensions and child benefit. Will Labour fulfil the £35 billion of pledges being given by its spokesmen throughout the country? I understand that is a conservative estimate.
Mr. Austin Mitchell (Great Grimsby) : It would be.
Sir William Clark : I meant, with a small c, in that some economists attach a higher figure to the cost of implementing those pledges.
There can be no doubt that, if Labour's pledges are implemented, even an increase in taxation from 40 per cent. to 49 per cent. would not produce enough revenue to pay for them. The ordinary person would inevitably be affected. Every person in this country earning between £10,000 and £30,000 would, if Labour implemented all its pledges, be worse off. Anyone earning more than £30,000 would be severely worse off.
Mrs. Margaret Beckett (Derby, South) : The hon. Gentleman knows that we have answered that point many times, but I cannot let it pass. We have made it explicitly clear that none of the changes that we propose, either in tax or in national insurance contributions, will make a penny difference to any individual earning less than £21, 000 a year. No one earning less than £21,000 will pay a penny more under us.
Sir William Clark : Rhetoric and promises are all right, but if Labour's pledges are to be honoured, there is no question but that the ordinary taxpayer will be affected--or that some of those pledges will have to be reneged upon. It is as simple as that.
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I have no doubt that, as my right hon. Friend the Chancellor said, Britain is coming out of the recession. The recovery is slow and patchy, but the policy is sound-- [Interruption.] Labour Members who laugh and snigger at such remarks ought to ask themselves why it is that Britain of all the countries in Europe has the most inward investment from overseas investors.Mr. Austin Mitchell : Because Britain offers them cheap labour.
Sir William Clark : That is simply untrue.
I agree with my right hon. and learned Friend the Chief Secretary that the British economy is basically sound. Our gold and dollar reserves are sound, and we can look forward with confidence to the future--provided that there is no change of Government.
6.10 pm
Mr. A. J. Beith (Berwick-upon-Tweed) : I was glad to hear the right hon. Member for Croydon, South (Sir W. Clark) reiterate his support for measures to help small businesses, in particular over the late repayment of debt. This is something for which my hon. Friends and I have pressed for some time. I hope that the right hon. Gentleman's call will be heeded by those on his own Front Bench, because it would be an extremely helpful and valuable measure.
The fairest statement that I have seen recently of the prospects of recovery was the one in the Greenwell Montagu Recovery Watch bulletin a few days ago. It said :
"The balance of evidence over the last month has been towards continued recession. Shafts of light from company statements and bullish confidence surveys are outweighed by gloomy economic data and depressing anecdotal evidence."
One can make one's own judgment a little to one side or the other of that. There is a mixture of indicators, but on the whole the adverse indicators seem heavier and more serious than the favourable ones, many of which are things such as confidence surveys, which do not tell one very much about what will happen.
We must, surely, eventually get to recovery, but we have been waiting for it for a long time. The Chancellor has been waiting for Father Christmas since the spring, and I do not think that Father Christmas will arrive for him before 25 December. Worse than that from the Government's point of view, I do not think that he will arrive in time for the general election.
The Government are laying great stress on the possibility of a consumer-led recovery. That is perhaps the area in which they are least believed by those closest to the reality of retailing and the experience of consumers. The Government produced in the autumn statement a graph of consumer confidence. It is the first time, as far as I can see, that what is in effect an opinion poll has found its way into the autumn statement. It is a bit like taking a poll of general election candidates asking them to state in public whether they think that they will win. Of course, they all say that they will win. How many meetings have we all been to, all of us in all parties, at which the candidate has said that he looks forward to winning? Consumer confidence is not all that far from that, but, from the retailer's point of view, it does not pay the staff wages. The people in the street outside may tell the market researchers that they are more confident than they were six months
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ago, but that does not take them into the shop, put their money over the counter or pay the staff wages of the retailer.The Government do not seem to realise how severely consumers have been affected by the experience of recession. That is the factor that the Government are not considering. Consumers who saw their commitments enlarge so dramatically as a result of higher interest rates, who found themselves over-committed, and then found themselves unemployed and even less able to meet those commitments, will not rush out and spend money even if they have more of it. They are credit-wary, because their experience of credit has been a very adverse one in recent times. The Government fatally underestimate how very chastened many consumers are by the harsh experience of the last couple of years.
