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Mr. Malcolm Bruce (Gordon): I was interested to hear the Chancellor of the Exchequer's insistence that he was extremely prudent and very cautious, and would do nothing whatever, regardless of the political fate of the Conservative party, that might be considered risky in advance of the election. But no hon. Member believes a word of it. We all recognise what the Government's agenda is.

There is no doubt at all that at the moment we are enjoying a recovery which is welcome, even if it is somewhat shallow. But I find it a little strange to hear Ministers, and the hon. Member for Hazel Grove (Sir T. Arnold), speaking about the need for low inflation and sustained growth as if they had just come to power and were sorting out the mess of the previous 15 years. It is

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because they have failed to deliver on their economic policies for the past 15 years that the country is fundamentally fed up with them.

In 1979, we were told that all that w"as needed was to cut public spending, cut taxes and deregulate, and that that would create an engine for growth which would make the British economy the most competitive in Europe. But if one takes the main long-term indicators, all the problems that the Government analysed in 1979 are fundamentally still there. Perhaps the one change, a cultural one, has been within the reforms in the trade union movement, which are now generally welcomed on all sides.

In an exchange with me, the Chancellor said that the level of investment was rising, but it is rising from the lowest level of investment as a percentage of GDP in our entire history. If it is not rising now, for heaven's sake, when will it ever rise? But it does not strike the right chord when the Chancellor says that there is underlying long-term sustained confidence.

Inflation is low, and that is welcome. We do at least have a semi- independent Bank of England, which can pursue policies to try to keep inflation under control. But there is some disagreement even about the inflation target. There is a target range and a target within a target, for which the Bank of England seems to have chosen a figure slightly different from that chosen by the Government. That does not at this moment make for a particularly tidy working arrangement.

In reality, it is too early to say that we have the foundations of long- term low inflation. One of the consequences of that low inflation--it is an incidental one, and I am not sure that there is anything that the Government can do about it--is that many people, particularly business people, are rooted in a finance structure based on the security of property which has fallen sharply in value and which has little prospect of recovering its value in the short term. That should be used as a cultural opportunity for rethinking how we secure investment and finance in Britain in future, and perhaps, as suggested to me by some German industrialists last week, persuade people in Britain that it is a good idea to invest in business, and that perhaps that should sometimes put priority on investing in bricks and mortar. There is scope for much cultural rethinking in Britain which is long overdue, the impetus for which does not appear to be coming from inside the Government.

There are, as the amendment in the name of my right hon. Friend the Member for Yeovil (Mr. Ashdown) and my hon. Friends says, a number of serious omissions from the Government's economic strategy. There is no strategy for promoting sustained long-term investment, and investment is too low. It is our contention, and has been now for a considerable time, that the most important single investment needed in Britain is in our people--in education and training. That is the one thing that can lay the foundations for competitiveness. Our relative performance on education and training is well behind that of all our major competitors.

There is also scope for doing something to narrow the gap between rich and poor, which has become so much wider under the Government. Because they have failed to create the climate for the growth they promised, they have had to raid one section of the community in order to

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finance their election promises to another section. The division between rich and poor has been increased, without any fundamental increase in the welfare of the community as a whole. We need some radical changes in those areas.

Britain needs political changes that can remove us from the kind of spat we saw tonight, when there is simply a scoring of party political points about what should be Britain's national interests. [Interruption.] It is interesting that that should cause ripples of mirth on both sides of the House. But when one speaks to leading players in the economies of other countries, one finds, despite political differences, an underlying commitment to what constitutes the real well-being of the economy. It is a sad admission that such a constructive consensus cannot be found here. Rather, it has been positively attacked during the past 15 years.

There is room for changing the structure of the Bank of England. We propose that it should become a United Kingdom reserve bank, drawing its policy makers from a much wider base than now. It should be given operational independence and a clear, coherent, simple range of inflation targets, set by the Government but pursued independently in an operational sense by the reserve bank.

It is also important to point out that the situation in our balance of payments is not quite as good as it appears. First, it is still in deficit, so that is not too healthy. But if one takes out the £2 billion extra oil surplus we enjoyed in the first half of this year, and the overseas net property income, one sees a deterioration in our non-oil balance of trade.

