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figures in the autumn statement assume that public sector pay increases will be pegged to about 3 per cent. in the following two years. The Government also predict that average earnings will increase by 5 per cent. a year. That will create a massive gap of almost 10 per cent. between private and public sector earnings. That will be impossible to sustain, and will cause extra pressures and problems.

The alternative, which the Chancellor has not addressed and the Government are either unable or unwilling to address, is an entirely different strategy, which would kick-start the economy and demand by means of investment led by the public sector. At least £10 billion is required even to begin to meet the scale of the problem. We need investment in jobs, infrastructure and training and a much stronger regional policy. In Wales, regional preferential assistance has been cut by 60 per cent. since 1979.

We also need an economic policy which begins to grapple with the fundamental financial problems.

Madam Deputy Speaker : Order. I am sorry, but I have to turn off the tap of the hon. Gentleman's eloquence.

7.15 pm

Mr. Robert Banks (Harrogate) : I am delighted to follow the hon. Member for Neath (Mr. Hain), because I, too, wish to make some remarks about borrowing. I understood from his speech that he was critical of the Government for their level of borrowing. Yet the shadow Chancellor gave the impression this afternoon that he would borrow much more. He would certainly have to borrow more if he spent the sums that he suggested.

The autumn statement is a brave statement. It is a Budget more than a statement. I am delighted that the Budget will be incorporated with the autumn statement next year so that we can deal with it at a better time of the year. The autumn statement is an extensive package to stimulate the economy and help to bring us out of recession. However, we have always had to rely on the economies of other countries to help us with that process. The United States has normally led the rest of the world out of recessions.

On this occasion we need to examine the international scene carefully. The summary of the world economy in the autumn statement begins :

"Recovery in the world economy has stalled again."

It is salutary to consider the state of economies other than that of the United States. The United States economy is improving. I do not denigrate that improvement. However, it is not improving with surety. We must also consider economies in Europe and other parts of the world. They are in a recession almost as bad or even worse than our recession.

The crucial factor is our ability to sell goods and services abroad, attract an inward flow of foreign currency to both the City and elsewhere and bring tourists to Britain with their foreign currency and spending power. I prefer to call the tourist industry the visitor services industry. The word tourism gives the impression of people milling around on holiday, but it covers a range of other activities in which I am particularly interested.

In order to attract tourists we must market the product. We have an extraordinarily good product. I welcome the spend on the heritage. Our heritage is one of our great attributes in attracting people to Britain. We must do a full marketing exercise. My hint of regret about the autumn

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statement is that the tourism budget will be held fractionally below this year's budget and is scheduled to fall in the following two years. Some £46 million will be spent next year.

We must have the methods necessary to market our largest industry. We need the money to ensure that our advertising overseas receives full treatment. It is a case of selling our goods and services. The statement is a budget for industry because it helps industry in a variety of ways, some of which I particularly welcome. Lower interest rates help industry and everyone else. Lower inflation also helps industry. The 40 per cent. first year capital allowance for investment in plant and machinery is an excellent idea. I want the Government to expand the stimulus for industry to modernise. The science budget is to be increased slightly. Nothing is more important than developing our science and technology--improving our basic and strategic research in science, engineering and the social sciences. In the coming year that budget will be about £1.170 billion, which is a modest rise.

My hon. Friend the Member for Lindsey, East (Sir P. Tapsell) referred to his connections with Japan. We can lift many examples from the Japanese economy. I should like us to follow the example set by their Government, which works with industry to pioneer research into the next generation of technology, for instance, of robotics and of certain types of machinery. Their industry has had Government assistance in the form of low-interest loans spread over many years. There could be such a partnership here to define which industries should be developed and expanded.

In this country there are many examples of phenomenal expertise, which is dissipated because industries do not have the means to develop innovations, or the experience and research which are endemic in many of our institutions. That is where the Government can have an interplay with that sector and could develop our industry so that we improve our performance in world markets. We must do so, and we must concentrate on manufacturing.

I said that tourism, which is our largest industry, is important, but we can only spend money if we sell goods and services abroad. It is important to put the greatest emphasis on manufacturing. The statement tells us that the borrowing requirement for the present year has risen by £11 billion to £37 billion--the original estimate was £26 billion. In 1993-94, it will rise to about £44 billion. If we estimate a borrowing requirement of £31 billion for the year 1994-95, we will have spent about £110 billion to try to buy ourselves out of recession. The autumn statement is brave because that is a heck of a lot of money to borrow. To sustain such borrowing, we must achieve performance levels commensurate with the incentives given.

