| Previous Section | Index | Home Page |
5.37 pm
Mr. Malcolm Bruce (Gordon): I am a little puzzled why we are having the debate today. On Thursday, we thought that we would be debating something else, and suddenly the Government advised us that they urgently needed to have a full day's debate on the economy on Monday. I assumed that it was because the Chancellor of the Exchequer had something new and exciting to tell us, but he did not. He made the usual speech in the usual way--entertaining as always, but adding little or nothing to the sum total of our knowledge about the state of economy and his view of where it is going.
We have had a confetti of statistics, league tables, and perhaps just the beginning of the warm-up of an election debate on the economy tested out. Hon. Members will remember that, in the United States presidential election, for people asking what the issue was, the slogan on the wall said, "It's the economy, stupid!"
I wonder whether we should rephrase that and say,"It's the stupid economy", because it never seems to do what the Government expect it to do. Most of the time, the Chancellor tells us why it will be different next time, but, as I hope to make clear, his and his predecessor's record in forecasting the economy's development and progress is extremely doubtful and inaccurate.
We all want our economy to succeed. The difference between us is on what measures will help to achieve that, what policies the Government should pursue, and what factors must be taken into account. Of course the fall in unemployment over the past 17 months is welcome, insofar as it goes. The relatively low rate of inflation is also welcome, if it is sustained and sustainable, as the foundation for long-term investment. However, neither of
those indicators is quite as good or quite as simple as the, perhaps understandable, euphoria of Ministers would have us believe.
The reality is that the Government have acknowledged that things have gone wrong, but say that things would be a great deal worse if there were a change of Government--and that, anyway, everything is about to go right, so we should trust and believe them. The Government talk about the fact--often suggesting that it is something new and startling--that there have been four years of sustainable growth, and that that is some sort of triumph. In fact, it has been a long, slow recovery from a deep and damaging recession. That is a long way short of an economic miracle. It debases language to suggest that it is a miracle.
In fact, we are talking about annualised growth of about 2 per cent., which is below the average of the past25 years. I accept that it appears to be sustainable, but it is slow by international standards and measured against what we need to do if we are to get our output ahead of our productivity, so that we can create the jobs we need to bring about the economic success we all want.
One thing we might have expected from the Chancellor today, although I know that it is not the form, was a hint about a drop in interest rates. All the commentators tell us that that is likely later in the week. Perhaps today's debate is the scene setting to enable the Chancellor to say, "I told you on Monday that things were going well.We have cut interest rates again, and that proves it."
In fact, if interest rates are cut later this week, it will be not because of the strength of the economy, but because of its weakness. It is growing so slowly that there is not only room for a further cut, but a desperate feeling that something needs to be done if there is to be any hope of meeting the Chancellor's 3 per cent. growth forecast.The right hon. and learned Gentleman must be the only person in the land who believes that he can hit 3 per cent. growth this year--and he reiterated that belief today.
Let us examine where the economy is at the moment. Manufacturing output is actually lower than it was a year ago. The right hon. Member for Guildford (Mr. Howell) said that manufacturing was no longer as important as it used to be, and that it is now all about tradeable goods and services. That debate is old hat. The economy is infinitely diverse, and infinitely varied.
Of course tradeable goods and services generate wealth and are valuable, and they need to be supported, but the fundamental fact is that, unless we also create a stronger manufacturing base, the total size of the British economy will not be sufficient to generate the long-term performance we need.
Mr. Sheerman:
I substantially agree with the hon. Gentleman, but is not it a fact that the percentage change we need to increase the size of the service and miscellaneous sector is enormous? We would have to take in the Tokyo and New York exchanges and much else.In contrast, just a relatively small increase in manufacturing could solve Britain's economic problems.
Mr. Bruce:
That is a fair point, but I am not sure that I want to go down that route. We have dramatically expanded the service sector, so the scope for a much bigger share is limited. However, I agree with the hon. Gentleman that, without a much more successful and
Investment in manufacturing, as a percentage of gross domestic product, is now the lowest on record. Indeed, manufacturing investment fell by 9 per cent. in the last quarter of last year. The point is that it is not a matter of not expanding our manufacturing base fast enough; it is still contracting. That is serious, as I hope the President of the Board of Trade will acknowledge tonight. Indeed, I hope that he will remember that he is the Secretary of State for Trade and Industry, not just President of the Board of Trade. I hope that he will give some recognition of what can be done.