It may be reasonable to say that we have sold that oil and it has created revenue, but it has always been accepted that that is a special factor, and the reality is that we are pumping oil out of the North sea faster than we ever did before in order to try to maintain an economy which is not making enough of other things of real added value--it is, after all, only a raw material--and that will lay the foundations of long-term competitiveness.

The Chief Secretary to the Treasury, perhaps unbeknown to the Chancellor, said, in reply to a question on 27 October:

"Total business investment is up by more than 30 per cent. since 1979, totalling about £60 billion in the past year, of which investment in manufacturing is currently running at £11 billion a year compared to £13.6 billion in 1979."--[ Official Report , 27 October 1994; Vol. 248 , c. 999-1000.]

There has been a clear, continuing decline. I do not want to enter into the argument about whether we need goods or services. We need both, but our manufacturing sector is not performing well enough to deal with our balance of payments problem or our long-term competitiveness. Added value requires goods that can be traded round the world.

The hon. Member for Dunfermline, East (Mr. Brown) referred--I was unsuccessful in intervening--to windfall taxes. The first interesting point was that, at the end of that exchange, there seemed to be agreement on both sides that there could be something called a windfall profit.

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Windfall taxes were originated by the Conservatives, who now find themselves being beaten by a Labour shadow Chancellor--

Mr. Streeter: Will the hon. Gentleman give way?

Mr. Bruce: Let me finish my point first.

It was argued in 1981 that the banks had made excessive profits because of the prevailing rate of interest rather than any performance of their own. I do not notice Chancellors intervening when excessive losses are made because of changes in circumstances and offering to reinstate windfall profits.

But the hon. Member for Dunfermline, East is saying that, because the privatised utilities have a privileged position in the market, because they have a monopoly, they should be taxed on their excess profits. He is right to identify that something should be done about those profits, but I do not agree with his solution. If there is agreement on both sides that excess profits have been made, the question that then arises is, from whom? The answer is that they have been made from the consumers, and the money should go back to them. They should be returned to those from whom they were made.

Mr. Streeter: The hon. Gentleman is talking about windfall profits and tax thereon. Has he calculated the excise duty that might be raised on the legalisation and sale of cannabis, which I understand to be Liberal Democrat policy? Is that how the hon. Gentleman would fund his excessive spending plans?

Mr. Bruce: I shall not waste time talking about the costings of a hypothetical situation that does not accord with my party's policy.

Ms Hilary Armstrong (Durham, North-West): Will the hon. Gentleman give way?

Mr. Bruce: I shall not give way on a point relating to the intervention of the hon. Member for Plymouth, Sutton (Mr. Streeter). If the Government recognise that there are such things as windfall profits because privatised utilities are not operating in a genuinely competitive market, surely such profits should be returned to the people who enabled them to be made--the consumers--and genuine competition should be introduced into the market, so that the regulator is not left as the last resort to intervene to ensure that that happens.

Ms Armstrong: Does the hon. Gentleman accept that it is precisely because the Labour party considered to whom the profits should be returned that it proposed a windfall tax? The taxpayer provided and built capital for the industries to which the Government extended excessive capital tax allowances on privatisation. We believe that the taxpayer was done out of a great deal of important money because of the manner in which the Government privatised industries in the first place.

Mr. Bruce: As someone who instituted a debate on the money resolution on the Bill that led to the privatisation of the electricity industry, which the Labour party was willing to allow to go through on the nod, I do not need lectures from the hon. Lady on the circumstances in which privatisation took place.

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My argument is that, fundamentally, the profits that are now being generated are at the expense of gas and electricity consumers. They are the people who should benefit from the windfall. I hear nothing from the Government on electricity, or from the Labour party on gas and electricity, about making the markets genuinely competitive. That concerns me.

The Minister of State, Treasury (Mr. Anthony Nelson): The hon. Gentleman makes a fair debating point, but perhaps it is also fair to ask him to explain exactly what he means. Is he supporting the hon. Member for Durham, North-West (Mrs. Armstrong) and the Labour party generally? If he says that windfall profits should be taken back and redistributed to the consumers, is he supporting the case for a windfall tax--yes or no? If he is not, is he suggesting a price mechanism or another structure for redistribution?