Industry has a lot going for it and we must engender its confidence. Our industry can tackle markets abroad, especially in Europe. I believe passionately in, and want us to be in the forefront of, Europe. With the lower value of the pound, lower interest rates and the proximity of Europe, a vast market exists there for so many of our products. I have this advice for our industrialists, "For goodness' sake, get moving, get over there, travel, go to exhibitions and exhibit your products. For heaven's sake, do not sit on your backsides and moan about the

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recession." They will pull their companies out of recession by going abroad, and that could give them the lead in some sectors of world markets.

I have always had a simple approach to economics. I am not an economist and have never pretended to be one. I have a simple formula--the "what if" formula. We must consider what would happen if the German economy went into crisis and the exchange rate mechanism had to be put in abeyance because of the devaluation of the mark and the franc. I do not wish that on anyone. I believe in the ERM, I want it to work and I want Britain to get back into it. It is the way forward. However, it is always important to ask the question : what if?

What would happen if the improvement in the United States economy failed? What if our manufacturers do not match up to our expectations that they will achieve the growth to get us out of recession? What if we have to raise interest rates to protect the recovery? Heaven knows that that is the one thing that we do not want to do. What if our privatisation proceeds do not match up to the anticipated targets? That all sounds pessimistic, but we must take into account the scenarios that I have described, because the world is unstable and full of uncertainties. The collapse of the Soviet Union and the colossal changes in eastern Europe, where economies are struggling to get on to their feet, coupled with America's huge debts, have created an international problem which we cannot escape.

As my right hon. Friend the Member for Shropshire, North (Mr. Biffen) said, we could be sitting on an inflation bomb and I echo what was said by the previous speaker

Madam Deputy Speaker : Order. Mr. Austin Mitchell.

7.26 pm

Mr. Austin Mitchell (Great Grimsby) : Like the Chancellor, the autumn statement is clever, but pretty limited. It does not restore the damage done by the Government to the economy during the past three years of massive deflation, but merely stops the damage from getting worse. That is all that the Government have done--they are trying to alleviate their self- administered damage.

The Prime Minister told us at the Mansion house that the Government meant what they said about manufacturing--presumably, just as they meant what they said about the exchange rate mechanism and no devaluation. With this Prime Minister, one must not look at what he does, but at how he says it. Unfortunately, although he says that the Government mean what they say about manufacturing, that cannot be true, judging from the figures in the autumn statement.

Manufacturing output was down by 4.5 per cent. last year, is down by 1 per cent. this year, and is forecast to increase by only 1 per cent. next year. However, at the same time the volume of imports--most of which will be manufactures--is forecast to rise by 7 per cent. As the volume of exports is also forecast to rise by 7 per cent.--just over 30 per cent. of which will be manufactures--it follows that all of the 1 per cent. increase in production will go into exports. There will be a fall in the proportion of demand on the domestic market supplied by British manufacturing.

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On those figures, we shall sell less on the domestic market and import penetration will increase, and that is the essence of our problem. Unlike every other economy, we have not increased manufacturing production from 1973 levels. There has been a huge expansion in demand since then, but it has been supplied not by British manufacturing industry but by imports, which have quintupled during that time. That quintupling of imports--based largely on the fact that our export prices and terms of trade are 36 per cent. worse than they were in the early 1970s --was essentially due to the price mechanism, because imports were cheaper, and it has been the cause of the destruction of jobs in our economy. Since the early 1970s, we have lost 3.5 million manufacturing jobs--a greater decimation than that in any other competing economy. Since we joined the ERM, 600,000 manufacturing jobs have been lost, and so the decimation has continued. We cannot get that ground back, or widen and deepen the manufacturing base, unless we win back those markets and redress the competitive terms against imports. Those terms have gone badly wrong since the early 1970s. It is because of them that the import share of our domestic market, according to the most recent published figures of 1989, stands at 37 per cent.--double the proportion in Germany and France. Obviously, that import penetration is so bad that the Government stopped publishing the figures, because we have had none since 1989.

