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Although we were deep in recession, the rate of contraction is slowing markedly.
Fiscal stimulus, or natural retrenchment, may efficientlyor haphazardlybe working as an economic brake, although we recognise that there is a cost to that in terms of the public finances. The big problems, however, are structural, on both an international and a national, British, basis. China and the USA remain trapped in a Faustian pact whereby the productivity of one requires the indebtedness and refinancing of the other. The world financial system requires a remarkable revision, but it does not have the capacity to implement it. The British economy has similar major structural problems. Unlike Sweden and the Czech Republic, we have not learned to protect our manufacturing base. We are also grossly dependent on the footloose service and financial industries. We have not been filling the skills gap either, and there has not been any real attempt to square the circle, so to speak, of matching increased prosperity with diminishing social inequality. We are in a fix, and it is a structural fix. Unless we address these fundamental issues, we will find ourselves in a deeper fix still.
Sir Nicholas Winterton (Macclesfield) (Con): I am very pleased to have been called to contribute to this debate because during all the years that I have been a Member of Parliament I have fought for, campaigned for and promoted UK manufacturingindeed, so much so that Members on both sides of the House have identified me as Mr. Manufacturing Industry, MP. I have stood up for manufacturing industry under successive Governments. During the 18 years of Conservative government, I formed the Manufacturing and Construction Industries Alliance, which was a partnership between big and small industry, trade unions and all who believed that manufacturing industry is one of the only sources of non-inflationary, sustainable economic growth. I believed that when I first entered the House, and I believe it today, and I also believe that, sadly, successive Governments have often sacrificed manufacturing industry in this country unnecessarily.
In my local area, I am at present deeply concerned that the largest employer, AstraZeneca, a world-renowned pharmaceutical company, is reducing its work force in both my constituency and that of my immediate neighbour and colleague, my hon. Friend the Member for Tatton (Mr. Osborne), by some 1,500 jobs over a three-year period. Those jobs are not disappearing entirely, but they are disappearing from Macclesfieldboth at the Hurdsfield plant and the big research development plant at Alderley parkbecause the company is transferring the jobs to China and Mexico. Why is it doing that? One might say that it is doing that because it is a global company, but it is also doing it because the cost of those jobs is much less in China and Mexico. Over the years the company has also transferred jobs to India. One may say that there is a good reason for it to do so, but the message I am trying to get across to the Government is that they should not increase the cost of employment and of manufacturing industry unnecessarily.
The Government could take many steps at the moment to reduce the costs to manufacturing industry. It will see us come out of this recession, because things produced in this country at a competitive price and to a standard that people want, and delivered as such, are the real wealth creator, which should be encouraged. A smaller company in Poynton in my constituency, Aearo Ltd, owned by 3M, is sadly closing its plant there and transferring the jobs to Polandagain, because of the cost advantages of operating in that country. The Government should take these matters very seriously.
I turn to a matter relating to the Ministry of Defence. On the periphery of my constituency is the BAE Systems facility at Woodford, where the Nimrod aircraft, which is on order for the RAF, is produced. I pay a huge tribute to the trade unions there for the way in which, over recent years, they have worked in complete co-operation with the management in order to produce a good aircraft to the MODs delivery and specification requirements. Of course there have been problems in the pastabout which industry would one say that there have been no difficulties between management and labour in the past?but at this facility full co-operation has been given.
The MOD has ordered nine Nimrodsthe initial order was very much larger and it has subsequently been cutbut it is now looking, under Project Helix, for another three aircraft. I believe that the MODs R1 mission system upgrade project could utilise the MRA4,
and if it does so, that would extend the work force and the employment at Woodford for a further two years. However, the MOD is looking at the American Rivet Joint, which is a Boeing aircraft that is some 40 years oldthese planes are currently lying in the desert, but I am sure that they are being properly maintainedand the thought is to lease three.
