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11.57 am
Mr. Denis MacShane (Rotherham): I am grateful to my hon. Friend the Member for Great Grimsby (Mr. Mitchell) for initiating this debate. We have heard
two remarkable speeches. The contribution of the hon. Member for Macclesfield (Mr. Winterton) contained radical thinking about the importance of manufacturing. His Front-Bench colleagues should listen to him, but, alas, I fear that his remarks will fall on stony ground, because in the past 18 years there has been one long assault on manufacturing.
My hon. Friend knows that in the pantheon of socialist history, thinking has always been a left-wing deviation. I congratulate him on a speech full of ideas and thoughts, some of which were deviant. If I allow an occasional thought to slip into my speech, I hope that my hon. Friends on the Front Bench will take no notice, and will excuse my foray into the world of ideas.
Some contradictions have to be faced. If the high exchange rate is so bad for employment, why is unemployment falling as the pound is rising? If high interest rates are so damaging for British manufacturing exports, why did the high interest rates and the high pound of the early 1980s coincide? The Library has published an excellent document on economic indicators dated 1 July 1997, which shows that the last time that we had a trade surplus in manufactures was in the early 1980s, at the time of high interest rates and a high exchange rate. The situation is complex. I hate that dreadful cliche "multi-faceted", but there are many unintended consequences and the matter is difficult to get right.
I want to make a case in support of my hon. Friend the Member for Great Grimsby for a lower pound, but I want to make a stronger case for a stable pound. We have suffered, not just in the past 18 years, but in the past 30 years, from the incredible yo-yo pound sterling, going up and down. The graph in the excellent document from the Library resembles a map of the deep ocean. It has more peaks and troughs than the Swiss alps. We should aim at a lower and stable rate. I do not regard the exchange rate as a market-clearing mechanism, as my hon. Friend seemed to suggest, which we should leave bouncing happily up and down like one of those ping-pong balls on a column of water at a fun fair.
We have a specific problem in manufacturing. I have a constituency interest, in that British Steel is the major employer in my constituency. It has taken a 50 per cent. hit on profits. Last year, it had profits of £1.1 billion for investment, pay, jobs and dividends; this year, its profits are less than £500 million. A great British success story such as British Steel cannot be asked to plan for the future, to pay fairly, to treat its shareholders well and to invest here and abroad if, from one year to the next, it takes a 50 per cent. hit on its profits. That has happened because British Steel, like many engineering manufacturers, has its products posted in deutschmarks for export to Europe.
Every engineering firm in my constituency is taking that hit on profits and employment. I warn my hon. Friends on the Front Bench with all seriousness that employment in the UK may have peaked. I fear that there will be a time lag before the immense hit that all our manufacturing sectors are taking starts to feed through into workers being laid off.
Not only manufacturing is affected. Many service companies are affected. The boss of a distinguished architectural company not unconnected with the millennium dome reported to me recently that he had had to lay off staff because he was losing orders overseas.
British tourism will take an immense hit, as will British Airways. It has become much more expensive to come to Britain compared with last year. It is fine for those such as the shadow Chancellor, who has a nice house in Normandy. He will have a lot more to spend on it this summer. But the high pound is damaging the promotion of British tourism and services.
That is true even in the micro economy--the world of conferences. Britain has become a key conference centre for Europe. In the past two or three years, orders for conference packages of interpretation, hotels and so on increased, but we are now losing orders to French or German companies, which can offer products in deutschmarks or French francs that undercut what we can offer posted in English pounds.
So I say to my hon. Friends and to the hon. Member for Macclesfield (Mr. Winterton), who is a doughty champion of manufacturing, that the service industry has also been badly hit by the exchange rate. The creative economy--the film and video economy in which Britain is a world leader--has also taken an immense hit.
I should love to enter into a long debate with my hon. Friend the Member for Great Grimsby about what we can do, but perhaps we should leave that for some other occasion. I want to put forward four simple ideas. First, the Treasury should drop its sublime arrogance. When the pound was high before the ERM debacle, it was the best thing that could have happened to Britain. Remember that? Two years ago, the pound slumped and that was the best thing that could have happened to Britain. Now, the pound is up at DM2.80, and that is the best thing that could happen to Britain.
The Treasury has the memory cells of a mite. It must humble itself and learn from other countries, perhaps from the United States, where for 10 years the dollar has been traded at a highly competitive rate, reflecting a rise in US exports. What lessons can we learn from the United States? Perhaps we can learn from the Netherlands, where unemployment is lower, interest rates are lower and the trading sector is stronger than in the UK. We might learn from Switzerland where, thanks to monetary measures, the value of the Swiss franc against the deutschmark has been reduced, not increased. There, not the invisible hand of the market but the visible hand of the policy makers has been applied.
Secondly--I am sorry to disagree with my hon. Friend the Member for Great Grimsby on this point--we have to maintain a low inflation policy. There are virtues in creating the independent Monetary Policy Committee for the Bank of England. I do not want our Chancellor, or in 20 years' time some Conservative Chancellor, waking up worrying about interest rates every morning of his life. The United States, which probably cleaves to many of the values about which my hon. Friend spoke, has an independent central bank. One could enter into the debate elsewhere. I should like the central bank to be advised by a committee with a more regional and manufacturing outlook, but we can discuss that later.
Thirdly, we must consider the unmentionable--labour market policy. The countries that have kept unemployment, inflation and interest rates low have an active labour market policy that does not allow wage demands to feed through into inflation. It is not clobbering workers; it is the essence of social democracy. Britain's adversarial labour market with one side up and one side
down has not worked. I advise my hon. Friend the Minister to turn her attention to labour market policy in order to keep a stable exchange rate.
Fiscal measures need to be used seriously, and I am looking forward this afternoon to innovative and imaginative fiscal measures in order to ensure that there are no further increases in interest rates and no further need to increase the pound's strength.
Finally, we come to the question of Europe. We shall not debate that today. I should prefer the British pound to be stable in the--
Mr. MacShane:
--in the euro, with the other economies that have a much higher percentage of their economic base located in manufacturing than we do, which requires stability. There is no lead on that at the moment. We are not in a graveyard; we are in a complete vacuum. The Confederation of British Industry has climbed back on to the fence, saying that the euro should be put off for two years, as if it will not happen--do not see the euro; do not hear the euro; pretend it does not exist. That debate will have to resume. In a year or two, when the underlying manufacturing strengths of a low inflation and low interest rate euro are compared with the problems of not cleaning up the mess that we inherited from the Tories, it will come back to haunt us.
Mr. Edward Davey (Kingston and Surbiton):
I apologise to the hon. Member for Great Grimsby (Mr. Mitchell) for having missed the first half of his speech.
Mr. Mitchell:
What was the rest like?
Mr. Davey:
I undertake to read it in Hansard to ensure that I do not miss anything of importance. However, listening to the second half of your speech--I mean, his speech, Mr. Deputy Speaker--made me think that I had heard it before.
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