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Adam Price (Carmarthen, East and Dinefwr) (PC): It is always a pleasure to follow the right hon. Member for Oldham, West and Royton (Mr. Meacher) and to hear in his speech echoes of what, in my youth, we used to call the alternative economic strategy, which is much needed even today.
I was struck by something said by the right hon. and learned Member for Rushcliffe (Mr. Clarke). Of course, it is true that economic policy has become slightly boring under this Government, although that could be to the Chancellor's credit. Balance of payments crises were enlivening, but that was of little cheer to the people who suffered as a result. Not even the Chancellor, with his considerable reserves of self-belief, would argue that he has abolished the business cycle. Crises may not be as cyclical as they were under previous Governments, but they are structural, sectoral and spatial.
I want to talk about the pensions crisis, future and present, the manufacturing crisis, past and present—it may not have much of a future, as the right hon. Gentleman has argued—and the energy crisis that is looming on the horizon. I also want to talk about the north-south divide, which can hardly be called a crisis because it has been with us so long. Certainly, in Wales, we can trace it as far back as the collapse in coal prices in 1924. Despite its long pedigree, it is no less serious, and it has worsened under the Government's charge.
Let me take pensions first. I am not referring to the looming deficit in the public sector pensions, which is obviously very much in the forefront of our minds today; I am talking particularly about the problem of deficits in the corporate sector that have clearly caused 85,000 workers to lose their pensions over the past few years. Sadly, they have not been recompensed in full by the Government. There is a huge problem with pension liabilities in the private sector, and more and more companies are being pushed into bankruptcy, which is causing massive job losses. As a result, companies are increasingly diverting some of the money that would have been available for capital investment—we have heard about the downward pressure on business investment—to their pension schemes because of those liabilities.
A large part of the problem is of the Government's making—it is within their control—and I am talking about gilt yields, which have reached absurdly low levels under this Government. Of course, the lower the yield with gilts, the bigger the pension fund deficit. Long-term
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index-linked bond yields are now at 0.75 per cent. Although that is ridiculously low, it is, of course, very good news for the Government's Debt Management Office, but bad news for virtually everyone else: bad news for pensioners and for the companies that are facing huge problems.
Of course, the Government argue that there is no clear evidence that increased pension contributions have significantly affected business investment in aggregate, according to the Budget statement. They argue that there is record profitability in the corporate sector, so it should have the resources even to cope with those higher demands. The problem is that profitability is uneven in the corporate sector. Many of the companies, particularly in the manufacturing sector, that have final salary schemes and are therefore coming under the greatest pressure do not have the profitability that is evident in, for example, the banking sector. That argument simply does not hold.
The reasons for the problems with gilt yields relate to the fact that the Financial Services Authority has changed the rules on solvency for insurers, forcing them to hold more gilts, as a result of its interpretation of the bear market, and particularly to the introduction of the Pension Protection Fund, which, given the risk-based levy, is creating a huge incentive for pension funds to take on more long-term bonds, which are lower earning but lower risk. As a result, we have the bizarre position that the pensions industry is driving up the price of gilts, thus leading to lower yields.
Of course, the pensions industry will suffer more than any other because of falling yields. We have a vicious cycle. The Government are not issuing enough bonds. Promises were made. The industry was expecting £70 billion in extra bonds, but got only £63 billion. The analysis of most independent observers is that there is a structural deficit of long-term bonds running into hundreds of billions of pounds, given the need of pension funds to take on Government securities.
There is an insatiable demand, which will drive down gilt yields even further—thus driving more companies out of business, causing more pension fund deficits and possibly overloading the Pension Protection Fund, behind which the Government have so far refused to stand in the event of a major crisis. I hope that the Chancellor is not doing that because it is a source of long-term cheap finance. That would be an incredibility short-term policy, especially as the current position is not sustainable.
The manufacturing position has been well outlined by the right hon. Gentleman, and I need not support his comments further. We have experienced a serious fall in the growth of business investment, as well as in spending on R and D. The Government have said that one of the key long-term determinants of productivity growth is the amount of capital investment per worker. As has been argued, there has been a sustained, long-term failure on the part of the UK business sector to invest capital. I was interested to hear in the Budget statement the figures on business investment, which now include private finance initiative capital investment. Previously, expenditure on the health and education infrastructure would have been included under Government investment; now, it is included under business investment. If one removes that element from the figures, it is clear that business investment growth is even
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worse. We need to be absolutely clear that the £10 billion extra that is being included next year will distort the business investment figures.
In addition to problems with manufacturing and the poor record on business investment, the transport infrastructure is very poor. Incredibly, this week's official figures show that on average—I do not exaggerate—roads in Wales are resurfaced every 97 years. That is incredible. I can think of no other country in western Europe, let alone one in eastern Europe, that is in such a position. Moreover, there is the ongoing tale of UK workers with very low skills levels, problems with basic literacy and numeracy, and the problem of rising energy costs.
All of that feeds into the growing north-south divide. The hon. Member for Bristol, East (Kerry McCarthy) referred to the Government study on English cities, published at the time of the Budget, which itself pointed out that the "industrial powerhouses" of the past—Liverpool, Sheffield, Newcastle—have found that
That is an understatement, if ever there was one. The report goes on to show that the problem is the "over-dominance of London" in the UK economy. We have been making that point ad nauseam for many years. Cambridge Econometrics' figures, published this week, show that the situation is getting worse under this Government. According to its report, growth in the past nine years has been slowest in Scotland and in the north of England, where gross domestic product rose by 6 per cent., rather than by the UK average of 24 per cent., over the same period. That is a huge divergence in economic performance. It is only because of the downturn in the London financial services sector in the past three years that the divergence has not worsened.
So what do we get? Because of recent problems with London's financial services sector, we get a report on the problems of London's financial services sector. Where was Government leadership on the problems of the manufacturing-based economies of the west and the north of these islands? We in Wales have experienced a net loss of 72,000 manufacturing jobs since this Labour Government took office. Indeed, under their policies there has been a net loss of 7,000 manufacturing jobs in the past year alone. They should not be sanguine about unemployment. Unemployment in Wales is rising twice as fast as in the rest of the UK—a pattern that we will begin to see in all the regions in which manufacturing is still the economic base. Of course, the intermediate business services that serve that sector are also vital to our economies.
Under this Labour Government, there are even 11 UK localities that have seen a real-terms decrease in gross value added per person. That is incredible: 11 localities are actually going backwards in real terms under a supposedly socialist, redistributionist Government. Four of the five localities at the bottom of that list are in Scotland and Wales. The stark message is that we will have less of the policy-based evidence-making that we have seen too much of under this Government. The UK's regional, local and national economies have become more divergent, more quickly, than even under the Government of Mrs. Thatcher.
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7.14 pm
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