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12.42 pm
Mr. Ken Livingstone (Brent, East): Much claptrap is talked in the west about the need for free trade. I am not aware of any current, modern, capitalist economies that ever allowed the principles of free trade, or market principles domestically, to determine their policy when national interests could be best preserved by intervention or tariffs.
Britain built its own tremendous economic advantage at the beginning of the industrial revolution by barring most of our foreign competitors from trading in the British
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In the middle of the last century, the forerunners of what has since become Germany created high tariff walls because their economists warned them that if there was genuine free trade, German industry could never establish itself against the much stronger American and British competition. In the post-war period, we have seen Japan, informally and formally, operate the most rigorous rigging of the market to exclude western, European and American imports to protect its own domestic base, and it is still doing it on a grand scale.
We heap great praise on South Korea, Taiwan, Singapore and so on, but they have all built their own domestic strength behind tariff barriers. If they simply allowed anyone to import and export they would not be able to establish a sound domestic base.
Still today, nations that praise the concept of the World Trade Organisation--the powerful nations of Britain, America and Japan--insist that that organisation should, effectively, force the rest of the world to buy their high-quality finished products on their terms, but should restrict them in selling their agricultural products to us on equal terms. If we were really interested in free trade, we would allow agricultural imports on a massive scale, but we do not allow that, because Europe, Japan and America know that it would wipe out what remains of our farming industries and employment.
Behind the rhetoric, the reality is that nations intervene whenever possible to protect their domestic markets. It is hypocritical for the west to lecture African and Asian nations that are not economically successful, and insist that they must trade on our terms and cannot intervene to protect their domestic markets, given that every successful capitalist society has built its success on exactly those policies.
I am delighted that the Secretary of State will take part in the World Trade Organisation rally in Singapore, but let us recognise the hypocrisy of it. If we were really serious about free trade, we would shift the balance of protectionist measures in Europe, Japan and America, which prevent third-world countries from achieving their full potential. We would lift the burden of debt that has been saddled on third-world countries by the high interest rate policies of President Reagan, when he took over in the White House in the early 1980s.
Mr. MacShane:
Is my hon. Friend aware of the row about the import of bananas into Europe? The German Government insist that bananas produced in Latin American countries, such as Colombia, should be imported at low cost, whereas France and Britain believe that bananas should come from countries where wages are slightly higher. According to my hon. Friend's theory--if I understand him rightly--we should all eat low-cost bananas, whereas bananas from countries where wages are protected should not be allowed into Europe.
Mr. Livingstone:
I am merely pointing out the reality. I believe in managing trade. It is nonsense to talk about free trade, because I believe that the world needs to manage trade, otherwise one industry after another in one
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I shall deal with the Government's Budget, and what it will do to improve our trading performance. Our exports have grown tremendously since we were evicted from the exchange rate mechanism--it is irrelevant whether we call it black Wednesday or white Wednesday. The simple fact is that that dramatic reduction in the exchange rate opened the way to a huge export boom, which fuelled most of the growth in the British economy until 18 months ago. Unfortunately, in the past year we have seen the real value of the pound go up by 10 per cent., which makes it more difficult for British firms to export.
I would like to get back to a system of fixed exchange rates. The important thing is to fix them at a realistic level, and not to repeat the nonsensical mistake of the Conservative party when it took us into the ERM at a grossly overvalued rate. Perhaps that was not a mistake. The Economist and the financial pages of the press in the run-up to the decision of the then Chancellor of the Exchequer, now the Prime Minister, to take us into the ERM at DM2.95, told us that we should join at a rate so high that it would make British industry squeal. It was not a mistake; it was a deliberate policy to use an overvalued pound to force a shake-up of competitiveness in British industry. The result was that 10 per cent. of British industry closed during that period. We lost jobs, and we lost exports. We should state clearly that we want a real rebirth of British industry and a recapturing of trade. I have not seen the Conservative central office briefing to Conservative Members but I look forward to seeing it later. I have not been given a briefing by my own Whips so I am completely unbiased.
People talk about the Government's great trade triumph, but we continue to lose our proportion of world trade year by year. We are not capturing markets or expanding. Conservative Europhobes drone on about the need to move away from European entanglement towards trade with the far east. But the trade statistics show that we are improving our trade with Europe and losing it in the far east. Those who think that Britain has a future outside Europe trading with the far east should look at the figures because they show that we are losing ground in those markets. We benefit substantially from the trade inside the EC, which has had massive growth.
What choice did the Government face in the Budget in terms of continuing to increase exports and strengthen our industrial base? It was that the British economy could be managed either to benefit our industry or the City of London. Consistently over the past 18 years the interests of the City have taken precedence over those of our industrial base. In the Budget the Chancellor committed himself to further increases in interest rates rather than going for increased taxes. That is the balance. He has chosen to manage the economy by constantly using interest rates although that has the most damaging effect on our industrial base.
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We are told that in view of the great triumph of the past 18 years a Government borrowing requirement of £19 billion is no problem on top of all the others that we have had. Over the past five years, Government debt has virtually doubled and we are pushing against the 60 per cent. Maastricht ceiling because I do not believe for a minute the Government's figure of £19 billion for next year. The amount will be £22 billion, £23 billion or perhaps even £24 billion, which will take the Government over the 3 per cent. borrowing limit.
