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no difference. We might as well have nil inflation and once everyone was accustomed to that, away we would go and the economy would prosper.As a consequence of our experience over the past 15 years or more, we know that that was nonsense. However, we then took that argument a little further. By that time, even we--the Government and the Opposition--had lost confidence to such an extent in our own prescriptions for the economy-- although, of course, we stuck absolutely rigidly to our prejudices--that we were persuaded that they were not actually producing terribly good results. We had lost so much confidence that we thought that the only solution would be to hand over all responsibility for running those policies to someone else. That was the whole purpose of contracting out our economic policy to the Bundesbank by committing ourselves to the exchange rate mechanism. I was not altogether surprised that that step was taken by a Conservative Government, because capital had largely lost any allegiance that it felt to the national economy. In terms of its allegiance, it followed capital itself : it had become an international actor in the economy.
As a consequence, the loyalty of the right quite naturally passed from the British Government to a European or even wider governmental arrangement. I was somewhat surprised, however, that the Labour party endorsed that step. It seemed to me to be absolutely evident that if one simply decreed that one's exchange rate was worth a certain amount and then made the situation worse by decreeing that it was worth more than anyone thought it was worth, one would immediately burden industry with the fact that one was penalising its production and subsidising everyone else's production.
I always think that it is remarkable that I, as a left-wing politician, should be so aware of the importance of price in the market, but there we are--that is the fact. If we insist on pricing our goods out of the market, we cannot be surprised if people do not buy them either in our own markets or internationally.
What is more, as a result of the initial mistake and the burden placed on our industry, a gap develops between what we say that the currency is worth and what everyone knows it to be worth, so we have to try to make up the gap by raising interest rates. To persuade people to hold our overvalued currency, we have to assure the banking fraternity that we are serious, so we start to cut public spending, just as Ramsey MacDonald was persuaded by Montagu Norman to cut unemployment benefit in 1931. It is exactly the same phenomenon. In the end, such measures begin to weaken the economy. The debilitated economy simply cannot perform up to the level that we have decreed that it should match. The gap between what we say that the currency is worth and the level at which industry is capable of performing becomes wider and wider until eventually it cannot be sustained. That is what happened on 16 September. It was all perfectly predictable. Yet the Government and the Opposition are still committed to exactly the same policy--only this time there is to be no escape. The ERM could at least be allowed to fail painfully and ignominiously, but a single currency and economic and monetary union will allow no such escape.
Mr. David Nicholson (Taunton) : The hon. Gentleman's speech is a tribute to the fact that occasionally leading politicians should spend time in exile so that they can
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criticise conventional wisdom, but does he agree that his criticism of the ERM was aimed not so much at the ERM in principle as at the level at which this country joined it? Will he also comment on the fact that another supposedly left-wing party--the French Socialist party, which is at present in government and facing elections--is following the very policies that the hon. Gentleman has criticised and apparently crucifying the French economy to low growth, in contrast with the policies of high growth followed by its predecessors?Mr. Gould : I have been known on occasion to hope that my Front- Bench colleagues, who constantly invoke the example of our socialist colleagues in Europe as a reason for supporting them and their support for economic and monetary union, might observe what that has meant and what it is likely to mean for a French socialist Government and even perhaps for a Spanish socialist Government. The hon. Gentleman makes a valid point. My speech is not intended to be about Europe--it is about economic policy-- but, of course, the initial mistake in the ERM was the parity that was chosen. There were at least two further mistakes, one of which was that the obligations were never symmetrical : all the burdens fell on the weaker economies, which had difficulty keeping their currencies in line with the appreciating deutschmark and felt compelled to deflate their economies in a vain attempt to keep pace.
It is no accident that western Europe is the world's unemployment black spot. It is because a monetary policy that may or may not have been suited to the German economy at a particular time has now become the norm for most of western Europe. The second great mistake about the ERM was that, instead of being a perfectly sensible attempt to stabilise exchange rates and to iron out the inevitable volatility of the markets, it became locked in concrete because it became the essential precondition and the bridge that had to be crossed to reach a single currency, so it could not be allowed to be changed in any way.
