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12 Feb 2003 : Column 893—continued
Adam Price (East Carmarthen and Dinefwr): The figures for job creation mask a shift from high-wage jobs in manufacturing to part-time, lower-wage employment. That has hit especially hard the heartland manufacturing areas such as the one that I represent and those that many Labour Members represent.
Matthew Taylor: The hon. Gentleman may be right, but the biggest concern is that everybody will be affected. If the fast rise in debt, fuelled by house prices, stops—it is bound to stop, because it is unsustainable in the long term—the economy will not be underpinned by investment in business that could earn money in the long run, not only to deliver the standard of living and jobs that people need but to deliver the Chancellor's plans for investment in health and education.
It is worth looking internationally, because when the MPC cut interest rates again there was some criticism that the European Central Bank did not do the same. The truth is that UK real interest rates are substantially higher than those of our competitors, including our European ones, while investment is substantially lower. Our high interest rate in real terms keeps the brake on investment and keeps the pound uncompetitive.
The MPC has cut interest rates to help manufacturing and investment. Unlike the Chancellor or Labour Members, it has shown itself willing to face the problem. However, the Bank of England has one golf club—interest rates—to deal with one objective: inflation. It does an exceptionally good job in that respect, but it is the Chancellor's job to deal with the two-speed economy. He is so busy blaming everything on the rest of the world that he will not acknowledge the peculiarly British problem that this country faces.
For mortgage payers, of course, the news looks good. Interest rates are down, and another cut may be likely if the gloomy economic news continues. However, the Bank of England decision is a warning shot for householders, too. It implies that the MPC now believes that the threat from collapsing business confidence and investment outweighs the likelihood that house price rises and debt growth will continue to fuel the economy. In other words, the Chancellor may soon find himself with no clothes.
The implication is clear. Not only are house prices likely to go off the boil, in the MPC's view, but there is a risk of a downturn. If that leads to rising unemployment
and falling consumer confidence, house prices could easily to start to fall. At that point, the rise in consumer spending will dry up overnight. There may be a return to negative equity and the one thing that is supporting growth in the British economy will have disappeared.Over the past few years, when world growth sustained the British economy, the Chancellor missed the opportunity to take action to boost investment and productivity. He talks a lot about it, but he must know that his policies have failed because he can read the figures exactly like the rest of us. The record on productivity is catastrophically bad, as is the record on investment compared to that of our international competitors.
Of course, the Chancellor is right to say that inflation is low, which was not the case in the 1980s, and that that has allowed interest rate cuts to take some of the strain of the problems affecting the economy, but even with the interest rate cuts the picture remains unbalanced. Falls in the prices of goods are offsetting 5 per cent. inflation in services. Interest rates alone cannot tackle the wider problems in the UK economy. We need the Chancellor to take action in his Budget to tackle the problems that have made the two-speed economy worse—problems largely inflicted by the Chancellor in the first place.
First, he should stop adding more measures to complicate the tax system, and start simplifying it instead. The increase by one third in the number of tax complications since he took office has left business chasing accountants, while investment and productivity growth, supposedly encouraged by the various tax wheezes, has slumped. Productivity in the UK is dismal, and is growing dismally compared to our competitors. The Chancellor's micromanagement makes it worse—a tax complication here, a new piece of bureaucracy there, centralising targets everywhere. We need a Chancellor who meddles far less. It is time this Chancellor got off the back of business, because UK plc will not succeed if it is chasing tax breaks and fighting red tape.
The Chancellor also needs to take the exchange rate issue seriously. I was very pleased to hear today's announcement that we will get a report on the exchange rate issues associated with joining the euro. That is overdue, and it is a fundamental part of the question of euro entry.
The pound has persistently been in the range between Euro1.50 and Euro1.60. Although it is lower than it was, most economists reckon that it remains uncompetitive, and, worse, there is no confidence in industry that the recent fall against the euro will be sustained. The pound is now very high against the US dollar. That represents a double whammy for British exporters. No wonder Britain's share of inward investment in Europe has slumped from 28 to 16 per cent. since the euro was launched, while the eurozone share has risen. Again, that must, in the real world, be a concern for the Chancellor, even if he will not admit it here.
