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Mr. Loughton rose--

Ms Southworth: I will not give way at the moment.

Current economic indicators show that our strategy is already beginning to take effect. Public sector borrowing, excluding the windfall tax, was £5.9 billion in 1997-98--down to 0.7 per cent. of gross domestic product. Next year, it is projected to be £1.3 billion--0.2 per cent. of GDP, compared with the massive borrowing of 8 per cent. in 1993-94. Despite increases in short-term interest rates, long-term interest rates have fallen sharply since the Government introduced the new policy framework in May. The rates are now at their lowest level for more than 30 years. Real personal disposable income is up by 5 per cent. on last year.

I should like to comment on some examples of the effectiveness of the Government's management of the economy that are particularly important to my constituents. Over the past year, I have discussed priorities with the Confederation of British Industry, the Federation of Small

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Businesses, chambers of commerce and business people in my constituency. Business people in small and medium businesses right through to multinationals know that people are the key to success. They all recognise the drag on business, profitability and growth caused by the skills gap.

The Tory inheritance meant that, in Britain, less than half the number of students attained good grades at GCSE than in France or Germany. We were 42nd in the education league. Thousands of young people were trying to find jobs without basic literacy and numeracy skills. Such young people have the right to decent education and a decent opportunity in life. This Government--my Government--are tackling the skills shortage with imagination and vigour. Our careful and coherent plans for managing the economy are inclusive, and they draw on the experience and expertise of business. The new deal for young people has been designed with the active support and co-operation of industry and business. It is already working to give young people a step up the skills ladder.

Mr. Geraint Davies: My hon. Friend will be interested to know that, in Croydon, only on Friday, I spoke to an audience of more than 100 businesses that are interested in the Government's new deal. That is symptomatic of the new partnership between the Government and business to get our people back to work.

Ms Southworth: As my hon. Friend would expect, I am very pleased to hear that. Indeed, I heard the same message in a business breakfast this morning.

We know that the new deal is effective because 60,000 young people have joined it since January. Indeed, we are already receiving an enthusiastic and interested response to today's launch of the new deal for over 25s. We are also investing £100 million in opening 40 centres of technical excellence. We are training 20,000 people to tackle the millennium bug which, as one of my constituents said, is one of those normal problems that will not go away, which small and medium businesses need the Government's help to tackle, and which the previous Government ignored.

We are creating a culture of lifelong learning with an infrastructure that helps people access knowledge and skills. In addition--an issue that is brought up constantly by my constituents who are business people--we have committed £2.5 billion extra to education, and will increase that spending year on year as the economy grows.

That brings me to another area of exceptional importance to many of my constituents. After the Warrington bombing, local people worked hard to support a framework for peace in Northern Ireland. They have raised £1 million in the past three months to build an international peace centre for young people from north and south Ireland and England. A peaceful future for Northern Ireland really matters to us. The £315 million invested in the renewal and modernisation of Northern Ireland, which the Government have allocated to build economic and political stability, get people back to work, equip them with skills and create an infrastructure for a modern economy, effectively shows the Government's priorities. Economic growth and social cohesion are working together to build a better present and a better future for the people of all these islands.

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5.7 pm

Sir Peter Tapsell (Louth and Horncastle): The House has just heard a most powerful, fluent and charmingly delivered speech from the hon. Member for Warrington, South (Ms Southworth), to which I listened with great interest. It used to be a tradition in the House that one replied to the previous speaker, so I shall deal first with one or two of her points.

The hon. Lady is quite wrong in thinking that none of us Conservatives has a recollection of events leading up to British entry into the exchange rate mechanism and those flowing from it. I was strongly opposed to, and argued strongly against, joining the ERM. During the two years that we were in it, I continually urged that we should leave. To this day, I regard so-called black Wednesday as one of the most fortunate events in post-war British economic history. However, throughout the late 1980s, day-in, day-out, the Labour party strongly urged the then Conservative Government to join the ERM. I remember Neil Kinnock, then Leader of the Opposition, and John Smith, then shadow Chancellor, urging in the twice-weekly Prime Minister's Question Time--Prime Ministers used to come to the House twice a week--that Britain join the ERM.

