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Mr. Campbell-Savours: Is not the inevitable consequence of my hon. Friend's arguments that in the end he will become a passionate supporter of the single currency as we could well have the opportunity of locking ourselves in at a sensible rate? In that case, speeches such as that by my hon. Friend would be unnecessary in future.
Mr. Mitchell: I should have expected that. Fortunately, I have five pages of rejoinders to my hon. Friend as I knew he would be here this morning. However, the simple answer to him is spherical objects. There is no possibility that we will be able to lock ourselves into the single currency at a competitive exchange rate. We shall have to lock in at the market rate and, if it is the current market rate, it will be as disastrous as it was last time. My hon. Friend and I both know that.
In any case, my hon. Friend is trying to raise a divisive red herring in the Labour party. He knows that we are not going in in the first round and the decision will not be taken until after the next general election, so why is he trying to stir trouble in an ideological fashion in the middle of my speech? My hon. Friend is trying to hold me up as I approach the conclusion of my speech.
Mr. Andrew Love (Edmonton):
My hon. Friend has said that today's debate is about the consequences of a high exchange rate, although he has spoken about the means of reducing it. We should be debating the means today. My hon. Friend referred to market rates, conditions of deregulation and markets. How would he propose to manage the exchange rate down to a level that he would consider to be competitive?
Mr. Mitchell:
I am grateful to my hon. Friend for taking me back to the main thread of my speech--and, indeed, bringing me to a conclusion.
First, we have to use the influence of my right hon. Friend the Chancellor's opinion and announce that our rates are uncompetitive and that the Government's objective is long-term competitiveness through the exchange rate. If my right hon. Friend says that, it will shift the perspective of the markets and bring down the exchange rate.
Secondly, it is silly to be dumping huge quantities of money on the market through demutualisations--some 30 billion quid, with another £16 million to come from further demutualisations. There should be a moratorium on demutualisation.
Thirdly, we must get interest rates down. The Bank of England must be made aware of the problems it is causing. It appears to be wholly unconcerned about the exchange rate. Perhaps it is because it does not suffer the consequences--indeed, the financial community reaps the benefit through an ability to invest overseas and to manipulate money around the world. It is manufacturing that suffers the consequences.
I would like my right hon. Friend the Chancellor to take everything back under his control. A Chancellor must have power over both monetary policy and fiscal policy. He cannot run the economy without both weapons--he needs a two-gun holster. If my right hon. Friend does not take back control--and as we have not yet passed legislation, he could still intervene in these matters--the Bank of England must be pressured and persuaded to reduce interest rates.
We also need to control credit. Why not require deposits with the Bank of England, varied and charged interest or not, according to the lending policy of the institution making the deposit? We should control credit in the economy. It is silly to allow people to pour credit on to the market--it is the money supply that is causing the consumer boom and making everybody panic. If we do not control credit, the Chancellor's only recourse is a lax economic policy. He could not fund the debt. He could get ways and means advances from the Bank of England and not pay interest on them, but that would be viewed as irresponsible economics. It would be a blow to confidence. However, that is the only alternative to effective control of credit and a policy of lower interest rates, which would bring down the pound with a sure and certain touch. The alternative is a long anorexia and another industrial winddown, which we cannot afford.
The real devaluation necessary, based on the competitiveness figures, is in the region of 35 per cent.--shock, horror. In fact, the American dollar has gone down 40 per cent. since the over-valuation of the mid-1980s, without any disastrous consequences. Indeed, there has been a direct benefit to American manufacturing and the American economy. I am not saying that we should devalue by 35 per cent. at once; we should work to get the pound down over a long period. We should make that a central objective of policy so that the markets will know what we are doing and react accordingly.
Mr. Nicholas Winterton (Macclesfield):
I congratulate the hon. Member for Great Grimsby (Mr. Mitchell) not only on obtaining this Adjournment debate, but on his choice of subject. He knows that I agree with a great deal of what he said. By saying that, I am not sure whether I am doing his reputation and prospects any harm or putting the kibosh on my own.
I declare my interest as I am the chairman of the Manufacturing and Construction Industries Alliance, which was launched within the Palace of Westminster--with the support of all political parties--to move the interests of construction and manufacturing up the public, political and parliamentary agenda.
I am glad to take this opportunity today to support the hon. Gentleman in his arguments, although I intend to concentrate primarily on the subject of interest rates, which have a dramatic influence on exchange rates, which in turn are damaging British manufacturing.
I shall begin with construction because it is a barometer of the overall success of our economy and it generates such demand in its own right--demand for building materials, fixtures, fittings, carpets, curtains, steel, brick, concrete, cement, furniture, electrical goods and decorating materials. It is a driving force for many parts of industry, including retail and, of course, manufacturing industry.
I am sure that I shall take all hon. Members with me when I say that the manufacturing sector is important because it is the only non-inflationary source of sustainable economic growth in this country or in any other. That is why, when I saw that manufacturing industry was part of the debate, I immediately took an interest. I am delighted to be making a contribution.
