Previous Section Home Page

Column 991

immediate job at the end of it, it is worth while. The experience of work, of feeling that one is part of something, of making a contribution, cannot be replaced by Mickey Mouse training schemes that provide no real skills and do not develop personalities. The huge increase in juvenile crime is directly proportional to the level of youth unemployment, and the perception of large numbers of young people that there is no meaningful place in society for them. The importance of proper employment is evident every time we meet someone new and invariably ask, "What do you do ?" Too many young people have no answer to that question. Many more of them could have. One of the engineering manufacturers with whom we spoke yesterday--he runs a quality apprenticeship scheme--said that he would be quite prepared to take on more apprentices than he needed, and provide them with good training, if financial support was available to compensate. We should consider that seriously. We should be using some of the millions now wasted on schemes that young people have no confidence in

Madam Deputy Speaker (Dame Janet Fookes) : Order.

6.37 pm

Sir Michael Grylls (Surrey, North-West) : It seems strange to me that the Opposition motion should be on the manufacturing industry, as there are many other parts of national life that they could have picked and made a critical attack on the Government. It is astonishing that the Labour party should stick their necks out on that subject. Labour Members should not be surprised that they got two black eyes. They were given half a dozen black eyes by my right hon. Friend the President of the Board of Trade in an effective and hard-hitting speech.

I notice that the hon. Member for Brent, East (Mr. Livingstone), who spoke earlier, is about to leave the Chamber. Perhaps he will come back. His only positive suggestion was to create all sorts of extraordinary units to advise defence manufacturers on how they should get into civil business. That is the most weird and peculiar suggestion that I have ever heard--we have heard some pretty strange suggestions over the years from the Labour party. It is a strange idea that politicians, civil servants and bureaucrats should visit Lord Weinstock in his office and say, "Lord Weinstock, this is how you should get your business into civil business." If they did that, I do not think that they would stay in that office very long. They would be out of the door pretty quickly--or indeed of any other company.

One has only to put the case to see the total absurdity for there to be a Government role in this. The truth is that the old Adam in the Labour party still lives on. Rather like the Bourbons, the Labour party forgets nothing and learns nothing.

If one strips away some of the more modern rhetoric of today's Labour party, one will see that it is back to its old policy of a national enterprise board, as my right hon. Friend the President of the Board of Trade reminded us. But instead of having one board, it will be divided into many national enterprise boards all over the country, spreading like measles throughout the regions and employing all sorts of bureaucrats to make dud

Column 992

investments. God knows, we went through enough of that with the National Enterprise Board in 1975. When the Conservatives came to power, we had to wind up the NEB pretty quickly, drawing a line under the huge amount of bad debt that it had incurred. Labour, however, still seems to want to go down that route.

The idea of organising a debate on manufacturing industry in an attempt to hit the Government over the head is pretty stupid for a second reason. According to the Business Monitor report in last week's Financial Times , Britain is the most outstanding country in the European Community in terms of investment in manufacturing. That was said not by the Government or the Conservative party, but in an independent survey of the entire Community. The country is in a unique position to take advantage of its manufacturing industry, and to expand it.

As I think the Opposition would agree, we live in an era of huge change. The real challenge is this : how do we manage that change, and build on our manufacturing base ? The crucial point is that Government's role should be to allow change to happen, to encourage it and to help it along by making supply-side alterations. We did that in the 1980s ; we are doing it in the 1990s, and I trust that we shall continue to do it. I hope that we shall continue with deregulation and keeping tax rates low, especially corporate tax rates : our low corporate tax levels are very attractive. We should not stand in the way of change.

That strikes me as the greatest indictment of the Labour party : it is still standing in the way of change. It wants to stop change ; as the hon. Member for Tyne Bridge (Mr. Clelland) just said, it wants the north-east to be exactly as it was in the 1920s and 1930s, producing the same goods. We now live in a different world, however. The shipbuilding industry, for instance, has undergone a huge change. Should we go on producing ships that no one wants to buy, piling them up, although the world's shipping lines are not buying many ships now ? Of course not. The challenge is to try to ensure that the great skills, techniques and experience of shipbuilding workers can be applied to different industries. Firms should be encouraged to change. I know that that is easier said than done, but we must urge the management of change so that people can join new industries.

If we take a global, bird's eye view of British manufacturing, we perceive that, as a medium-sized country, Britain is capable of excelling in a number of areas, but not in every area. For a brief time in British history, we did excel in almost every part of the manufacturing spectrum ; but it was a very brief time. We had a captive market then. We did not need to sell goods ; we simply shipped them out. That was just trade : we were not an industrial country in the true sense of the word.