I was amused, as were others, by the article on the front page of today's Financial Times, under the headline "Heseltine to defend UK investment record". The Deputy Prime Minister was basically saying that industrial changes mean that manufacturers can now produce more goods with less spending and therefore the fall in investment is not a matter for great public concern or anxiety. However, the article states:
Obviously, the Deputy Prime Minister did not get the Government off the hook. The reality is that we need a high-tech, expanding manufacturing sector.
The current position is of a Budget and an economic strategy based on achieving a growth forecast that none of the current indicators suggests is at all realistic. There was an article in The Observer yesterday by Maurice Fitzpatrick, who also wrote a letter to the Financial Times in January in which he set out--it still stands--that,
That will have serious consequences for the Government's electoral strategy, let alone Britain's economic success. That is possibly a reason for going for an early election--before it becomes apparent that the Government's forecasts are unachievable, and that the position is in fact much less optimistic than the Chancellor's speech suggested.
The other matter about which the Government have expressed considerable satisfaction is the low rate of inflation. More than once, the Prime Minister has said, "We have got inflation in the box, we have locked it up, and we have thrown away the key." Apart from being a rather complacent comment, it does not square with the reality.
The first question is, what has delivered low inflation? Has it been the successful implementation of Government policies, monetary strategy, or fiscal management? Or is it not simply the fact that there has been a deep recession, in which, generally speaking, prices and price increases have been low throughout the world?
The reality is that, far from having an extremely good performance on inflation, Britain is at the bottom of the European league. Only Greece, Italy and Spain have a
worse performance. The Chancellor's bullish remarks not only about his belief in a single European currency but about his determination to ensure that Britain can meet the criteria seemed to be very much off target.
On the latest analysis published last week by the Commission, taking either the national figures or the Commission's estimates for inflation, Britain does not look as though it will be able to meet the inflation criteria and qualify for EMU in 1997. If it is to qualify, it is crucial that the Chancellor gets inflation down to 2.5 per cent. and keeps it there, because that is the top end of the range that would enable Britain to meet the inflation criteria.
I believe that one reason why investment is low in Britain is that there is no deep and abiding confidence among investors that low inflation and interest rates and stable exchange rates are here to stay. They have had their fingers burned too often, and there is nothing to suggest that the encouraging trends will continue, or that the Government have any real control over them. People think that, with any external pressure, the whole cycle could be triggered off again.
That problem is exacerbated by the fact that the Chancellor shows signs of a weakening resolve. I have on a number of occasions praised him for standing his ground in the face of pressure from his party, and ensuring that he does not do the populist thing and knock the economy and then economic recovery off course. As the election draws closer, however, he has shown signs of acceding to that pressure.
The Chancellor has also--he cited it himself--reduced interest rates, with the possibility of a further reduction. Tax cuts are coming through which his own criteria do not justify, and the building society giveaways are also coming into the system. There is a danger that that could create a stimulus in the economy for which there is no buffer mechanism, which could stoke up inflation again. There is no real mechanism to turn the situation around. There is anxiety about whether the Chancellor has the bottle to stick to the policy under pressure from his party.
I intervened on the Chancellor about borrowing and tax cuts, which I am sure are not a source of great comfort to Conservative Members. I am astonished by the way in which Ministers suggest that they are getting borrowing under control and are confident that borrowing is coming down, when the overshoot on their forecast is approaching 50 per cent. Borrowing is clearly out of control.
I have grave doubts about how firmly the Chancellor is committed to reducing borrowing. I quoted what he said to David Frost in September 1994, but he did not seem to believe that I was quoting him word for word. He said that a public sector borrowing requirement of more than £30 billion made tax cuts impossible. He continued:
All the indications are that the outturn in the current year is likely to exceed £30 billion, so what is the Chancellor going to do about it? His good intentions go only so far, and when the chips are down, he runs into the buffers of political opportunism.
Unemployment has come down, and that is welcome. The hon. Member for Wyre Forest (Mr. Coombs) said that, in his constituency, 1,400 people have found jobs.