As the hon. Gentleman said, we are a trading nation. Despite the importance of the service sector and invisible trade--especially in the financial sector--we need to export manufactured goods to survive and to have a stable, progressive, successful economy. From the hon. Gentleman's argument and philosophy, I am convinced that that is also his objective. That is why I strongly support what he said.
The two important sectors of manufacturing and construction are linked not only by their comparative importance, but by the way that they have borne the brunt of the recent economic recession. The hon. Gentleman described what has happened as blood letting. Those two sectors have been seriously and adversely affected by the blunt way in which successive Governments, Conservative and Labour--and, indeed, the Governor of the Bank of England--have used interest rates as the sole panacea for all economic problems.
It is obvious to anyone who has been involved in industry, especially those who need to export their products, that high interest rates raise the level of exchange rates. If the level of exchange rates is raised, Britain will become less competitive. The current high level of interest rates has forced up the value of sterling
and brought about the debate this morning. That high level has created an almost insurmountable barrier to many of our exporters. It has placed a dampening hand on the first emerging breaths of confidence in the construction sector, whether it be business and commercial construction or domestic construction.
To take up the hon. Gentleman's remarks--and I entirely endorse his position--the use of interest rates is too blunt. It is too insensitive a tool to be deployed responsibly to manage our sophisticated economy. It is far too powerful a tool to have been passed into the largely unaccountable and undemocratically answerable hands of the Governor of the Bank of England, whose ideological purism and dogma-driven lust will lead him to maintain rates at higher levels than can be justified. It will leave us in an uncompetitive position compared with other countries in Europe and in other parts of the world.
The hon. Member for Great Grimsby referred at some length to the European Union, and some interventions related to Europe. The majority of our trade is done outside the European Union. [Interruption.] Indeed, it is. The Confederation of British Industry and others put out a lot of misleading statistics, but I assure the hon. Member for Rotherham (Mr. MacShane), who is shaking his head, that the majority of our trade is done outside the European Union, so what goes on there is of only partial interest to us.
We have a robust and healthy economy. I say that as an opposition Member: like many of my hon. Friends, I have been in the Opposition before, although for the past 18 years I have, from time to time, sat somewhat uncomfortably on the Government Benches. Our healthy and robust economy is due, at least in part, to the policies of the previous Conservative Government. It is a fact that the ogre of inflation, if not dead, is certainly firmly under control. Spiralling inflation, such as we saw under both Labour and Conservative Governments, was a product of historical, social, political and economic conditions, which no longer apply: that is, if we are to begin to believe even one word of what the new Government tell us about abandoning their bad old ways.
If the new Chancellor of the Exchequer is committed to prudent management of the economy--dare I say, following the prudent management of the Conservative Government--why must interest rates remain so unnaturally high? The hon. Member for Great Grimsby, in his interesting speech, said that interest rates in this country are abnormally and unnecessarily high. Why must British business face high interest charges when it seeks to borrow to invest in new plant and machinery and in the development of new products, which are vital if we are to remain competitive and forceful in international world markets? Why must the British service and commercial sectors face unnaturally high property prices? Why must home owners, whose support new Labour is pledged to nurture, face unnaturally high mortgage costs? We may hear some further unfortunate and bad news this afternoon.
Handing the control of interest rates to Eddie George at the Bank of England was an irresponsible and reckless folly, for which our economy may yet pay an extremely high price. The House should be able to debate that policy in considerably more detail in the near future.
High interest rates and their inevitable impact on exchange rates impose burdens, without which companies would be able to compete more effectively and become more profitable, and thus pay more taxes. The Government receive more in tax from business when there is a rise in economic growth. Without those burdens, more jobs would be created and the burdens on our social security system would be reduced. The Government would benefit, because they would get people back to work, which is one of their major objectives, for which I commend them. Putting people back in work, particularly when they are currently unemployed, would reduce the substantial social security benefit bill.
I want to send a clear message to the Chancellor of the Exchequer, who will deliver his first Budget later today. We would all be better off if he reduced interest rates, if not today, at least in the near future, because that would have an immediate impact on exchange rates.
It is a tragedy that the British economy might be hit by a double whammy: the higher interest rates that we are already experiencing and, sadly, the higher taxes that are imminent. The hon. Gentleman's message was clear. We should give our economy the boost of energy that it needs to maintain its current progress in the right direction. To bring that about, we require a reduction in interest rates, not an increase.
I expect that the comments I am about to make will fall on fertile ground among some Labour Members. We should review capital gains tax, so that unquoted companies are not unfairly penalised. We should review capital allowances, so that businesses are positively encouraged to invest: they could be targeted or capped if necessary. We should invest so that we remain competitive and are able to export, create jobs and generate extra growth in our economy. To that end, fiscal incentives are good.
I shall now say something that will perhaps not fall on such fertile ground. I believe that we should abolish inheritance tax to secure the future of many family firms. It is in family firms that real growth in industry and commerce takes place and where the majority of jobs are created. In many instances, inheritance tax is a disincentive.
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