I have met the Under-Secretary of State for Defence, the hon. Member for Grantham and Stamford (Mr. Davies), who has responsibility for procurement, to discuss this matter. I have done so along with representatives of the Labour party and the Liberal Democrats, because we want to ensure that our expertise in aerospace continues. We believe that the MODs R1 mission system upgrade project could be properly fulfilled by the MRA platform and that there is therefore a Nimrod MRA4-based solution to what the MOD requires. The Government can help, so they should retain high-tech engineering jobs in this country, rather than go to another country for purchases that can be fulfilled within our own manufacturing sector.
Having made a plea on behalf of certain industries and companies in my constituency, may I say, as has been said from the Front Benches by my hon. Friend the Member for Hammersmith and Fulham (Mr. Hands) and the hon. Member for Southport (Dr. Pugh), who speaks for the Liberal Democrats, that despite receiving unprecedented valuable bail-outs from the taxpayerthe Treasurythe banks and other financial institutions are still providing little or inadequate help to hard-pressed businesses and individuals via increased lending?
I have an interest in the construction industry, because I worked in it before I came into this House, and I understand it pretty well. In my view, it is market forces that have constricted the housing market, and not the financial institutions per se. I am not sure whether the Minister agrees with that observation. My view is that falling house prices are mirroring the economy at any one time, and those will correct themselves gradually once the economy has recovered. However, I stress that the lending banks and institutions must do more to help stimulate this countrys housing market.
The plight of small to medium-sized businesses is serious. They are the powerhouse of the modern economy, yet the commercial banks are still refusing to lend to struggling businesses. One thing that greatly annoys and frustrates me is that HBOS, which is now part of the Lloyds Banking Group, is refusing to lend to a highly successful, long-standing company in my constituency. Like many companies, it is going through difficult times and has cash flow problems, and HBOS is refusing to honour commitments to it. Having received huge handouts from the taxpayer, the banks, rather than merely representing their own interests, should seek to represent the interests of the economy of this country.
As the Minister will be aware, small businesses often operate on their overdraft facilities, rather than on loans, which are aimed more at development and expansions. The Opposition have made some important proposals, which my hon. Friend the Member for Hammersmith and Fulham dealt with briefly, and called on the Government to act to assist industry in a more positive way than they are doing at the moment. One action could relate to our proposals to cut corporation tax and to cut payroll taxes for small companies; we
have also called on the Government to cut national insurance contributions by a penny in the pound for small companies with fewer than five employees. I know that those are small measures, but they are all valuable. On insolvency, small and medium-sized enterprises should be able to apply for a short breathing space during which they would be able to come up with a restructuring plan, rather than go out of business. We want to save as many businesses as we can.
The Government have sought to act on prompt payment, and I give them credit for doing so. As the Minister knows, lots of small businesses provide goods and services to local authorities, with payment normally coming within 30 days. Some local authorities, appreciating the position of small businesses, have implemented a 20-day rule, and I warmly welcome that.
Mr. Mark Field (Cities of London and Westminster) (Con): My hon. Friend will perhaps be excited to learn that Conservative-run Westminster city council has instituted a seven-day repayment rule. On his previous point, although much is said about the idea of trying to introduce a chapter 11-type pause in the insolvency regime, this countrys regime is extremely flexible and administration provides that opportunity, instead of companies having to go towards fully-fledged liquidation.
Sir Nicholas Winterton: I very much respect the experience of my hon. Friend, who represents Cities of London and Westminster, which, of course, is home to the core of the financial services in this country. I know the very close relationship that he has with those in his constituency, who are the powerhouse of our economy.
As I was saying, some local authorities have implemented a 20-day rule on paymentsI am delighted that Westminster city council has implemented a seven-day ruleand bearing in mind that local authorities are dealing with taxpayers money, I am sure that most taxpayers are very happy with that sort of policy and I hope that it can be followed by many other local authorities. Just a few days can make all the difference in terms of paying bills and staff, and helping businesses to survive, so I urge the Government to approach local authorities to get them to adopt the shortest possible payment period in order to help business at this time.