The main driving force of a consumer-led boom would have to be improvement in the housing market. That is where so much of the consumer boom of the 1980s came from. There is massive equity withdrawal from housing. There is no sign of that recovery in the housing market. That is perhaps the weakest of all the indicators on which the Government seek to rely. However hopeful we may be, however much we may snatch at the more encouraging indicators, we cannot look forward with any great confidence to a consumer recovery.
Mr. Tim Smith : Chart 2.7 in the autumn statement shows consumer confidence. It also shows that, since 1974, before every increase in consumer spending there has been an increase in consumer confidence--that the one always follows the other. What reason is there to suppose that this will not happen this time?
Mr. Beith : The reason that I just gave, which is the experience of recession. But I am prepared to wait and see. I advise the Government, however, not to take an indication of confidence as the same thing as money over the counter. One could never run any business on that basis.
Another danger which the Government face in the coming months is that of post-Maastricht pressures on sterling. There is considerable evidence that markets are expecting a realignment following the Maastricht negotiations and that there will be downward pressure on sterling, testing the Chancellor's resolve over interest rates. I believe that there is a strong likelihood that markets will seek to test that resolve. Nobody in the markets seems to believe that the Chancellor dare put up interest rates this side of the general election. Indeed, I have defended the Chancellor in some conversations on this very subject with people in these fields. I have said that I think that he might and they have all said that of course he will not ; he dare not, they say, there is no way that he will put up interest rates this side of the general election. My touching faith in the Chancellor's resolve and commitment to anti-inflation policy was ridiculed by those with whom I had this discussion, who were obviously much more deeply cynical than I am. I have to warn the Chancellor that there is a widespread belief that he is not at all likely to take the measures that might prove necessary if intervention is insufficient to stem severe downward pressure on sterling in the coming months.
All this adds up to the likelihood that the Government cannot sort out the economy in the very short term and certainly cannot do so this side of the general election ; they
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cannot generate the feeling of happiness and cheerfulness about the economy which parties traditionally rely upon to win general elections. I think that that is impossible. I do not think that any incoming party with any set of policies could turn the economy around over the next six months. It is a much longer-term task than that. My plea to the Government, therefore, is that they concentrate on what they can do, and that is to improve the long-term prospects for the economy. If they fiddle around with the short-term situation that will not enable them to win ; it will not enable them to get a better general election performance. They might get at least some credit if they were seen to be laying better long-term foundations for the economy. They must, at the same time, provide some immediate help to the main sufferers, particularly the unemployed, and take measures designed to reduce unemployment by investment in those areas which can produce some reduction in unemployment. I am thinking particularly of repairs in schools and housing, which can generate some employment.The Government must get on with addressing the long-term solutions. One of these is, of course, the single currency. Our whole attitude to this is fundamental to the future of our economy. What an admission to make after 12 years of Conservative government that our economy is uniquely incapable of being signed up for participation in a single currency. That is one of the principal arguments of those on the Government Benches who say that we should not sign up, that we cannot say at this stage whether we are capable, as an economy, of participating without damage in a single currency. That is a terrible indictment of 12 years of Conservative government.
The alternative to participating in a single currency is higher interest rates in this country than within that currency. The opt-out clause which the Government have so anxiously sought, the clause that would enable Britain uniquely to opt out of participation in a single currency, is a health warning on the British economy. It is a label attached to the British economy which says, "Warning : This is the United Kingdom economy ; we reserve the right to devalue our currency. If you invest here, your money may lose its value, your products cannot be reliably priced for trade across Europe ; you may face high transaction costs ; and you may not get the full benefits of a single market." That is the label which the opters- out wish to attach to the British economy.
Mr. Alan Williams (Swansea, West) : In that case, how does the hon. Gentleman explain how, under both the Labour Government and the Conservative Government, inward investment has been at its peak when there has been a floating currency, where that has been a possibility?
