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Mr. Mellor : I intend to deal with the point made by the hon. Member for Ashfield (Mr. Haynes).
Mr. Mellor : All right, two points. The first one is that, under the last Labour Government, unemployment doubled. [Laughter.] Oh, yes, it did, and it was not a laughing matter. The other point is that the only sensible comparisons are contemporary experience in other countries. Germany has the highest unemployment rate since the Weimar republic. Yesterday, General Motors declared 74,000 redundancies in the United States, and unemployment in France has consistently been higher than unemployment in the United Kingdom during the last five years.
Mr. Haynes : What about the crime figures? Will the Minister say something about them?
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Mr. Mellor : No. I have left the Home Office, so I do not intend to deal with the crime figures--not that there is not an answer. It is wrong to lay all the blame for Labour's inability to mount a coherent policy on inflation on the Leader of the Opposition. That is, after all, why he has a shadow Chancellor. If one looks back at the uncomfortable weekMr. John Smith (Monklands, East) : Will the Minister give way?
Mr. Mellor : If the right hon. and learned Gentleman can contain himself, I am about to come to him. [Interruption.] The Chancellor is working on the Budget. He has got something substantial to do, as one would expect. The privilege of listening to me is afforded to the right hon. and learned Gentleman. If he did so, I would sit down much more quickly. He did not have a very good week last week. We learned that some of the natives are getting restless with his supposed moderation, which is not delivering the goods. One minute he is the monarch of the glens ; the next some of his colleagues are itching for Scottish devolution so that he can become an immigration officer on one of the less salubrious parts of Hadrian's wall.
The surprising thing is not that the right hon. and learned Gentleman was criticised last week, but how he has escaped criticism for so long, when one considers how long the Labour party has had to come to terms with inflation and how persistently difficult, irresponsible and wrong the right hon. and learned Gentleman has been about the issue. For instance, he always advocates taking the easy way out, the 1 per cent. reduction in interest rates whenever the subject comes up, or investment and training as the answer to everything.
It is what one might call the policy of the parrot house "One per cent. off, pretty polly, pretty polly" ; or, "Investment and training, quack quack, quack quack." Where lies the substance behind the solutions that the right hon. and learned Gentleman suggests? When will we have from the Opposition a coherent policy on inflation? [Interruption.] I am under the illusion that I am in the Cabinet ; certainly I have a strong conviction that Opposition Members will not be.
Mr. Grocott rose --
Mr. Mellor : I am fed up with the hon. Gentleman. I am not giving way to him, come hell or high water. I have already made that clear. Mr. Grocott rose --
Mr. Mellor : He has had his chance, and it is becoming disruptive. Mr. Grocott rose --
Mr. Mellor : The hon. Gentleman made a bogus point of order and he is now trying to disrupt my speech. I have told him that I am not giving way. If he wishes to try to catch your eye later, Mr. Deputy Speaker, he may do so.
Sir Ian Stewart (Hertfordshire, North) : When my right hon. and learned Friend was suggesting that the right hon. and learned Member for Monklands, East (Mr. Smith), the shadow Chancellor, had had a bad week last week, had he noticed that the right hon. and learned Gentleman has not even been allowed to sign the Opposition amendment?
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Mr. Mellor : In the Kremlin, that was usually a bad sign. I do not know what the position is in the Labour party. Perhaps we shall be told. Watch this space, literally and metaphorically.
Mr. Wray rose --
Mr. Mellor : No, I am pushing on. However, I note the hon. Gentleman's application for the right hon. and learned Gentleman's job.
In 1987-88, when, as we now know, interest rates were almost certainly too low, both the Leader of the Opposition and the right hon. and learned Member for Monklands, East were calling in the most intemperate terms for interest rates to be further reduced. The fact is that the Labour party subscribed to a range of policies directly designed to put inflation up.