As my right hon. Friend the President of the Board of Trade pointed out, we now have to battle for every market. As a medium-sized country, Britain can excel only in certain areas. We are forced to concentrate on pharmaceuticals and chemicals, and motor manufacturing--we are very good at that ; we have some marvellous motor manufacturing companies. Whether they are owned by British shareholders is relatively irrelevant. Most cars contain parts from many different countries : if we stripped one and tried to make the parts into a sort of United Nations, we would end up with something more like a pudding--a spotted dick, perhaps, composed of parts from different areas of Europe and the world in general.

Column 993

I suppose that we all have a little bit of nationalism locked up in our heart of hearts, but we should try to suppress that. It is not relevant to the modern era.

As I have said, we must encourage change. We must run the economy so that the good industries in which we excel can do well, grow and attract investment. Inward investment has been a huge success story over the past 12 years. Investment has come from Japan and the United States ; 3,500 American companies have invested in this country, and many hundreds of German companies are now investing in it, because they consider it a good place in which to invest.

Over the past 14 years, we have had stability of government--and, above all, stability of policy. [Hon. Members :-- "What ?"] Yes : we have had a Government who believe in low taxation--including corporate taxation- -in deregulation, and in letting industry get on with its work. We have had a Government who have improved all the employment laws beyond recognition, encouraging companies to operate in much freer market conditions. As the report that I cited earlier makes clear, we are now the envy of Europe : Britain is seen as a good place in which to set up, manufacture goods and invest in manufacturing industry.

I hope that the Opposition will agree with my final comment. Undoubtedly, the growth area will be in the small and medium-sized companies. Our large corporations will not take on a huge number of people ; one or two may start up businesses on greenfield sites and employ 500 or so employees, but that is very rare. The Government, in conjunction with the City and the banks, must meet the challenge to ensure that our medium-sized firms have adequate long-term finance. There is undoubtedly a gap there : we have not as many medium-sized firms as we should have. [Interruption.] I hope that Opposition Members will listen ; I am trying to be constructive in the few minutes that remain.

There was a huge rate of growth in very small businesses in the 1980s, as a result of good policy. That growth continues, despite the downturn that the economy has experienced in recent years. We must concentrate next on encouraging medium-sized firms with turnovers of between £3 million and £50 million--non-quoted companies. That, I believe, can be done successfully only if we introduce better terms for lending. More long-term structured loans for such businesses would enable them to survive during a downturn in the economy--which, as sure as eggs is eggs, will have its ups and downs in the next few years, like every other economy in the world.

We have not achieved that yet, and I hope that Ministers will consider the matter. Through the Small Business Bureau, we have suggested a number of ways of helping and encouraging the private sector to provide the right sort of finance, as some of our major competitors have done. That is where the growth in business and employment will take place

Madam Deputy Speaker : Order.

6.47 pm

Mr. Ken Eastham (Manchester, Blackley) : The great tragedy is that the Opposition had to organise this debate. One would think that the Government would consider an important industry like manufacturing worthy of regular discussion in the arena. The Opposition, however, had to opt to discuss it in their time, and had to listen to the

Column 994

President of the Board of Trade telling us how successful the Government have been. One Conservative Member after another said what a great success manufacturing industry was. That speaks volumes about their ignorance of industry and the state of the nation in terms of manufacturing.

It cannot be denied that we have a chronic balance of payments problem, and 3 million people are unemployed. Manufacturing represents only 22 per cent. of gross domestic product, and only 18 per cent. of the labour force are involved in it. We must get away from some of the silly claims that are made from time to time. It was suggested again today that cheap labour, the exploitation of workers and anti-trade unionism attracted people to Britain, but that is not so. Low pay, long hours and bashing workers will not be the answer for Britain's future. Britain will never be able to compete on the basis of cheap labour because there will always be another nation round the corner that will make things even more cheaply. When that nation has been exploited, there will be yet another one. Companies will go to Brazil, to Chile, to India. It would be a great mistake to suppose that Britain's success will be built on cheap labour. Opposition Members believe that if we trade in excellence--and we can--there is no need to bribe customers for work. Firms will win contracts because their brilliant inventiveness is recognised and sought after.

It was interesting that the President of the Board of Trade referred to people in industry. He has never been in industry. Very few Conservative Members have been in industry, whereas some of us on the Opposition Benches have. That is why we sometimes speak a little emotionally on the subject, watching the nation going down the tubes, as we have for the past 15 years.