Mr. Beith : The right hon. Gentleman must address himself to the new situation which is developing and in which there will be a single currency. I believe that, if we are not participants in it, it will be severely damaging to inward investment. In the case of a Japanese company wishing to invest in this country, whereas hitherto the attractions of the United Kingdom economy, along with the English language, which is important in Japanese investment, have been significant, for the future we are issuing a warning to the Japanese investor to be careful ; he may not be able to price across Europe in the future, he may experience high interest rates in this country and he may find it much harder to trade into the Community,
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because if we are not participating in the single currency we may not get all the benefits of the single market either. This is a warning which the Government must heed. It is not a label which I want to see attached to the British economy.Sir Ian Stewart (Hertfordshire, North) : What the hon. Gentleman has said is an absolute travesty of the position taken by the Government and, as far as I know, by the official Opposition as well.
The reason why it is considered so important that we should not make a commitment at this stage to join a single currency is that a single currency would involve not only a single central bank but single economic management and a commitment by the Government and people of this country to subsidise, if necessary, the trade deficit of Italy, the budget deficits of other countries and the different standards of living. That would be a major constitutional and economic decision which we could not possibly take here and now. That is the reason why that option has to be kept open. It has nothing to do with the arguments which the hon. Gentleman has put forward.
Mr. Beith : The right hon. Gentleman has not been listening to his hon. Friends. Unlike the Prime Minister, I am prepared to have a referendum on this fundamental constitutional issue. I am prepared to let the people of this country decide.
The right hon. Gentleman mentioned the independent central bank, which I believe is part of the long-term anti-inflation policy. It was significant that the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) expressed two views--that an independent central bank was a bad thing, and that there are worse problems than inflation. Inflation has been at the root of many of the worst economic problems that we have faced, and was certainly at the root of the problems in pre-war Germany, to which the right hon. Gentleman referred. The Chancellor has clearly got the message about how an independent central bank would have to work if we had a single currency. He said :
"But the European central bank in stage 3 would have to be free to set interest rates without interference."
Significantly, he said :
"That is the view of every member state. In a Community of 12 countries, it simply would not be practical for 12 Finance Ministers to intervene in the monetary policy decisions of the central bank."--[ Official Report, 21 November 1991 ; Vol. 199, c. 516-17.] It is Government policy that if we have a single currency there can be no interference with the setting of monetary policy by the central bank. That is a significant step forward in Government policy. I accept that it is conditional on the decision to participate in a single currency, but I hope that Conservative Members have noted that the necessity of an independent central bank to such a system is accepted by the Government and other member states.
For the long-term benefit of the economy, the Government should invest to ensure that we have an adequate public transport system to move people to and from places of work without massive environmental pollution and to move goods. Our record compared with France, for example on the channel tunnel, is deeply depressing.
The Government should invest in housing to encourage labour mobility, and in training and education, which the Chancellor sought to ridicule as if they were unimportant.
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It is fair to point our that training and education were one of the few positive points that the right hon. and learned Member for Monklands, East (Mr. Smith) made. They are extremely important and, as the right hon. and learned Gentleman said, a frequent cry of industry and business is that those needs are not being met. The Government should consider the genuine promotion of competition. The fiddling little Competition and Service (Utilities) Bill, which is being considered in Committee, does not address the need to promote competition in the economy, particularly among the massive privatised utilities that the Government have created. We have made proposals on the break-up of British Gas and British Telecom that are designed to promote competition, which the Government have not begun to do.The Government must consider corporation tax and not simply brush it aside. I do not share the confidence of the right hon. and learned Member for Monklands, East in investment incentives. They run considerable risks of distorting investment decisions. It might be more productive to guarantee a stable tax environment for business by indexing corporation tax allowances, for example, so that business could predict with reasonable accuracy what its tax liability would be. In the long term, that might be a more effective way of encouraging investment than some of the short-term proposals that we have heard today.
The Government must establish the constitutional framework for stable and decentralised government. The Federal Republic of Germany has had both because of its electoral system and the decentralised way in which so much of Germany is governed, where many decisions are taken by the regions. Such changes would be to the long-term good of the United Kingdom's economy.