Let us take its minimum wage policy. It is guaranteed to put up inflation and costs. The other day, the Daily Express did a survey of 30 companies, only two of which thought that they could cope with the minimum wage without it sharply affecting their business, costs and prices. There is a problem with the Opposition. They become boring and predictable. I thought to myself that the very mention of the Daily Express would have the Opposition cackling and falling about.
The most prominent company mentioned in the Daily Express survey was Grand Metropolitan plc, a reputable, substantial British company, employing thousands and thousands of people, many of them constituents of Opposition Members. So I got in touch with Grand Met to see whether it had been traduced by the Daily Express. On only one example of its activities, the managed pub business, Grand Met has costed the combined impact of the minimum wage and atypical workers' directives at £15 million a year.
That is the reality of the impact of the minimum wage. [Interruption.] Ah, we have the derisive laugh now. One can always tell when Labour is getting desperate. The hon. Member for Newcastle upon Tyne, East (Mr. Brown) starts laughing unconvincingly. It is not very funny. I dare say that some of those pubs are in his constituency, and that some of his constituents drink in them. They will find the price of their beer going up as a result of the Labour party's nonsense.
Mr. Grocott : The right hon. Member for Hertfordshire, North (Sir I. Stewart) was concerned about who signed the amendment in the absence of my right hon. and learned Friend the Member for Monklands, East (Mr. Smith). Is it in order for the Chief Secretary to speak in support of the Government motion when he has not signed it?
Mr. Deputy Speaker (Sir Paul Dean) : If it were not in order, he would not have been called.
Mr. Mellor : I am still here, as active as I am capable of being. The debate needs to be about whether the Labour party will be capable of sustaining stable prices within the United Kingdom economy, which we know to be a fundamental basis for the economic and commercial revival of Britain in the 1990s. We know that it cannot do so. We know that the Labour party's interest rate policy is confined to saying, "One per cent. off."
I hope that I can have the attention of the right hon. and learned Member for Monklands, East, at least for the next bit of my speech. If he were ever to achieve office, he
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would have to be preoccupied with this, and it might be helpful if he were aware of it now. The Labour party is the party of devaluation. The currency went down by 4 per cent. for every year of the last Labour Government. The right hon. and learned Gentleman has been alert to the need to make it clear that that would not happen under a Labour Government. He says, "We would not devalue." There is also his passionate attachment to the exchange rate mechanism, a policy which some of his hon. Friends find chafes a bit. Immediately, there is the prospect of trouble from Labour Back Benchers. During the debate on the economy last week, there were eight speakers from the Labour Back Benches. Four of them advocated devaluation or are exponents of it.Unlike some of his hon. Friends, I am prepared to accept that the right hon. and learned Member for Monklands, East would not want to devalue the currency. So what premium would a Labour Government be prepared to pay to prove to the international markets that they would not devalue? [Interruption.] Despite all his Winchester erudition, the hon. Member for Durham, North (Mr. Radice) has missed a fundamental point. We have nothing to prove. Every other country in the ERM had to put up its interest rates over Christmas in the wake of an increase in German rates. We were the only country that did not have to do so.
If the hon. Member for Durham, North doubts that I am making a serious point, perhaps he will believe some of his old school chums from some of the firms in the City. Nature abhors a vacuum, so, because the Labour party will not tell us what premium it would be prepared to pay in order to show that it would defend the value of the currency, the City has been doing the work for it. I shall read out the list that we have obtained.
The DKB bank said that interest rates would be 2 per cent. higher, Nomura said that they would be 2 per cent. higher, Credit Lyonnais said that they could be up to 4 per cent. higher, Kleinwort Benson said 2 per cent. to 4 per cent. higher, the London business school said up to 3 per cent. higher, James Capel said 1 per cent. higher, UBS Phillips and Drew and Midland Montagu said that they would go up.