I put my cards on the table : I come from industry. I worked in machine tools and in turbines, so my credentials are as good as anyone else's here. I compliment the hon. Member for Coventry, South-West (Mr. Butcher) on saying that it is a tragedy that not many hon. Members come from industry. Instead, we have the City slickers who are so prevalent, particularly on the Government Benches, the wheeler dealers, the asset strippers, the City boys. If they produced more, this nation would be far healthier.

Let us examine some of the most successful economies in the world. Japan has succeeded because it is an all-manufacturing nation. Manufacturing companies such as Mitsubishi, Sony, Toyota and Nissan make ships, cars, computers, videos and television sets. Japan has not been successful through indulging in speculation, buying and selling properties and gazumping, exchanging bits of paper in the City, and all these other things. It is industries that have made Japan successful. Take Germany, one of the most successful countries in Europe. It, too, has built its success on manufacturing : Mercedes, BMW, Volkswagen, Bosch, world-class machine tools--all manufacturing. That is how Germany has come to lead Europe. We fail to recognise those simple facts.

Let us look at the situation in Britain. We have the slowest growth of five of the Group of Seven nations and we are only 18th in the 21 states of the Organisation for Economic Co-operation and Development. That is the great success that we are now enjoying, yet Conservative Members, living in the clouds, keep on telling us that everything is rosy and successful. United Kingdom manufacturing jobs have fallen from 7 million in 1979 to only 4 million today. From the industrial revolution until 1982, we always had a credit in manufacturing ; since 1982,

Column 995

we have never had a credit. Our trade deficit in the five years up to 1992 exceeded £89 billion. So it is no good Conservative Members trying to kid the rest of the nation about how successful we are in Britain.

The tragedy for Britain is that the channels that do not make anything themselves--banks and other speculators--prevent the rest of the producers getting on with the job and making things. We are tied to the system of banks, interest rates and goodness knows what, including the whims of various companies, and as a result the people who are capable of producing are never even given the opportunity to do so.

The proof of that is that the Japanese firms that come here say that our talent is second to none and have no problem with using our labour which, they say, is as good as that anywhere ; yet we in this country do not recognise it or value it. Other countries must think that we are big fools not to put all that talent to good use. That talent is even encouraged to go abroad. Very often, companies abroad recognise the talent of people from this country and encourage them to take it to them.

Nowadays, we have heritage parks where we used to manufacture things. At one time, they were places of real production ; now it is like two men and a dog, with a bit of a caretaker going around and showing what Britain's greatness used to be and what we used to do. The Opposition believe that we should be making things, not kidding ourselves. The President of the Board of Trade implied that manufacturing was not important, but we recognise that it is the only solution for Britain. We need a proper strategy and plan for energy, transport, aviation, construction and communications.

These days, we never go in for any kind of plan or strategy. That is not the case in other countries. What we find in British industry is feast and famine. Today we have jobs and next week we have no jobs. Three months later we have jobs and three months later still there are no jobs. There is no continuity. People try to tell us that this is good business practice. Some of our competitors must laugh their sides sore when they consider what Britain could be doing and what it has been unable to do.

At the moment, we are seeing a boom in cruise holidays and orders are starting to be placed for cruise ships. It makes me sick when I think that we are in no position now to place an order or even to find a dockyard where we can make one of those liners. That is an example of the progress that we have made--we cannot build ships any more. We have all the talent. We have people on the dole, being paid £9,000 a year to do nothing, people in the north-east and north-west who were doing those jobs--and we pride ourselves that we are doing well in manufacturing.

Only this week, the Secretary of State for Transport announced that he would spend £1 billion on the road programme. If only the Government had the sense to spend £1 billion on medium and small manufacturing firms, we could imagine the number of jobs that that would create. We have hundreds of jobs under notice in the rail workshops and we have clapped-out rolling stock which should be on the scrap heap ; yet instead of acquiring new and up-to-date equipment, we have decided to refurbish

Column 996

existing stock. When I was in industry we called it "soling and heeling". It was not making the modern stuff of which we were capable.

Madam Deputy Speaker : Order.

6.57 pm

Mr. David Porter (Waveney) : In a world that changes as rapidly as ours does nowadays, there can be few absolutes and only a handful of timeless truths. Here are some that remain. The Government have no money of their own, only what they take from taxpayers, who are individuals or businesses. If we want to spend more on schools, hospitals, pensions and other services that we demand, we have to earn it. The world does not owe the United Kingdom a living ; we have to carve one out. There will always be some people locked in a time-warp, unable to see that clocks cannot be put back in industry or in technology. The predecessors of Opposition Members stood blinking at the dawn of the industrial revolution in England ; by the time they had taken hold of it, it had become the technological revolution.