Mr. Bruce: That is a helpful intervention. Liberal Democrats are not supporting a windfall profits tax, for the reason that I have put before the House. If one believes in a market economy, that sits rather uncomfortably with picking and choosing the industries that are thought to be making excess profits and imposing excess taxes upon them. My party suggests that the moneys should be returned to the consumers. The regulator mechanism was set up by the Government, and it could be amended by the Government to ensure that rebates were given to those who generated excess profits initially.

I move on to the competitiveness, or lack of it, of the United Kingdom internal economy. The issue arises from the Government's privatisation programme. It is interesting that the deputy chairman of the Conservative party, Mr. John Maples, suggested that the programme had been a dismal failure in terms of popularity. It appears that it has not struck a deep chord with the people, and that it is not one of the things they want.

Large corporations that were in the public sector have been transferred to the private sector without the corresponding development of a genuine free market mechanism. That must be recognised and understood if the privatisation process is to be completed in a manner that will give people confidence. That will mean that the chairmen of the industries involved will not secure massive increases in their salaries.

They are doing so at present because their industries are not operating in a genuinely competitive environment. At present, it is too easy for them to make the sort of profits that keep shareholders happy without displaying the same degree of enterprise that would be necessary if they were operating in a freer, open and more competitive market.

The Government seem to have no drive in resisting takeovers or in examining concentrations of economic power within the market place. The past six references to the Monopolies and Mergers Commission have emerged from that body without further action being taken. Those involved are beginning to wonder whether the MMC is prepared to operate in a way that will ensure that people who are trying to consolidate their position within the marketplace will be faced with a genuine analysis of whether what they are doing is


The consequence of the build-up of competition is a greater distortion between large and small businesses within the domestic market. The performance of the small

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business sector needs to be dramatically improved if the overall performance of the economy is to improve. Small business formation has increased, but the survival rate has deteriorated. There is not much purpose in founding small businesses if they do not live to be successful, profitable and established.

Several actions need to be considered to ensure that we have a much more vigorous and successful small business economy. Small businesses constantly complain of their inability to gain access to competitive finance on the same basis as many of their larger customers, on which they depend for their business.

A small company business man came to see me recently--this is a simple anecdote--who is in the plant hire sector. He told me that he had had his best business year for five years but had laid off three of his five employees because he could not afford to pay their wages. That was because his customers were taking three or four months to pay him. He was aggrieved because his customers, almost without exception, were receiving money from their creditors on cheaper terms and with less security than he was forced to offer to extend his overdraft even to fund his basic working capital. That is something that should not be allowed to continue.

My party would support measures to deal with late payment, along with legislative enforcement. It would like to see the creation of regional investment banks from which business men could gain access to finance on competitive terms, as well as advice on how to manage their businesses and training to enable them to run businesses successfully.

There are many people with skills who do not necessarily have particular skills to run a business in a way that ensures that it does not fall into financial difficulties. They must be made aware of how to meet their commercial and legal obligations. Other countries provide this training rather better than we in the United Kingdom and, as a consequence, have a much more successful business environment. I ask the House to accept that the Government cannot rely on statistics that relate to the past 12 or 18 months as a justification for the failure of the past 15 years. They do not amount to evidence that we have finally achieved a fundamental turnround in the performance of the British economy. If that were the position, investment would presumably be at a record high, not a record low. We would then see a situation in which the country was beginning to lay down the foundations of economic wealth, which would enable us to achieve what I believe would command support from right hon. and hon. Members on both sides of the House--lower taxes while maintaining funding to the public services.

As long as the Government fail to deliver the economic cake, the stronger is the case that it is time for them to go. The answer is not to raid one part of the cake to provide for their supporters. They, and their supporters, have found that that is not a sustainable strategy. It has not carried the Government through even the first half of a Parliament, and it will not be accepted that it is the foundation for the next general election.

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5.38 pm

Sir Edward Heath (Old Bexley and Sidcup): We all listened with great interest and understanding to the right hon. Member for Lagan Valley (Mr. Molyneux) when he turned to the section of the Gracious Speech that relates to Northern Ireland. My right hon. Friend the Prime Minister has acted with great skill in his handling of the matter. He has been absolutely right in his timing when dealing with the various proposals that have been made. He has displayed caution, and that is surely essential in such a situation.