The Leader of the Opposition knows well Mr. Gavyn Davies of Goldman Sachs. I think that his wife is still employed by the Leader of the Opposition, and he was an adviser. Yet Goldman Sachs says that interest rates would go up. The Confederation of British Industry said that interest rates would go up, BZW said that they would be 1 per cent. higher, London Economics says that they would be 2.5 per cent. higher and the Halifax says that they would go up. That is the reality facing the British people, but the Labour party will not admit it. The price of a Labour Government would be an immediate hike in interest rates, with all the damage that that would cause. That is what the Labour party will have to answer.
The Labour party does not see the ERM as a serious policy commitment : it sees it as a further way of evading the responsibilities of government. The right hon. and learned Member for Monklands, East fails to understand that ERM membership is a commitment to pursue responsible fiscal and monetary policies, not a substitute for them.
There is no better example of sustained irresponsibility than the refusal of the right hon. and learned Gentleman and the Leader of the Opposition to appreciate the impact on foreign exchange markets and international confidence
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of calls for reduced interest rates. Labour has had it too easy. It certainly would not have it easy if it were in office, but nor would the rest of us.The other point that the Labour party must come to terms with is the damage to its reputation done by its failure to control inflation. UBS Phillips and Drew said :
"Labour's image is still tarnished by the rampant inflation of the late 70s. Though memories fade, Labour must impress an electorate sceptical about its ability to manage the economy."
Mr. David Clelland (Tyne Bridge) : Will the Chief Secretary give way?
Mr. Mellor : No, I am pushing on now. I have given way a lot. City analysts have been asking what would be the impact of a Labour Government on inflation. The right hon. and learned Member for Monklands, East is now engaged in conversation with the hon. Member for Derby, South (Mrs. Beckett). This is worth listening to, because it is not Tory propaganda but what the financial community, who would judge a Labour Government, think Labour is likely to do.
Nine forecasts were made recently. Economists normally do not agree on anything, but this is so clear-cut that they all said that inflation would be higher under a Labour Government. The average is 2.3 per cent. higher in year two, 3.4 per cent. higher in year three and 3.8 per cent. higher in year four. No wonder the Financial Times reports that 87 per cent. of fund managers thought that Labour would not be able to control inflation and only 3 per cent. thought that it would.
The Labour party seems to want to be wilfully blind to this. Returning to things in Putney, we received "Labour News"--"News from Labour in Putney"-- I presume that it is pushed through many other doors--which quotes City analysts and says :
"Experts believe that Labour's policies for investment in research and training will make Britain stronger and more prosperous. Labour will build a world class economy."
It does not say which part of the world it has in mind, of course I should be interested to know what City analysts Labour relies on. It seems to recall that happy old American jibe that the only support that the Labour party is getting for its policies from City analysts is the support that the rope gives the hanged man.
Mr. Peter Hain (Neath) rose--
Mr. Mellor : Here is an expert on Putney--he lost two elections there.
Mr. Hain : Indeed, but the Chief Secretary will lose to the author of that pamphlet at the next general election.
We have heard a typically juvenile speech from the right hon. and learned Gentleman. We have record mortgage repossessions, businesses and investment and output collapsing, and the economy going down the drain, but all that the right hon. and learned Gentleman can treat us to is a series of comic turns and cheap jibes. When will he give his policies for getting us out of the economic mess that he and his colleagues have created?
Mr. Mellor : It is a bit rich to be accused of juvenilia by the Peter Pan of student activists.
What has been revealed this afternoon is a formidable case for the Labour party to answer--a formidable case that says that Labour has no policies to control inflation,
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that it would be unable to control inflation, that inflation would increase to double its present level and that interest rates would have to rise as a consequence of a Labour Government.People thought that Labour's tax plans were bad enough. When we learned about its tax plans, they thought that the cat had got out of the bag. This afternoon, we have provided the reason why the cat got out of Labour's bag- -it did not like what was left in it, still waiting to come out. We are now beginning to know.