I return to my thesis, which is that our commitment to the ERM and to a single currency are simply modern-day manifestations of a long-standing and now endemic preoccupation with the short term and with the value of assets, at the expense of the longer-term interests of those who wish to invest in our economy to create wealth for the future. Some people say that I am wrong to maintain that matters such as exchange rates and interest rates are of any importance--we are told that they are merely technical--but an economy that is preoccupied with assets and the short term is one which always has as its objective the holding of the exchange rate at the highest possible level : as its first port of call in policy terms, it will always push up interest rates because if the exchange rate is always held at the highest level, it will maintain the value of existing wealth, at least in principle. In the long term, of course, it cannot work : indeed, it destroys wealth. Politicians are especially susceptible to such beliefs. If the exchange rate is overvalued for a time, we all enjoy a higher living standard than that to which we are entitled, at least for the time being, but the long-term consequences are damning and an economy that is run on that basis will see its productive capacity destroyed.
The same can be said about interest rates : show me an economy with high interest rates and I will show you an economy that is interested in the well-being of those who
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have money to lend now--assets already-- rather than in those who wish to borrow to create wealth for the future. These are important matters and when they have been endemic and entrenched for a century or more, it is futile to pretend that they are just short- term, technical problems.In terms of my hon. Friend's excellent motion, how can we escape from this long-standing bias in British economic policy making? First, we must re- establish macro-economic policy--an unlovely phrase--as a real factor in managing our economy. We now know that it is not enough for a Government just to set the monetary conditions--even if they knew how to do it, which they manifestly do not : they cannot even decide what definition of money they want to apply, let alone the mechanisms by which they can hold it stable. Even if they could do that, it would still not be enough, because macro-economic policies--that is, demand management, the level of public spending, the management of the exchange rate and the setting of interest rates--all have a direct and potent impact on the real economy and should be judged in the light of the condition of the real economy from one week or month to the next.
Macro-economic policy should be a true Government responsibility which cannot be shuffled off or ignored. If it is ignored, we all suffer. The Government must intervene in these matters. They must have a policy--and so must the Opposition if we want to be taken seriously. We should not just say the excellent things that we do say about long-term investment and training ; we should put them in a context in which the macro-economic performance of the economy gives them a chance to work. On the Labour side- -I have little hope of the Government side--that means that we should recognise that the projected level of the public sector borrowing requirement at any moment is not just a fixed element but a matter over which we have some control. If we do not want to borrow or impose taxes to finance it, why should we not--in circumstances that will not last for long --say that the public sector might have the possibility to create just a little credit for the purposes of investing, since the private sector creates such vast volumes of credit for the purposes of consumption and importing? No one dares to think of that because people are terrified of being told that it means printing money. I do not care what it is called. We may call it monetising the debt, or underfunding, or whatever. It may not be appropriate for long, but it is appropriate now.
Within a short time, we may find that there is so much money sloshing around that we shall have to look again at credit controls. People do not like the idea of such controls, but that is the basis on which the monetary policy that was so admired for so long in countries such as Germany has been run. Let us use economic policy intelligently and positively to meet the requirements of an economy that performs well. By that I mean an economy that uses all its resources, secures a reasonable rate of growth and achieves equilibrium in its external dealings. That is all that we want and technically it is not all that difficult to achieve.
The hon. Member for Altrincham and Sale (Sir F. Montgomery) spoke affectingly about his childhood in the 1930s. His speech could well have been delivered in the 1930s. He said that there was nothing to be done, that there was no panacea, that unemployment was world wide, that it was too difficult to grapple with and that we had to live with it. That is exactly what was said in the 1930s. We
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now know, or should know, that it was possible to do something and that something was done. And it could still be done. In the course of setting the right economic context, we could make a real attack on short-termism. Why not change competition law to choke off the mania for mergers and takeovers which has every half-decent business man looking over his shoulder to see where a bid is coming from? Why not change the accounting conventions which presently provide that any company mad enough to spend money on training or on research and development simply suffers a cash flow problem which makes it more vulnerable to a takeover, rather than producing an asset on its balance sheet?We should look at the role of pension funds, which are the most important sources of industrial investment in Britian and are likely to become more important. We should cast at least some light on who decides where that money goes. In respect of our second most important asset, our pension rights, can any hon. Member say who made the decision about where our money should be invested? We do not know, but we should, because that would give us a chance to make sure that it was used in the proper interests of the British economy. As my hon. Friend the Member for Selly Oak said, why not try to develop a system of industrial banking such as that which has served the Germans so well? If the private banking sector will not do it, what option is there but for the public sector to do it? That is hardly a frightening precedent when one looks at the degree of state ownership of banks among our European partners.
Above all, the objective of economic policy must be full employment. It is not beyond our capacity and it is not technically difficult. It is a matter of understanding what is the true role of economic policy. Full employment would not only be the most potent of all instruments of social justice and redistribution of wealth that a Labour Government could bring about ; it would also be, even for a Conservative Government, the way to secure some claim to economic success and efficiency.