As I said in a question to the Prime Minister, there are currently 2.73 million manufacturing jobs in the UK, down 160,000 on the year and down from 4.5 million in 1997. Productivity in manufacturing was down 4.1 per cent. in the final quarter of last year on the previous quarter, and that compared to a 1.8 per cent. fall for the whole of the economy. The figures are from the Office for National Statistics. I hope that the Minister will recognise the true value of our manufacturing industries to the stability and future success of the United Kingdom. Will the Government seek to reverse the crippling £16 billion burden of constantly changing regulations and the £7 billion a year new taxes that they have introduced, which are a drag on manufacturing industry, making us less competitive?
The Minister mentioned France and Germany, and I agree that they have had severe problems, mainlyand this does go against my argumentbecause so much of their economies is manufacturing based. While they do produce manufactured goods, they have no market for them if the country to which they sell them does not
have the money to pay for them. We must not force more of our manufacturers out of business or into relocating abroad. When the economy recoversas an optimist I believe that it willwe will need manufacturing.
A new report out recently from Policy Exchange reveals how the Prime Ministers second spending spree is set to reach 50 per cent. of GDPa stark figure indeedand that is not because of the recession. The report also calls for an emergency Budget and a spending freeze. Government spending is growing far more quickly than in other countries, and faster than in previous recessions. This perceptive and important report finds that the surge in spending is not being driven by the recession. At most, it says, only 6 per cent. of the increased spending is going on public works, and just over a third is due to the rising cost of social security or debt. Instead of investment, most of the increase is due to a decision to spend more on consumption.
The report also argues that all budgets, except social security, tax credits and debt interest, could be frozen at 2008-09 levels, resulting in savings of £87 billion on the Governments current plans. I have considerable respect for the MinisterI know his background and I used to work in the area that he representsso I say with some regret that the truth is that history has a habit of repeating itself, and yet again it is a Labour Government who have brought the UK to the brink of bankruptcy. As Chancellor of the Exchequer, the current Prime Minister squandered the growth that he inherited from the last Conservative Government and he now has to fix the problems that his Government have created.
History shows that successive Labour Governments, sadly, always leave the country deeper in debt. The present Government will have doubled the national debt to more than £1 trillion, so that anyone earning more than £20,000 will have to pay more tax. Rampant borrowing and tax rises will make the recession worse and the recovery more difficult, because they undermine the confidence in the future that is crucial to the recovery of economy.
I make a plea to the Government and, perhaps just as strongly, to my own party, which has not always been the best friend to manufacturing, although it does appreciate the role that manufacturing can play, to ensure that the measures that we introduce take fully into account the problems facing the manufacturing industry and the important role that it can play in the recovery of our economy.
Its the economy, stupid.
It was there to remind him that although people claimed that the electorate were interested in other matters, it was the economy that mattered most. It is the economy that matters most to the people in my constituency and, I suspect, in most other constituencies. Even the anger that has been experienced over allowances, and before that over bonuses for bankers, is fuelled by peoples fear and uncertainty about their own economic prospects, and we should not forget that.
The sad truth is that although the economy is the most important issue for this country and our constituents, the Government have chosen to have a one and a half hour debate on it on a day when the local and European elections are distracting our attention. Until a few moments ago, the Government had not even been able to persuade a single one of their Back Benchers to support their position here. That is an astonishing rejection by the Government and their supporters of the importance of the economy.
The title of the debate also refers to supporting business. The implication is that direct intervention by the Government can solve the problems of business. At the moment, the principal problem in this country and the rest of the world is a shortage of demand for all the resources and people available to produce goods and services. As long as the principal problem is that shortage of demand, merely switching an element of that demand through the tax system to be spent elsewhere will not alleviate the problem. Money can be spent on the automobile industry, but it will be at the expense of money spent elsewhere. That may receive support from people in the auto industry, but it destroys jobs elsewhere. It is only measures to restore the aggregate demand in the economy to employ all the resources available that will ultimately support industry.