My advice to the Government is that they cannot sort out the problem this side of a general election, so why not get on with the job of laying the long-term foundations for a successful economy? There might be some credit for that.
6.24 pm
Sir Peter Hordern (Horsham) : I have just finished reading Roy Jenkins's memoirs, which I commend to you, Mr. Deputy Speaker. They are most civilised, and are rather like reading about Marie Antoinette in the French revolution : all elegance amid disaster. One would not dream that he was giving an account of the first visit to the International Monetary Fund.
More recently, in his excellent memoirs, Edmund Dell an admirable person, I always thought--gave an account of his stewardship as Chief Secretary under the previous Labour Government. As he was in charge of public expenditure, it might help the hon. Member for Derby, South (Mrs. Beckett) to read what he said. He said that there had been "No comparable example of such intellectual and political incoherence in a party coming into office. They had no economic policy except a social contract' of obeying trades unions which was worse than codswallop and an industrial policy that politicians should tell industrialists how to be industrial, which could not be taken seriously yet had to be taken seriously."
We all know where the Labour party's policies landed us then--the collapse of the economy and our
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infrastructure and a high Cuban-like tax regime. The basic rate of tax was 33 per cent., the top rate was 83 per cent. and tax on investment income was 98 per cent.We are told that Labour has learnt its lesson, but the leaders of the previous Labour Government were highly intelligent, well-meaning people. All of them had firsts at Oxford and one never would have thought that they could make such a mess of the economy.
I wonder whether the Labour party has learnt its lesson. The hon. Member for Derby, South has said that there will be higher taxes to pay for higher pensions and higher child benefit. But is there not to be more money for training? Did not the right hon. and learned Member for Monklands, East (Mr. Smith) tell us that there will be more money for training? Did I not hear that there will be more money for the national health service? Were we not told that the Government are spending £6 billion too little on the NHS?
Mrs. Beckett : Those are the BMA's figures, not ours.
Sir Peter Hordern : So the hon. Lady disagrees with the BMA's figures.
Mrs. Beckett : The BMA is giving its impression of the level of underspending. It may be right. We have not committed ourselves to restoring that underspending, nor are we in a position to do so.
Sir Peter Hordern : That is helpful, because it is now clear that the Labour party has no assurances of increasing expenditure on the national health service--contrary to the impression that it has been giving.
Nationalisation of the water authorities is deeply embedded in Labour's policy. It will cost quite a lot to do that. We do not know how much, but Labour will inherit the capital expenditure programme of all the water authorities. When the authorities were nationalised, total capital expenditure was £8 billion. Today, it is £28 billion. Instead of being financed by borrowing and the private sector, it will count as part of the public sector borrowing requirement. I do not know what the PSBR will be next year, but some estimates suggest that it will be as much as £20 billion. If we add a further £28 billion, what does the Labour party think that will do to its credibility as a potential Government? It would represent such an enormous increase in borrowing as to make its policy incredible. If the hon. Member for Derby, South would like to correct me, I shall happily give way. The hon. Lady is not prepared to deny the figures. Taking the capital expenditure programme of the water authorities, the PSBR will be almost £50 billion.
It is hard to understand, therefore, why the Labour party should be so enthusiastic for a single currency and a European central bank because in the plans for the European central bank in the Dutch draft the deficit cannot exceed 3 per cent. of GDP and with Labour's proposals it would exceed 5 per cent. very easily. The only possible conclusion is that the Labour party would devalue again, as it has always done in the past.
The European dimension is the most important element in our economic policy. We have always been a trading nation, but the single market will bind our trade and business even more closely to Europe. Over very many years we have learnt the lesson that we cannot be immune from casualties which occur in other countries. For
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example, the savings and loan debacle in the United States and the Government guarantees which were given at the time meant much higher borrowing for the federal Government. That affected interest rates everywhere throughout the world.The collapse of stock markets in 1987 was universal ; so was the response of lower interest rates. That was followed by a property boom. Perhaps more could have been done at that time. It is easy to argue in retrospect, but the Governor of the Bank of England could have been more explicit about what would happen because of the quantity of money that was borrowed for the property market. The difficulty now arises from the amount of money tied up in unproductive investment, such as empty office blocks here, in the United States and in Japan.