Imports also constitute a third of our exports ; that proportion has trebled over the past 20 years. Two cars exported today make a smaller contribution to our balance of payments than did one car exported in 1970. That is the heart of our problem, but the autumn statement has done nothing to tackle it.

We must change expectations and that means that we must opt for a far greater devaluation than the current one. In fact, we have not really had a devaluation. Everyone talks about it, but we have had only a 14 per cent. change in the nominal rate, which does not take us back to the real exchange rate of 1986. We have still not returned to the level of competitiveness achieved then. We have simply cut off the peaks in the overvaluation caused by the Government's interest rate policy of the late 1980s and hardened by the terms of our ERM entry. We have not returned to a competitive exchange rate, but unless we do, we cannot regain our lost jobs and markets. It is much more difficult to win markets back once they are lost. The exchange rate needs to fall by a further 10 to 20 per cent. before we can win back the lost ground.

Since we need expansion and the autumn statement does not offer us very much, we must ask from where that expansion can come. Demand is deficient, so there is nothing else to do but expand that demand. One man's spending is another man's income. If we follow the good old Keynesian principle that dictates that when demand is deficient, one must expand it, we must expand demand and channel it to domestic production.

With so many people in debt traps, house prices still likely to fall and incomes restrained by deliberate Government policy, expansion will not be created by consumer demand. It will not be created by Keynesian stimulus, because that is not provided for in the autumn statement. I would spend much more on public works projects than on housing and when asked where that money would come from, I would answer with the question, "Why fund the debt?" Why are we not

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monetising the debt? Why not get ways and means advances for the Treasury from the Bank of England, as happened in war time, and expand demand that way?

We should remember that the banks enormously expanded the money supply and credit supply in the 1980s, but that they are now contracting those supplies. Why should the banks be able to damage the economy in that way when we could remedy the deficiency, and expand demand and the money supply by using public credit, the credit power of the state? Why should we not monetise the debt? The use of public credit would be simple compensation for the damage caused by the banks now that they have contracted the money supply. Any expansion in demand certainly will not come from exports, given that the overseas markets are so depressed and that the rate of devaluation still has some way to go. Expansion can come only from import substitution. We must replace imports, which have taken such a large share of our market, with domestic production. That is the easiest, quickest and most effective way in which to expand the economy. To do that we must use the price mechanism, which means that the terms of trade for domestic production must be redressed in its favour and against exports. We must use the price mechanism, through greater devaluation, to make imports dearer.

It is no use the Government thinking that they can get away with just a marginal increase in import prices. After the 1967 devaluation those prices went up by 16 per cent. and they must rise substantially now. The fact that Volkswagen and Ford have increased their prices by only 2 per cent. shows that we have not yet achieved that substantial, necessary increase in the price of imports to make domestic production competitive enough to change expectations.

We must channel investment into that domestic production and we must keep it there. To attract investment, industry--capitalism--needs the prospect of profit. Therefore, we must have a competitive exchange rate and that competitiveness must be sustained for a long time so that expectations change and generate investment. In that way production will increase, which is necessary if we are to enlarge our industrial base. We cannot consume unless we produce. It is the production failure, which has continued for years but which was heightened by the Government's policies in the 1980s, that has caused all our problems.

We need a far greater devaluation than we have had and interest rates must be brought down to zero in real terms to bring the pound to a competitive level. In that way we can change expectations, stimulate investment and generate that into domestic production. In that way we can displace the imports that account for such a large share of our market. We are faced with huge problems, but the autumn statement does nothing to solve them ; it simply repairs some of the damage that the Government themselves have done to the economy in the past three years through excessive, stupid, unnecessary and damaging deflation. The Government have sought to make good their own deficiencies, not to provide for the future of our economy. We are at a turning point. Unless we begin to expand our industrial base we shall shrink into a declining, peripheral economy, increasingly dependent upon Europe. It is only by going ahead with a more competitive exchange rate and expansion of the economy that we can rebuild that economy and fight back.

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7.36 pm

Mrs. Judith Chaplin (Newbury) : I welcome the Chancellor's autumn statement and I particularly welcome his proposals to introduce private sector funding into the public sector. We all know from our constituencies of construction projects that should be completed. We all know of the unfortunate spare capacity in the building industry and of the many unemployed building workers. It is essential that those two factors are brought together. The Opposition bring them together by suggesting a great increase in public spending on capital projects. Those of us who are worried by the scale of public spending and by the size of the PSBR welcome the attempts to increase private sector investment for public sector projects.