As such an array of talent is assembled on the Labour Front Bench, may I pose another question about some of the matters with which we have been dealing this year? We have shone a spotlight on Labour's tax and spending plans, and such is the chaos that the Labour party has had to burn the midnight oil to produce a document trying to reconcile them--the self- inflicted wound of proclaiming its new-found ability to manage the economy competently by having limited spending plans properly costed and carried into effect on the back of tax increases which are themselves properly thought through. We saw how long that lasted--about three minutes--but we now hear about the so-called recovery package whose authors are all in front of me. The hon. Member for Derby, South says that the package will cost £1 billion, that it is part of Beckett's law and will be introduced straight away, as did the right hon. and learned Member for Monklands, East. However, they neglected to tell the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). In one of his more memorable recent interviews--one does not necessarily expect the right hon. Gentleman to be well briefed, but I do not think that one required a lot of briefing to see what nonsense this is--he said that the recovery package would be paid for out of the recovery that it was supposed to bring about. I assume that that is not Labour party policy, and we shall assume that it is to be introduced straight away.
Mr. Kenneth Hind (Lancashire, West) : Will my right hon. and learned Friend give way?
Mr. Mellor : No, I shall carry on, if I may.
We now find that the plot has thickened. We have had a thickened plot in two material respects, on which I shall conclude my remarks. First, the Leader of the Opposition said in an interview in the Financial Times --and it might nevertheless be so--that £800 million of the £1 billion package is to be spent on training. It has been put repeatedly to the right hon. and learned Member for Monklands, East that training is not a short- term measure and can certainly not be dignified with the title of a recovery package which will quickly turn the economy around. The right hon. and learned Gentleman can spare me rejecting that, because I had the privilege of turning on my television set at lunchtime to find him engaged in a sort of post-war altercation after last week's debate with my right hon. Friend the Secretary of State for the Environment who made this allegation. My right hon. Friend speaks very effectively, as the right hon. and learned Gentleman found to his cost last week.
Mr. John Smith : The Secretary of State's name is on the motion on the Order Paper, but the right hon. and learned Gentleman's is not.
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Mr. Mellor : Now that the right hon. and learned Gentleman has got that off his chest, let him listen for a moment. I promise not to detain him for very long.
My right hon. Friend said that training was not a short-term measure, and the right hon. and learned Gentleman hopped up and down on television saying that indeed it was not.
I had great pleasure--and told the House about a great competition about Labour's priorities--in reading the document "Women Today", which turns out to be a Labour party brief. I hope that the hon. Member for Derby, South is concentrating, because I am about to quote her, or what somebody has ill advisedly put into her mouth. The hon. Lady features in the document under the bold headline "We'll put an end to the waste of money". She said :
"We have a very tight series of priorities we need early investment in education, in training, in industry--the things that will take a long time to show results."
What price the recovery package, the £1 billion bingo which will turn the British economy on straight away? It is inherently risible that a £1 billion package will turn on an economy of £600 billion. It is even more risible when four fifths of it is to be spent on training.
There is a second point on which I would welcome assistance from the Opposition. We want to know how the £800 million might be spent on training. I am aware of the fact that the Labour party has made a commitment which means--as usual, the Labour party has far more interest in trade unions than in some of those who might benefit from public expenditure--that every trainee must have a minimum wage. The cost--
Mrs. Margarat Beckett (Derby, South) indicated dissent.
Mr. Mellor : I am glad that the hon. Lady is going to correct that, because if Labour's pledge to give a minimum wage to the unemployed persons who go into training or the pledge involving young people who do youth training is honoured, £630 million of the £800 million would go on paying extra money to existing trainees in order to top them up.
Mr. Neil Kinnock (Islwyn) : Pathetic!
Mr. Mellor : I did not invent this recovery package, and I would rather have spent my time dealing with more intelligent matters. It is the Opposition who are parading the recovery package. I ask : when is a recovery package not a recovery package? Answer : when it is a piece of nonsense like this one.