I may say in an aside to the Liberal economic spokesman, the hon. Member for Gordon (Mr. Bruce), that the Bank of England was also strongly in favour of our joining the exchange rate mechanism, as was much of the City of London and the great international firms. In other words, exactly the same people who were then in favour of our joining the ERM are now urging us to join the single European currency, and for the same reasons.

One of the extraordinary things about the highly intelligent remarks of the hon. Member for Warrington, South is that she seems not to appreciate, given the very things for which she was criticising the Conservative Government in the past--I fully recognise that it was a terrible mistake for us to join the ERM--that her Government are now seriously contemplating making exactly the same mistake again.

Mr. Nigel Beard (Bexleyheath and Crayford): Is it not the case that, when the Conservative Government went into the exchange rate mechanism, they went in at too high a rate and with a take-it-or-leave-it attitude that meant that we had no friends in the arrangement when the crisis arose? If anything, that was an example of the way in which the Conservative party dealt with the European Community throughout its period in office. The disaster that followed was the sort of disaster that would follow any policy that the Conservative Government took up, with that sort of bullying manner.

Sir Peter Tapsell: I fully accept--events demonstrated it all too clearly--that we joined the ERM at the wrong rate of DM2.95 to the pound. However, there will never be a right rate at which to join any fixed exchange arrangement. The essence of international currency markets, as we have seen in the relationship, for example, between the yen and the dollar in the past month, is that currencies can fluctuate dramatically from day to day and week to week. That is one of the great safety mechanisms in the international trading community. When we remove that mechanism, we are in serious trouble.

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That is one of the reasons why the whole of Asia is now in chaos. The countries involved were operating on quasi-fixed exchange rates throughout so they did not devalue and did not change their exchange rates until they were in a desperate situation. In my view, that is exactly what will happen in the European Union in the course of time.

Mr. Geraint Davies: Does the hon. Gentleman accept that the high level of sterling is a symptom of international business confidence in the British economy? Given what his colleagues have said about getting the exchange rate down, how would he suggest reducing the confidence of the international business community in the British economy so as to push down exchange rates, which it appears the Conservative Opposition want to do by some sort of whim?

Sir Peter Tapsell: I am being delayed in getting on with what I really want to say. However, I am much more interested in the subjects that are being raised.

It is true, to some extent, that the great strength of sterling today is due to the high regard that the international community has for the state of the British economy at present, as a result of 18 years of Conservative government. However, it is not true that the whole British economy is very confident at present. The exporting element of the economy has a lower confidence than at any time since 1983, as the latest CBI report proves.

Much of the strength of sterling is due to the fact that people are anxious about the future of the euro. A great many rich Germans have been moving out of deutschmarks into the Swiss franc, the United States dollar and sterling. To a considerable extent, the strength of sterling is due to anxieties about the euro by the international community.

The other thing, while I am on this subject--having referred to it, I shall conclude on the question of the past, as it were, and the euro--is that it is not possible to say what would be the right rate at which to join the euro, if the Labour Government eventually decide to join and the British people are unwise enough to vote yes in a referendum. At the moment, the exchange rate with the deutschmark is significantly higher than when we joined the ERM. It was 3.02 this morning, not 2.95. No one who looks at these matters has ever seriously considered that we should join the euro at a higher rate than 2.65, and many would put it at 2.60, or even lower.

As my hon. Friend the Member for Esher and Walton (Mr. Taylor), who does not always share my euro-sceptic enthusiasms, mentioned earlier, we are talking about a problem that the Labour Government seem not to have considered. Certainly they do not discuss it in public. If they decide to join the euro and they are to avoid the mistake that the Conservative Government made of joining at much too high a rate, how will they get sterling down from DM3 to the pound to 2.60 without greatly increasing inflation? They would have to reduce interest rates--the experts guess that it would involve a reduction in interest rates of 3 or 3.5 per cent. It is said that that would involve a huge increase in income tax to offset the inflationary pressures that would ensue. Even if we

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decided in theory that we wanted to join the euro, it seems to me that there are almost insuperable technical problems just about that aspect of it.


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