House of Commons Hansard Debates for 5 Dec 1995 (pt 20)

6.49 pm

Mr. Alex Salmond (Banff and Buchan): I am sorry that the hon. Member for Portsmouth, South (Mr. Martin) did not give way to me. I was going to put the far from facetious point to him that, if he believes, as I am sure he does, that in the past three years one of the few successful bright spots in the United Kingdom economy has been the pound's accidental devaluation and depreciation after the exit from the exchange rate mechanism, the last thing that he would want is to see France, one of our major competitors, go down the same route, particularly if it provoked a series of competitive devaluations across the rest of the European Union. All the gains that the UK has had from that have been dependent on other countries not depreciating as well. He might want to consider that thought before he suggests that the French economy should get itself into a more competitive position than the UK.

Several hon. Members rose--

Mr. Salmond: I shall offer the Chancellor of the Exchequer the opportunity to defend the hon. Member for Portsmouth, South.

Mr. Kenneth Clarke: I give credit to the Scottish Nationalists for having an economic policy for Scotland, which is more than the Labour party has, but is the hon. Gentleman seriously suggesting that the best route for France is for the communist trade union and others to succeed, for the social security system to remain broke, for all the structural reforms in France that are needed to be defeated and for the country to seek resort to competitive devaluation? He makes it sound as though he thinks that the successful outcome of the strikes and the franc's devaluation is all that the French should aim for. That is what the Labour party used to do when it was in office.

Mr. Salmond: I am sure that the Chancellor has been listening to my remarks, but, clearly, he has not been listening to the remarks of his hon. Friend the Member for Portsmouth, South, who was predicting as welcome the exit of the franc and the departure of French policy from the exchange rate mechanism, following the same

5 Dec 1995 : Column 192

path as the UK three years ago. I was merely pointing out that there is a competitive gain from that accidental policy three years ago. I know that the Chancellor does not like to acknowledge that--which is understandable as it removes any credit that he might want for his policies-- but is it not true that, if other countries in the exchange rate mechanism follow a downward competitive devaluation, the competitive gain that the UK has experienced in the past three years will largely be written off? Whether it is a good or bad thing is neither here or there. The point is, that is a fact.

Mr. Clarke rose--

Mr. Salmond: I shall allow the Chancellor one more attempt to explain his thinking on the matter.

Mr. Clarke: I know of no country that, since the war, has gained any economic advantage just by devaluing its currency. It is a mistake to start spreading the belief that devaluation is some sort of desirable activity.

Mr. Salmond: I was speaking about a belief that I know is widespread among Conservative Back Benchers. When the Chancellor deals with such points, he should turn around and address the atheists on the Conservative Back Benches who do not follow his position and who believe that any gain experienced in the past three years has been the result of his predecessor being humiliated and chased out of the exchange rate mechanism.

Having stirred the Conservative party into total revolt against the Chancellor, I shall go on to make my speech. I note that Conservative Members have taken some consolation from the argument that, many times, Budgets that are poorly received develop like fine wines through the course of time. It is also true that some enthusiastically received Budgets have turned into vinegar later. I think in particular of the 1988 Budget, which was ecstatically received by Conservative Members at the time. By the end of that year, however, most of them were rueing the day.

I want to offer the House a third possibility: a Budget that is poorly received initially may remain poorly received over a period. I suspect that that is what will happen in relation to the fate of the Chancellor's present Budget. I noted that Bill Keegan, commenting on Sunday in what was a friendly column, given what he has written previously about the Chancellor and his predecessors, described the Budget as perhaps a "prisoner of failure". That is roughly right, because the Chancellor's room for manoeuvre was boxed in by a range of factors that are merely the result of this country's poor growth performance over the years. The Chancellor has therefore been reduced to manipulating his public sector borrowing requirement forecast and to giving an optimistic view of a surge in growth in a slowing economy.

In the past 16 years, the United Kingdom's growth performance has been poor by international comparisons. Those of us who were here for the economic debate that preceded the Budget will remember an exchange about whether it was appropriate or correct to make international comparisons with the UK from 1981 instead of 1979, when the Conservatives took office. The argument from the Government Benches was that it was unreasonable to count the first two years of their stewardship of the economy because, apparently, the problems of the period from 1979 to 1981 were not the fault of the then Chancellor of the Conservative party; they resulted from the winter of discontent whose effects were rolling through the UK economy.

5 Dec 1995 : Column 193

Some of the disastrous things that happened to the UK in that two-year period might have had something to do with the deliberate policy options that were taken to transfer the taxation burden on to indirect taxation, thus increasing the inflation rate substantially. The exchange and interest rate policy set sterling at a rate that, in retrospect, I think everyone would regard as extremely uncompetitive. Certainly, the Tory Back Benchers who argue that devaluation has been the salvation of the UK economy in the past few years must surely accept that sterling's rate between 1979 and 1981 caused severe strains for the UK economy.

It is reasonable, therefore, for Opposition Members to say that, if the Government want to compare their record with other Organisation for Economic Co-operation and Development countries, they should compare the record over the full 16 years of their stewardship of the economy, not conveniently omitting the first two years, when the economy effectively fell off the cliff and it was hardly surprising that it managed to scramble its way partly back up the precipice.

By virtually any international comparison, those 16 years have not been a good experience for the UK. It was the one major western European economy that had the benefit of a huge windfall gain from the North sea-- £100 billion, a huge boost to the GDP, to the balance of payments and to Government revenue--yet, with that windfall, over those 16 years, the UK's average annual growth performance since 1979 has been 2 per cent. The average for the rest of the European Union is 2.1 per cent. That is not a huge difference, but all those European Union countries did not have the benefit of that huge windfall gain.

What makes it even worse is that, in the previous 16 years--from 1963 to 1979, when the economy was run by unreconstructed socialists such as the right hon. Member for Old Bexley and Sidcup (Sir E. Heath) and the late Lord Wilson--the UK's average growth rate was 2.6 per cent., considerably better than the average rate over the past 16 years, so neither by the comparison with what previously happened in this country nor by any fair international comparison is it reasonable to describe performance in the past 16 years as anything but mediocre.

Especially in Scotland, we consider the experience of the other oil-rich country of Europe, the small nation of Norway, which has experienced a growth rate of 2.9 per cent. over the past 16 years and which, from a position in 1979 roughly equivalent in terms of GDP per capita with Scotland and the UK, is now roughly 25 per cent. more prosperous. That is the penalty that we have paid in the past 16 years for this country's mediocre economic performance and for the Chancellor being a "prisoner of failure", as Bill Keegan said about the Budget.

I am tempted to consider further the oil benefit that the Chancellor and his predecessors have had, which was followed by the privatisation benefit to the PSBR. In this Budget, we can detect what the third great trick with the PSBR figures will be: the private finance initiative. Just as oil and privatisation proceeds massaged the PSBR, the private finance initiative is set to take its place as the great camouflage to hide the underlying position in public finances, which is desperate.

My party and I and our allies in Plaid Cymru will vote against the 24p basic rate of income tax, although not, I suspect, for entirely the same reasons as the right hon.

5 Dec 1995 : Column 194