The Opposition's motion and some of their speeches tonight seem to ignore the fact that industry develops and that business cannot remain static. Their motion takes no account of how rich and diverse a picture of industry we have in Britain. They are not on top of the fact that manufacturing takes many different forms. There was a whiff of nostalgia in the air, with Opposition Members lauding the old command economy. I felt that it was only a matter of time before somebody called for the return of Red Robbo.

The hon. Member for Manchester, Blackley (Mr. Eastham) gave the figures. Seven million people made less in 1979 than 4 million make today. Why ? Because of technology. That is the bald and simple reason, and it is a fact that must be faced. Many of my hon. Friends have said, "It is not such a problem if we become a leisure theme park. We shall still have to make the rides, the music, the games, the food, the booze, the crockery, the furniture and the sports equipment that they need." "Do not worry," other people have said to me, "people will still need new and revamped houses, other buildings, cars, fridges, televisions and holidays, so there will always be a demand for manufacturing." That is true up to a point, but the trick of success for the Government is to create that economic climate to allow British manufacturing to make it easy for people to buy British goods within the European Community constraints for which we have signed.

I mentioned diversity and I shall now focus on my constituency, which is not, at first glance, a rich and varied economic place. Even there, however, one finds food-related processing companies--Bird's Eye Foods, the Co-operative Wholesale Society factory, the Bernard Matthews plant, Buxted Chickens and Adnams the brewery at Southwold. Fishing is a harvesting industry, but its back-up in servicing and engineering are manufacturing organisations. Coupled with offshore industries serving the southern North sea and elsewhere, and with shipbuilders such as Richards and engineers such as AKD and George Prior, they are all important and skilled creators.

In SLP we have the largest manufacturing capability for offshore accommodation modules in England south of Teesside. There is printing by Clowes of Beccles and Clays of Bungay. Plastics are made by Fiberoyle and M and H

Column 997

Plastics and sports equipment is made by Harrods of Lowestoft. High-tech manufacturer Sanyo is to be found in Lowestoft and timber doors and frames are made at Boulton and Paul in Lowestoft. Those companies are diverse and different, but they share some problems. The transport infrastructure in the coastal area east of Norwich is poor compared to that in many other parts of the country. That is part of the region's charm, but it increases the costs to industry of bringing supplies in and pushing goods out. We are 80 miles from the motorway network of England. The area has greater than average regional unemployment and is a low-wage, poor area compared to most other areas in the United Kingdom and certainly compared to the public perception of a prosperous East Anglia.

The handicap that confronts so many British businesses enforcing rules fairly, with no confidence of reciprocal regulatory respect elsewhere in the alleged European Union, is often keenly felt in a part of Britain that is only 56 miles from the European mainland--far closer than it is to London. All that does not help.

The Deregulation and Contracting Out Bill will help, and I hope that Parliament will pass that legislation. It is a pity that it cannot apply to the European Commission. The new modern apprenticeship scheme will help to improve the quality of the work force in years to come and increase its competitiveness. The economic good news will help, together with the gathering confidence of businesses throughout the region.

Getting the tax regime right must be good news, too. The lowest corporation and business taxes mean more money for investment, which means more profitability. I wonder whether we can build on those and go a little further. I suggest to my hon. Friend the Minister for Energy that we have heard a lot about downsizing the Department of Trade and Industry and the money that could be saved. I wonder whether almost doing away with the Department would be a real sign of our commitment to enterprise. It would be beneficial if we could put only some of the DTI's £3.7 million a year budget towards cutting business taxes a little further. As to the European business angle, the best help to industry is stability for a period. Let us concentrate on making the single market work before speaking about anything else in Europe.

Science and technology must be made more appealing to youngsters--boys and girls. Putting those subjects in the national curriculum has helped, but a young child's natural thirst for knowledge about how his or her world works must be translated into a real desire to invent, explore and make things in a career for young people that is challenging and rewarding.

Where are the new technologies coming from--the new jobs of the future--as machines make and repair machines ? Twenty years ago, few people could have predicted that the tourist industry would be the biggest job creator in this country. Few of us here will be able to predict the ways in which technology and lifestyles will develop in the next 20 years, but obviously the making of things will still be at the heart of our future. If the real and exciting prospects for that crucial British industry are to be realised, we must put the red tape, the bureaucracy and the regulation in balance and get our attitudes right, from Government onwards.

Manufacturing is the goose that lays the golden tax eggs of this country. We neglect it at our peril.