The proposals in the autumn statement represent the third attempt by Treasury Ministers to overthrow the famous Ryrie rules. They were formulated in 1981 following concern that nationalised industries were unable to attract private investment. Those rules effectively always put the private sector at a competitive disadvantage because it could never borrow money more cheaply than the public sector. In 1988 there was an attempt to revise the Ryrie rules to take into account the fact that there were no longer quite so many nationalised industries and the introduction of various new forms of private sector involvement. Unfortunately, the 1988 revision retained two fundamental principles of those rules. First, that private sector finance could be introduced only where it offered gains in cost effectiveness. Secondly, privately financed projects for public sector programmes had to be taken into account in the total Government spending on public sector programmes. Once again those principles effectively deterred private sector construction companies from investing in public sector projects.

In 1989 the then Chief Secretary of the Treasury, now the Prime Minister, announced in a speech to the Institute of Directors in Glasgow that he was "retiring" the Ryrie rules. He said that he would not seek, on a scheme-by- scheme basis, to offset privately-financed projects. In other words, he allowed additionality. Shortly afterwards that policy was set out in the Green Paper, "New Roads by New Means". The Treasury officials fought back as always because it was almost immediately pointed out that the Government would take account of the total provision even though they would no longer take account of each scheme. The Ryrie rules, which had been revised and then retired, had certainly not lain down and died.

I very much welcome the Chancellor's third attempt and hope that it will succeed this time. I urge Treasury Ministers not to be deflected again from getting private sector money into public sector projects. I welcome my right hon. Friend the Chancellor saying that any privately financed project that can be operated profitably will be allowed to proceed. I also welcome the Government's active encouragement of joint ventures.

In his autumn statement, my right hon. Friend the Chancellor mentioned such schemes as the east-west crossing and the Birmingham orbital road, but I hope that schemes will not be confined to large transport schemes. For example, my constituency of Newbury needs a community hospital. Why cannot that be built by the private sector and then used by both the public and private sectors? Why cannot school facilities, such as sports and

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catering facilities, or badly needed nursery facilities, be provided privately and then used jointly? Why do we not allow grant-maintained schools to borrow against their assets to fund projects needed to improve the schools? I hope that small as well as large schemes will be allowed to go ahead.

I hope that every Government Department will now be encouraged to consider how the private sector can be involved in improving the whole of the country's infrastructure. I particularly hope that Ministers will ensure that the Treasury does not obstruct that happening. They should see how the whole process can be speeded up and the cost of tendering reduced so that many companies, not just large ones, can deal in that area. Furthermore, I hope that the Government will encourage the banks to look kindly on such schemes and support and assist the process.

The proposals in the autumn statement could be the start of utilising the private sector and using private sector funds to improve the whole nation's infrastructure.

7.42 pm

Mr. Geoffrey Hoon (Ashfield) : I listened with interest to the speech of the hon. Member for Newbury (Mrs. Chaplin) but was just a little surprised not to hear her mention the exchange rate mechanism, which was, after all, the cornerstone of the Government's economic policy throughout the time when she was special adviser to successive Chancellors of the Exchequer and head of the Prime Minister's political office. That is one illustration of a series of U-turns or S-bends about which we have heard so much lately.

There have been fundamental changes in Government policy. One day, policies have been firm and unalterable, only to be abandoned the next in a series of embarrassing climbdowns and reversals.

Mrs. Chaplin : I understood that the Labour party favoured balanced exchange rates. I have certainly not moved away from hoping that we shall return to the exchange rate mechanism when there is appropriate convergence.

Mr. Hoon : I am delighted to hear that and I hope that the hon. Lady uses her influence on Treasury Ministers to encourage them to do the same-- and quickly.

Those climbdowns and reversals show that the country has what I would describe as a corkscrew Chancellor, who slides around in circles that spiral ever downwards to a point where, like the fading smile on the face of the Cheshire cat, the Chancellor's credibility disappears for ever.