I am grateful to my hon. Friend the Member for Selly Oak for giving us the opportunity to make those points. I urge not just the Government but the Opposition to restore full employment to its proper place as the central aim of economic policy.
11.38 am
Mr. Quentin Davies (Stamford and Spalding) : The Labour party is so serious in its denunciation of the Government's management of the economy and of its ability to improve on that performance, and in the message that it is putting forward this morning, that it has never managed to field more than six hon. Members on the Opposition Benches throughout the debate, and that has included the statutory Whip or Front-Bench spokesman. That is the background against which we must regard some of the remarks that have been made in the debate. It is a pleasure to follow the hon. Member for Dagenham (Mr. Gould). It was almost an aesthetically historical pleasure to listen to the hon. Gentleman, because his was the voice of completely unreconstructed socialism, of someone who, perhaps by deliberate choice, has decided to ignore the history and practices of the modern world and all the advances in modern economic theory. He speaks a wonderful language of monetising deficits and credit controls and setting up industrial banks. What I
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particularly savoured was the view of capitalism as a conspiracy of international bankers. Such phrases have a certain historical resonance to them and it is a delight to come to the House of Commons on a Friday and still hear people using that language, apparently entirely seriously. The hon. Member for Dagenham is joining the right hon. Member for Chesterfield (Mr. Benn) in the museum of Labour party history.Dr. Lynne Jones : Did not the hon Gentleman notice, during the speech of my hon. Friend the Member for Dagenham (Mr. Gould), the agreement on a number of issues that he raised that was shown by the nodding of heads by Members on the Government Benches?-- [Laughter.]
Mr. Davies : If the hon. Lady wishes any guidance from my hon. Friends on that comment, that spontaneous reaction has given it to her. I did not want to ignore the hon. Lady in my introductory remarks. Far from it : I was about to congratulate her on having won the ballot--something which I have never achieved, and of which I am somewhat envious--and on having made a lucid, good-humoured speech in which she gave way to many interventions with great charm and courtesy. I also congratulate her on having produced a remarkable and impressive compendium of political cliches. I have not heard quite such a good one for a long time, and I collect that political genre. Both the hon. Lady's speech and that of the hon. Member for Dagenham reflect a fundamental fact and an interesting political phenomenon, and that is the modern Labour party's great aversion, in contrast to its predecessor in the first half of the century, to anything that looks remotely like a new idea. Instead, the House hears a regurgitation of all that we have heard not merely in the five or six years that I have been a Member of Parliament but over the past 60, 70 or 80 years. I dare say, Mr. Lofthouse, that the Conservative party can take some comfort from--
Mr. Deputy Speaker (Mr. Geoffrey Lofthouse) : Order. I hope that the hon. Gentleman will take note of the fact that, while we are all getting somewhat intoxicated by Maastricht, I am sitting in the Speaker's Chair today, because we are not in Committee.
Mr. Davies : I am sorry, Mr. Deputy Speaker. I am afraid that this is becoming something of an occupational disease, which might be called Maastrichtitis. I have noticed in the past few days that a number of my colleagues on boths sides of the House have made the same mistake. That is not an excuse for my making it today, so I apologise. I should have made an effort to avoid that trap into which it is so easy to fall in these difficult times.
We can take some comfort from the confirmation of the essential intellectual bankruptcy of the Labour party, which has been demonstrated, in the nicest and most enjoyable way, by those Labour Members who have taken part in the debate.
It would be common ground between all of us that our great national problem in the past 100 years has been, for most of that time, the failure of our economic performance to match that of the world leaders. I say "for most of that time" because in one decade--the 1980s--we outmatched the economic performance of the rest of the world, with the continuing exception of Japan. During that decade, for
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the first time this century, our share of the international trade stabilised, our record for growth in productivity was one of the best in the world, and was second best to Spain in Europe, and our growth in real disposable income was higher than that of any other country in Europe, both in and outside the Community. That is a remarkable and impressive record.Ms Abbott : Does the hon. Gentleman agree that the 1980s was a decade that saw the rapid contraction of our manufacturing base and the increasing prevalence of Tory Members to say that manufacturing did not matter? They said that it did not matter how one earned the money, whether it was by selling goods or financial services. Is the hon. Gentleman one of the sinners who now repenteth, and is he acknowledging that that lack of emphasis on the importance of maintaining our manufacturing base was one of the big mistakes of the 1980s?
