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Mr. Syms: My hon. Friend has raised an interesting point. We had a rise in interest rates today, yet a fall in manufacturing the day before yesterday. Is not that a very bad policy mix? Is not that very bad news for anyone looking forward to a future of high employment?

Mr. Loughton: I bow to my hon. Friend's greater expertise as somebody who has been involved in manufacturing for many years. He is absolutely right. The complete failure of a selective fiscal tightening in the Budget has had a direct impact on the value of the pound. We have seen sterling soar in the recent past. In fact, in the past eight days since the Budget, the sterling trade-weighted index has risen by no less than 2.5 per cent. As my hon. Friend says, interest rates have gone up again today--the third increase since the Government came to power and the third increase in less than three months. Today has seen another piecemeal increase yet we know that piecemeal increases are not enough, as the City will tell us tomorrow.

Mr. Geraint Davies (Croydon, Central): Is not the level of the exchange rate linked first to the phasing of the British economy's growth cycle vis-a-vis the German one, when we are at a peak and they are in a trough, and secondly to the sentiment of the market with respect to whether a single currency will go ahead on 1 January 1999, considering that the convergence criteria may not be met, especially by Spain and Italy? Those are the informed views in the market. It is not what you say about the Budget somehow impacting on exchange rates. It has not impacted significantly on exchange rates. I put it to you that manufacturing is being hit slightly as a result of the exchange rate, but that has nothing to do with the Budget. The Budget was about setting the parameters for

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stable inflation to ensure stable exchange rates for the sustainable future. We can actually have profitability. What you are saying is complete and utter rubbish.

Mr. Deputy Speaker: Order. I remind the hon. Member that he is addressing the Chair when referring to "you" and not the hon. Member for East Worthing and Shoreham (Mr. Loughton).

Mr. Loughton: I am grateful to you, Mr. Deputy Speaker, for intervening on the gushing new stockbrokers on the Labour Benches. I fear--although I do not know the hon. Gentleman's background--that he is talking complete and utter claptrap. Sterling is approaching a crisis of inverse proportions. A sterling crisis when sterling goes up can be just as harmful, if not more harmful, to British industry.

The reason why sterling has been shooting up in the past couple of weeks is that the City and the speculators have this Government sussed. They know that the Government will have to put up interest rates. The City, the experts and the professionals, whom the Opposition ranks are queuing up to join, know that the Government have abandoned so early in their governance a tight inflation policy. What does that lead to? It inevitably leads to higher interest rates. One does not have to be a Mr. Soros to work things out. They have got the Government sussed. It is a one-way ticket and that is why sterling is going up.

Mr. Geraint Davies rose--

Mr. Loughton: I should like to continue. We do not want another lengthy intervention.

The intervention of the hon. Member for Croydon, Central (Mr. Davies) is endemic of the new ethos that the Government have tried to thrust on us: "Not me, guv, it's the Bank of England." Within days of coming to power, they handed over control of monetary policy. They said, "We think that you can disentangle monetary policy from fiscal policy, so don't blame us--it is down to Eddie George and the Bank of England." That is the point that the hon. Gentleman was trying to make.

Time and again at Treasury Question Time this afternoon, colleagues of the hon. Member for Croydon, Central reinforced the dramatic impact of the exchange rate on British industries in many depressed areas and in many strong Labour seats. The hon. Gentleman's hon. friends know them well. For example, 60 per cent. of British Steel's trading profits are sensitive to movements of the Deutschmark and pound exchange rate. The appreciation of the pound by more than 10 per cent. against the Deutschmark over the past six months has blown an enormous hole in the budgeting and economies of such companies. Pilkington plc is another large UK employer and former FTSE company, and more than 70 per cent. of its trading profits are sensitive to the deutschmark exchange rate. Such companies will be crucified.

