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5.58 pm
Mr. Nigel Forman (Carshalton and Wallington): I am grateful to you, Madam Deputy Speaker, for calling me in this debate which, unfortunately for those who lay claim to parliamentary supremacy in these matters,is rather a sad example. With a vote on a three-line Whip at the end of our debate, we are discussing the central area of politics--the management of the economy by Government, in so far as Governments have much purchase on those matters these days. We see clearly the extent to which the House has more pressing things to do. It is sad: I note that fact in passing.
I was fortunate enough to hear the opening speeches by my right hon. and learned Friend the Chancellor of the Exchequer and by the hon. Member for Dunfermline, East (Mr. Brown). My right hon. and learned Friend set out clearly and persuasively some of the ways in which this Government, under successive Chancellors, have pursued responsible policies, which have made an important positive difference to the way in which the economy performs.
However, I do not think that one should exaggerate that point any more because the theme of my intervention will be that national Governments and national authorities are a great deal less powerful these days than some people in the House and the country fondly believe. It is about time
that we politicians were more honest with the general public in our assessment of these matters, so that expectations did not run ahead of what can reasonably be offered.
The Opposition amendment is a fairly clear example of Labour's recent habit of being long on new Labour words, but rather short on substantial explanation about how Labour would put those words into effect if it came to office. When the hon. Member for Dunfermline, East was challenged on those points by several of my hon. Friends, both from the Back Benches and from the Front Bench, he was not very forthcoming. Yet we have been there before. We have had that experience when intervening during the hon. Gentleman's speeches, so today was nothing new, I am sorry to say.
It is noticeable in the Labour amendment, for example, that there are some plausible and worthy words about regretting
That is right. All of us know from our constituencies the extent to which a range of people who never expected to experience job insecurity now feel it in their lives.The important point, which the hon. Member for Dunfermline, East missed--I wanted to intervene, but he felt unable to give way--is that job insecurity affects those who are now in jobs and who had always assumed that they would be in jobs until their retirement.
The hon. Member tried to answer the Chancellor's point about the community action programme, and he spoke about the various worthy measures that Governments have introduced from time to time to try to help the long-term unemployed back into work. That is, of course, important, but the hon. Gentleman wilfully missed the point. The aspect that should be addressed by Labour Front-Bench Members--I have yet to hear them do so--is how they would stand against the new global developments which are bringing the forces of competition and insecurity into play for a much wider range of people than was previously the case.
I suspect that the only nostrum that Labour would have in its locker if it got into office would be the old Labour policies of protectionism in one guise or another, which would breed a false sense of security in the minds of the electorate. I await with interest the winding-up speech,if he catches your eye, Madam Deputy Speaker, of the hon. Member for Oxford, East (Mr. Smith). I shall look for some flesh on the bones. Failing that, it is incumbent on Labour to explain what it would seek to do to allay the central psychological and political problem of our time.
As I have said, the time has come for both sides in our economic debate to level with the British people, much more than we have felt able to do hitherto, about the new realities of the global economy, and to draw out some of the policy implications of those realities. I shall spend a few moments touching on some of those realities, because I am not sure how widely understood they are.
I remind you, Madam Deputy Speaker, that the United Kingdom has about 1 per cent. of the world's population, but 3.5 per cent. of world gross domestic product. It could be said that we punch above our weight already. The proportion of gross national product that is internationally traded has risen from 20 per cent. for exports and 27 per cent. for imports in 1979 to 23 per cent. and 25 per cent. respectively in 1994, which is the last full year for which I have figures.
The export of goods and services, at constant 1990 prices, has risen from 22 per cent. of GDP in 1979 to27 per cent. in 1994. Capital flows in and out of the United Kingdom, about which much was made earlier in the debate, have grown as a percentage of GDP, from1 per cent. for inflows and 3 per cent. for outflows in 1978, before we lifted exchange controls, which is the relevant benchmark, to 5 per cent. for inflows and 6 per cent. for outflows in 1994, the latest full year for which figures are available.
