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8.11 pm
Mr. John Townend (Bridlington): Listening to the right hon. Member for Dunfermline, East (Mr. Brown), I began to believe that I was living in a different country. To hear the right hon. Gentleman, one would think that we had the worst economy in Europe rather than one of the best. It is not I who says that, but the independent Organisation for Economic Co-operation and Development.
I cannot believe that someone who holds himself out as a future British Chancellor does not read OECD reports. Whether the figures are for unemployment, inflation, investment, economic growth, the balance of payments, industrial production, competitiveness or industrial disputes, they are satisfactory or going the right way. All those figures are improving.
When the right hon. Gentleman tried to rubbish the fact that we are the enterprise centre of Europe, and compared us with Hamburg on investment, I could not believe my ears. German manufacturers are not investing in Germany, because Germany is no longer competitive. Volkswagen builds factories in Czechoslovakia, not in Germany, Mercedes in the United States, and Siemens and BMW in Britain.
In recent months, the Chancellor's success in running the economy has resulted in increasing confidence in the markets, and that is why the pound has been rising. Unfortunately, there is a black spot. Like most of Europe, we are spending, borrowing and taxing too much, but does anyone believe that a Labour Government would spend, borrow or tax less? Of course they would not. They would spend, tax and borrow more. I trust that the Chancellor, who started to deal with the problems in the previous Budget, will continue to deal with them further in this year's Budget. But all Conservative Members agree that we must have a responsible Budget, so reductions in spending should, ideally, be in excess of tax cuts.
I have been making speeches since 1979, but I regret that not much notice has been taken of them. In 1979, public expenditure was 42.5 per cent. of GDP, and last year it was 42.5 per cent., so I hope that the Chancellor will take a little more notice of me this year.
I suggest that we cut spending by £7 billion. I should like the Chancellor to spend £5 billion in reducing taxes and the rest on the PSBR. I wrote an article in the "Parliamentary Review" saying how we could do that, but I cannot give the details in 10 minutes, so I refer hon. Members to my article. I hope that there will be no new taxes and no tax increases in the Budget, but any impartial person must accept that the Chancellor has run the economy well, and that his judgment on interest rates has proven correct. I support his 0.25 per cent. increase today.
It is worth saying that, if we joined a single currency, the Chancellor would not have that flexibility, and I would trust my Chancellor far more than the European bank. However, we must not ignore the fact that, had we not left the ERM thanks to Mr. Soros, or if we had gone back into the ERM in a matter of weeks, as the Opposition demanded, my right hon. and learned Friend would not have been able to present such a glowing report to the House today.
Supporters of the ERM should now accept that they got it wrong. Hon. Members will recall how they used to claim that, if we left the ERM, interest rates would rise, the pound would fall and, as a result, inflation would rise. The exact opposite happened. Within four months, interest rates had fallen by 4 per cent., and for the last four years, inflation has been the lowest in living memory. That has formed the basis of four years' sustained economic growth.
Those countries still in the ERM have had low growth and rising unemployment. Would the Opposition like us to have the same level of unemployment as France? Those
countries have had mounting fiscal problems, and their problems have been compounded by their mad rush to meet the convergence criteria for a single currency. France in particular is in a real mess.
The main economic and political issue facing Britain in the next few years is the single currency. I regret that we do not have more open debate on that subject, but that is because the supporters of a single currency will not come out into the open. When the right hon. Member for Dunfermline, East was challenged on a single currency today, he did not mention it in his reply. We all know that he is basically in favour of it, and of a federal Europe.
Some of those in favour of a single currency say that, if the euro comes into being, it must be in Britain's interests to join. But they will not get involved in detailed discussions or debates, because they know that, if the British people knew the full facts, they would never agree to support it.
All agree--supporters and opponents of a single currency--that it will be a disaster unless the economies of the various countries which join converge. Eddie George is rightly worried, because the convergence criteria omit one of the most important economic factors--unemployment. Since unemployment in France is 50 per cent. more than in Germany, and that in Spain is almost double that in France, it is clear that there will be no real convergence.
Another factor which is being ignored is the off-balance sheet liabilities--the contingent liabilities of unfunded state pensions--which in Europe are enormous. The unresolved problem is that, even if the economies converge and we have the euro, there is nothing to stop economies diverging in future. That is likely to happen in a federal state. It happens in America, where the rustbelt states have diverged from the sunbelt states, and the east from the west.
If that happens, a country could be in deep trouble. It could not deal with the imbalances by reducing interest rates or flexibility in the exchange rates. The first of the alternatives that have been mentioned is a massive movement of population. We saw that in America, with the movement of workers from the north to the south and from the east to the west. But that would be much more difficult in Europe, because of different cultures and languages and the much smaller land base. I am sure that most countries would not want to have to accept millions of incomers.
That leaves only one other way of dealing with the imbalances--transfers through the federal budget, as happens in America. That would mean that European taxation would have to rise dramatically. More money would go to Brussels, and European expenditure would rise dramatically as more money went to the poorer states. A federal state would become even more deeply embedded; and, like Washington, Brussels would become dominant.
Britain's problem is that its economy is likely to diverge more than the economy of any other country, because we are different in several important ways. We are the only major oil producer in Europe, so a large rise or fall in the oil price would have one effect on Europe and the opposite effect on our economy. That would probably mean, too, that our economic cycle did not coincide with Europe's.
We also have a large floating interest rate housing debt. Most housing debt on the continent--it is a smaller debt--is fixed rate, so major changes in interest rates affect us correspondingly more. We saw the effect of the ERM on negative equity when we were a part of it. More importantly, most of our pension liabilities are fully funded and in the private sector.