Mr. Fabricant: Will my hon. Friend join me in paying tribute to the hon. Members for Rotherham (Mr. MacShane) and for Alyn and Deeside (Mr. Jones) who today said that the increase in interest rates and the

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increase in the value of the pound--solely arising from the abrogation of responsibility by the Chancellor--were damaging the steel industry in their constituencies?

Mr. Deputy Speaker: Order. I remind the hon. Gentleman that he must address the Chair.

Mr. Loughton: I am grateful to my hon. Friend for that point. The two hon. Gentlemen that he mentioned are forthright and honest, and I hope that the Treasury team will listen to them. I know Rotherham well and I know its dependency on steel manufacturing and heavy capital goods industries. Those are exactly the businesses that are suffering badly and will continue to do so as we increasingly approach a sterling crisis for which the Government must take responsibility. They cannot shrug their shoulders and take the "not me, guv" approach that we have seen so far.

What have we seen? The pound goes higher, exports go down and the Budget predicts that export levels will decrease next year and the year after. Inversely, the import levels are predicted to increase next year and the year after, which is a serious recipe for inflationary pressures and therefore for further interest rate rises. Exports will continue to suffer because the pound is high, and industry's borrowing costs will continue to go up. That is a treble whammy for British industry.

Mr. Tony McWalter (Hemel Hempstead): Since you mentioned fiscal tightening, will you explain to us--I am sorry, Mr. Deputy Speaker--will the hon. Gentleman explain exactly the level of income tax rise that he wanted to see? Would he have raised the standard rate of income tax by 1p, 2p or 3p? That is the implicit message that he is giving the House.

Mr. Loughton: I am sure that if the hon. Gentleman wished to address his question to you, Mr. Deputy Speaker, you are as capable as I am of giving the fundamental lesson in economics to Labour Members that they so desperately need. I shall come on to the subject of personal taxes a little later, if I may continue without being interrupted.

Mrs. Liddell: Will the hon. Gentleman give way?

Mr. Loughton: For the last time.

Mrs. Liddell: That is very gracious of the hon. Gentleman. When he comes on to the subject of personal taxation, and given that he has been following the debates on the Budget so closely, will he give us his view on the point made by the hon. Member for Grantham and Stamford (Mr. Davies) in his lengthy contribution?

Mr. Loughton: I shall be delighted to deal with that point later, and also with the Economic Secretary's performance at the unit trust dinner in the City last night. Apparently, she alienated no fewer than 1,500 fund managers with a Ladybird-book ABC version of how the City works. If that is the calibre of economic management and understanding of how the City works to which the

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new Government are going to treat us, I fear that they misunderstand basic economics and the City's role as a major fund earner and manager for the country.

If I may continue, I can tell the House that I understand the problem that exporters face from my experience in my constituency. One of the major employers is SmithKline Beecham and another is Edward High Vacuum, which is one of the most profitable parts of the BOC Group, a major FTSE company. Another is Ricardo Engineering which is a major listed company. All those companies export the majority of their products and they are all suffering. They constantly tell me about the pain they will continue to suffer and the Government's "not me, guv" attitude is no recompense for them.

On a more cheery note, what went up in the stock market? The Government want us to believe that the stock market is jolly and everything in the garden is rosy. One of the sectors that has seen the biggest rises in the past eight days is the property sector. Yet the Budget was meant to put a cap on the speculation and short-termism that afflicted the property market, so we are told, in the 1980s. That is why the Government tinkered with MIRAS and why we had the grand gestures on stamp duty. What effect have those changes had? Property shares have rocketed and property prices are going up. Why? The answer is simple. The Government hoped that most people would understand the changes to ACT, but if a fund manager invests in equities and will lose the ACT credit, he will look around for other forms of investment. At the moment, the commercial property market is yielding in excess of 7.5 per cent., without the downside of ACT. Surprise, surprise, property prices will go further through the roof and that has been reflected early by the rise in the property sector on the stock market. That is another inverse reaction compared with what the Budget, or so we were led to believe, was supposed to achieve.

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