I hope that today we will discover something more concrete and more persuasive about the Labour party's policy on inflation. At the moment, Labour's economic policy is a bit like a haggis--for most people it is okay only as long as they do not think too much about what has gone into it. [ Hon. Members :-- "Disgraceful."] As usual, Scottish tails are wagging Labour's English dog. They may not be alert to matters of economic policy, but they are alert to my last point. I would be interested to know not only about the contents of a haggis but about the persuasive contents of Labour's anti-inflation policy. I think that we should be told : I hope that we will be told.
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4.40 pmMrs. Margaret Beckett (Derby, South) : I beg to move, to leave out from "House" to the end of the Question, and to add instead thereof :
believes that inflation, though reduced from levels to which Government policy raised it, has not been conquered, but merely suppressed by high interest rates and the recession they have created, at a cost of rising business failures, mortgage repossessions, and soaring unemployment ; and recognising that low inflation is a necessary, but not a sufficient, condition for recovery, calls upon the Government to introduce measures which include support for investment in manufacturing industry and in training, since without such measures inflationary pressures will simply re -emerge.'. There are two reasons why we are having today's debate in which the Government boast of today's inflation and interest rates, which are both certainly lower than they were a year ago. The first reason is clear : of what else could they boast--of soaring unemployment, soaring house repossessions, soaring bankruptcies, plummeting investment and negative growth? The Government would have some difficulty talking about any of those, so they do not.
The second reason for this debate is that the Government hope that if they talk enough about their concern for inflation the wish will be taken for the deed. They hope that we will all remember what they said about inflation--the history books are littered with stern words about it--and not what they actually did about it. The Government motion seeks to compare their record not only with that of the previous Labour Government but with that of the European Community, particularly Germany, claiming that inflation is now below the EC average and close to the rate in Germany.
For most of the Government's period in office the yearly average retail prices index has been above the EC average ; the last time it fell below it, by a remarkable coincidence, was during and in the aftermath of the Government's first recession in the early 1980s. Only their second recession has again suppressed inflation to below the EC average, and only the strains of German reunification have brought German inflation to the level to which ours has been reduced by recession.
In any case it is only a few months since the Government were telling us that it was wrong to compare the retail prices index with EC inflation figures. We should, they said, use the underlying rate excluding mortgage costs. Of course, that rate does not show the same flattering picture.
The Government's main text, however, is undoubtedly the domestic record and circumstances of the last Labour Government and the record and circumstances of this Government. The Labour Government were elected in February 1974. They inherited the aftermath of the Barber boom--inflation at 13.1 per cent., a public sector borrowing requirement at 6 per cent. of GDP, and a quadrupling of oil prices, as well as rising world commodity prices and disadvantageous terms of trade.
The Labour Government tried to absorb the effects of the oil price rise without a major change of course. In consequence, as the right hon. and learned Member for Putney (Mr. Mellor) said in his speech, peak inflation rates of 26 per cent. were reached by 1975, together with an increase in the public sector borrowing requirement to a maximum of over 9 per cent. of GDP--but that, I repeat, was the maximum.
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The major contributory factors to the peak inflation rate and the peak PSBR level were the levels of inherited inflation and inherited PSBR coupled with the oil price shock--Mr. Tony Marlow (Northampton, North) : Will the hon. Gentleman give way?
Mrs. Beckett : No. This was at a time when Britain was a heavy net importer of oil.