Now there is a new phenomenon. More and more money is being invested in east Germany in basic infrastructure--quite rightly, because they cannot proceed without it. But there is no immediate return from any of that investment. The return on trading activities throughout the world is inadequate. We cannot buck that trend. It is bound to be still with us, whichever party is in power in future. However, there are some sensible things which we can do. One is to concentrate on the proper use of assets in the public sector. That is only a small example, but my right hon. Friends might consider it. I mean something as mundane as police stations. A police authority cannot sell a police station in order to build another one, because, although it may sell the station and put the money in the bank, it has to get Home Office permission to build a new one. That is absurd. There cannot be any possible financial loss in the transaction, because one set of assets will be paid for by the private sector and the police will be able to put the police station where they believe it should be sited. What the Home Office has to do with the calculation, I cannot imagine.
We can also continue to attract investment from abroad ; in that we have been remarkably successful. The Japanese have invested in our country because they believe that is the best way of getting into the European Community ; they invest because they reckon that we will be full partners in the Community. That is why Europe is so important. That brings us back to the great debate. It is doubtful whether we would continue to attract so much investment from Japan and the United States if they felt that we were not full members of the European Community. The debate is between those who accept no diminution of our sovereignty and those who say that, having accepted membership of the exchange rate mechanism, we might as well take the next logical step and proceed to a single currency, believing that that is where our destiny lies.
I start from a different position. Let us look at the last 30 years. Are we satisfied with the stewardship of our economic sovereignty? This goes back over a long period, involving both political parties. In 1961, there were $2.80 to the pound ; the exchange rate is now $1.79. There were FF13.7 ; there are now just over FF10. There were DM11.2 ; there are now DM2.85. We had fixed exchange rates with the dollar until 1972. After that, we floated ; we floated downwards and we have done so ever since. That movement was a fair reflection of our economic performance relative to other major economies.
Parties of all political complexions have tried everything--prices and incomes policies, both voluntary
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and statutory, and monetary policies. They all failed. The prices and incomes policies failed because of their inherent absurdity, and the monetary policies because they were not strictly applied. So we joined the exchange rate mechanism under my right hon. Friend the Member for Finchley (Mrs. Thatcher). I have reached independently the same conclusion as my right hon. Friend the Member for Blaby (Mr. Lawson). Since so much trouble had been caused by trying to manage monetary policy ourselves, why should we not hitch ourselves to the deutschmark, which is managed so much better ? Sir Alan Walters and Professor Minford told us that that was an impossible and disastrous policy. Encouraged by their opinions, we should consider what happened. We have seen a fast fall in inflation and a rapid fall in interest rates. Now they say, "Look at the trouble you are in." The position cries out for further cuts in interest rates but, hooked as we are to the deutschmark, it seems that interest rates may have to rise rather than fall. They may rise, but I think that Germany is in difficulty. When it is recognised that Germany's internal deficit amounts to 5 per cent. of GDP and is rising, I expect the pound to begin to rise against the deutschmark, which would give scope for cuts in interest rates. I think that the fear of a possible Labour Government is the only thing that is holding the pound back.We have to face the fact that, over the last 30 years, our economic sovereignty has meant the sovereign right to devalue our currency. We have had a sovereign right always to accommodate high wage increases without increases in productivity. Our manufacturing companies especially have never bothered to be competitive, because they knew that they would always be bailed out by the Government, as they always have been. That is not the position now, and they know it. That is why we are seeing much lower wage increases and substantial improvements in productivity. If there was not an exchange rate mechanism, something like it would have to be invented.