So we watch the process with great interest and hopefulness. At the same time, we all realise--at least I hope we do, and I am sure the Prime Minister does--that a very difficult situation could arise as the talks progress. That would happen when they reach the question of the unification of north and south. We have had to face that problem before, as we did in 1973, and it is inescapable that those at the conference will have to face it again.

When it appears that unification is not possible, what will be the reaction of those who have been the cause of so much strife and distress in Ireland over the past 25 years? That is the crucial question. I do not doubt the capability of the right hon. Member for Lagan Valley (Mr. Molyneaux) to handle that and to handle his party, but I hope that the British Government recognise the immense dangers that could beset us when we reach that point.

If the hard core of the IRA decide that they have been holding their fire to see whether their aim can be achieved and they see that it is not being achieved, what will their reaction be? We have to be prepared for that, and I hope that the Government, especially the Secretaries of State for Defence and for Northern Ireland, are taking all possible precautions. That is why I believe that the Government must act with skill as well as with caution.

On the economy, I congratulate the Chancellor of the Exchequer on the course that he is following. He too is displaying great skill as well as steadiness. The Queen's Speech as a whole shows that the Prime Minister and the Government want a period of stability rather than constant change; they have learnt the rather painful lesson of recent events in our country.

The Chancellor has been successfully following that policy, and has stood out against the various proposals put to him. In particular, he has stood out against giving undertakings to reduce taxation. In that he is absolutely right. I have said before that no Chancellor of the Exchequer should ever give undertakings about raising or decreasing taxation, any more than he should give undertakings about increasing or decreasing interest rates.

I found the speech by my hon. Friend the Member for Hazel Grove (Sir Thomas Arnold) fascinating. I agreed with a great deal of it, but where I disagree, of course, is on the public examination of such matters with the Chancellor of the Exchequer. He was landed with that; he did not choose it himself. To have the committee discussing its views with him and advising him, and then telling the press exactly what its views are and what it has advised, is most undesirable. Those people have plenty of ways of advancing their views and taking part in discussions, without their being given the official sanction that they now have.

I believe that having those people around weakens the Chancellor's position. The same applies to the publication of the minutes of the meetings between the Governor of

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the Bank of England and the Chancellor. That will lead in time to speculation about who will win the battle. If there is a battle of various schools over interest rates, people will ask whether the Chancellor or the Governor will win. That too increases speculation, and that is undesirable.

If, as has been suggested, we had an independent Bank of England as a regional part of a European bank, that would be different. None the less, an independent bank would not call in the press all the time and say, "These are our views," any more than the Federal Reserve Board in Washington or other independent banks do. The Bundesbank does not call in the press in and say, "We have been thinking about this or that"--not for a moment. However interesting such things may be to the specialists, they should be kept inside. The Chancellor should be allowed to reach his own conclusion, and people can criticise him afterwards.

I do not believe that the Chancellor should accept views put to him in that way, especially on the level of taxation. He is under great pressure from some of his hon. Friends to say that he will reduce taxation, and he is wisely resisting those pressures. I hope that he will continue to do so. Similarly, today he was pressed to say what he intended to do about interest rates, but rightly he resisted. The action that he has taken so far on interest rates has been strong and he has stood by it, as I hope he will continue to do.

That is especially important now because of the indecision--I almost said "tumult", but let us reduce that to "indecision"--in the United States. A new situation has arisen there with total Republican control of Congress. What will the Republicans' attitude be to internal affairs--interest rates, inflation and so on? What will they press the Fed to do? I believe that they may be rather more in tune with it than the Democratic Congress was. All that will affect the rest of the world, including us, and the Chancellor will have to take that into account in making his decisions. I am sure that he will do so.

The Chancellor rightly said that he could not deal with questions about the Budget today, and I do not want to try to give him lectures on that subject.

One thing that has always worried me is the Child Support Agency. In our constituencies, we all hear about the agency constantly. Many people arrived at my advice bureau last week with problems relating to it. The Government have said that they will review it and try to remove the impediments, but meanwhile the agency is causing agony to many people, and we know that its effects have included some suicides. There is a feeling of great unfairness.

According to the figures produced by the Child Support Agency for 1992 to 1994, £418 million saved in benefits has gone straight to the Treasury, and only £15 million has gone to help in any way those affected. That is an extraordinary relationship. I do not think that, when we passed the legislation, we realised that, with almost 90 per cent., if not more, of the money raised, it was a question of putting funds into the Treasury. I admit that I did not know that. The matter needs a fresh look and speedy action.