As the figures continue to come through, the international money markets will see as the year rolls by that the Government's Budget projections were optimistic and there will be increased pressure for interest rises. Eddie George will trundle backwards and forwards, almost wearing out the carpet in the Chancellor's office, demanding a further increase in interest rates to restore confidence. The alternative way to restore confidence is to recognise that Britain is wildly undertaxed. In tax terms we are 14th of the 15 nations in the EU. My voters will find that breathtaking because individuals in Britain are painfully highly taxed. The rates are punitive, higher than at any time apart from during the war.
There has been a shift in the balance of taxation from the corporate sector to individuals, most of whom--through income tax, VAT and council tax--are paying more tax than they have ever paid. They cannot believe that this is an undertaxed society. However, corporation tax is almost voluntary and, effectively, that is why Britain is undertaxed. We tax much less than any of our major competitors and the rate is lower than in any European nation except Portugal. Has that strategy succeeded? Throughout the debate Conservative Members have said, "Industry will survive and invest if we keep taxes low." Corporation tax is lower than it has ever been in real terms and company profitability is higher than ever in real terms, but have companies invested? They have not: investment is limping along.
The statistics are disturbing. Since the Government came to power in 1979 personal investment as a proportion of GDP has increased by 0.1 per cent. Government investment has decreased by 1 per cent. During this Conservative Administration, company investment--one must say "company investment" because so many companies have moved from the public to the private sector during the period--has declined by 2.2 per cent.
So, having given companies all that they demanded on low taxation, in dramatic reductions of trade union rights and increased working hours, the Government have not produced the result that they set out to achieve. They have presided over a decline, as a proportion of GDP, in investment in the British economy. As Labour party propaganda makes absolutely clear, that is why Britain has slipped from 13th place--when the Government took over--to 18th place.
Britain is about to be overtaken by Ireland. Is it possible to imagine Mrs. Thatcher, in 1979, standing on the steps of Downing street and saying, "Vote for us, and within 20 years Ireland will have overtaken the British economy in terms of per capita GDP"? On current projections of British and Irish economic growth, Ireland will overtake
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Furthermore, some of the most advanced regions in Spain have equalled British levels of GDP per head. On those trends, soon only Portugal, Greece and Britain will be at the lower level of GDP per head in the European Community. It has been an appalling record of failure, because, on every occasion, the Government have benefited the City and neglected industry. One overlooks the need for industry at one's peril.
I am all in favour of a successful financial sector, and I accept that we should be selling insurance and all those other things. I am delighted that there is a successful service sector and that people work in catering, hairdressing and all of that. But those industries rest on a sound industrial base, and they become vulnerable without a sound, high-tech manufacturing base.
I should like the Government to make a dramatic shift. If they were serious about trade and industry, they would not have passed their most recent Budget. But I am opposed to people who slag off the Government and do not say what they would do in their place. Therefore, I shall spell out exactly how the situation should be turned round and which taxes should be increased. I know that I shall say it at my peril, because, under the Labour party's new code of conduct, a Labour Member will be found guilty of having brought the Labour party into disrepute if he or she is found in possession of a tax policy. Nevertheless, I shall spell one out.
I have not the slightest doubt that it is right that Labour should proceed with its windfall profits tax on the utilities. We are batting that proposal around. I know that my right hon. Friend the shadow Chancellor has not been too specific on its details, but it seems to have slipped into the public domain that we are thinking about a £5 billion tax. However, we have overlooked all those independent city studies that tell us that a windfall tax could produce £10 billion without any discomfort to the companies concerned. Therefore, if we are facing a Government borrowing requirement--which is claimed to be £19 billion next year, but most probably will be closer to £23 billion or £24 billion--a £10 billion windfall profits tax would provide a good start to restoring sound finances in Britain.
What about income tax? I said earlier that the average, ordinary voter in Britain--middle-class and skilled working-class people--are being highly taxed. They are. I am opposed to a tax increase for them, which is why I was quite happy not to oppose the 1 per cent. reduction in the basic rate. I hope that Labour goes further and starts to reduce the tax on some middle-class and skilled working-class families. But higher income earners--people earning over £50,000 a year--are woefully undertaxed. We could easily say that those earning over £50,000 will have to come up with another £3 billion or £4 billion, to make a contribution to restoring the competitiveness of the British economy, because they are the people who have done best in the past 18 years.
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A combination of three other taxes would help restore Britain's financial position, and immediately reduce the pressure for interest rate increases. I am not saying that we should increase taxes because it is fun to do so--I am still waiting to hear from my right hon. Friend the shadow Chancellor who in the past taxed and spent just for the fun of it. I am in favour of structuring our tax system to increase investment and industrial competitiveness.
First, I should like there to be a two-tier capital gains tax. Capital gains realised over a short period should be taxed at a higher rate than those left in a company for longer, which would be an incentive for long-term investment. It could turn out to be completely neutral in terms of any tax change if we reduced the tax burden on capital gains in order to encourage long-term investment.
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