Column 998

7.4 pm

Mr. Geoffrey Robinson (Coventry, North-West) : I heartily endorse the clarion call of the hon. Member for Waveney (Mr. Porter) for the dismissal of the present incumbents at the Department of Trade and Industry. I am sure that the President of the Board of Trade and the Minister for Energy will read with great interest his view of their effectiveness in their present roles. I hope that it will do great things for the hon. Gentleman's ministerial career in due course. The President of the Board of Trade, sad to say, has more or less given up on the job anyway, so he might even go along with the suggestion. He has no money. He has what he spends, but it is largely arms procurement, as he said today, and we must have that--as he also said--for national defence purposes. For the rest of it, the ideas that he once had have gone by the board and the DTI is a largely ineffectual Department in any event. That was evident because the President of the Board of Trade had nothing to say other than to turn the speech into the usual knockabout with the Labour party--the type of thing that we have at every Question Time. It is the sadder because he was a Minister of whom, for a while, many of us had expected something far better, and certainly something far better in a major debate such as this.

A debate in which we are considering, for example, the future of Rover must be of major significance. I shall make one or two remarks about that and reflect on it. We must face reality and realise that the independent British volume car business disappeared 10 years or more ago. In the past five to seven years, Rover never was an independent British company in a meaningful sense. It was tied into Honda in the way in which now, inevitably, it will be tied into BMW. I would not want to choose between those two solutions.

I noticed that the hon. Member for Meriden (Mr. Mills) was suggesting that all three companies got together. In business it is difficult enough to get two companies together. I speak from the experience of having tried to create a joint venture between the Japanese and my own company--in which, of course, for the purpose of the debate, I declare my interest. That utopian idea is therefore not much good.

The best future for Rover might well have been with the Ford Motor Company. That may be a lesson for all hon. Members, and I mention it for that reason. I willingly admit that I did not support that solution at the time, and neither did any other Member of Parliament, to my knowledge. That choice was horrifically and horrendously opposed on both sides of House. When one recalls it now, the conditions on investment and the new model programme that Ford proposed were far better than anything that we could have obtained from Honda or anything that we are obtaining from BMW. One must remember that Ford already had a massive commitment in the United Kingdom, which it had to defend. BMW does not have that yet, but I trust that BMW will be as good as its word.

I am sure that you, Madam Deputy Speaker, will recall that in the late 1970s the Chrysler Corporation gave the Government the most solemn of undertakings. A Mr. Iacocca, I believe, then came to this country and tore the undertakings up in front of the then Labour Secretary of State, saying, "It is your company--you have it or we close

Column 999

it down." Of what value were those undertakings from what was then a highly respected multinational American corporation ?

For that reason, we must take exception to the remarks made by the hon. Member for Surrey, North-West (Sir M. Grylls), who is not here at present, but who spoke earlier. The hon. Gentleman said that he had some little bit of nationalism in him somewhere, but we should never let that come out : it is bad and we should have nothing to do with it. I must tell him that nationalism is the driving force in most of the companies and managements in Europe and Japan. Perhaps some words will be said about that later. When one sells in those countries, they are nationalists to the extreme, and proud to be so. Why do we seem ashamed to admit as much to ourselves in the House and outside it when we go into business ?

We have to cut the best deal for Rover that we can, and let us hope that BMW is as good as its word. In that respect, the experience of Linde, another major Germany company that heavily invested into our then privately -owned fork-lift truck industry in Basingstoke, has been extremely good. Investment has taken place, the models have been extended and the United Kingdom fork-lift truck industry has benefited tremendously.

We have a uniquely advantageous position as regards

competitiveness. The hon. Member for Meriden said that our labour costs in the motor industry are about half those of Germany and even less than those of other countries in Europe. But is that such a great achievement ? Is it something of which we should be terribly proud ? It is merely a function of the fact that our wages and social costs are much less than those of other countries and that our currency has depreciated periodically to compensate for a higher inflation rate. There is nothing else to it.

I can quote chapter and verse on the levels of productivity and capital investment in Germany. Because of my privileged position as a trader in the motor industry I know some of the comparisons that major American and European manufacturers make of the wage and labour costs in various industries. The level of our costs is not something of which we as a country should be particularly proud, and it is certainly nothing of which the Government, after 13 years in office, can be at all proud.

Having said that, let us face the facts. We should accept that we have a unique competitive advantage. Let us capitalise on it and start to regain world markets and regress the massive deficit in the balance of trade. That is the only lesson to be learnt and I will join any hon. Member in endorsing that point of view.

For us to regain markets, we must maintain the present exchange rate with particular reference to the dollar and the deutschmark. In my experience, the present parity with the dollar is very satisfactory for us, and that probably reflects the experience of most companies involved in internationally traded goods. However, the tendency for the pound to appreciate against the deutschmark is most worrying. The Germans are in such trouble that they will cut prices in export markets more than ever before to maintain their market share and to keep their factories running and their employees employed. It is as simple as that.