We should be considering measures that will restore the growth of demand and thus the growth of economic output and employment. In my view, the key to that is money. It may be an old-fashioned view, but money is very important. If people have money in their pockets, they will be inclined to spend it. If they do not have money, they will not be able to spend it. If they have inadequate supplies of money, they will save and scrimp to try to build up their money balances. If one person saves money, less money goes to other people, and the total output of the economy is not altered.
I think that the Government had the right intention with quantitative easing. We need measures to boost the supply of money in the economy. People may think that that is an unusual thing for me to say. I am a longstanding monetarist, and many of my monetarist friends are suspicious about printing money, because it can be a cause of inflationespecially if too much is printed. However, if there is an insufficiency of moneythe collapse of the banking system threatened to destroy moneymore money must be created. That is why it was essential for the Government to prop up the banking system. If banks collapse they destroy money in the economy. In a developed economy, money normally comes from banks increasing their lending. That is what creates additional money.
If I were to lend my distinguished hon. Friend the Member for Cities of London and Westminster (Mr. Field) £100, I would be £100 worse off, he would be £100 better off and there would be no increase in the money supply. If he, however, were to go to the bank and say, Can I increase my overdraft by £100?, that would create £100. There would be £100 extra in the economyand when he spent it, as I am sure he would in due course, that money would circulate through the economy. Banks create money, but when banks are retrenching on their lending they destroy money. They call in loans and do not replace them, and there is less money in the economy. That is why it was necessary and right for the Government to do something like quantitative easing to
ensure that enough money was circulating in the economy. It takes a little time for that to happen, but I think that it will happen. It might be part of the reason why we are seeing at least a slow-down in the recession and even some signs that it is bottoming out, even if we are not yet seeing a resumption of growth.
Mr. Mark Field: My right hon. Friend rightly points out some of the concerns about the level of quantitative easing. Given the amount of money that has been printed by the Government, much of which to date is being hoarded by the banks, there is a potential inflationary problem. He says provided that too much money is not printed. How on earth can we possibly judge when that point is reachedwhen too much has been printed, or, indeed, is about to be unleashed into the economy at large?
Mr. Lilley: My hon. Friends question could be rephrased, How are we to know when too little money has been printed, when too little money is available or when too much money has been destroyed by the banks retrenching? We have to make a judgment. The Bank of England spelled out what it thinks is necessary and it will do it in a series of tranches. It is not proposing a Zimbabwean type of inflation, but an increase of a few percentage points in the supply of money. In general, an economy needs to see the money supply growing by a few percentage points more than the real growth that one hopes to achieve. We need to get back to that, and as long as the Bank does not overdo it, that is sensible.
By contrast, reliance on a fiscal stimulus seems likely to be less effective, and there is less scope for it in the British economy than might be desirable. If we started from a position whereby the Government had a very low deficit, or a surplus, it would be worth a try. It would be worth the Governments saying, Lets give a fiscal stimulus by borrowing to spend. However, when a Government start with a huge deficit, any further increase in that deficit is likely to destroy confidence, and as a result, have a negative rather than a positive effect on the total level of demand in the economy.
That is not just a theoretical point. The European Central Bank and economists from the European Commission have both separately carried out analyses of all the studies that have been published of attempts to use fiscal stimulus, in Europe and elsewhere, to stimulate the economy in the post-war period. They both show that on a majority of occasions when Governments have attempted to use the Keynesian weapons of borrowing to boost demand, it has had the opposite effect to what simple-minded Keynesians might have predicted. On half the occasions when Governments have boosted borrowing, that has led to deflation. On other occasions when they have reduced borrowing, even in a recession, it has led to a resumption of growth.
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