Let us consider the so-called benefits of a single currency. Transaction costs are often overstated. Even the EU says that they amount to no more than 0.1 per cent. of GDP. We trade more with the rest of the world, so we would enjoy less of the benefit. Major commodities such as oil and metals are already priced in dollars, anyway.
The next argument is that the single currency is necessary for the single market. Canada and the USA make up the biggest single market in the world. At the Council of Europe recently, I asked a Canadian Member of Parliament whether, now that the Americans and Canadians have a single market, it would be advantageous to introduce a single currency. He said that it might be in economic terms, but that Canadians would never accept it, because they would lose their independence and be incorporated in the United States.
It is also said that a single currency would lead to low inflation. That is a load of rubbish. Any country that runs its economy properly can have low inflation--we proved that when we left the ERM.
It is said that there will be an interest rate premium for countries that stay outside monetary union. There might, in the first instance, but it will swiftly disappear, provided that we run our economy properly as a low-inflation economy based on sound money. Then the interest rate premium might decline, and even turn into a discount.
As for the disadvantages, the costs will be enormous. In the past week, the Retail Consortium has brought out figures showing that conversion will cost £3.5 billion--that does not include the costs to the banks. Every accounting machine, till and computer will have to be changed, and the costs will surely be passed on to the customer. That will be bad for inflation. We all remember how decimalisation was used as an excuse to put up prices.
Mr. Brian David Jenkins (South-East Staffordshire):
The hon. Member for Bridlington (Mr. Townend) mentioned exchange rates, and said that the pound has been getting stronger lately. He failed to point out that our exchange rate now is about 50 per cent. of what it was when the Government came to power in 1979.
This evening I want to take a look at the Government's claims of long-term prosperity for all. Their record on the economy is perfectly simple: "Don't blame us for anything that goes wrong, but we want the credit for anything that goes right. If there is a recession, it is all the fault of the world economy--we can't do anything about it. But when there's a boom--aren't we doing well?"
So let us take a look at our position in the world economy relative to other nations. Where do we fit in now? It is not where we were in the 1960s, 1970s or the
last century that matters; Parliament should be interested in where we are now and where we will be in the next 10 years. Beyond that it gets a little more difficult to predict with any accuracy.
On any measure, we have been losing ground against our major competitors. I do not want to repeat all the statistics that are thrown back and forth, but under the Government's stewardship we have slipped from 13th to 18th in the international prosperity league since 1979.
Since 1992--this shows the costs of the Government's mismanagement--almost 1 million people have signed on as unemployed in the west midlands at least once; and nearly 10 million countrywide have tasted unemployment in that period.
I find it hard to think of 10 million people, but I can tell the House about one young man who spoke to me a couple of weeks ago. He came up to me at the bar and said, "When are you going to get rid of this lot?" He meant the Government of this country. He went on to tell me that he was 27 years old and that since he left school he had had 19 jobs and not left one of them voluntarily. He had been on short-term contracts or schemes throughout.
I admired the young man's tenacity. I am not sure that I would have kept going after job No. 16--I might have given up. Then I began to think about his future. With no skills, he is condemned to a lifetime of working for low wages and obtaining benefits to top up his income. We pay out nearly £3 billion a year to low-wage people.
Every pay rise this young man manages to gain will be taken away from him in benefits. He will be taxed, in effect, not at the much vaunted 40 per cent. "maximum" rate but at 150 per cent., owing to his loss of benefits.
What is the man's future under this Government? Given their track record, it is possible to forecast his future fairly accurately. If he finds a partner, together they will try for social housing. In some parts of the country they will have a better chance of winning the lottery than of finding social housing. They may find a private rented property and get housing benefit. That will lock them into the poverty trap for years to come. They will not be able to buy because, on a short-term contract, they will find it almost impossible to get a mortgage. They will certainly face higher prices as the Conservative Government pile yet more VAT on all goods.
If the couple have a family, they will send their children to the same school they attended--except that their children will be in larger classes than they were, being taught by some of the most overworked and stressed members of the work force. Many of the most experienced teachers will have been forced out to allow the school to meet its budget.
This couple will have no dreams that their children will be better off than they were. They will be the first generation since the second world war not to believe that their children will be better off than they were. Our work force of the future is being given a worse start in life than the work forces of our major industrial competitors.
If these people fall ill, they will have to go to a privately run hospital, where they will be asked if they are first-class or standard-class customers. They will live in a country where more than half the population pay top-up fees via private health schemes. The former workers, their parents, will be struggling along on ever decreasing
pensions. It is easy, when talking about how brilliantly low interest rates now are, to forget that many of these people put savings by in building societies all their lives and therefore rely heavily on interest rates. Low rates may be good for some; they are certainly bad for others.
All this couple can look forward to is a place in a privately run nursing home, providing they have a house to sell to pay for it.
We end up with a poorly skilled work force, an education system that is failing our children, declining housing conditions, short-term contracts, job insecurity, fear of unemployment and poverty in old age.
Some firms are realising that they need skilled workers, and there are young men and women who want to work and need training. Indeed, many more firms are waking up to this fact. But over the past 17 years a lost generation has arisen. We owe those people the opportunity to acquire skills and increase their human capital, to the benefit of us all. In my area, there is one training centre catering for nearly 300,000 people. It currently has 18 apprentices. Many local colleges have given up engineering training altogether. The whole training infrastructure will have to be rebuilt, and even then it will take three years to produce the end product--the skilled workers.
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