Mr. Davies : The hon. Lady is factually incorrect. Manufacturing output increased in that decade. The output of the economy as a whole increased at an impressive rate, so we cannot speak of the 1980s as a decade that saw a decline in manufacturing. Furthermore, for a number of methodical and definitional reasons-- [Interruption.] I see that the hon. Member for Newcastle upon Tyne, East (Mr. Brown) thinks that that is funny, but he will have to think through these issues if he is ever to get past the superficial political slogans in which the Labour party likes to deal.
Let me give a specific example. Manufacturing output is calculated as the sum of the turnovers of businesses that are classified as being manufacturing businesses. It is a favourable, and inevitable, characteristic of modern industry that it tends increasingly to specialise in the niches in which it can add real value and to sub-contract those functions that it does not believe are essential to that major purpose. As a result, modern manufacturing businesses--this is true throughout the developed world--tend to sub-contract all kinds of high-tech services such as computer and engineering services, lesser-tech services such as maintenance and repair of equipment, and non-tech or low-tech services such as catering, which might have been done in-house previously. As a result, although the activity of manufacturing businesses might be developing at a high rate, that might not be reflected in the relative share in those statistics of manufacturing output and it might appear that manufacturing is declining as a proportion of total output, purely by the fault of the statistical phenomenon. I notice that the hon. Member for Newcastle upon Tyne, East, who made light of my suggestion that one should look at the methodological background to statements about the share of manufacturing output in total output and other similar economic statements, now appears to be satisfied by my explanation and is generously nodding his head. I hope that I can take a little comfort from that.
Ms Abbott rose--
Mr. Davies : I have not ignored the rest of the hon. Lady's comments. As for suggesting that manufacturing is less important than other economic activities, I have never adopted such a view and I cannot see the sense of it. As far
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as I know, such a view has never been put forward on behalf of the Government whom I have the honour to support.Ms. Abbott : I know that the hon. Gentleman is a distinguished banker and I am a mere Hackney housewife and mother, but when he says that the problems of British manufacturing are purely definitional, all that I can say is this. In the part of west London in which I was born, and with which I am familiar--the great industrial estates going out to the M4-- whereas when I was a child there was a whole host of manufacturing and light industry firms there, all that one will find now is warehousing and retail. The problems of those firms in London and the south-east have been not definitional but actual.
Mr. Davies : In the rolling fields of Lincolnshire, an area which I have the pleasure to represent in part, before the war--the time which the hon. Lady was speaking of, and no doubt remembers in great detail-- agriculture was almost the only industry. Now we have high-tech businesses. There are electronic businesses, specialist printing businesses and manufacturing businesses of all types, including engineering businesses. If the west of London is an area which manufacturing industry has tended to withdraw from, I am glad to say that Lincolnshire is one of the many areas where it is now thriving.
Mr. Gould : Given the hon. Gentleman's enconium of praise to the success of manufacturing during the 1980s, can he recall the precise date-- I cannot, but it was during that decade--when this country's trade manufacturers went into the red for the first time ever? If he can tell us the date, perhaps he will go on to tell us how large the deficit is now.
Mr. Davies : I recall that it was the date when North sea oil became a major factor in our economy. Naturally that displaced the oil that we had previously been importing and brought about a mathematically inevitable rebalancing of the balance of payments.
Mr. Gould : How "mathematically inevitable" has been the balance of payments deficit over the past few years? I think that the hon. Gentleman will agree that at times it has been greater as a proportion of our gross domestic product than that which has ever been sustained by any advanced industrial country in modern times.
Mr. Davies : It is clear that the hon. Gentleman is unfamiliar with the level of our current account deficit. This year, it is likely to be about £10 billion or £12 billion, which is about 2 per cent. of our GDP. That is extremely small by the standards of imbalances, surpluses or deficits in current accounts throughout the world. It is tiny in relation to current account deficit levels that we suffered during the period when, to the great misfortune of the United Kingdom, the Labour party was in power in the 1970s.
Dr. Roger Berry (Kingswood) : Will the hon. Gentleman give way?
Mr. Davies : I shall not keep on giving way. However, I have not given way before to the hon. Gentleman and, as he is one of the few Labour Members who care sufficiently about this subject to bother to turn up for the debate--it would seem from its rhetoric that the Labour party would
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like to think that in this instance it has a major contribution to make to our nation--I shall give way to him.Dr. Berry : I am grateful that the hon. Gentleman has given way because he is clearly concerned that we should displace rhetoric for fact. He has obviously been doing that! Will he tell the House the last occasion when, in the midst of a recession, we had a current account deficit of the magnitude that he has described?