The autumn statement showed an economic policy that is trying to be all things to all people, facing all ways at once, boosting a bit of the economy here, battening down the hatches there, unable to decide which way it wants to go. Having previously set out on a series of different policies, the Government have abandoned them when they proved to be the wrong routes. They now seem to have returned to where they set out, drifting from one economic rock to another without a coherent guide or strategy.

The direct consequence of this deepest and longest lasting recession since the second world war is clear. Since the third quarter of 1990, we have seen 1.25 million people

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out of work, 110,000 business failures, 140,000 homes repossessed, a 4 per cent. fall in output, a 7 per cent. fall in manufacturing output and a 30 per cent. fall in manufacturing investment. It gives me no pleasure to say that the United Kingdom is firmly at the bottom of the European league for growth, job creation and investment. The cause of that is a Government who lack a coherent economic policy. They have no idea of what they are in for. They can give us a long list of what they are against, but no clear statement of what they now believe in. For example, we know that they do not believe that they can spend their way out of the recession, because the Chancellor keeps repeating it like a mantra. I presume that we can conclude that he believes that consumers can spend the country's way out of the recession. If that is the Government's approach to growth, it is based on a fundamentally flawed perception of what is currently wrong with the British economy.

Our economy is in recession because previous Government economic policies have caused widespread redundancies and lay-offs. The fear of unemployment explains why the economy remains in recession. That threat of unemployment hangs over almost every family in the country. People have no confidence in their future--no confidence that they will be in work next week, next month or next year, that the Government's economic policies will guarantee their future, or that lower interest rates will revive their own economic circumstances. Although everyone welcomes a reduction in interest rates, there is no evidence that it will necessarily restore the confidence that is so crucially lacking in our economy. Interest rates in the United States have been at around 3 per cent. for some time now and there is no consistent indication that it is restoring confidence in the American economy or that it has resulted in real and sustainable growth. What is happening there is a good indication of what is likely to happen here.

Mr. Jonathan Evans (Brecon and Radnor) : Does not the hon. Gentleman's point show the fallacy of the argument put forward by the Labour Front Bench for so many months, persistently calling on the Government for just one more reduction in interest rates? Surely the example of America shows that low interest rates are not the answer.

Mr. Hoon : If the hon. Gentleman will have a little patience and if you, Madam Deputy Speaker, will allow me to continue a little longer, I shall deal with that point. It is not simply a question of reducing interest rates. Clearly, we must also have a coherent industrial strategy to accompany it.

When people in the United States were faced with lower interest rates and had a little more money in their pockets, they chose to pay off their debts --to reduce their credit card obligations and mortgage repayments and to pay off their hire purchase commitments. People lack confidence because they are frightened for their jobs so they are reducing their expenditure so that their commitments are fewer in the event of those jobs disappearing.

The extent to which house buyers are discouraged from buying property when they cannot confidently say that they will be able to meet their repayments next week, next month or next year is the primary cause of the difficulties in the present housing market and a clear indication of lack of confidence. Who will buy an asset like a house

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when they cannot be sure that they can meet the continuing repayments or, more importantly in the present atmosphere, when they can be sure that the value of that asset will go down?

In this country we are paying for the cost of unemployment, not only in increased benefit payments to the unemployed and lost tax revenues but, crucially, in the light of the autumn statement, we shall also pay through a substantially increased public sector borrowing requirement. That PSBR is estimated to rise beyond the £44 billion projection. How do the Government propose to raise the necessary £44 billion or more? All the signs are that there will be insufficient domestic institutional funds to purchase gilts made available by the Bank of England. That means that the Government will be dependent on foreign investors buying pounds.

With the Government's reluctance to return speedily to the exchange rate mechanism, will foreign investors be willing to invest in sterling on such a scale, particularly given the likely continuing devaluation of the pound? Why should foreign investors invest in pounds that are falling in value? The only way of persuading those investors to do so is to adopt the course taken by the Government in the past : to offer a premium on interest rates and offer higher interest rates than can be obtained elsewhere to offset the currency risk of investing in devaluing pounds.

Such a policy will mean higher interest rates not only for foreign investors, but for the whole of the British economy, which will force this country's economy back into the vicious circle of interest rate rises, further unemployment and repossession of homes. Is that what the Government want? Do the Government want to pursue the policies of previous Conservative Governments that depended on a sustained and persistent devaluation of the pound--allowing the pound to fall steadily on international markets--as a substitute--and here I am tackling the issues raised by the hon. Member for Brecon and Radnor (Mr. Evans)--for tackling the underlying problems of the British industrial economy? Those problems include the lack of investment, training and competitiveness.