Dame Elaine Kellett-Bowman (Lancaster): Does my right hon. Friend not accept that it is the parents who should be looking after their children, not the parents of

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other children, who have their own responsibilities? The money has to come from taxpayers who are themselves parents, so the position seems to me perfectly fair.

Sir Edward Heath: I do not think that the way in which things have been done is fair. For example, I take great exception to the fact that parents who have settled their affairs in a court of law, have been told to pay a fixed sum and have carried out their obligations right from the beginning now find themselves suddenly landed with paying a very large sum.

I heard of a case last week in which the father had been notified of the amount that he had to pay. The agency said that it wanted an answer from him within a fortnight, and he sent his reply back immediately, in March. Although the agency promised to reply, it did not do so until October. It told him what he had to pay and then, a week later, he received a letter saying, "This is what you owe in arrears since we first wrote to you in March." That is intolerable, and I do not understand why the Government cannot deal with it, and at least stop such things happening. I cannot accept that that aspect of the agency's work is fair.

I was most interested to hear what my hon. Friend the Member for Hazel Grove said about the conditions of the market and the situation that has arisen concerning the head of British Gas. I say openly that I condemn the chief executive, for a number of reasons. I once had to use the phrase

"the unacceptable face of capitalism"--

or at least, I did not have to use it, but I did. It is one of the two quotations from me in "The Oxford Dictionary of Quotations". To me, what is now happening is the unacceptable face of post-privatisation. I condemn it because it shows that the chief executive has no understanding of the relations between his corporation and the public. He did not understand the reaction that it was going to produce in our fellow citizens, the press or elsewhere. First, he said that he was going to go ahead with it, but I have seen reports that he is now going to give it back, or to somebody or other. That shows a rather delayed recognition that he was in the wrong.

The other reason why I condemn it is that it does great harm to private enterprise as a whole. Those who want to cause harm to private enterprise are given an immediate weapon which they can use, and he ought also to have recognised that at the time.

Mr. Alan Duncan (Rutland and Melton): Does my right hon. Friend not accept that he himself has just used that weapon against the chairman and chief executive of British Gas who, far from taking a 75 per cent. rise--as we have read in the papers--have recognised that, in a monopolistic company, there is no particular link between risk and reward for chief executives and that, in a spirit of openness, they have done away with lots of perks which they previously had and rolled them up into one open cash package, and have therefore pioneered openness in the way in which these salaries are set? Has not my right hon. Friend fallen for the mass of propaganda against what is the fair treatment of a chief executive?

Sir Edward Heath: I do not accept that, and the chief executive ought to have realised what was happening at the time.

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The hon. Member for Gordon (Mr. Bruce) mentioned that gas is not in a free market economy and that it is not up against all of the competition. We all know perfectly well that people who have gas supplies cannot afford to start switching over to other supplies of energy. In fact, British Gas is very largely a monopoly organisation and we must take that into account, as must the regulator. The other question which has been raised is labour in the economy. The Chancellor has rightly emphasised--I think he has used the phrase "a modern workhouse"--that the modern situation for the labour market is quite different from what it was. The question is, what should be done about it?

One sees that people who were formerly in established positions, and who accepted them as such when they started their careers, are now entirely insecure. In my constituency, bank managers who thought that they were there for life and who are very skilled have been sacked at the age of 48. How do they make a fresh future in the labour market? That is a practical question, and it can only be answered by a Government, and a Department of Employment, who are prepared to think it through and organise solutions.

The solutions will not come from private enterprise. It is not in their interests to do so, and, in any case, they will say that they cannot afford the training which is necessary if we are to expand industry as we want. I hope that the Chancellor will succeed in persuading Government organisations to analyse the change, and see how it can be dealt with satisfactorily.

It is said that anybody leaving university in the United States can reckon on having three careers, and at each stage he is trained for the next one. There may be a considerable amount of truth in that. We cannot do anything of that sort--we hardly have any provision for it--but we ought to be thinking in those terms in the long term. In saying that, I ask myself what the television viewer is thinking about the debate this afternoon. He could not really find anything about the debate to satisfy him. We sit in the Chamber, and we jump up constantly. Nobody on the Front Bench can any longer deliver a speech, as there are an enormous number of interventions. Hon. Members who intervene are not trying to find a solution, but are trying to find some way of knocking the other chap down.

