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Mr. David Borrow (South Ribble): I have listened with interest to the hon. Gentleman's arguments, but my right hon. Friend the Chief Secretary said that in the Standing Committee on the Finance Bill, the Conservatives supported increases in taxation and expenditure equivalent to £6 billion. That would add £6 billion to the public sector borrowing requirement, and that is what the Conservatives supported. How does that fit in with the Governor of the Bank of England's concern that the economy is overheating? To put £6 billion more into the economy would surely add to overheating, and would add to, rather than reduce, pressure for increased interest rates.

Mr. Woodward: The reality is that running the economy requires prudence. The Chancellor likes to borrow the language of prudence, but shows none. There are areas in which the Finance Bill should be amended, and we shall debate them over the next two days. However, the action that should have been taken by the Chancellor--the United Kingdom's Chancellor, alas--has not been taken. He pretends to be an iron Chancellor, but he is in reality in the vein of old Labour Chancellors. He wants to spend, spend, spend.

The UK faces two futures. In the first, and better, our economy will soon give way to a very hard landing. In the other, more worrying scenario, which we can read about in every newspaper and every forecast, our economy is on course for recession. In either case, there will be a downturn, and that is bad news for Britain. Both scenarios were created in Downing street by the Chancellor's poor choices and bad judgment. He may not want to be here today, but they are his fault, arising from his decisions, for which he must bear responsibility. The Chancellor does nothing but allow the economy to slide into downturn or recession.

Mr. Borrow: Will the hon. Gentleman give way?

Mr. Woodward: I shall not. I have given way once to the hon. Gentleman. If he wishes to make a speech, the House will look forward to hearing from him.

The Chancellor wants to wear the clothes of prudence, and wanders round the country telling us how prudent he is. In truth, however, he is about to set off on a huge spending bonanza that every commentator says should not happen. Soon, the Chancellor will preside over public spending of nearly £1 billion a day, and it will be upward from there. Why does he claim prudence? Why not admit to being a giveaway Chancellor? He has been dazzled by his legacy, and by the tax revenues that he has received. In February, he let himself believe, from what his Treasury

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officials said, that his Budget would balance. In true Labour speak, with the help of the spin doctors, out he went to claim that that was all his doing because of his prudence.

As the Chancellor has claimed to be prudent in the past, he must accept responsibility now for what he has done. Consumer spending has been, and remains, out of control. The march of consumer spending has been closely followed by a battalion of pay rises. If the Chancellor had asked what had really gone wrong with the economy, and what was the real reason why tax revenues were going up, he would have learnt that they were consequences of the market's marching ahead, and had nothing to do with him. The economy is overheating, and it has been for a long time. He has refused to take the right action. He should have reined expenditure in, but he is about to let it go. The economy is overheating, and the Chancellor is in the kitchen stoking up the flames.

Monetary policy can, of course, be used to rein in the economy, but the consequence will be higher interest rates. Tell that to a single person in manufacturing, exports or farming, the people who suffer the consequences of the Government's disastrous interest rate policy. The Chancellor claimed that he would end boom and bust, but he inherited a boom and the evidence suggests that he is taking Britain towards being bust. Our balance of payments plunged into the red for the first three months of this year; after a year and a half of surpluses, the deficit for the first three months of 1998 was £3.2 billion. Is that prudent? Of course not. The trade deficit has widened by £500 million, and our exports are falling. Earnings from Britain's stock of overseas assets have declined by £600 million.

The Government seem complacent. They tell us about history, and will not accept responsibility for their policies of the past 14 months, which are driving Britain headlong towards recession. Industries, businesses and farmers are going bust, but the Government arrogantly deny that anything needs to be done. They pretend that everything is fine. The consumer boom continues, not funded by exports as our recovery was, but because spending is being funded by a massive plundering of savings. To the left of him, to the right of him, in front of him and behind, the Chancellor is surrounded by people who say that the economy is in trouble. Yet he cannot be bothered to come to the House to answer legitimate questions.