Mr. Davies : In the 1970s, is the answer. We had a continuing current account deficit and we were in almost permanent recession during the period when the Labour party was last in government.
Dr. Berry : Will the hon. Gentleman give way?
Mr. Davies : No, I shall not give way. I may give way at a later stage, but I must make some progress.
Mr. Davies : No. I must continue. I do not think anyone could criticise me for not having given way. What is more, I said to the hon. Gentleman that, though I would give way to him, I would not continue to give way after his intervention. I must return to my argument and not take any more of the time of the House than it would wish me to take.
In the 1980s, for the first time, we escaped from the continuing relative decline of our economy over the previous decades of the century. That was because we had, for the first time since the war, a Government who were prepared to identify and to address with considerable courage and consistency the great weaknesses of our economy.
There was the industrial relations issue. We all know what a terrible incubus that was to us during the 1960s and 1970s. We all know that we now have one of the better industrial relations records in the world instead of far and away the worst among OECD countries. That was an immense achievement in a vital area of the economy. There was a failure of entrepreneurship in the United Kingdom in relation to the more dynamic economies of France, Germany and Japan, for example. That issue was addressed by the programme of tax reform and deregulation which was introduced in the 1980s, or when the Conservative Government came to power in 1979, and which is still continuing. I know that my hon. Friend the Minister will understand that it has never been more urgent to maintain the momentum of such an extremely important reform of the economy. The results are there to be seen.
During the 1980s, more than 1 million more businesses were created than the number that disappeared. Even last year, at a time of international recession, and a painful one, 400,000 businesses were created. That should give us some comfort. It should make us determined to continue to create the conditions in which people innovate, take risks, invest in the long term and generate the employment and prosperity that our nation will require in future. The Government tackled another area of the economy where the records of Governments of both parties had been pretty lamentable. We were able to make a substantial change in the 1980s and establish a clear framework for monetary policy. We were able to get away from the debilitating cycle of devaluation that the hon.
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Member for Dagenham liked so much. It was one of inflation followed by foreign exchange crisis, retrenchment, recession, inflation and further devaluation. I refer to the miserable history of stop-go that characterised the years between 1945 and 1979.Thereafter, we had the medium-term financial strategy, with its explicit commitment to certain monetary targets. That worked well for much of the 1980s. The framework over most of the past three years has centred on our membership of the exchange rate mechanism. There can be no doubt that our commitment to the medium-term financial strategy and the ERM brought about the reduction in our inflation rate that was so striking in the 1980s, and it has been striking again in the past two years.
We know that one of the great shortcomings or handicaps of the British economy in relation to our competitors--France, Germany, Japan and the United States--has been the constantly high levels of inflation that we have suffered over the decades. It has increased uncertainty, which has undermined investment and confidence in the economy.
Mr. Jenkin : We successfully reduced the rate of inflation in the early 1980s outside the ERM. The Chancellor of the Exchequer at the time, now Lord Howe, used to make speeches about how undesirable it would be for Britain to be in the ERM.
Mr. Davies : With respect to my hon. Friend, whose interventions I always listen to with great attention, there is a certain amount of unreality about his observation. The ERM did not exist when Lord Howe, as he now is, was Chancellor of the Exchequer.
Mr. Davies : I think that there may be confusion between the European monetary system and the ERM, which was developed subsequently. The ERM has delivered the low levels of inflation from which we now benefit. The level now is at an historic low. We should recognise that fact.
A great theme has been notably absent from the debate so far. It would be wrong should it continue to be absent. I refer to the great theme of monetary policy of the official Opposition. We know the monetary policy of individual members of the Labour party, including the hon. Member for Dagenham--print money, high inflation and so on.
Mr. Deputy Speaker : Order. I hesitate to interrupt the hon. Gentleman, but the points that he is making are not really related to the motion. I should appreciate it if he would direct his remarks to the motion.
Mr. Davies : I hope that you, Mr. Deputy Speaker, will agree that monetary policy is a central element of economic policy. Indeed, in many ways it is the determining framework of economic policy. If we are to debate the views of the Opposition on the effectiveness of the Government's management of the British economy, we should at least know what they are proposing for monetary policy. It is clear that we do not know their view on the conduct of monetary policy. They supported Britain's membership of the ERM, but, at the same time, they called for even greater falls in interest rates which would have been inconsistent with our continued membership.
