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Mr. David Howell: The hon. Gentleman would find it easier to reconcile events with his thesis if he accepted that the concept of manufactures, which he keeps using, is very narrow. Nowadays, a manufactured product--even this pen or this piece of paper--requires a vast range of information and knowledge services in its manufacture, from research and design right through to marketing and sales. The service content of any manufacture gives it power and the ability to penetrate world markets. Because he keeps talking about manufactures, he has not noticed
that the service content of manufactures is constantly becoming more dynamic and delivering the type of results that puzzle him.
Mr. Mitchell: I am happy for the right hon. Gentleman's lesson in monetarist economics to continue, if he wants, but the fact is that all those services rest on a healthy manufacturing base. Our base has shrunk because it has long been unprofitable to produce manufactures in this country, due to policies of dear money and an over-valued exchange rate. The test is whether it is profitable to manufacture in this country, and it has not been. That has been demonstrated by our sending many manufacturing processes to overseas manufacturers and reserving assembly for people in this country--a sort of "Amstradisation" of the British economy.
We need all those services. I am not arguing about their importance, or about the need to increase and upgrade those and other skills and to introduce more of the information technology that the right hon. Member for Guildford talked about--Robert Reich is preaching that in the United States--but the essential point is that a healthy manufacturing base is required to sustain such expansion.
We still need to make the basic items because most world trade is still in manufactures, and we pay our way through them or we run a deficit. As the manufacturing base shrinks, so does our ability to pay taxes and to support healthy public sector finances. We have a public sector deficit because we have put so many people out of work and they are not contributing to the tax take or to economic growth. That is the legacy of 17 years of overvaluation and dear money.
The lessons of what has gone wrong under the Conservatives are far too obvious to need reiterating. The Labour party has long emphasised those lessons. The problem is that we have a lame, limping and inadequate recovery, which is now petering out effectively because the Chancellor has blown it. After the devaluation, which occurred because we were pushed out of the exchange rate mechanism--
Mr. Anthony Coombs:
Will the hon. Gentleman give way?
After that devaluation, we should have gone for growth. That was our chance to recover the ground lost, particularly in competition with Europe. The Government assumed instead that we had economic growth and an export-led miracle and that they did not have to do anything more about it. They should have sustained the growth. The Chancellor then deflated the economy by increasing taxation and kept the difference between actual interest rates and inflation too high--at almost double the historic average for real interest rates since the second world war. To compound that, in 1994, he increased interest rates when they should have been decreased again to sustain expansion in demand and to lower sterling so that our exports were more competitive and imports were penalised.
That example shows the folly of a system in which the Governor of the Bank of England is given a bully pulpit to preach his reactionary views on economic policy and
to make his insistent demands for ever higher interest rates. It is the wisdom of the parrot. When anything goes wrong or anything has to be said, the Governor automatically parrots, "Put up interest rates." Providing him with that pulpit, from which he can exacerbate the fears of an always nervous financial community, ties the Chancellor's hands and creates an impossible pressure for higher interest rates.
The Governor's advice in 1994 was absolutely wrong. We should have done the opposite and brought interest rates down to expand the economy. Even since then, there has been consistent pressure against a reduction in interest rates, which should be lowered by a couple of per cent. to bring down the pound, stimulate exports, penalise imports and allow us to expand the economy.That pressure is still on because the Governor is obsessed with the fear of inflation.
Inflation is not currently a problem. We can and should take risks with inflation. If not inflation, what will bring down the heavy burden of the dead-weight debt that the Chancellor is accumulating? This year, the public sector deficit will be almost as big as it was last year, which is just another massive addition of debt. I know that the right hon. and learned Gentleman might want to keep the public sector deficit within the Maastricht criteria--just as other European countries are being squeezed and deflated, in an anti-Keynesian fashion, to meet those artificial criteria--but, in a deflationary situation, all that debt is a dead weight imposed on the economy.
In the early 1950s, public sector debt was about 200 per cent. of GDP. In 1931, it was 150 per cent. of GDP. What brought it down? It was not the expansion of the economy but inflation. We need inflation to float us off the rocks of debt that have trapped not only our economy but, even more so, the European economies and every householder and person with an overdraft in this country. We can take risks because we need to expand the economy.