The Chief Secretary has shown the same contempt for what we say, but what we say is what others are reporting all over the country. The latest evidence from the OECD warns that rising inflation, tight labour market conditions and upward pressure on earnings will mean a bumpy landing and a "serious challenge". Where is the leadership from the Chief Secretary, which would show that the Government take that challenge seriously, or even that they recognise it? All we hear from Government Back Benchers is what they read on their pagers, readings that tell them that everything is fine.

The hon. Member for Worcester (Mr. Foster) talked about businesses in the midlands doing well, but today's Dun and Bradstreet report shows that all is not well. Perhaps the hon. Gentleman would do well to learn from the mistakes that were made by the Conservatives when we were in government. It is vital to listen to businesses on their problems, and businesses are screaming with the pain of the Labour Government's policies.

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The truth is that, as the Financial Times said, Britain is stumbling towards recession. The reality is there to be seen if people are prepared to look, but the Government continue to paint another picture. They talk about getting rid of boom and bust, but they are the ones bringing back the bust to this country. As my right hon. Friend the Member for Horsham (Mr. Maude) said, the spin doctors tell them that if the mantra is rehearsed often enough, people will come to believe it. The problem is that the same people will soon join the unemployed. This month, for the first time in years, the number of unemployment benefit claimants rose. It rose because of this Government's policies. It is the fault of the Chancellor and the Government. If they believe that soundbites are a substitute for policies, this country will come undone.

Mr. Geraint Davies: The number of claimants rose by 1,000 in May, but it went down by 35,000 in the quarter to May. In the first quarter of this year, business investment went up 10 per cent. and the annualised growth rate was 2.9 per cent. against a trend rate of 2 per cent. Things are growing; people are investing. We are in a boom and things are looking good. There is pressure in the labour market because people are getting jobs. That is not a recession but success.

Mr. Woodward: I am grateful for that intervention. As every newspaper points out, under the new way in which the Government wish to calculate the unemployment figures, one could argue that this month was as good as the previous one. Under every other method of calculation, more people are losing jobs than for years. That will not be assisted by the minimum wage, which the Government introduced for perfectly honourable reasons. No one wants people to live in bad conditions. A minimum income yes, but a minimum wage is a guaranteed route, as shown by what has happened elsewhere in the world, to throwing people on to the unemployment scrap heap. That is not the right way forward for a prudent Chancellor. When the Government took power from the Conservative party last year, they inherited falling interest rates,falling unemployment and falling inflation, yet today they are rising. If the hon. Gentleman seriously thinks that the economy can be in a better condition because of those appalling reversals in our economy, he should think again.

What will happen when the impact of the problems in the Asian market starts to hit this country at the end of the year? Presumably the Chancellor will blame someone else, because he believes that it is always someone else's fault. The Chancellor and the Government must learn what the Conservative party learned painfully last year. Ultimately, when they are in No. 10, they are in charge. The Government must recognise that they must take responsibility. It is a reckless Government who continue, as do this Government, not to recognise the signs of economic disaster, yet the Chancellor refuses to face the problems.

Mr. Beard: If there is such havoc in the economy, why do the international markets demonstrate such confidence in the Government and their policies that the pound has risen since the day they took office?

Mr. Woodward: That intervention is extraordinary. The reality is simple. If one continues to push up interest

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rates in the way that the Government have allowed policy to be prosecuted, the pound will rise. The consequence for manufacturing, farming and the service sector, which is beginning to suffer, is disaster. If the hon. Gentleman went around the country and heard people's worries, he would learn that the so-called encouragement of investment because of high interest rates is not so good for Britain. That is what we are talking about: the right thing to do for Britain.

Only last week, the Financial Times reviewed the Government's policy and said:


However, the Government believe that if they practise the mantra of the day, it can be wished away. While the Government continue to believe in spin doctoring as a substitute for policy, Britain moves from a possible to a probable recession.

The Chancellor says that he wants a strong, competitive pound. He has a strong pound, but it is not competitive. Ask anyone in manufacturing or business whether they believe that sterling at its current level is the right thing for Britain and they will say no. The villain of the piece may be sterling, but the father of the villain is the Chancellor. He may wish that long-term policy frameworks could banish short-term problems. An independent Bank might allow him to lay the blame for high interest rates elsewhere today, but tomorrow the country will blame him. The sums show that Britain is teetering on the edge of a serious recession. The party is over.


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