The most distressing thing about the present situation is the loss of confidence of our citizens in this Parliament as an organisation and as a system, and the only people who can put that right are ourselves. I hope, therefore, that we can perhaps give some thought to the way in which we behave in the Chamber. People want to know what ideas we have, and not hear us constantly throwing back what happened in 1938 or 1949 to try to make capital out of the other side.

We have had the publication of Mr. Maples's manifesto. I do not want to say too much about it, as I no longer get mixed up in party affairs. [Laughter.] I have great admiration for those who are now responsible. The only thing I would say is that I do not understand how a deputy chairman can be appointed who is such a simpleton as to think that he could put all his views on paper and nobody else would ever see them. He must be an absolute simpleton.

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We live in an age of leaks. The press used to complain to me that the trouble with my Government was that nobody ever leaked, and that they could not get stories. I was told that we had to change it. We did not, but now everything leaks, and Mr. Maples's views have all come out. He stresses in his analysis that people everywhere are suffering fear--fear of unemployment coming to them, fear of their health going when they get old, and fear about housing and whether they will be able to complete their mortgage and if they will be thrown out. If they are thrown out, where will they go? All aspects are governed by fear.

In support of Mr. Maples--and he needs support--I would say that I hope we take notice of his analysis. The views of the party's former supporters up and down the country were taken. Let us take notice of them, face up to them and say what we will do about each aspect of that spread of fear. That fear cannot be countered by contrary debate in the House, which will not give the citizen any release from his fears. He will go to sleep tonight, if he can sleep, with exactly the same fears he had before we began the debate.

When it comes to Mr. Maples's solutions, I repudiate them absolutely. I am disgusted with some of his proposals for inter-party warfare, yobbos and trying to trick people into positions. Those views are completely unjustifiable. I hope that the Prime Minister and the chairman of the party will repudiate all that as quickly as possible.

The fact that those views have been put on paper is already doing us immense harm in the country. I know that my supporters--such as I have--are disgusted by the idea of how we should play the party game. It has never been our case before, and I hope that it will not be in the future. It will be a big task to deal with the removal of fear, and whatever party is in power must tackle it.

My final object in this speech is to connect the economy briefly with other aspects of the Queen's Speech--defence and foreign policy. I believe, that at the moment, there is a big gap between the departmental approach and Government thinking. In a speech last night, the Chief Secretary said that we must emphasise a worldwide approach. We can no longer carry on a worldwide approach. We do not have the economy to do that. We cannot compete with other organisations which have a worldwide approach, and not many organisations have that approach. Unless we are in the European Union, and playing a full part in it, nobody will take any notice of our worldwide approach anyhow.

We must look today at the situation in the former Yugoslavia. Are we gradually being dragged further into an active war? If so, what are the justifications for that? One may say that NATO is involved, but organisations which are there for a purpose always feel that they should be carrying out that purpose. That is not what we want from NATO, and the situation must now be watched carefully. How much further are we to be dragged into this conflict?

On defence, we must have a much clearer idea, through Europe and NATO, as to our defence purpose in this new world. In defence terms, this is not the old world of the two super-powers and the nuclear threat--perhaps by carelessness that threat is still there--but a new world. We cannot think that we can run the Pacific and the Atlantic, dab in Africa whenever we feel like it, and maintain our position in Europe. That is completely

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unrealistic. It is sad that it has taken our country longer than any other since the second world war to recognise that change in the power structure of world affairs. We must recognise it.

That change has its impact on the economy because of the cost of defence. If one tries to do everything all the time, the costs are tremendous. I hope that the Chancellor will face up to that when dealing with those who want us to have a worldwide defence role to show how important we are.

We must not forget the trade implications of foreign policy. We must make some radical changes, because we are losing out. We can say that our exports are going up, but if the Chancellor's predecessor had accepted the advice to go into the European exchange rate mechanism in 1985, when the rates of exchange for the mark and the dollar were almost exactly what they are today, we would not have had so many of the problems that we have encountered in the past 10 years. He was, however, overruled by the Prime Minister of the day--a ghastly and expensive mistake.