What about our loss of sovereignty ? After the House of Commons Committee of Secrecy presented its second report on the expediency of the Bank resuming cash payments on 6 May 1819, Britain was on the gold standard for a century and more. Nobody talked about our losing our sovereignty to South African, Californian or Australian gold miners then. For many years after the last war, under the Bretton Woods agreement, we were effectively subject to the US Federal Reserve. Nobody complained about loss of sovereignty. Nobody called Sir Winston Churchill, who presided over our membership of Bretton Woods, arrogant for not having a referendum. For the best part of the last 170 years, we have deliberately relinquished our economic sovereignty, first to gold and then to the dollar, and we are arguably the better for it.
So now, what is new? We are already in the exchange rate mechanism. We are moving towards a single currency and a European central bank. That move needs to be considered carefully. Clearly there are considerable doubts about the timing and whether it will work. That needs to be looked at at the right time. I do so now not because of any Euro-enthusiasm but because of a calm calculation of our national interest. What is that interest? It is the defeat of inflation ; it is to create conditions for sustained growth, which only stable prices and competition can secure.
We could, of course, decide to go no further but, as a member of the exchange rate mechanism, we would not
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have the protection of the single currency and we would be outside an arrangement of the dollar, the yen and the ecu. I do not believe that the position of sterling outside those major currencies would be sustainable for long. If it were, it could be sustained only by higher interest rates than would otherwise be the case.What are we being asked to do? I understand that, according to the Dutch draft, no national deficit should be more than 3 per cent. of GDP. It is rather good to have such a limit. For those who believe--as I do--in monetary policy, such a limit is an acceptable--indeed, necessary-- discipline. Of course, it will take some time to deliver. I understand that the Italians have a deficit of about 20 per cent. and no prospect of being able to deliver at the moment. However, it could lead in time to phase 3 of the negotiations for a European central bank.
Some people say that we cannot have economic union without political union. I recognise that that is a great difficulty, but I do not understand why it should be so, because the Federal Reserve in the United States does not attempt to conduct fiscal policy or to set the level of federal spending, and nor does the Bundesbank in Germany. It remains the policy that the federal Government of the United States and the German Government set fiscal policies and public spending levels, which is what Governments are for. Provided always that the fiscal deficit overall is not more than 3 per cent., there is no reason why the countries of the European Community should not run their own fiscal and public spending policies and maintain their parliamentary sovereignty. There is no reason why there should be an even distribution of resources throughout the European Community. I do not go along with the idea of converging economies. I see no reason why that should be the case, any more than it is in the United States at present. If that were the case, it would allow us to allow entry to the eastern European countries in due course.
We must ask one question--what is it in our national interest to do? I believe that the acceptance in due course of a single currency and of a European central bank are plainly in our national interest and would bring about a stable and competitive economy and a rising standard of living for our people, which is what we are here for. It is not an easy policy. If the Opposition are genuinely interested in obtaining manufacturing investment and long-term investment of any kind, low--or better still, nil--inflation is required. It is no coincidence that Germany and Japan have had the lowest rates of inflation, the highest levels of investment and low interest rates for many years.
It would be easy to pump money into the system as the Opposition propose, but--
Mr. Dave Nellist (Coventry, South-East) rose --
Sir Peter Hordern : No, I am coming to an end. But it would also be fatal. By far the most demanding economic policy of the past 20 years is that which the Government are trying at present. I think that it is a courageous policy which deserves to succeed.
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6.42 pmMr. Alan Williams (Swansea, West) : It would be sad enough if we were debating only one recession, but we are debating the consequence and continuance of the historic tragedy of the 1980s. I remind the hon. Member for Horsham (Sir. P. Hordern) that if the Government had not destroyed 20 per cent. of manufacturing industry, if they had sustained the record level of manufacturing investment that they inherited and if they had used the opportunity provided by £130 billion worth of oil from the North sea, we should not be talking about recession today--we would be celebrating our continuance in a virtuous circle such as that enjoyed by Japan and Germany for decades.
Instead of talking about high interest rates, we would be talking about the fact that we had balance of payments surpluses which gave us low interest rates which gave us the opportunity for higher living standards for our work force and low unemployment. Instead, we are talking about the monumental failure of the past decade and the recession is merely one sad-- but sadly not final--symptom of that failure.