Mr. Nigel Evans (Ribble Valley) : The hon. Gentleman is wrong. Unemployment in Germany has just gone through the 4 million mark.

Column 1000

Mr. Robinson : I do not want to respond to sedentary interventions because there is a 10-minute limit on speeches. However, I shall do so on this occasion. What the hon. Gentleman said is true, but the Germans are nevertheless doing everything possible to secure as many jobs as they can. It is in that highly competitive, cut-throat situation that we must ensure that we maintain the advantage that we currently have because of our exchange rate.

I do not expect immediate responses from Ministers because I appreciate that that can cause difficulties. However, I draw attention to another issue to which we have to pay great attention--interest rates. The Governor of the Bank of England is known for his obsessive concern about inflation. I understand that he feels like a father whose daughter says, "But Daddy, I'm only a little bit pregnant." It will get worse, which is how the Governor feels about inflation.

Tonight's evening press states that the Governor and the Chancellor are having urgent consultations about the level of interest rates that they envisage in the next few months. My clear, unequivocal view is that interest rates must come down further because they go with the exchange rate. If interest rates do not come down further, there will be a depreciation in the exchange rate, which could threaten the recovery.

We do not want a recovery based on yet another consumer boom which could in turn lead to yet another recession. We need a sustained investment and export-led recovery that will create the circumstances in which there will be a general domestic recovery. To achieve that, we need our policy on interest rates to be linked to policy on exchange rates. Both are within the power of the Government--of any Government--to deliver. However, we have an inexperienced, sometimes disinterested Chancellor up against an extremely powerful Governor. I hope that that balance will resolve itself in favour of British manufacturing industry.

7.14 pm

Mr. Nirj Joseph Deva (Brentford and Isleworth) : I must declare my interests : I am a director of Parliamentary and Public Affairs International ; I am a consultant to EDS, which is an electronic data systems company, to Rothmans, Laing International, which is a building company, and KHD, which is a gas turbine manufacturer. I must also declare that I am one of the few engineers on the Conservative Benches and I am proud to be in that position. My constituency of Brentford and Isleworth contains many multi-national companies that manufacture and export worldwide. Anyone who has travelled on the A4 or the M4 to Heathrow airport or elsewhere in the west will have seen those buildings flash by. When we speak of manufacturing, we are speaking of a commercial sector which employs 5 million people. It is now a leaner, more competitive, more productive and more capital intensive industry base than it was 14 years ago. At the end of the second world war, British manufacturing was at its lowest. The war had been difficult for us, whereas our competitors in Germany and Japan rose afresh like the phoenix with new technology, new investment and new productivity capabilities through the Marshall plan and reconstruction aid. For 20 years from the period 1945-48,

Column 1001

Britain had to struggle with Victorian factories and manufacturing techniques. We had old technology, overmanning and under-production. Also at that time, Britain started the process of decolonisation and automatically began to lose the captive international markets of more than 1 billion people who had supported British manufacturing hitherto. The newly emerging countries started forming relationships with closer neighbours and importing goods from their factories. Some countries started putting into effect socialist or self- reliance policies and managed plans. Some understood socialism at the feet of Harold Laski, others from the London School of Economics, and they set about trying to develop in that way. They failed. After their socialist experiments, they began a process of liberalisation to the extent that they are now back in the international marketplace, competing in various sectors.

With its old industrial base, and while losing its international markets, Britain had to struggle on. The Labour Government established the National Enterprise Board and the National Economic Development Council and little Neddies to try to revive our industrial base. We all know what happened : they failed abysmally. One has only to consider the loss-making British Steel in the 1970s, the loss-making British Leyland in the 1960s and the loss-making British Airways, British Telecom and National Freight. Those nationalised companies cost the British taxpayer about £1.5 billion in 1979. Today, they are all profitable companies and instead of costing the British taxpayer money they pay taxes to the Exchequer and are helping to reduce taxes in general.

Those companies are now competing in the international marketplace, winning contracts and export orders and setting up joint ventures. How did that happen ? Did British workers, managers and investors suddenly find a vitality and vibrancy that outshone, outproduced, outpriced and outdesigned their European counterparts ? What happened on the road to Damascus which created that revival in British manufacturing industry ? Quite simply, the Conservatives won the 1979 general election and turned the country around.

Adopting a reflective attitude, I will read out something that was said by the director general of the NEDC in 1988 :

"In the present expansionary period which began in 1981, productivity has actually been increasing twice as fast as output, implying that further very favourable factors have been at work." Apart from the shake-out of inefficient equipment and labour practices, he stressed the importance of supply side measures such as the trend towards deregulation, reductions in income and corporation tax and in nominal interest rates, and improvements in industrial relations.