Devaluation will inevitably feed inflation into the economy. There was a 2.5 per cent. rise in factory input costs between September and October. That 2.5 per cent. rise has been directly attributed to the costs of devaluation. It will be a continuing contribution to inflation in the United Kingdom, will add to and exaggerate the already chronic balance of payments deficit, and exert still more devaluation pressure on the pound.

If the Government believe that consumers can buy this country out of recession, they must put in place the sort of policies that the Opposition have been advocating : a coherent industrial and economic policy.

7.52 pm

Mr. Barry Legg (Milton Keynes, South-West) : Like other hon. Members, I welcome the autumn statement and the excellent speeches that we heard from my right hon. Friend the Chancellor of the Exchequer last week and today. They contained many sentiments that all Conservative Members can heartily endorse, including the commitments to firm control of public expenditure and to reducing public expenditure as a proportion of national income.

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The autumn statement also set out again some vital strategies. My right hon. Friend the Chancellor said that one of the Government's priorities was to make markets work better, as that will enable us to achieve a higher long-term growth rate. My right hon. Friend also restated the well-known truth that Governments cannot spend their way out of recession. There can be no stronger proof of that than what has happened to the projections of the borrowing requirement for the coming year--1993-94--and the borrowing requirement projections for this year.

The projections for the current year have risen from about £19 billion at the time of the autumn statement last November to an estimated figure in the Budget this year of £28 billion, which took away the breath of many hon. Members. Last week we were given a revised estimate of £37 billion. The borrowing requirement for the current year--the estimate of how much the Government will spend in excess of taxes--has increased by no less than £18 billion. If Opposition Members are right in their assumption that Governments can spend their way out of recession, we should have expected growth projections to be moving forward rapidly, and should now have an overheated economy. However, the reverse has happened. The projections of growth for the current year have fallen from 2 per cent. positive at the last autumn statement to 1 per cent. negative in the current autumn statement. There can be no better proof that Governments cannot spend their way out of recession.

How are we to get out of recession ? I was pleased by what my right hon. Friend the Chancellor told us. He said that the main means of ending recession were through the supply side and through monetary measures-- easing monetary policy. His autumn statement contained the fact that we now have a new monetary framework, under which British interest rates will be determined by domestic conditions. That is to be heartily welcomed after our experience in recent years, when we first shadowed the deutschmark and then became a formal member of the exchange rate mechanism.

My right hon. Friend the Chancellor has rightly stated that monetary policy was too tight during our membership of the ERM. We now have an opportunity to set a sensible framework for the future to produce growth in the British economy and deliver the sort of economic results that all hon. Members wish to see.

Many hon. Members have spoken of the immediate measures contained in the autumn statement. I shall spend a little time looking at the medium-term prospects, and the ways in which we are to regenerate the economy in the medium term. My hon. Friend the Member for East Lindsey (Sir P. Tapsell) made many sensible comments about Britain's trading relationships, but I do not agree with his judgment that management of the economy has to be left to the day-to-day judgments of one or two individuals. One of our mistakes in the late 1980s was to run the economy in that way, and we did not put in place an established framework or the institutional changes necessary to ensure that our policies were properly implemented.

My right hon. Friend the Chancellor said today that the aim for public expenditure for the coming three years is to ensure that it is less than the long-term growth rates, which are thought to be about 2.5 per cent. He has set out a strategy for growth in public expenditure over the next three years of 1.5 per cent. per annum in the Government's

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public expenditure control total. That is a tough target and promises an even tougher spending round in coming years than in recent ones.