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Since Britain left the ERM last September, we have enjoyed great falls in interest rates and considerable devaluation. The Opposition still have not told us whether they approve of that. If they believe that those falls in interest rates and considerable devaluation are good for the economy, it is less than frank--indeed, it is quite churlish-- of them not to congratulate the Government on having done something positive for the economy. If, however, they believe that they are bad for the economy, they should frankly advocate putting up interest rates and paying the price of a higher exchange rate. The uncharacteristic taciturnity of Opposition Front-Bench spokesmen is a matter of national importance which should be investigated during this debate. Even if you do not want me to continue with this theme for much longer, Mr. Deputy Speaker --and I will not do so--I must just say that during our debate we must establish quite clearly that there has been the most monumental lack of frankness from the Opposition on such an important issue of national policy. If the Opposition have the slightest aspiration to be taken seriously as an Opposition, let alone as an alternative Government, they owe it to us to say, here and now, what their view is on this important matter.12.2 pm
Mr. Ken Livingstone (Brent, East) : I am delighted that we have the opportunity to debate the motion tabled by my hon. Friend the Member for Birmingham, Selly Oak (Dr. Jones). Almost all the debates on the economy in this place broadly reflect the Government's view, with the Opposition making points of objection. This is the first time that the left of the Labour party has been able to table a motion that constructs a serious and coherent alternative to the Government's policies.
Part of the weakness of the Labour party in establishing its own economic policy has been that it has not been able to create a coherent total alternative. Indeed, far too often it has agreed with the Government, so that when the Government's policy falls apart the Labour party has to take its share of the blame. For example, it dragged along in the wake of the Government's decision to join the ERM at a grossly inflated rate. The motion provides a coherent alternative and the basis for what has already been an interesting debate. It will become considerably more interesting when we hear from the Government and from Opposition Front-Bench spokesmen. There are divisions within the Labour party, but it is also not outwith public knowledge that the Parliamentary Under-Secretary of State for Technology is a true believer. It will be interesting to see how he squares the circle of what he now has to explain away.
I want to make my position absolutely plain. The single, most important act at the present time must be to scale down the absolutely devastating and deadening level of military spending, which, year after year, decade after decade, has systematically had such a damaging effect on the economy. That is why I am glad that that is spelt out in my hon. Friend's motion. There is a great deal of confusion about Labour party policy on that matter. A few weeks ago, when the Government announced the reversal of some of the very limited reductions in military spending, I was shocked to hear one Labour Member after another complaining that the reversals were not enough
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and that the Government should have introduced them earlier. The reality is that every year since 1989 the Labour party conference has voted for a specific resolution--it is reiterated in the motion--to reduce the level of military spending in Britain to the European average.I fail to understand why a nation that is now very much in the lower-middle ranks of European nations should bear a disproportionate burden of military spending. The figures are quite stunning. They come from a neutral and eminently respected source, the Institute of Strategic Studies. That is not in any sense a left-wing body ; indeed, it is a right-wing military think- tank which produces comparable statistics and irons out the inconsistencies and the deviousness in many of the figures published by the Government, which give untrue comparisons. The institute's figures are always a couple of years behind because of the length of time it takes to carry out the analysis, but they show that in 1990 the United Kingdom was still devoting 3.7 per cent. of GDP to military spending compared with 2.8 per cent. in both France and the Netherlands, 2.2 per cent. in Germany, 1.8 per cent. in Italy and 1.6 per cent. in Belgium. If we simply said that Britain's commitment to the military security of Europe would be no more and no less than the European average, large sums would be released. No one is suggesting that they could be released in the first year, but over the lifetime of a Government we would phase down our military spending and divert the resources released to more productive sectors of the economy, thereby unleashing both growth and increases in employment. If we restricted our spending to the European average, that would release about £7 billion. If we decided to match Belgium's spending, that would release £11.5 billion.
Mr. Jacques Arnold : What arguments would the hon. Gentleman espouse to the workers in the defence industries in specific Labour constituencies when their jobs are lost?
Mr. Livingstone : I would tell them the truth--that their jobs would be lost anyway. The question is whether we actually plan for that. It is inevitable that military spending will be scaled down. Every one of the countries that I have mentioned have reduced their spending. I accept that some third-world countries are increasing their military spending, but overall there is a decline. Workers producing military goods will increasingly be competing ferociously for a declining market. We should be planning for that by recognising the inevitable long-term trend, retraining the work force and retooling the factories. Then, instead of the workers facing unemployment when some foreign nation decides to reduce its purchases of aircraft and armaments, they will be producing high-tech, high quality goods which can be sold to other nations. Indeed, we might even buy them ourselves rather than importing goods.