We can say that our exports are going up: well and good, but in comparison with what is happening in other countries, that rate of growth is small. It is not enough for us to maintain our position. If one looks at the rest of the world, we are dabbling in foreign policy at the expense of our trade and our economy. That must stop. Let us consider the People's Republic of China, with which our relations are the lowest they have been since 1972, when I established full diplomatic relations. That country is flourishing and is expanding at the rate of 12.5 per cent. every year. It is attracting enormous investment. The Chinese will not accept any technological investment unless it represents the latest technology. Last year, I opened a plant in China for one of our biggest firms. The chairman took me to one side and told me that that plant was far more up to date than our own at home.

We must recognise what is going on there, but, alas, too few of our people do. Japan, the United States, Germany and France therefore conduct far more trade with China than we do, but we were the first in. Our trade with China is almost insignificant. People may argue that that trade is increasing, but it is increasing from such a low level that it will never reach anywhere near comparison with the trade conducted by those other countries.

What about more controversial trade, such as that with Iran? People may say that Salman Rushdie had the right to write a book, but I do not believe that it is necessary for us to damage our trade and our relations with Iran because the Iranians took offence at a religious book. They are entitled to take offence, and their religious people can do so.

It is a complicated issue, so I will not go into at the moment, but there is no point in just saying that we should do nothing, because we could do valuable trade with Iran. The trade that is done now is nothing like what we could get. The same argument applies to Libya. Two suspects live there, but no one can be absolutely sure that they are guilty, yet we have no relations with that country.

Mr. Richard Shepherd (Aldridge-Brownhills): This is a modest intervention, as is the intention behind it. I find the characterisation of the situation in which a British author, a British citizen, finds himself a very unhappy one. I accept that much, if that is what my right hon.

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Friend is saying, but it is intolerable that, as a result of a fatwah, a United Kingdom citizen is under threat of death. We expect the instruments of our Government to defend our citizens in such circumstances.

Sir Edward Heath: That means that he gets the protection that the Prime Minister and others get. He can be protected--

Mr. Shepherd: Absolutely.

Sir Edward Heath: But that does not mean that we must stop our trade. That is my point--we go too far in such matters. In any case, Salman Rushdie has the answer; he could give an apology quite simply, and say that he did not mean to insult the Muslim faith. That would have settled matters, but he did not offer that apology. Now we have a situation in which the death decree was laid down by the head of the religion; he is the only person who can remove it, and he is dead. That must test the ingenuity of the Foreign Office a little. Apart from Libya, we also have the continuing problem of Iraq. Iraq is now complying with United Nations resolutions in turn and that compliance should be recognised, just as it has been recognised in Serbia. If people start to accept UN resolutions and that is confirmed by a UN organisation, we too should accept that and say, "Okay, you are moving on the right path."

The obvious cause of the problem with Iraq is that the Americans can never forgive themselves for not having got rid of Saddam Hussein. They had no authority from the UN to do so--no one had--but that failure governs American policy all the time. It shows a complete misunderstanding of the problem, because the more Iraq is attacked, the more Iraqis will support Saddam Hussein.

We are in the position to learn the lesson of Nasser and Egypt. We were determined to get rid of him, but we failed, and he remained in power for another 18 years. Look at the damage he did to us. Everyone else went in and took all the trade and the business. We should learn from such events.

We should continue to get the Iraqi resolutions carried and show the Iraqis that, when they accept them, things will change, particularly for the people of Iraq. I feel for them most strongly, because millions in that country are suffering enormously. The children are not getting properly fed, and the hospitals do not have the medicines to deal with sick people.

People may argue that that is their fault, because they should get rid of Saddam Hussein, but that is completely unrealistic. How can they get rid of him? They cannot say that they will have a general election in six weeks' time and vote for another person. They cannot possibly do anything like that. The more that Saddam Hussein is attacked, the more the people will dig in and support him. We should think about the people of Iraq.

I have always supported sanctions, right from the days of the Italian invasion of Abyssinia. One must look carefully at the whole business of trying to bring about results through sanctions, without any regard for the impact on people of the country, and consider whether that policy reinforces that attitude or not. We should take a good look at our policy.

I hope that the Foreign Office will take an entirely fresh look at the world from the point of view of how we support trade and investment for our industry and all the

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