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The Opposition parties may not want to face up to italthough the hon. Member for Arundel and South Downs (Mr. Flight) acknowledged it in his third or fourth-last sentencebut the background to this Finance Bill is the fact that Britain has one of the most stable economies in the world. Since 1997, 1.8 million jobs have been created, of which 1.3 million were in the private sector. As we all know from reading our local newspapers, in many parts of the country there are adverts for many more jobs than can be filled. Since 1997, 100,000 extra businesses have been created, and unemployment is now at 2.9 per cent., which is the lowest since 1973.
That has been possible because we have been able to attain growth rates that were not attainable in recent economic times. Since 2000, our growth rate has been 2.5 per cent., compared with 1.6 per cent. in the eurozone and, significantly, our growth rate has been higher than that of the United States. Why have we been able to maintain that growth rate? In a moment, I shall refer to the past, but it should be clear that if, every time there is an expansion in the economy, it is followed by a quick deflationary effect, there will be instability in the economy which will lead to a lack of confidence and, inevitably, rising prices, higher interest rates and all the other things that help to destabilise an economy. Those have all been avoided in the past five or six years, during which we have had historically stable prices and, consequentially, historically low interest rates.
I am the first to concede that there is a problem in the manufacturing sector, which has not been able to respond to changes in the global economy as quickly as other sectors, although I think it is now beginning to learn how to respond. We cannot expect always to do things as they were done in the past and to be successful. I am not one of those politicians who say that the Government can come along with a magic wand and resolve the manufacturing sector's problems. What the Government must do is establish the right macro-economic climate, and the right intervention climate on the micro sidewhich should be no greater than is
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absolutely necessary. We are already seeing an improvement in manufacturing, partly because the world economy has experienced more of an upturn than in recent years but also because some of the initiatives taken by the Government over the past five or six years have begun to take effect in businesses throughout the country.
I do not blame the Conservatives, for we have all been in opposition in our time, but their treatises on the state of the economy suggest that their memories are short when it comes to economic comparisons. That is not a party political point. There are many similarities in the economic performances of Labour and Conservative Governments over the past 30 years or so. I would argue, from a standpoint of partiality, that Labour has a better recordthat some of the things we have done have been betterbut I concede that many general economic trends have not differed significantly.
When the Conservatives attack what Labour has done over the last seven years, they fail to take account of a new Government attitude to the economy. They fail to recognise that there really has been change and that the stability that we have struggled to hold on to for any length of time in the past has now been attained. A Conservative party, or any other Opposition party, that does not acknowledge that will not just fail to carry business and the people with it, but discredit its ability to assess economic performance and come up with policies of its own. In a sense, it will let people down.
When I was a student, Government's role in the economy was to boost it one year and depress it the next, in the hope that over three or four yearsgiven various such cyclesit would be stabilised. That did not happen often and when it did happen, it usually happened by accident. Expectations were not in line with actual movements in the economy. Even when the economy was moving in the right direction, peoplebe they workers or entrepreneursexpected things to get worse, and their decisions on wage bargaining or investment policy were based on those expectations rather than on reality.
I do not think that has changed. I think that is how human beings react. Long-term stability, however, makes it more likely that expectations will be in line with economic realities, which means that people will make better judgments on whether to invest, whether to settle for a certain amount in their wages or whether to save a certain amount. That did not happen in the 1960s or 1970s. Things were more difficult in the 1970s because of the oil crisis in 1973, when we were all trying to cope with a 25 per cent. inflation rate. Under both Conservative and Labour Governments, how could an investor decide where he wanted to be in two years' time when inflation was likely to be 40 per cent. over two years? If the forecast was wrong by 10 per cent., that would mean 4 per cent.and a company that can register a 4 per cent. profit in its annual returns is doing pretty well. It was very difficult to make investment decisions, which caused further instability in the economy.
That was repeated in the 1980s, when after a short boom in 1980, the Conservative Government were forced to recognise that it could not be sustained. The huge instability that followed lasted for years, causing massive unemployment and social disruption. It was repeated again in the early 1990s, when the Conservative
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Government again tried to boost the economy before the 1992 election. I do not blame them for that, but it created enormous instability, with inevitable deflation and massive unemployment. I am happy to discuss that economic thesis with anyone who disputes it, but I think that we have all learnt a lesson from it. There must be a different approach, geared to stability. I shall list some of the things that the Government have done to bring that about.
Mr. Flight: Does the hon. Gentleman agree that the major change in the past 10 years has been from the forces of globalisation? In the prior periods to which he referred, in more closed economies, inflation could build up more easily, leading to the stop-go cycles that he mentioned. The crucial change, as the Bank of England would admit, is that with open, global economies it is much more difficult for inflation to ignite. Indeed, the Bank of England would argue that the fact that the inflation target has been met has not been the result of a magical ability to manage inflation to that level, but largely the result of international forces. Surely that is the great change.
Mr. Henderson: I understand what the hon. Gentleman says and recognise that we live in a more global economy, with more interaction between different parts of the world economy. That is the background to what has happened. Without policies geared to stabilisation, however, it would have been perfectly possible, even in an expanding global economy, to have massive stop-go, which would have undermined our ability as an economy to perform. If he looks at some of the examples around the world, he will see that that is the case where economies have not performed in this period of globalisation. One might have thought that the Japanese economy would perform much more effectively in this era, but it has not, because Japan's domestic policies, and the sense of economic integrity in the country, have not been continued over the years. Some EU economies also failed to perform in the way that they perhaps could have, had they been able to achieve greater stability. I recognise that we live in a more globally minded economy, but that does not in itself explain the difference.
What has changed the economic performance? The basic point is that markets are more confident in their predictions, and wage earners, house purchasers, investors and savers are also more confident. In a sense, stability breeds stability. Some colleagues might argue that all this happened just because there was a Labour Government. I do not argue that, as I implied in my previous remarks. The Labour Government have adopted a change in economic thinking, responded to the changing economy and begun to adopt new approaches. The independence of the Bank of England is an example of that. It would have been heresy for any Labour Member to argue for that in the early 1990s or before. It was recognised, however, that if we are to give markets more confidencelet us remember that markets are not just about capitalism, but about the workers, their expectations and their predictionspeople must believe that macro-economic policy has been based on what the economy needs, not on what a political party needs. When we give that degree of
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independence, while maintaining some influence over the long-term shape of the responsibilities of the Bank of England, we nurture that improvement.
On borrowing policy, one problem in the past was that, in the 1960s, 1970s and 1980s, many people still lived under the economics of the 1930s. In a less global economy, with massive deflation domestically, public expenditure programmes were necessary to create work. If it was useful work, that was finesometimes it may not have been, although most of it was. If we tried to conduct an economy on that basis, with a more globalised economy and a nearness to full employment that did not exist in the 1930s, inevitably, again, expectations would be affected. A crucial reform of the Labour Government was to say that borrowing is for investment over the economic cycle, not for plugging the gaps in revenue except in the very short term. That gave markets great confidence in our economy.
The social programmes that have been introduced, and the emphasis on expenditure on health, education and so on, have been important in carrying people along with the changes that have taken place. The investment programmes in education, training and science have been important in bringing about the changes, not in the sense of health expenditure, which gives people a belief that things are going well, but because by investing in education we are creating a skill base for tomorrow.
Those are the main changes that have taken place over the past five or six years that have helped to reinforce the stability of the economy. The Budget this year again does that and I believe that the Finance Bill also provides a fiscal framework for stability.
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