That is of course good news, but let us be realistic.We are being told that we should be pleased that unemployment has risen from 1.3 million in 1979 to2.2 million today. The figures may have gone up and then down, but that is a net increase of almost 1 million.
To take a shorter cycle, since 1990, when the Prime Minister took over from Lady Thatcher, the number of unemployed people has risen by 540,000. The Government are still complacent about unemployment, but the problem is more than just a lack of concern for those people. The President of the Board of Trade said in an intervention that many people were going through the cycle of being unemployed and getting back into work fairly quickly, and that there are not too many people who suffer long-term employment. That is not a good enough way in which to dismiss the problem, because it is costing us billions of pounds.
The amount of taxpayers' money that is being wasted on unemployment is the fundamental reason why taxes cannot be brought down, and education and health are starved of funds. Unemployment during the Government's period of office has cost about £150 billion in lost taxes and the payment of benefits. That is more than all the receipts during that period from North sea oil and privatisation.
All that windfall, that unpredicted gain, has been dissipated in paying for the costs of unemployment. The debate about the 43 per cent. of taxation as a percentage of GDP is therefore sterile unless the Government can come up with some way in which to deal with unemployment. The Chancellor is taxing the British taxpayer just as heavily as Denis Healey did, because he has failed to tackle the underlying weakness in the economy.
Although there is some welcome recovery and some dynamic in the British economy, we are a long way from an economic miracle that will generate a feel-good factor, security in employment, confidence to invest, and the sort of growth rate that could conceivably enable us to reduce taxes and maintain public services where people want them to be. Unless that can be achieved, the argument about cutting taxes is also about cutting services, or at least forcing people to pay for more of their education and health care straight out of their own pockets.
We need a more long-term vision in economic policy, which is why Liberal Democrats believe that we should have an operationally independent central bank. That bank, tied into a single currency--I agree with the Chancellor--if it were achievable, would enable sustained lower interest rates year on year than those we could manage to achieve on our own.
We need to review the rules on public sector borrowing so that we can distinguish between capital and current borrowing. The trouble is that, in order to try to meet their borrowing targets, the Government are cutting capital borrowing rather than current borrowing, which is damaging the underlying strength of the economy.
We need to invest fundamentally in education and training. That is the single reason why Liberal Democrats voted against the 1p reduction in income tax. We believed that such a cut could not be achieved in the present climate. We also need to alter the balance of taxation and spending to deal with environmental issues--taxes on pollution rather than employment and wealth creation:
a switch from motorway investment to public transport investment and to the reinvigoration of our ailing infrastructure.
All those fundamental changes are necessary for the beginning of what would be an economic miracle: the ability to secure high levels of employment in high-skill, high-earning jobs that would enable people to have a good quality of life, pay a reasonable level of taxes and have good-quality public services. The spending round in the past two years has shown that that cannot be delivered by the Government, because they have not created a climate for sustained and sustainable, low-inflation, investment-led recovery. Until they show that they can do so, this country will not succeed.
I was left lacking any enlightenment on either of the two major parties' position on the single currency. The Chancellor of the Exchequer appeared to hold out against a commitment to any possible referendum in the Conservative manifesto. The shadow Chancellor took the same view, seeming to say that somehow the issue would be left to the election, and that there might or might not be a single currency. One cannot put a cigarette paper between the two parties on the issue.
"Mr. Sudhir Junankar, associate director of economics at the Confederation of British Industry, believes that, while changes in organisation might be having an impact on investment patterns, the general weakness in capital spending is a 'worrying' factor, inhibiting recovery."
"to achieve 3 per cent. growth in 1996, the economy would have to accelerate sharply. One would be looking, by way of example, for growth of .6 per cent. in the first quarter, .9 per cent. in the second quarter and 1.5 per cent. in each of the two final quarters. That seems unlikely, particularly given the problems that are being faced elsewhere. It may well be only a matter of time before the Treasury downsizes its 1996 growth forecast."
"£30 billion is not the basis for cutting taxes and would actually worry all those people out there . . . if they thought I was going to start tax cutting on the back of even a £30 billion public sector requirement."
| Next Section
| Index | Home Page |