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The Minister for Science, Energy and Industry (Mr. John Battle) rose--
Mr. Heathcoat-Amory: I give way to the Minister.
Mr. Battle: Will the right hon. Gentleman say whether he prefers that decision? Is it not the case that many companies, including his own, welcome it?
Mr. Heathcoat-Amory: I shall come to the attitude of companies in a moment. I make the point--it is interesting that the Minister does not deny this--that, in its business manifesto, Labour said that it would set up an advisory committee in the Bank of England, but that decisions would continue to be taken by the Treasury; so it was another broken promise when, four days after the general election, the Chancellor transferred these powers to the Monetary Policy Committee of the Bank of England, in advance of any legislation.
We warned of the dangers, and the confusion that we predicted in the Monetary Policy Committee has occurred. It has broken up into two unarmed camps: the hawks and the doves. The hawks believe that further increases in interest rates are required. The doves believe that interest rates should remain the same.
The Monetary Policy Committee's discussions are conducted semi-publicly, but it has raised in the minds of economic commentators and the markets the probability of further interest rate rises to come, which has further strengthened the pound and further damaged exporters and the manufacturing sector generally. That point was graphically made by my hon. Friend the Member for South-West Hertfordshire (Mr. Page), who has long experience of these matters. We are the fifth biggest trading nation in the world, and markets that are relinquished by the failure to compete on price are difficult to re-establish.
Dr. Palmer:
Will the right hon. Gentleman give way?
Mr. Heathcoat-Amory:
Will the hon. Gentleman forgive me? He has made his speech. I hope to reply to some of his points in due course.
There are reports that the Government, and more specifically the Cabinet, have split on this issue into those who still believe that something should be done about manufacturing, and those who do not. The attitude of the President of the Board of Trade remains a mystery.
We also warned at the time that there was a danger that monetary policy would diverge from fiscal policy; that the MPC would have an overriding concern to counter inflation by higher interest rates, while the Chancellor and the Government would pull policy in another direction. Those warnings came not just from my party, but from other parties. Indeed, I recognise one or two Labour Members who made precisely the same points.
The Government did not listen. That is hardly surprising, because Labour Members do not take the House seriously any more: they never attend debates such as this. But it has happened again. There is now a divergence between what the Chancellor, in two Budgets, has done in regard to taxation--and in regard to savings in particular--and what the Monetary Policy Committee is trying to do in the Bank of England.
In those two Budgets, we have seen an attack on savings. The £5 billion raid on pension funds--which is now to be an annual event--is the precise opposite of what the Government should have done last year. They should have encouraged savings, especially in the light of the huge windfalls that consumers were receiving from building societies and insurance companies following flotations.
The Government compounded the problem with the muddle over tax-exempt special savings accounts and personal equity plans. They relented on that, and we had a U-turn; but individual savings accounts will still be subject to an annual limit that is less than half what people can currently save through PEPs and TESSAs. By taxing savings and deterring savers, the Government put all the burden of the anti-inflation strategy on to the Bank of England. That is why we have had five interest rate rises since the election, and an uncompetitively high pound. It has been bad for mortgage holders, bad for investment and bad for exporters.
All that is described in the finer print of the Red Book--the Financial Statement published at the time of the Budget. It is laid out in the Red Book that the savings ratio is
The Red Book also states:
On page 95, the Red Book says:
We have a highly distorted economy. Services and consumption are buoyant, while manufacturers and exporters are on the brink of a recession. In today's debate, one or two hon. Members said that everything would be all right, because we now have stability. Indeed, the Chancellor has said more than once that he wants to end the cycle of boom and bust. He has done so by having both simultaneously: we have a boom in the consumer market, and a potential bust--certainly, we are on the brink of a bust--in the manufacturing and exporting sector.
There is another point, which again has been made by my hon. Friends. According to the Governor of the Bank of England, about half the rise in sterling can be attributed to the weakness of the euro. In other words, sterling is now a currency of refuge. Quite simply, a fudged euro will be a weak euro, which means a relatively strong pound.
What are the Government doing? Nothing. Despite holding the six-month presidency of the European Union, neither the Prime Minister nor the Chancellor of the Exchequer shows the slightest interest in ensuring that the treaty convergence criteria are adhered to. The Bundesbank report lays out the fudging in graphic detail. Italy will have to run a budget surplus of 2.2 per cent. for the next 10 years to reach the required 60 per cent. debt level, but it is not even planning a balanced budget, so the chance of meeting the entry criteria is extremely remote.
The Prime Minister says that a range of criteria must be considered. Cannot the Government understand that fudging the entry criteria may do terrible, or even irreparable, damage to our manufacturing industry? If the Prime Minister and the Chancellor do not at least try to insist during their chairmanship of meetings that treaty requirements must be adhered to, we shall conclude that their reputation as European fixers is more important than their aim of preventing damage to the constituent economies of the European Union or that of the United Kingdom.
Damage is caused directly to the manufacturing sector not by the high value of the pound, but by taxation and regulations. My hon. Friend the Member for Bexhill and Battle (Mr. Wardle) graphically described the damage caused by over-regulation. I must mention the £20 billion extra tax burden on British industry laid out for the duration of this Parliament, the pensions tax, the early instalments of corporation tax, the double increase in diesel duty, and the stamp duty increases, all of which hit businesses harder than home owners and add to the burdens on the manufacturing sector when the Government have announced a welfare-to-work programme that relies on such firms to deliver jobs.
The Government have the cheek to claim credit for the competitiveness, flexibility and success that British firms have built up over the past 18 years, but trade union reforms, privatisations and the creation of a dynamic and flexible labour market were opposed throughout by the Labour party. The only reform or policy it supported was our entry of the exchange rate mechanism. The Conservative party has learnt the lesson about that, but the Labour party has not.
The Government have been lucky. They have inherited a golden legacy, but their response is to tax savings and businesses, to regulate and to interfere. Alongside that is
neglect of and indifference to the damage that is being caused by the strength of the pound--almost fatalism about it.
The Minister for Science, Energy and Industry (Mr. John Battle):
After 11 years as a Member of Parliament, I am amazed at the Opposition's new-found interest in manufacturing--although it is welcome.
"expected to decline over the next three years."
The Red Book also mentions business investment, about which we have heard so much criticism this evening. Apparently it has been
"rising as a share of GDP since 1994."
So much for the assertion that it fell constantly during our term of office.
"Overall, business investment is forecast to decelerate this year".
"Decelerate" is one of those wonderful words that actually mean something different. "Decelerate" really means that business investment will be cut this year. It is one of the understatements for which the Treasury is famous.
"the outlook for the traded goods sector is difficult . . . with imports of goods in the fourth quarter of 1997 up 10¾ per cent. on a year earlier."
There we have it. We know that the Prime Minister has not read the Red Book, but we have. We know from the Chancellor himself that savings are set to decline, that investment is set to decline, that imports are going up, that industry is contracting, and that the Government's inflation targets--even on their own figures--will not be met until the end of next year.
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