Virtuous circle growth may now set in where rapid productivity increases mean higher profits and more demand for new equipment, which on account of its superior efficiency fuels further growth. In 1981, output of crude steel per man year in the United Kingdom was 167 tonnes. In Germany, it was 227 tonnes per man year. In 1987, the UK figure had increased to 320 tonnes per man year, while the Germans were at 282 tonnes per man year. Productivity increased because of efficient production methods and more investment. The main principles were a reduction in the number of management levels, flexibility between crafts and processes and manual and staff grades, increased mechanisation, the contracting out of peak local work and support services, raising yields, reducing production costs and enhancing energy uses.

Column 1002

Those principles have created one of the most efficient steel industries in the world. Yet despite that, the Labour party has learnt nothing. It still believes that it can pick winners and that civil servants and Ministers can run industry. We must learn that they cannot do so. Even the Japanese have tried to do it and failed. A study conducted recently by the Japanese Ministry of International Trade and Industry showed that its attempt to spot winners had failed. The most recent copy of The Economist had a very good article on why MITI has failed to spot winners.

In 1979, manufacturing industry contributed £49 billion to the gross domestic product. Today, it contributes £114 billion and the figure is rising. Output per person is twice as high as in 1979. Between 1979 and 1993, output per hour rose by 75 per cent. Between 1979 and 1993, the volume of UK manufactured exports rose by about 56 per cent. Between 1979 and 1991, the value of direct inward investment in the UK manufacturing base reached £28 billion net. Even today, having weathered a worldwide recession, production is up in the UK whereas it is down in Japan, Germany, France and Italy. Recently The Economist polled a group of independent forecasters who said that the UK would have the fastest growth rate of EC economies this year and next year. The recent recession is not a reflection on the performance of British manufacturing industry. It was caused by a lack of worldwide demand, not by an incapacity to supply. When that demand returns, we are fit, lean and ready to go out and sell.

Britain's export success is extraordinary. I congratulate my hon. Friend the Minister for Trade on what he has achieved. Britain exports a higher percentage of its gross domestic product than Japan and it exports more per head than the United States. We have invested about £360 billion overseas through portfolio and direct foreign investment

Madam Deputy Speaker : Order.

7.24 pm

Mr. Austin Mitchell (Great Grimsby) : I shall not attempt to pursue the economic illiteracy of Conservative Members. The Opposition's theme should be that a great opportunity to expand and rebuild our manufacturing base, which is crucial to the economy, is being thrown away by a President of the Board of Trade who seems to have forgotten every word that he wrote while in opposition about intervention and managing the economy, and by a Chancellor of the Exchequer who has changed from being a bull-at-a-gate politician into a bear in a trap with the dead-hand keepers of the Treasury, who have been consistently wrong, and a Bank of England Governor who seems to think that he is a reincarnation of Sir Montagu Norman.

Manufacturing matters. Most world trade is in manufacturing ; most of our deficit is in manufacturing. It is basic to the economy. The manufacturing base, on which we depend, has shrunk so far in the past two decades that we cannot pay our way in the world and support the superstructures.

Contrary to the success story told by the hon. Member for Brentford and Isleworth (Mr. Deva), since 1970 manufactured imports have risen four times faster than manufactured exports. Manufacturing imports make up 42 per cent. of the domestic market for manufactures in this country. We have lost 3 million jobs in manufacturing

Column 1003

since 1979. Manufacturing output has remained much the same--it is only 2 per cent. higher than it was in 1973. Such a story of failure cannot be found in any other country.

That failure has resulted in the double deficit. The trade deficit, which amounts to about £1 billion every month, shows that we cannot pay our way in the world. We have a fiscal deficit because the tax base has shrunk as a result of people being put out of work. We are wallowing in the trap of the double deficit.

The great prospect of white Wednesday, when we left the exchange rate mechanism, was that we would have a chance to escape from both traps. We could reduce interest rates and exchange rates at the same time. The Government saw the opportunity and promptly shifted gear. From prophesying economic success if we persevered in the exchange rate mechanism, they claimed that the economic success had already arrived because we had come out of the ERM. They did not feel that it was necessary to do anything but sit and gloat.

The Prime Minister discovered manufacturing, which should have served as a warning, because as soon as he attaches his support to anything, from the Manchester bid for the Olympics to Mr. Yeltsin, it is finished. As soon as he discovered manufacturing, I began to worry. The recovery has not happened. Burdens have been alleviated that the economy should never have faced in the first place. The recovery is similar to the relief that a lunatic experiences if he slows the rate at which he is banging his head against a wall. If he stops banging, he is much happier. That is our position. Manufacturing output has not yet risen to the level of 1990. Will it rise to that level by the year 2000 ? Not at this rate.

