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Mr. Cotter: Does the hon. Gentleman agree that many people think that, if we committed ourselves to joining the single currency--or if we actually joined it--we would ensure low interest rates? To be agnostic is not very realistic.

Dr. Ladyman: I do not accept the argument that interest rates would magically fall if we announced that we were going to join the single currency tomorrow. It is far more likely that sterling and interest rates would be pickled at the levels that applied when we made the announcement, and there would be no further movement. Interest rates, inflation and the value of sterling must fall before we can join the euro.

To help manufacturing industry, we need to establish stability and--to use the Prime Minister's much-vaunted expression--to end boom and bust.

We need to continue to open up markets and to encourage the European Union to take the necessary steps to bring the east into the open market, although that can be financed only through a dramatic cut in the amount that is spent on the common agricultural policy.

We should also consider the grant aid that we provide to industry. There is an anomaly in the way in which we give grants to attract new industry into the various EU countries. The EU limits the amount that Governments can put into a new project to 30 per cent. of the capital cost, but it does not limit what non-governmental organisations can put into the pot. In France, for example, local authorities, chambers of commerce and others typically put in money over and above the Government's 30 per cent. of the capital cost, in the form of free factories or tax breaks to the inward investor for the foreseeable future. That creates an unlevel playing field.

The same happens in this country. In Wales and Scotland, development agencies can put money into the pot, as that money is not considered to be direct Government funding. My constituency is 80 per cent. in Thanet, which has full assisted area status, but we still find that we cannot compete with areas that receive extra money. There would be considerable savings if the EU limited the total investment from public sources in any new enterprise to 30 per cent. of the capital cost. Alternatively, grant aid could be made available only to inward investors from outside the EU, so that EU money is not used to fund companies that move round within Europe.

We should also consider grant aid for training. The Government's proposals on training assistance and on lifelong learning, together with the additional training money from the new deal, are essential in the short term to improve manufacturing industry.

I think that I am right in saying that, in the past few months, only one significant manufacturing company has gone bankrupt in my constituency. It did so not because of the high value of sterling--it traded only within the United Kingdom--but because of its cash-flow problems, which arose because larger companies had not paid their bills on time. That is why the Government's initiative on the late payment of debt is so important.

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The right hon. Member for Wokingham said that one way in which to remove money from the economy would be to encourage savings--I entirely agree, which is why I believe that the Government's proposals on individual savings accounts are so vital. However, I do not know how he squares that with the fact that he seems to be encouraging building societies to demutualise, which should be complete anathema to someone who wants to encourage savings.

We must also create a proper framework for industrial harmony. The Government's policies on the minimum wage and fairness at work are vital to that; they will allow industrialists and manufacturers to plan for the future and to organise and manage their companies appropriately. Conservative Members sometimes seem to have spent too much time in boardrooms; if they had more experience of management below the level of the boardroom, they would know the importance of good industrial relations and appropriate trade union representation in the workplace.

We must ensure that we invest in industries in which we can really win. Britain has demonstrated that it leads the world in the biological, chemical, pharmaceutical, biotechnological and information technological sectors--other countries cannot compete with us--so I congratulate my right hon. Friend the President of the Board of Trade on announcing today a further £1.1 billion for science and technology.

Far from ignoring manufacturing and the problems that have been highlighted by hon. Members on both sides of the House, the Government have done a tremendous amount to help. They do not overlook the problems that have arisen; they are working on what needs to be corrected. They have certainly done more in the past one and a quarter years than was done in most of the years of the previous Conservative Government.

5.56 pm

Mr. Richard Page (South-West Hertfordshire): I apologise to the House and to both Front-Bench spokesmen for being unavoidably detained and unable to hear the opening contributions.

This debate has arisen because the Chancellor wanted to hit the ground running. He has managed the first part; he has certainly hit the ground. The problem is that, when a Chancellor hits the ground, that is not a solo performance--a few million others join him in the crash.

That is not new, of course. I remember that, when I first came to the House some 22 years ago, Lord Healey, then Chancellor of the Exchequer, had run up inflation to more than 24 per cent. The dead were unburied, the rubbish was piling up in the streets and the International Monetary Fund had to come in like the cavalry rescuing a banana republic.

To show that I have no political bias, I should add that I remember that Lord Lawson, as Chancellor, created from a budget surplus an inflationary boom. Everyone went mad borrowing and spending money, and house prices went through the roof. Unfortunately, the inevitable reckoning coincided with a world recession, which made the bite that much more savage.

Despite what Labour Members say, the previous Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), created a virtuous circle--the

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economy was moving in the right direction. Growth meant more employment, which meant more Government revenue, which meant that more money could be spent on social policy, which, in turn, fed through to further growth and employment.

Mr. Sheerman: Will the hon. Gentleman give way on that point?

Mr. Page: If the hon. Gentleman can contain his enthusiasm, I will let him have his threepence worth in a few seconds.

Every single month over the past three years, unemployment has come down--until now.

Mr. Sheerman: The real critics of the former Chancellor, the right hon. and learned Member for Rushcliffe (Mr. Clarke), sit not on the Government but on the Opposition Benches; indeed, many of them sit on the Front Bench. The virtuous circle to which the hon. Gentleman referred was in many ways achieved.