When the Government came to office, they took the £5 billion surplus in manufacturing trade and turned it into a £17 billion deficit by 1989. That represents a £22 billion turnaround in our trading position and I shall deal with that issue later. In fact, if one up-values that to current prices, it represents a £27 billion turnaround, because the 1978-79 surplus would be worth about £10 billion at today's prices.
The Government inherited a £594 billion current account surplus but turned it into a multi-billion pound deficit. Despite the £130 billion of balance of payments benefit from the North sea oil, they recorded a decade deficit of £25 billion. They took 10 years to equal the level of manufacturing investment that they inherited and, sadly, the recovery turned out to be a temporary blip, as hon. Gentlemen well know. Already, manufacturing investment has fallen another 20 per cent. and is due to fall again.
It is fascinating that, as they cooked the employment statistics, the Government have wriggled and tried to switch ground when talking about investment. When manufacturing investment was looking bad they switched to business investment so that they could include empty office blocks. In the autumn statement there was a switch to core investment, which includes the computers at race courses and supermarket checkouts--anything but face the reality of what they have done to this country.
We are now able to quantify what that destruction of investment has meant for this country, not on the basis of my figures, but on the basis of the Prime Minister's figures given to me in answer to a written question when he was at the Treasury. We have repeated those figures time and again-- £20 billion of manufacturing investment has been lost merely because of the failure to sustain investment at the 1979 level. However, that does not mean anything--it is difficult to conceive it--so I shall illustrate what it could have meant. The value of that investment is equivalent to 30 Nissan car plants washed away in the destruction of manufacturing investment. Nissan contributes £0.9 billion to the balance of payments each year. Had we been able to carry out investment on that scale--and I am talking illustratively--we could have been talking of a return on
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payments of between £20 billion and £30 billion a year. But let us halve that, because we must recognise that there are limits to the number of investment opportunities of that quality. Even so, we would still have rid ourselves of our balance of payments problem. The virtuous cycle--the price that we sought for the whole of the post-war period--is the prize that was lost in a bout of monetarist madness. The Chancellor today spoke about running to the International Monetary Fund. Instead of the prize, we have the spectacle of a party which derided the £2 billion IMF loan--which, incidentally, had been paid back before the Government came to office--itself being dependent, and its policies conditioned by its dependence, on £80 billion of footloose hot money that it had to hold in this country to finance its payments deficits. Because it has had to hold that £80 billion, it has had to keep interest rates high and because it has kept interest rates high, the exchange rates have been high. As exchange rates have been high, our companies could not compete and because our companies could not compete they have closed and our people have lost their jobs. At the end, another balance of payments problem was created. Instead of generating a virtuous cycle, the Government have generated a vicious downwards spiral. I said that we are facing not only a single recession but a symptom of the long-term structural decline which the Government have brought about. They did not do so calculatedly, because they did not have the intelligence to understand the consequences of what they were doing and do not now have the honesty to admit the consequences of what they have done. To listen to what the Prime Minister and the Chancellor say is to hear a masterpiece of public relations. They say repeatedly "Good news, the recession is hitting bottom." How many times have we heard that phrase?I am reminded of the leader of the lemmings, plunging down a 1,000 ft. cliff, seeing the jagged boulders below him and looking over his shoulder and shouting, "Don't worry boys, we're nearly there." That is what the Government are saying. Hitting the bottom, about which the Chancellor has been boasting today, is not an achievement. For heaven's sake, is that an achievement? It is the culmination of failure. The dead bodies at the foot of the cliff are the 41,000 dead bodies of companies that have gone into liquidation in the past two and a half years alone. That is the cost of blindly following the ludicrous monetary policies which Ministers have espoused. The Chancellor said today not only that we have hit the bottom, which is supposed to be so reassuring, but that the worst is over. What does he mean? At the bottom of the cliff, the survivors now have to get all the way back up again. That is what the Chancellor means when he says that the worst is over. The Government will now measure all growth from today-- from the bottom of the chasm. When the Government climb all the way to the top again
Mr. Williams : I will come to that. If they climb all the way to the top again, they will have got back only to where they started. Yet they will tell us, "Look how marvellously we have done in getting ourselves from down there, where we should not have been, to here where we started." They will not say, "If only we had had the sanity to cross the bridge, we would be so much further down the other side."