We already know from experience of the past few years that the merest mention by the Chancellor of the possibility of euro membership drives down the level of the pound, because almost everyone thinks that the pound is seriously overvalued. A more competitive rate would be needed before we could join the euro.
A positive assessment of the five tests may bring the pound down to more reasonable levels. If we joined the euro, it would permanently remove the exchange rate
risk for more than half of our manufactured exports. With investment in the UK slumping, that is no longer a theoretical issue.Those who do not want euro membership, and believe that we should put up with the fluctuations in exchange rates with the EU, our major home market, should provide some explanation of their alternative strategy for tackling a problem that has caused many of the manufacturing job losses—600,000 of them—that the Conservatives have described. I trust that when the Chancellor makes his assessment and subsequent announcements, he will acknowledge that the question goes beyond joining the euro. If he concludes that joining would not be right at this time, he must set out a strategy for dealing with exchange rates in the long term, in a world where speculation seems to be the driver of exchange rates, not underlying real values. Britain has lost hundred of thousands of jobs—probably millions—in the recessions of the early and late 1980s and now again in manufacturing. On each occasion, the pound has been very high compared with our major competitor currencies.
Mr. Bercow: Giving up British monetary policy in return for exchange rate instability against the dollar and the yen is not the height of economic wisdom, but will the hon. Gentleman say what assessment he has made of the effect of the rigidities of the planning process and of the Ofsted inspection system on the inadequacy of affordable and available child care in this country?
Matthew Taylor: I am not sure that the hon. Gentleman will find any solution to the exchange rate problems in that, but since leaving the Front Bench he has become keen on a change in the Tory leadership. He would prefer to have the right hon. and learned Member for Rushcliffe (Mr. Clarke), the former Chancellor, as leader of the party. I remind the hon. Gentleman that the right hon. and learned Gentleman agrees with me about the exchange rate. He definitely does not share the hon. Gentleman's view on the matter. If there is a change in Tory leader, the hon. Gentleman may still not find himself invited back to the Front Bench.
Mr. Bercow: On a point of order, Madam Deputy Speaker. Is it in order for a Front-Bench spokesman so to suffer from short-term memory problems that he thinks a reference to the planning process is about the Tory leadership?
Madam Deputy Speaker: I am pleased to say that that is not a point of order for the Chair.
Matthew Taylor: I want to focus on the Government for a few final moments.
The Chancellor understands that unsustainable increases in consumer debt cannot save his spending programme for ever. He talks about trying to boost investment and productivity, and I share his determination to do so, but I cannot share the prescription that he has laid out over recent years. The micromanagement of the tax system and the attempts to introduce tax breaks here and there to achieve the targets that he has set have failed demonstrably. The Chancellor needs to recognise that.
Britain needs to earn the money to invest in hospitals and schools. The Chancellor's strategy will not deliver that if he continues to allow all the internationally exposed sectors of the economy to decline. He cannot expect the MPC alone to deal with the wider issues through interest rate cuts, as he knows full well.
The first step on the road to recovery is to acknowledge one's problems. The Chancellor would do well to acknowledge some of the real problems in the British economy that are apparent to all but which are not shared by our competitors. Over the coming months, the Chancellor will be forced to acknowledge those problems. It will look far better for him if he admits as much and acts to tackle the problems before he is forced to do so.
The Conservative motion refers not only to investment but to delivering public services. The Conservatives failed entirely on health, education, housing and transport—the list is comprehensive. The Government are now making much-needed investment, but they need to decentralise and to let go of the controls. When I hear Ministers describe decentralisation as handing down targets to hospital administrators for the delivery of national targets set by Ministers, I realise that they do not understand what decentralisation means at all.
Decentralisation is not setting national targets for local delivery, but allowing local people to set their own targets for their hospitals and schools so that they can design the best services for local implementation. [Interruption.] The Chancellor says that that is what he says, but it is not—line after line in his speech is about the process of centralised controls, PSA targets and the rest of it.
I simply do not believe that Ministers in Whitehall, second-guessing those on the front line—doctors in hospital wards or teachers in classrooms—can ever deliver effectively the investment that the Government are now making. Ministers have to be willing to let go. In some cases, they have to be willing to allow local failure to show how things can be done better, just as they need to allow local successes to show how things can be done better because, just possibly, Ministers may never have thought of them. That is the way to deliver successful investment, and it is what the Chancellor needs to do.
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