The workers in our defence industries are usually the most highly skilled in British industry and they work with some of the most modern plant and equipment. They are exactly the workers who could lead a major reconstruction of British manufacturing industry and begin to recreate the manufacture of goods that we long ago stopped manufacturing. When I first started work, the political debate in Britain was about why Britain's goods were not of the same high quality as those of Germany. That is no longer the argument. In many cases, we no longer produce
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an alternative in Britain at all. Rather than have defence workers face an increasingly unstable future and be vulnerable to whether or not there will be a war somewhere on the face of this planet, and as other Governments wind down their military spending, I should like those workers to have a future creating new products that will expand the British economy and win export orders that will help to crack the trade deficit.A couple of years ago, a detailed analysis produced by Cambridge Econometrics and studied dispassionately by House of Commons researchers showed that if our military spending were reduced to the European average and the money saved were used to fund direct investment in industry and social programmes, more employment would be created in the long run. Military spending is the least labour-intensive form of public spending. Provided that the money saved were used to fund infrastructure projects rather than tax cuts, although many jobs would be lost initially, the overall balance would be an increase of 520,000 jobs in Britain by the end of this decade.
Mr. Rod Richards (Clwyd, North-West) : The hon. Gentleman cited the lower proportion of gross domestic product spent on defence by other European countries. Can he say how often those other countries have been invaded this century?
Mr. Livingstone : Without research, I cannot answer the hon. Gentleman, but none of them is in danger of invasion now. Why do we have a British Army of the Rhine--to protect England from the east Germans? We are not only sustaining an Army on the Rhine but paying for it in foreign currency, which makes a further drain on our resources. That is nonsense.
Mr. Jenkin : We read daily in our newspapers that the current democratic regime in Russia is tottering. If that regime were to totter and collapse and a military-style regime were once again in control of Russia with ambitions over the old Soviet Union, might there not be a case for increasing defence expenditure to secure the eastern frontiers of Europe? If the hon. Gentleman agrees, should not we remain capable of responding?
Mr. Livingstone : I have listened to right hon. and hon. Members on both sides of the House, and, overwhelmingly, Conservative Members say that we should not intervene in Bosnia and that it is beyond Britain's capacity to do that, so I hope that no Conservative Member is under the illusion that we could step in and sort out Yeltsin's problems. I do not know how many troops that would take. We know that Russia will not attack the west. Russia is popping over with the begging bowl and Bill Clinton is running around trying to persuade the Japanese to cough up money to sustain that regime. I do not share fears about the fall of the Yeltsin regime. I do not see Yeltsin as a natural democrat. I believe that he has some unpleasant instincts towards strong autocratic rule. He is probably no more democratic than Pinochet. There are much stronger democratic forces in the Russian Parliament.
Ms Abbott : Does my hon. Friend agree that any military action required in response to events in eastern Europe or Bosnia, or anywhere else, ought to take a European form? Conservative Members peddle the pernicious notion that our country is still a world power, as in the days of Yalta. If Britain provides a military force
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in a peacekeeping or any other role, it should do so side by side with our European partners. We should not assume a role wholly out of proportion with our economic strength.Mr. Livingstone : My hon. Friend is absolutely right. In the Gulf war the world's leading super-power, the United States of America, could intervene only after securing financial backing from Germany, Saudi Arabia and Japan. Any policing action in Europe or elsewhere in the world should be planned by the United Nations, which is perhaps a little more independent of American interests. The motion of my hon. Friend the Member for Selly Oak has to do with our imperial delusions. My hon. Friend the Member for Dagenham (Mr. Gould) also made mention of that point.
We are living in the past. I blame all previous Governments for that. The failure of the Labour Government in 1945, against tremendous domestic success, was to try to hang on to that imperial image. In debates and at small meetings from which most Cabinet members were excluded, Ernest Bevin, then Labour Foreign Secretary, was saying, "I want an atom bomb with a Union Jack on it, so that I can sit at the top table and negotiate." We must learn to live with the fact that Britain will not be sorting out the rest of the world. I should be delighted if Britain could sort out its own problems over the next 10 years--that would be a major achievement.
Mr. Quentin Davies : If I was a little late for the start of this debate, it was because I could not drag myself away from listening to the hon. Gentleman's delightful performance on "Desert Island Discs". As I listened, I began to think that he had missed his real vocation. Does the hon. Gentleman accept that Labour's failure to adopt a responsible approach to the nation's defences in any circumstances is deeply suspect and that suspicion has greatly increased as a result of the modern Labour party's somersault on the nuclear defence issue?
