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Mr. Redwood: The Government forecast a soft landing on average, which means a crash landing for manufacturing, and no landing at all for high fliers on their side.

Mr. Page: My right hon. Friend proves the point that there are lies, damned lies and statistics. Averages always mean someone is at the top, but someone else is equally far from the average at the bottom.

Incantations about the dangers of private sector wage rises unfortunately follow a rate of inflation already well above the Government's 2.5 per cent. target. Public expenditure will also increase by 2.75 per cent. on top of inflation over the next three years. and that will mean substantial growth in the burden of taxation, beyond the economy's growth rate.

The traditional features of Labour Government are high public spending that is growing faster than the economy, rising inflation, declining manufacturing and the prospect of rising unemployment. I have been through that before in the late 1970s, and I have a feeling of deja vu. I doubt that even Mr. Derek Draper--if he were ever released back on to the circuit--would be able to spin the Labour party out of that problem and the political unpopularity that will result. It would be better for the Government to admit now to the truth of my analysis, but I doubt that they will do so. I doubt, too, whether Labour Back Benchers could bring themselves to do so.

A play in the 1960s called "The Company Way" sums up the position of Labour Members, in the words:


Mrs. Dunwoody: Author?

Mr. Sheerman: Author?

Mr. Page: Not me.

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Not surprisingly, that play folded after a few weeks. Unfortunately, the Government have a few years to go, and we will all suffer from what they did in their first Budget in June 1997.

The previous Government, of which I was proud to be a member, were committed to promoting competition, to improving the quality of production and to restoring our country's national pride in manufacturing. We succeeded in raising the national level of output after 1992, and in recording significant gains in productivity, especially between 1994 and 1997. Not many hon. Members seem to understand that if the number of units on a production line is reduced by 10 per cent. or 20 per cent., profit does not drop by only that amount. Standing costs remain, and the cut in production bites into the company's success. A company that cannot keep up growth goes out of business.

A small downturn has devastating effects on companies. That is why it is necessary to have stability in the economy. Manufacturers need to plan ahead for 10 or 15 years to recoup their capital costs. Companies cannot expect an 80 per cent. jump in annual turnover to save the day. They do not make that sort of money, but deal in small percentages, and that is why stability is necessary.

When we were in government, there was, for the first time, a major growth in manufacturing exports. Our industrial relations record had never been better. Sadly, the golden legacy we left for the new Government in May 1997 has been put at risk. The difficulties being faced by the economy as a whole and by manufacturing in particular cannot be solved by some Calvinistic injunction to be good when those who make that injunction are gambling with the country.

Harry Truman, the former American President, got it right when he said that it is a recession when a neighbour loses his job, but a depression when you lose your own. For too many people in manufacturing, the recession is already here. For some Ministers, the depression is only a few days away, but for the rest, it is just a matter of time.

6.15 pm

Mr. Barry Sheerman (Huddersfield): I have been disappointed by some of what I have heard, particularly from the right hon. Member for Wokingham (Mr. Redwood). I was delighted when the Opposition chose to spend half a day on manufacturing. It seemed a wonderful opportunity for a serious debate about the fundamental problems of manufacturing. However, his speech dwelt wholly on the surface, scoring points and making political jibes. His analysis was very superficial--he is good at that. What irritated me most was that the fundamental problems of our country are worth talking about seriously.

The right hon. Gentleman sometimes chides people like me who represent industrial constituencies--Huddersfield is certainly an industrial constituency--for not speaking up for industrialists. The way to do that, however, is to examine changing patterns in the global economy and how our industrial and manufacturing sectors fit in. If we could dwell on that, the debate would be much more useful.

Mr. Redwood: I hope that the hon. Gentleman will recollect that I set out a six-point programme to improve

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matters for manufacturers. Does he agree that, unless something is done pretty soon about interest rates and exchange rates, a lot more manufacturing will close?

Mr. Sheerman: The right hon. Gentleman knowsthat we must deal with global economic problems. Unprecedented change has occurred in the world economy over the past five years. Sometimes, I hear Alistair Cooke, now in his 80s, on my radio on a Sunday morning giving his in-depth analysis of the global economy and its effects on the United States and Europe. He is a man of great experience who is capable of squeezing into eight minutes--the BBC, yet again, has cut him back--the core of a matter. In a recent programme, he spoke about the fact that the global economy has become a reality in his lifetime. People used to talk about it; now it is here.

The crisis in south-east Asia is wide-ranging. We can wish it away, or pretend it does not exist. We can pretend to carry on as if it were of little significance, but it is a large change in the global economy. We are still facing up to it, and there will be worse to come. The United Kingdom must be seen in that light, and in relation to other instabilities. I am pro-European and, given the right measures and proper caution, I am in principle in favour of joining the European single currency, but there is some instability in the European Union.

We face a flight from the deutschmark to the pound and the dollar. One ray of sunshine is the American economy, whose tenacity and vibrancy is coupled with the ability to reinvent itself. We must learn some lessons from the American example and consider our economy in the context of real changes throughout the world.

I am something of an historian, so I must return to what I regard as a seminal work in terms of how we view British manufacturing and industry. In 1993, the London business school and IBM produced a consultancy report entitled "The True State of British Industry". That report changed everyone's mind about the state of British business. Until then, many people had thought that British business was pretty damn good and that we should continue to do what we had always done. Bad times were blamed on inflation, the exchange rate and many other factors, and the consensus was that there was nothing really wrong with British business and management.

Using a set of criteria, "The True State of British Industry" presented the facts. It revealed that between 1 per cent. and 1.5 per cent. of British companieswere world class and that, if superhuman efforts were expended, 38 per cent. of British companies could become world class. That meant a hell of a lot of changes. According to the report, 60 per cent. of British industry was hardly saveable. It predicted that most companies would disappear and no longer be real players in the British economy.

That seminal work changed hearts and minds in the Conservative party, in the Labour party and in British business. As President of the Board of Trade, the former Deputy Prime Minister, the right hon. Member for Henley (Mr. Heseltine), produced competitiveness White Papers that attempted to address those problems. The way in which the Labour party regarded business and the problems facing it changed totally. The report probably changed the Liberal Democrats also--although I know less about their thinking. It changed us all, and so it should.

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At the same time, there were other changes in management. The Royal Society for the Encouragement of Arts, Manufactures and Commerce, of which many of us are fellows, took up the challenge. Some 25 chief executives and chairmen of blue-chip companies spent two and a half years analysing what constituted a "tomorrow's company": a company that would survive into the next century and beyond while remaining a vigorous player. Many of the great companies that were listed in "Fortune" 500 a year ago, are no longer there. They have not survived: they have been taken over or gone out of business. The "tomorrow's company" philosophy and tool kit was extremely valuable because it represented an attempt to learn lessons from world-class companies so that the nation could start addressing the problems.

Five years later, the British manufacturing economy has not come to terms with that challenge. There have been some improvements, but not enough. I was slightly amused by the comments by my old friend the hon. Member for South-West Hertfordshire (Mr. Page)--we have been on opposing sides for so long that I think of him as a friend; although not an hon. Friend--who said that the previous Government increased exports. If someone devalues the currency by 30 per cent. and does not improve manufacturing export performance, God help us. Yet that is what occurred.

Manufacturing benefited from coming out of the exchange rate mechanism and from a massive devaluation. British business had a very cosy time--in fact, it was a bit too cosy. British companies did not have the urge to change into more efficient and productive industries. When the German economy was faced with a highly valued deutschmark, business used the time to retain and expand its market share by examining the quality of management and over-all manufacturing capacity. German manufacturing increased productivity in circumstances similar to those we face at present, and improved its market share.


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