Investment income from abroad is important to those who worry about foreigners owning our industry. It is just as important to bear in mind the other side of the account, which is the extent to which we earn from wealth-generating assets elsewhere in the world. That process will not diminish, but will increase with the passage of time.
Our investment income from abroad has increased from 9 per cent. of GDP in 1979 to 12 per cent. in 1994, the latest full year for which figures are available. The value of our external assets, which generate some of that wealth, has grown from £72 billion in 1979, producing about£8 billion of foreign income, to £1,405 billion in 1994, producing £78 billion of foreign income. Again, the trend is obvious.
The importance of financial services, which help to generate wealth for the United Kingdom, hardly needs stating. Financial services produce £20 billion of net earnings every year for this country, and are responsible for 13 per cent. of total UK employment. That is a dramatic increase compared with the figures for 10 or 20 years ago. The whole House is well aware of the extent to which we attract the lion's share of foreign direct investment in the European Union from third countries, notably the United States, Japan and the so-called Asian tigers.
I have taken the trouble, in what is not an overcrowded debate, to weary you, Madam Deputy Speaker, with those factual points, because it is important to put them on record. People in the media may not be listening to our debate, but they may at least read our remarks in future, and take account of the way in which the world has changed, and the implications of that. I will highlight three implications which seem obvious to me and which should be obvious to hon. Members on both Front Benches if they are paying attention to what is going on in the world.
The first implication is that monetary policy now has to be conducted in a different framework. It must be used to validate market expectations rather than heroically to attempt to lead or resist market movements and market expectations. If it tries the latter, it will, as sure as eggs are eggs, end in tears, to mix metaphors.
Foreign exchange flows are now 10 times world GDP and 50 times world trade. A group of nations may try concerted intervention, with concerted interest rate movements. However, there are severe limitations on the real autonomy and the real capacity for action of any national monetary authority. We might as well recognise that, and it might as well be our starting point for monetary policy.
The second policy implication is that fiscal policy needs to err on the side of prudence to earn the confidence of the financial markets. There have been many examples in the past 10 or 20 years of the way in which fiscal fecklessness is punished swiftly.
The two obvious examples are the Labour Government's experience from 1974 to 1976 and the Mitterrand Government's experience from 1981 to 1983. In each case, a socialist or left-inclined Government sought to make a dash for growth, thought they could defy the laws of international economic gravity, and then suffered grievous consequences. Under the Labour Government, we had some of the largest and most dramatic cuts in public expenditure in any one year of the post-war period. In France, there was a total U-turn and a reversal of policy.
Given that both monetary and fiscal policies are severely constrained by those facts--they are not fiction--one is driven ineluctably to put much greater weight, quite rightly, on microeconomic and supply side policies. That is the new area in which Governments can make a difference, and if only one point in my speech lodges in the minds of my right hon. and hon. Friends tonight, I hope it will be that.
The approach to supply side policy must be broadly and imaginatively defined. The hon. Member for Gordon (Mr. Bruce) was right to talk about investment in physical capital and in public and private infrastructure, and investment in human capital is at the core of the areas of consensus between the Government and the Opposition. Such investment is important--the fact that we happen to agree on it makes it no less so--and it must be sustained for a long period to bear fruit.
The phrase "supply side policy" must be defined more broadly. In this, we can learn from the continent, where they know that, in a world of highly mobile capital and high net worth individuals, one must attract to one's shores, and then retain, people who could easily take their energy, efforts and wealth-creating abilities elsewhere. France recognised long ago that, to sustain the growth points in various parts of the country--Montpelier, Nancy, Grenoble and Rennes, to name a few--investment in higher education and even in culture was needed to make those centres more attractive to the people who wanted to invest and lead their lives there.
"the widespread job insecurity throughout Britain".
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