While Europe is in a deflationary welter because of the obsession with the Maastricht criteria, this is our chance to improve our trading position, to increase our exports to Europe, to win back the markets that we have lost and to reverse the flow of imports to win back the jobs we need. The Chancellor is just not taking that opportunity. I do not mind that he is not achieving economic growth and the feel-good factor that he needs to stand any chance in the election, but I do mind the disastrous damage that those policies are still inflicting on the manufacturing sector, which is central to our economy.
Mr. Anthony Coombs (Wyre Forest):
I was disappointed but not surprised by the tone of the shadow Chancellor's speech. Yet again, he talked down Britain's achievements of the past 16 years. He also indirectly insulted the people in my constituency who have done an
The Labour party needs reminding of the fact that when it left office--thank heavens, a long time ago--the British ambassador in Paris referred to the British economy as the sick man of Europe. Most of us can remember the Europeans looking down on our economy and regarding it as some sort of sick joke because of its low productivity and appalling strike record. In 1979, for instance, about 29 million days were lost to strikes. We suffered from the Red Robbo syndrome: complete industrial inflexibility.
By contrast, the president of the German CBI,Mr. Henkel, felt able to say only a month ago that the British economy is the best placed in Europe to deal with the challenges of global competitiveness--such has been the transformation. The British economy has made remarkable strides in productivity, competitiveness and the flexibility necessary to deal with global market challenges. This was the analysis of a man who ought to know--a man from a country that used to regard ours as the sick man of Europe.
My right hon. and learned Friend the Chancellor was not inventing his figures when he talked about the achievements of the past few years. Output has been growing for no fewer than 15 consecutive quarters. This year, growth--even on the most conservative estimates, and irrespective of whether we agree with the Chancellor's forecasts--is expected to run at about2.6 per cent.
A poll of GDP forecasts for next year conducted by The Economist clearly shows that Britain, with 3.1 per cent., is forecast to have easily the highest growth of any country in the OECD or the developed world outside Australia, which is 0.1 per cent. ahead of us.
All this has had an impact in my constituency and on employment prospects there. Britain is the only country in Europe where unemployment has fallen significantly in the past four years, dropping by 770,000. Since the 1992 general election, unemployment in Wyre Forest has fallen by no less than a third--and these are not part-time or temporary jobs, which account for only 7 per cent. of the total. That 7 per cent. is itself one of the lowest figures in Europe. In human terms this means that 1,400 people who did not have a job in 1992 have entered good, competitive jobs in my constituency as a result of what the shadow Chancellor would call the "appalling" policies followed by this Government.
Between 1980 and 1994, an even longer period, Britain was surpassed among OECD countries only by Switzerland in its ability to find jobs for the additional people who become eligible for work. Of those eligible for the work force, 74 per cent. have been absorbed into it--a tremendous achievement over a long period. In line with the growth forecasts to which I have alluded, that success is set to continue.
How has all this come about? I believe that three reasons can explain it. The first is that, for the first time in three decades, people can invest in this country with confidence. They know that our currency is stable. Under Labour, inflation averaged 15 per cent. and reached29 per cent. at one point. Today, our currency is being protected. The money that people invest will not have devalued by the time their investment returns come in.
Secondly, our industrial relations have been transformed. Compared with the 29 million days lost to strike action in 1979, there were only 203 stoppages in 1993, at a time when a record number of people were in the work force. Sixty-eight per cent. of people in this country--a higher proportion than anywhere else in Europe--are in the work force. To be sure, the number of stoppages rose in 1994, but only to 205.
In short, what has changed is the fact that a climate of confrontation has been exchanged for a climate of consensus. Every company with a successful record in any market today operates by consensus--management reach down to what used to be called the workers; ideas go both ways; success is the result.
The third ingredient is investment. I was interested to hear the figures given by my right hon. Friend the Member for Guildford (Mr. Howell). The Wall Street Journal did say that between 1980 and 1994 investment in this country grew two thirds faster than in Germany, and 90 per cent. more than it grew in France. We were second only to Japan in terms of increased investment. That is why productivity and competitiveness improved here, and why the gap between our economy and the French and German economies--we used to look up to them in 1979--closed.
More evidence of how the British economy has been transformed is to be found in the fact that people from abroad are prepared to put their money where their mouths are. Over the past year the west midlands has enjoyed £1.25 billion of foreign investment. That equals 11,000 jobs, 6,000 of which are new and 5,000 of which have been safeguarded. It is certainly significant that40 per cent. of all Japanese and American investment in Europe comes to this country. Moreover, all the top10 consumer electronics firms in Japan have recently invested significantly in the United Kingdom.