By 1979 when Labour left office-- [Interruption.] Conservative Members want to know about the record : let them listen to it then. By 1979, when Labour left office, inflation was at 10.3 per cent.--
Mr. Alistair Burt (Bury, North) rose --
Mrs. Beckett : In a moment. That was lower than the level that we had inherited. Unemployment, at more than one million, was falling. Interest rates were at 12 per cent. having averaged 10.7 per cent. It is not only our view that the peak levels of inflation to which I have referred were something to do with what we inherited from the Conservative party--
Mr. Burt rose --
Mrs. Beckett : In a moment. I am sure that the hon. Gentleman is anxious to hear the following quotation from the right hon. and learned Member for Surrey, East (Sir G. Howe), who said on 12 May 1981 :
"Monetary growth was allowed to accelerate rapidly in 1972 and 1973 under the impression that, now the fixed exchange rate discipline was gone, this was the way to increase output. By 1975, inflation, helped by the rise in the price of oil, had risen to 25 per cent." The right hon. and learned Gentleman fairly made the point that the Labour Government's inheritance contributed to that level of inflation--
Mr. Burt rose --
Mr. Marlow rose --
Mr. Phillip Oppenheim (Amber Valley) rose --
Mrs. Beckett : Not for a few more moments. Between 1974 and 1979 the PSBR fell again to 5 per cent. of GDP, lower not only than the peak but than the inherited figure.
Tory Members always talk about the record of the last Labour Government, so I repeat that, when we left office, inflation was lower than the figure that we inherited from the Conservatives, as was the PSBR. That Labour Government not only lowered inflation and the PSBR but achieved average growth of 2.2 per cent., more than the average in these recent years, and laid the foundations for the flow of revenues from the North sea which would amount to more than £100 billion in today's prices--a sum that shielded this Government for so long from the disastrous effects of their incompetence. These were the circumstances and the record of the last Labour Government, and now I shall give way.
Mr. Burt : The hon. Lady skipped conveniently from 1975 to 1979. What do the letters IMF mean to her?
Mrs. Beckett : They mean the International Monetary Fund to me ; I am not sure what they mean to the hon. Gentleman, or what they have to do with the fact that inflation was lowered by the Labour Government, as was the PSBR.
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Mr. Burt rose--Mrs. Beckett : No, once is enough.
I come now to what the Conservative party really wants to hear about--the record of the Conservative Government. Conservative Members are delighted with that record so they must be anxious to hear whatit is
Mr. Marlow rose--
Mrs. Beckett : No, I shall not give way. The hon. Gentleman seemed incapable a few moments ago of distinguishing my sex, so I feel disinclined to give way to him. Perhaps he needs glasses. In May 1979, this Government came to power. In their June 1979 Budget the Government raised VAT from 8 to 15 per cent. That alone added four percentage points to the retail prices index. In their Budget of June 1979 they reduced subsidies for prices such as those for gas and electricity, which added another 2.5 per cent. to the retail prices index. Interest rates in that same Budget were raised by 2 per cent. and peaked at 17 per cent. in November 1979. There were other factors which affected the rate of inflation, but these were within the Government's discretion. Earlier, the Chief Secretary quoted Sir Brian Corby on the rooting out of inflationary psychology applying to all levels of society, including the Government. The VAT rise especially was made to pay for the pre-election promise to cut taxes on incomes, and it was made in the belief-- [Interruption.] I will explain in the fullness of time, if hon. Members will be patient--and listen, of course. It was made with a belief in the magical properties of controlling the money supply--a process that seemed to be believed, at least by some, to ensure no increase in inflation, no matter what other policy changes were made.
It was small wonder that by May 1980 inflation had reached 21.9 per cent.-- more than double the rate that the Conservative Government inherited--with at least 6 per cent. to 7 per cent. of that increase being inflationary own goals inflicted by the Government to allow them to cut taxes.
Mr. Marlow : Will the hon. Lady give way?
The economy was forced into recession, unemployment soared to 3 million--a rate of 13.3 per cent., which was 7 per cent. higher than in 1979. We lost 20 per cent. of our manufacturing capacity. However, by 1983 and with the approach of a general election, those policies, a fall in the price of oil and other commodities, and the emergence of more favourable terms of trade all contributed to bringing inflation and interest rates down, although gross domestic product and manufacturing investment had been savaged and were both below the level inherited by this Government in 1979.
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