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As my hon. Friend the Member for Great Grimsby (Mr. Mitchell) said, we may not get back and we certainly will not do so in the life of this Government. There are economic time bombs in the cliff which have been manufactured by the Government's own policies. The Government are, for example, relying on the recovery of consumer spending to lead them out of the recession. However, if the £9 billion that has gone back into circulation on an annual basis as a result of the change in mortgage rates is spent, as the Government hope that it will be, in time to bail them out, a third of that, as I have said before, will go into imports and £3 billion will go on to the balance of payments. Before anyone says that that is rubbish, he should look at the autumn statement. The Chancellor said then that the balance of payments would worsen by £3.5 billion next year. The other economic bomb that the Government have planted is a wage explosion, which will not be brought about by a trade union plot. It will be created, pushed and driven for by the marketplace. If there is a recovery, the shortages, to which my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) referred, that exist in key industries at the bottom of the cliff will be even greater as we start to find our way back up. As firms start to compete for finite skills resources, they will drive us into wage inflation on the way back up. The consumer boom that the Government hope to see will generate a balance of payments problem and wage inflation, prompted by business men and not by the unions, will generate an inflation problem.As the balance of payments deficit grows over the next 12 months, as firms force up wages and as inflation inexorably rises as a result, the hot money will become increasingly volatile. The Government will be forced, if they are to retain it--and with an increase of £3 billion in the balance of payments deficit they cannot afford not to retain it--to increase interest rates.
I will make a purely personal observation. The hon. Member for Horsham and I came to the House at the same time and he knows that I am not given to seeking colourful or irresponsible solutions. We may disagree, and what I am about to say will inevitably attract the rebuttal of those on both Front Benches. I accept that. I would not make my observation if I did not think that it is essential that we face up to reality.
The heart of the problem was touched on by the hon. Member for Berwick-upon -Tweed (Mr. Beith), but he then sidestepped the implications. The heart of the problem is the exchange rate. We have gone into the exchange rate mechanism at the wrong rate of exchange. I remind hon. Members of my point about the gap of £155 billion and they will understand why I am giving a political hostage to fortune. If we have had over the decade £130 billion benefit in balance of payments terms out of the North sea, and if even with that we are in a £25 billion negative position, without the oil--and we all know that there will be less oil in the 1990s than there was in the 1980s--the gap in our capability of paying our way is £155 billion. That is the gap that we must close.
The rate at which we have gone into the ERM is the average rate over a period of years, according to the Government. How on earth in logic or in practice can anyone pretend that we can close a gap of £155 billion at the rate of exchange that created a gap of £155 billion? We must understand that truth, instead of making silly political points about this or that party being the party of
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devaluation. As I said when I intervened in the speech of the hon. Member for Berwick-upon-Tweed, who does not seem to understand much about economic matters, if devaluation is such a sin, why on earth did the Conservative party live for so long with a floating currency? That is not just devaluation, but oscillating currency. Whether devaluation or revaluation, it is left to the marketplace. It cannot be so wrong to say what I am saying ; it is just politically inexpedient for the Government to say it.Both the Conservative party and the Labour party have to recognise another fact. I realise that Front-Bench Members cannot support the conclusion to which I have come. I understand why they cannot endorse my remarks and why they will have to rebut them, but there is another consequence if my analysis is correct. A single currency is either an illusion or a suicide note. It is a suicide note because we cannot survive economically at the present rate of exchange, so we cannot guarantee our future. It is an illusion because at the present rate of exchange it is an economic impossibility to meet the requirements of convergence. [ Hon. Members :- -"No."] I ask hon. Members to think it through. The rate of exchange is such that by 1997 we shall not be able, at the present rate of exchange, to meet the convergence requirements that have been laid down in the proposals coming from Brussels and in the conditions set out by the Opposition. I realise that the Government must say no to devaluation. However, I suspect that the real answer is, "No, at present." I suspect that it may not be no even before an election and it certainly will not be no after an election.
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