As Mr. Henkel of the German CBI recently said, over the past 14 years our "declining" British industry has managed to attract no less than nine and a half times as much inward investment as German industry has, despite the fact that the latter is supposed to lead Europe.
To any person of common sense and objectivity it is easy to see why this inward investment has come. People want to put their money where they believe they will get the best return on it, and where the labour force is flexible and skilled. The British tax burden as a proportion of GDP has fallen, from 42 per cent. It is still too high; as the Prime Minister recently said, we want to get it below40 per cent.--and then on down to 30 per cent. The countries that keep their tax take at near 30 per cent. of GDP--Switzerland, Japan and the United States--are the most successful at creating jobs of the kind that we want for all our constituents.
Another reason is that we do not burden our companies with the sort of non-wage costs that are increasing in Europe. It is significant that, in Britain, additional labour costs are about £18 for every £100 in basic wages, but in Germany the figure is £32 and in France it is £41. Small wonder that Mr. Henkel says that in Germany:
The problem of a shorter working week, a minimum wage, more social costs and more taxation will be exacerbated if we have a Labour Government. That is why
it is nothing short of barmy for members of the German Social Democratic party and Mr. Santer, President of the European Commission, to go around Europe, supposedly on a crusade for jobs around Europe, but in reality raising social costs for already competitive businesses in Britain, which would mean that they would be less inclined to employ people and lead to job losses overall.
The failure of Mr. Santer and those party members to recognise that is symptomatic of the appalling misguidedness of the Labour party's industrial and economic policy. Having heard Mr. Henkel's comments, how anyone could suggest that Britain should load costs on to its already competitive companies through the social chapter or, more especially, the minimum wage--giving us, in industrial terms, the sclerosis virus that is undermining European competitiveness--defies belief.
If the Labour party is guilty of that, it is also guilty of the fact that it has never been able to persuade the British people--as my right hon. Friend the Member for Guildford said, it will not be able to do so at the next general election--that it can keep its hands out of the taxpayer's pocket. Its Front-Bench spokesman may try to give the impression--it is only that--of fiscal rectitude, but every time they do so, in any debate, four out of10 Labour Back-Bench Members make speeches with specific comments on additional Government spending.
It is disappointing that a man who aspires to be Chancellor should come up--this is the sum total of his fiscal policy--merely with the gimmick of 10p on income tax, which even the Institute of Fiscal Studies said was nonsense and a gimmick, and then talk, as he did again today, about a windfall tax, the proceeds of which have been--we have counted--"spent" no less than 11 times in different pledges by different Labour Front-Bench Members. If that does not show an unwillingness to confront the difficult issues that are involved in running a responsible fiscal policy, I do not know what does.
Sheer incompetence does not come much worse, especially in the realm of economic prediction, than when the shadow Chancellor said in 1993--we should keep reminding people of this because it shows the Labour party's feel for economic forecasting, irrespective of what it says about the Chancellor--that, as the result of the Budget, unemployment would rise this month, next month, the month after and for months to come. What happened? Unemployment did precisely the opposite. In the past six months, it has fallen by an average of 17,900. It is sad that the Labour party does not appear either in the debate or wider afield to confront the realities of an increasingly competitive global world in industrial and economic terms.
The Government are right to emphasise their supply side measures and to pursue their deregulation initiative, although I and some of my constituents are somewhat cynical that that is bearing as much fruit as it should. Only the day before yesterday, when I was out house visiting, one of my constituents, an engineering manager, told me that, as a result of some idiotic health and safety directive, he should have been undertaking stress monitoring for each employee. He said that, if he was expected to undertake stress monitoring and all his other health and safety responsibilities, he might as well shut the factory today.
I agree that, led by the Deputy Prime Minister, deregulation is extremely important, but I hope that the President of the Board of Trade will take on board the fact that people do not believe that the deregulation initiative is as effective as it should be. Business link is making contacts around the country and doing a valuable job. It should take a greater role in producing information that would allow the Government to act more effectively on that.
"We have too rigid labour laws. We have too high social costs and taxes. We work the shortest working week in Europe. The German government spends 50 per cent. of GDP as opposed to 42 per cent. in Britain. No wonder we have a problem."
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