The spending round that we have just experienced has provided for 4.5 per cent. growth in public expenditure, which is quite a high percentage. If one considers the future and the plans in the autumn statement, one sees that public expenditure growth will be considerably reduced--to about 1.5 per cent. Like many other hon. Members present, I believe that it is essential to fulfil those plans. All too often, previous autumn statements have contained tough spending plans for years two and three that have not been fulfilled. However, we must keep to our spending plans as the consequences for the British economy for not doing so would be very serious. We are starting with a budget deficit as a proportion of gross domestic product of about 7 per cent. If public expenditure does not remain within the planned total it will create serious difficulties for our future funding requirements, for long-term interest rates--which have an important bearing on the wealth-creating sector of the economy--and it would have serious consequences for our taxation policies and the Government's commitment to low taxation. Sticking to those spending plans presents a great challenge. The Chancellor has said that British interest rates will be set according to domestic monetary conditions. I welcome that. A letter dated 8 October from the Chancellor to the Chairman of the Select Committee on the Treasury and Civil Service sets out the conditions for returning to the ERM. The most important of those is that British and German monetary conditions must converge. However, it would be a mistake to return to that mechanism only because of that. We should return to the ERM only when the British and German economies are totally synchronised and working in exactly the same cycles, and, given developments in the German economy over the past two or three years, I can see little possibility of that happening in the foreseeable future.

For many years the German economy was the anchor at the centre of Europe, but that is no longer the case. It has considerable difficulties that will take many years to correct. A hasty return to the ERM would damage the British economy, and fulfilling a legal commitment to return to it and making our economy converge with that of Germany could threaten to capsize the British economy. I welcome the Chancellor's proposals for a more open approach to financial management. He announced plans for a panel of independent forecasters who will meet once a quarter to discuss the outlook for the British economy. That is welcome, but I do not think that it goes far enough. We should consider institutional change to our economic management. Countries with the best records on their economy and on maintaining low inflation have a much more open system. In the United States the minutes of the open market committee of the Federal Reserve are freely available and in Germany there is constant dialogue between the Bundesbank and the markets. That country also has a panel of independent advisers offering open advice. Institutional change is appropriate in the fight against inflation and the battle to create sound money, which lies at the heart of the Government's economic policy, which

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I thoroughly endorse. There are two dangers to such a policy. The first is a large fiscal deficit, and some of the projected deficits are large. Such deficits will tempt future politicians to print money to bridge the gap. The second threat to sound money is over- tight monetary policy. Such a policy was followed in the early 1930s and the reaction that followed harmed the post-war British economy. We have had a period of tight monetary policy when we were in the exchange rate mechanism, but we should now pursue the appropriate monetary conditions to redress that.

We must consider not only lower interest rates but the Government's funding policy. Underfunding the deficit is supported by many monetarists and is the policy adopted by monetary institutions as strong as the Bundesbank and the Federal Reserve.

The autumn statement has many sound features, but in the years ahead we shall need to add further building blocks. If we do that, we shall recreate the spirit of enterprise.

8.5 pm

Mr. Gordon Prentice (Pendle) : My constituency has a greater percentage of people employed in manufacturing than that of any other hon. Member. I shall return to that. The Chancellor said that the autumn statement is all about confidence, but people in my constituency and elsewhere will see it for what it is--a confidence trick. There have been so many promises of recovery and so many false dawns that nothing that the Chancellor says will ever be believed. On 4 September my local paper, the Lancashire Evening Telegraph, carried the headline :

"Ingenious step to head off a crisis."

The story below that headline read :

"Of all the options open to Chancellor Norman Lamont to defend the pound, his move yesterday to borrow £7.25 billion in foreign currency to be sold for sterling is the most innovative. Certainly the City hailed it as ingenious Now, with Mr. Lamont's cash-pot, sterling has been provided with a buffer lasting until next March. By that time the long-delayed signs of upturn in the United Kingdom economy may have emerged to strengthen confidence in the pound."

The hundreds of thousands of people who read that major regional daily must wonder when the recovery will come. Having been once bitten, the Lancashire Evening Telegraph will be twice shy. The Government's economic policy is all about ingenious steps, three-card confidence tricks and misrepresentations. Despite the Conservative manifesto and solemn pledges at the general election, much has been concealed from the electorate. The manifesto did not mention pit closures and the fact that 31,000 miners and 70,000 people in ancillary industries would be thrown out of work. It did not mention devaluation, the billions of pounds thrown at speculators on 16 September and the continuing slump. On the contrary, the manifesto promised recovery. The Prime Minister told people to vote Conservative on Thursday 9 April and said that the recovery would continue on Friday.