Mr. Page: I do not join those who criticise my right hon. and learned Friend. He attracts that criticism by his enthusiasm for the euro.

I still do not know whether the Chancellor diagnosed the problem correctly. When he took over in May, with his enthusiasm for hitting the ground running--we will have more living proof of "legislate in haste and repent at leisure"--the general view was that the problem was that there was some froth in the high street that needed restraint. Inflation was occurring not in the manufacturing sector, but in the high street.

I have no objection to monetary policy being handed over to the Bank of England, but fiscal policy should not be operated completely independently and with a set of blinkers. The aeroplane analogy of the hon. Member for South Thanet (Dr. Ladyman) was interesting, but if one puts on too much flap and reduces the throttle while trying to keep the nose up, the plane will eventually fall out of the sky, and that is exactly what is happening at the moment.

Mr. Sheerman: Oh, come on.

Mr. Page: The hon. Gentleman may disagree, but I happen to know that that is exactly what happens if one does that in an aircraft. The Chancellor's reactions last year turned a small difficulty into a major problem. The so-called windfall tax was a smash-and-grab raid on the utilities. It seems to have been forgotten that the industries that the previous Government privatised cost the taxpayer £50 million a week when they were nationalised, and that an equivalent sum started coming into the Exchequer afterwards. That is one of the reasons why the Labour Government have suddenly become such converts to certain forms of privatisation.

The Government will have to face that problem with the Post Office. I cannot see the Post Office succeeding in the modern world without being set free from the shackles of Government. If we took note of other countries' practice in introducing commercial aspects to their post offices, we might reconsider our policies.

The Chancellor showed that the Government do not really care about manufacturing industry when he hit it with advance corporation tax. At the same time, interest

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rate rises were driving up the value of the pound and making it impossible for our manufacturers to compete abroad. The hon. Member for South Thanet made a couple of cracks about running businesses and Conservative Members' lack of experience. From my modicum of experience, I know that we can ask manufacturers to increase productivity by 4, 5 or 6 per cent. in a year--with effort, they can do that each year--but we cannot ask them to increase it by 30 per cent. in a single year. The extra blow to manufacturing this year has been the straw that broke the camel's back.

Hurting British manufacturers has made imports cheaper, which has contributed to the froth in the high street. If people spend more money on imports, the balance of payments suffers and it is that much harder to drive out inflation. The Bank of England has used its one stick--interest rates--time and time again. It has over-corrected, and should bring interest rates down faster than it put them up.

No one in the House would take any pleasure in the problematic state of the manufacturing sector of our economy. On that issue, we are all united. Nevertheless, despite Government Members' brave words, we can all see the worrying signs that manufacturing industry is facing serious difficulties. Output has fallen for the last two quarters for which figures have been published, and the survey to be published this week by the British Chambers of Commerce will show the severe impact of the strength of sterling on manufacturing exporters.

The Institute of Directors published a quarterly survey in June. It says:

It continues in that gloomy tone.

Manufacturers in the west midlands are feeling the effects more keenly than practically anywhere else in the United Kingdom, and proper attention should be paid by the Government and by Parliament. Manufacturers' export order books have contracted sharply, and in the north-east of England orders are at their lowest since 1990. The hundreds of job losses announced by Pringle and Barbour in the north-east in the past fortnight are, I am sorry to say, being replicated in textile firms in such places as Bradford and Scotland, and in engineering firms on the Humber.

The state of manufacturing is much better in other areas, such as the south-east, where the financial services sector is much more important, and the south-west; but even in those two regions there are recruitment bottlenecks and the first signs of a slowdown in activity. It will be surprising if Britain does not experience a prolonged period of slow economic growth and rising unemployment, whatever measures are introduced.

The consequences can easily be predicted. An unemployment rise will inevitably increase the tensions between employers, who will try to contain their costs, and employees, who will obviously want to maintain their salary levels. There will be some industrial unrest. One does not have to be Ed Balls to see that. The new culture of partnership between employer and trade union that the President of the Board of Trade commended to the House in her White Paper on fairness at work will inevitably be undermined.

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I have always found it hard to understand how good industrial relations can be ensured by legislative proposals to give unions unnecessary privileges. The Government have created problems for themselves. The requirements placed on employers by their minimum wage proposals will increase wages and wage costs, if for no other reason than that people will want to maintain differentials. It will be more difficult to generate new employment opportunities.

Hon. Members on the Government Benches will have heard the general secretary of the Amalgamated Engineering and Electrical Union, Mr. Ken Jackson, call on the Bank of England to end its war of attrition against manufacturing industry, and to lower interest rates. That call has been made in the House, and it will be made many times more. The Government tell us, and will tell us again, that the economy is heading for a soft landing. I recall a former Chancellor prophesying green shoots, but they took a long time to come. It may also be some time before that soft landing occurs.

Decisions must be taken if Britain is to get back on track to sustainable long-term growth. The Chancellor of the Exchequer assured us in The Times last Friday that the right decisions had been taken. He is reverting to the type of Labour Chancellors by repeating their traditional incantation about the danger of excessive wages.

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