According to labour force surveys, unemployment has not fallen. We need 4 per cent. growth to achieve a substantial reduction in unemployment. Job losses in, and the winding down of, manufacturing industry continues. It has lost 7,300 jobs in the first six weeks of this year. The Guardian , amazingly, joined the Bank of England in saying that manufacturing industry had increased prices too much. Prices have certainly increased, but that industry must increase its prices if it is to generate a profit. Indeed, its prices need to increase still further. That is why we should allow it to increase its prices through the exchange rate, which will generate the profits necessary for its survival.

It is economic illiteracy to say that manufacturing industry, which has exported without making a profit for years just to keep going, should not take the opportunity of the alleviation of pressure to increase its prices. It must do that. The Governor of the Bank of England shows that he knows nothing about manufacturing industry when he criticises it for increasing its prices.

Manufacturing in this country is not profitable enough, and the economically illiterate way in which the Government have run the economy has kept it from being profitable. As my hon. Friend the Member for Livingston (Mr. Cook) said, manufacturing industry is not investing but rather distributing the profits in dividends--making hay while the sun shines--because it has no faith in the future. It sees that, with the Government's record of keeping exchange rates and interest rates far too high, there

Column 1004

is no point in investing. The Bank of England will take the opportunity to push exchange rates back up, so any investment will be crippled.

That is why the recovery is as evanescent and feeble as the Prime Minister's nervous smile. After white Wednesday, we had the opportunity to follow through with the devaluation, but we did not take it ; indeed, the Government and the Bank of England have set out to reverse the devaluation. The Bank of England is deliberately undermining the competitiveness that we have. In a market economy, price is crucial, and the exchange rate is the key to price. We have been priced out of markets because the exchange rate is consistently kept too high for too long. The Government and the Bank are now resuming that policy. Since February 1993, the exchange rate has increased by about 14 per cent. against the deutschmark.

The Bank of England is obsessed with inflation, which is now a dead issue. Because of its fear of inflation, which it largely caused in the 1980s-- [ Laughter .] Hon. Members should read Lord Lawson's memoirs, about how the Governor of the Bank of England refused to stop the Bank lending on mortgages and the credit expansion that caused the inflation in the 1980s. The Bank was largely responsible for that and now it is obsessed with making amends. It is strangling the manufacturing revival because of its fear of inflation. If we contrast this country's trade inside and outside the European Union, we see that in real terms the exchange rate in the European Union is now almost back to what it was before white Wednesday. That is why manufacturing exports to Europe have hardly increased at all. But outside the European Union--this is no credit to the Government--the exchange rate has depreciated and we are more competitive, because the dollar and the yen have risen. Manufacturing exports outside the European Union have increased by between 15 and 17 per cent.

It is true that now both kinds of exports are flagging, because the exchange rate is rising again--and both will peter out if that continues. However, the contrast is stark, as is the contrast between our failure and what has happened in Italy. Italy devalued much more substantially than we did, and kept the devaluation, partly through the useful device of undermining confidence by carting most of its politicians off to gaol. Italy's export success has, therefore, been far greater than ours ; it has turned a balance of payments deficit into a substantial surplus since leaving the exchange rate mechanism.

That is the example which we should follow, because it shows that devaluation works. It would work by making it profitable to produce in this country, profitable to invest here and to begin to make again for the markets in which we have lost out. Most important, we could begin to fight back against the rising tide of imports to win back our own market. We can do that through the price mechanism, by making it profitable and competitive to invest, to grow and to expand in this country.

If we continue at the present rate, the profitability that has returned will be curtailed. Indeed, that is happening now. We are involved in a debtor's progress. Because the Government want to keep the money flowing in, so that people will invest in our public debt and close the fiscal deficit--between 40 and 50 per cent. of that debt is now covered by foreign money coming into the country--they keep interest rates higher than they should be to attract the

Column 1005

investment in public debt. That further increases the value of the pound and weakens manufacturing industry. There can be no greater folly than such a process.

We must return to a competitive exchange rate, which is properly defined as one at which we can balance our trade with the rest of the world in conditions of growth and full employment. That means getting interest rates down and acting to make the exchange rate competitive. In 1945, Sir Ralph Hawtrey said :

"Mass unemployment cannot occur unless central banks of set purpose bring it about".

Our central bank is now doing that.

7.34 pm

Next Section

  Home Page