The Chancellor said in his speech that the autumn statement is all about controlling public sector pay. That means that people in the public sector are being asked to pay for the Government's mistakes. The low-paid will also suffer. My constituency is a low-wage area in a low-wage region. Today's debate comes hard on the heels of the debate yesterday on the abolition of the wages councils--an obnoxious policy but a fitting one for the

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Government and just what one would expect. The Government's message is that to help recovery people must accept lower wages. They did not bat an eyelid when Vallance in British Telecom and other captains of industry in the privatised utilities were awarding themselves stratospheric pay rises. Those salaries were supposed to signal the spirit of free enterprise. Then, on Tuesday, at the Lord Mayor's banquet, the Prime Minister had the gall to talk about fairness. When did he learn about fairness? Why did it take it him so long to discover it? That will not wash. My constituents and millions like them will be worse off and calls to sacrifice by the Prime Minister will fall on deaf ears in Lancashire, where 5 per cent. of all adults earn less than £120 per week--talk about a wages council minimum--and almost 10 per cent. of women earn less than £120 a week for a full working week.

Those are sweatshop rates of pay, and those are the people whom the Tories want to accept lower wages so as to bail out the Government. The poorest are being called on to make that sacrifice. We know what brought this about. The Government strategy is to compete on wage rates rather than to develop skills. That is why the autumn statement cuts the training and employment budget even further, with youth training and employment training facing a real cut of 3 per cent. The Government's message is "leave it to the market."

We get all these lectures about competitiveness and measures to make the economy leaner and fitter, but no one buys that. No one believes that stuff any more, not coming from them, after two recessions in a decade and one third of manufacturing industry being wiped out. In the north-west of England, where my constituency is, 37 per cent. of manufacturing industry has been wiped out by the Tories.

Despite all this, the Chancellor wants confidence. He says that that is what will pull us through. If he tells that to the people in my constituency, where bankruptcies are running at record rates, home repossessions have never been higher and high unemployment is now endemic, they will laugh. We have the highest unemployment for five and a half years. For 30 months in a row, unemployment has relentlessly risen. Unemployment in my constituency is 72 per cent. higher than it was when Major became Prime Minister in November 1990.

Madam Deputy Speaker : Order. It is not the custom of the House to refer to another Member by his name. Furthermore, when the Speaker or Deputy Speaker rises, the hon. Member being called to order must resume his seat.

Mr. Prentice : Thank you, Madam Deputy Speaker. You will gather that I feel strongly about this issue.

Ordinary people will pay for the mistakes of the Conservatives. I see Tories snigger. They will probably find some way to twist the issue of Government borrowing. The PSBR of £44 billion comes from a party that in April told the British people that the implementation of the Labour party's manifesto commitments would cost £35 billion. Government borrowing will be running at a rate of £1 billion a week next year with a need to finance maturing Government debt. All this borrowing is to pay for unemployment and to generate growth of 1 per cent. Where will the growth come from? It will not come from our manufacturing industry because Britain does not make things any more.

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Mr. Geoffrey Clifton-Brown (Cirencester and Tewkesbury) : Rubbish.

Mr. Prentice : Is it rubbish? Work on civil airlines has been transferred from Hatfield to Taiwan. They should tell people in Hatfield about the transfer of technology.

Mr. Clifton-Brown : What about our balance of payments surplus in cars for the first time in 15 years? The hon. Gentleman is wrong to say that we do not make things any longer.

Mr. Prentice : I agree that there has been an improvement with cars, but that is generated by Japanese companies, not indigenous United Kingdom companies. What about consumer durables such as washing machines? What about shipbuilding? Can Tory Members find something to laugh about a shipbuilding industry that has plummeted? What about cameras? Can they laugh about the motorcycle industry, the bus industry or the textile industry, which used to be so important in my constituency, which have all been wiped out? The last pit in Lancashire, Parkside, is about to close. Are they going to laugh at that? What about British Aerospace, in which 132,000 jobs nationwide, and 40,000 in my area, are threatened? If that goes, my region faces economic annihilation and the erosion of its skill base. No doubt they will still find something funny about that.

If we lose leading technologies such as aerospace, from where will the new jobs for my constituents come? We have accelerating job losses, falling investment, empty order books and a flattened housing market. We need a programme for growth and long-term

investment--something that we are not getting from the Government. The north-west needs a Government who are seriously interested in manufacturing industry, but no one believes that the autumn statement measures up to the task ahead.

8.15 pm

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