Mr. Livingstone : As one who has battled to commit my party to a realistic level of military spending, I have found it difficult to persuade members of my Front Bench. I would hardly accuse them of being weak on military spending. They have ignored successive Labour party conference decisions. That is one reason why we could not square the circle in the last general election in respect of how we were to pay for our programme. A monstrous distortion and tissue of lies was rained down on our heads by Conservative Central Office, claiming that Labour was weak on defence. We are simply arguing that our defence expenditure should be commensurate with our real needs, weaknesses and strengths.
Under the United States freedom of information legislation, Central Intelligence Agency advice to successive American Presidents is now available, so it is possible to study all the advice given during the cold war. In the 1950s, it was said that we had a bomber gap. In the 1960s, it was said that we had a missile gap. The CIA's assessment year by year was that there was no prospect of a Soviet attack on the west and no need to make provision for one. Under the old regime and under the present one, Russia wants to sort out its own problems and to construct its own form of society. There was never any serious threat of a cold war escalating into a real war from anything triggered by the Soviet Union. I have cited CIA advice, and I am not aware that the CIA has been taken over by Militant tendency or anything like that.
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Mr. Heald : The hon. Gentleman referred to Conservative Central Office propaganda during the general election. The point being made was that if British defence expenditure were to be cut by £7 billion, that is equivalent to the expenditure on the Army, the Royal Air Force and the Royal Navy. I invite the Labour party to say which of those services it wants to get rid of.
Mr. Livingstone : When one is talking about a phased reduction in spending over five years to bring us down to European level, it seems ridiculous to say that that means that we would have to get rid of an entire wing of the service--for instance, keep the Army at its present size, but get rid of the Navy. That sort of nonsense disfigures election campaigns.
Mr. Richards : The hon. Gentleman says that he would introduce a reduction of about £7 billion, phased over five years. Will he be specific? For example, if such cuts took place, how large does he foresee that the Army would be, strictly in manpower terms?
Mr. Livingstone : One would not take such decisions without advice from military advisers about needs. I would do what the Government have not done--I would ask the military for their best assessment of our requirements in the next 10 years and then work out what we could afford. At present, the Government trim a bit off and then add a bit back in response to political pressures and not as a result of planning.
Mr. Richards : The hon. Gentleman said that he would decide what we can afford, and therefore what we should have, which is exactly the opposite of what he said a moment ago.
Mr. Livingstone : One would decide the most that the British economy could sustain and consider the major threats that we face. Frankly, I do not think that we face any threats.
Mr. Dennis Skinner (Bolsover) : We could withdraw British troops from Northern Ireland.
Mr. Livingstone : Yes, we could save £1 billion each year if we came to some more reasonable conclusion about the way forward in Northern Ireland, but I am not particularly interested in that. One would have to debate the realities of that.
We have been caught up in discussions about the drift towards monetary union. I notice from all the opinion polls that the majority of people in Britain think that there should be a defence union because they recognise that there could be major savings. That would have benefits, but the Government are resisting it. It is nonsense to have a lot of little European armies rushing around as though we might one day be fighting one another. I well remember a private remark made by Lord Carrington to a left -wing journalist when they were chatting over a drink after a NATO meeting. My leftie journalist friend asked Lord Carrington why he was so determined to keep the bomb, as it would not deter the Russians. Lord Carrington said, "Of course that is not its objective--while the Frogs have the bomb, we must have the bomb." That is the reality. It is about status, not about any serious military threat.
I must continue rapidly because, with all the interruptions about military spending, I could still be on my feet at 2.30 pm and I would offend a lot of people if that happened.
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I have described Labour party policy. In recent debates I know that we have tried to massage that away. We are not talking about cuts that have already been made. The policy was agreed in a vote by more than 80 per cent. at the last Labour party conference, and has overwhelming support outside this building in the rank and file of the Labour party and the trade unions. That policy would release £7 billion, if we take only the average, and that money could be used more productively.The Cambridge Econometrics report said that if we followed that path and invested the money in other sections of the British economy, we would end up with a net surplus of more than 500,000 jobs. What does that mean? It is not merely the net surplus, but the fact that it would mean 500,000 fewer people on the dole, multiplied by the £9, 000 per person that it takes to keep people out of work. I shall not try to do the sums off the top of my head as I shall probably get them wrong, but are we talking about £5 billion?
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