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1.3 pm
Mr. John Redwood (Wokingham) (Con): I remind the House that I have business interests in manufacturing and investment management, but I am obviously not speaking on their behalf today.
In the debate on Monday, I said that we needed to make the banks more competitive and change banking regulation at the bottom of the cycle, which is where we are now. Unless we make the banks work, we will not have a sustainable recovery. I drew attention to the grotesque distortion in the economy, in that we have very easy money at very low rates of interest for the public sector, created by quantitative easing, but a dreadful shortage of money, and high interest rates for those who can get money for the private sector. That is why we will not have a vigorous and sustained recovery such as those in China and some other big economies around the world. I hope that the Minister will bear that in mind and that the Government will do something about it, because we all want to see more jobs, more prosperity and a quicker return to the levels of economic activity of a couple of years ago. We will not get that unless we fix the banks.
There is another huge imbalance in the British economy that has to be adjusted in the years ahead if we are to have a return to prosperity and sustainable growth. The big imbalance that the Government's policies have allowed to occur is that we are borrowing too much, consuming too much and importing too much, but saving too little, investing too little, making too little and exporting too little.
Let us start by looking at the parlous plight of manufacturing. The sector has been squeezed and squeezed under this Government. They came to power with the best of intentions. They said that they wished to reverse the long-term trend downwards of manufacturing as a proportion of our economy. They said that they wished to reverse the balance of payments difficulties that had been experienced from time to time under Governments of both political persuasions in the previous 30 years. The Prime Minister, as an Opposition spokesman, used to specialise in going through the balance of payments figures every month and drawing attention to what he thought were unsatisfactory levels of excess imports over exports, especially in manufacturing. Well, the deficits that we were then running were tiny in comparison with the monumental deficits that we are now seeing month after month. We cannot go on like this. It is most important that activity is shifted away from consuming, importing and spending into producing, making and selling abroad.
The Government have not been good for manufacturing, which is now only 13 per cent. of our total economy. However, I am pleased to say that we have some fine companies and good performance in certain sectors. Two sectors in which British performance has been good are pharmaceuticals and aerospace and defence engineering. Those two sectors have some characteristics in common: they employ a lot of talented people, they spend a lot on research and development, they have high returns on sales in normal times, and they have a lot of public purchasing, providing them with demand and activity for their factories. NHS purchasing is an important element of the demand for the leading pharmaceutical companies
that have come here, expanded here or grown here. We also have a monopoly purchaser of defence hardware in the UK.
One of the things that is most disappointing is how little intelligent purchasing there is in other areas to provide that kind of enthusiastic support-not a free lunch or subsidised purchasing-to sustain more industries on the back of the huge sums that the Government are spending. For example, we have had a substantial train investment programme in recent years, much of it financed by public subsidy. Much of that work has gone abroad. Was it not possible for Ministers to apply competitive purchasing but ensure, as other countries do, that those purchases benefit domestic manufacturers and create opportunities for people to set up and make things here in the UK? Why is it that so many quango chiefs, civil service chiefs and Ministers run around in foreign-manufactured cars? Surely competitive products can be found from the extremely good British factories. Many of them are owned by foreign companies, but that does not matter. The important point is that they employ people in this country and the value is added here. Why are we not able to make more intelligent use of our purchasing?
Christopher Fraser: Does my right hon. Friend accept that apprenticeship schemes are enormously important as a source of training for businesses and to enable young people to enter the work force? Because of the bureaucracy that businesses, especially manufacturing businesses, are under, they are unable to take on vital new apprentices to do the jobs that my right hon. Friend describes so accurately.
Mr. Redwood: I am sure that that is one of the constraints. Businesses always need more skilled people at all levels. A better system for apprenticeships might well help. One of the additional constraints at the moment is that businesses cannot raise money. They cannot borrow cash or get working capital out of the banks because we have a lopsided banking system that is channelling huge sums of money into the public sector, but not into the private sector. They cannot borrow the money from the commercial banks because of the mistaken policy, and they are not getting the money in turnover because they are not getting the benefit of the orders. Every time that public sector cash is spent on an import, it is not doing the good that it could do if it was spent on a domestically produced product, because it means that we are still keeping people on the dole, untrained and unable to produce that good.
Mr. Jim Cunningham: The right hon. Gentleman's exposition of what he thinks should be done is interesting, but when he was a member of the previous Government, we had similar problems with apprenticeships. During the last recession, under the previous Government-I worked for Rolls-Royce at the time, so I know a little about this-the first casualty was always the apprenticeships. We talk about companies such as Rolls-Royce, and aid for them. The previous Government talked about lift-off aid-or something like that-but this Government brought in tax credits for companies such as Rolls-Royce and so helped them with research and development.
Mr. Redwood: I am sure that we could improve on the apprenticeship schemes in place under the Conservatives, but the lamentable truth is that they are not working now. We have had 12 years of this Government. We have less manufacturing as a proportion of our economy. We have a worse situation for manufacturing orders than I have ever seen in my life, affecting most manufacturing business that I talk to. I was at a Royal Society event last night, meeting a lot of manufacturers and talking from the platform. They all reported dire situations for orders a few months ago. I am pleased to say that there is some evidence that the situation is beginning to lift off the very bottom, but it is still way behind what it reached at peak levels.
Mr. Cunningham: I do not want to get into a ding-dong with the right hon. Gentleman, but there were very few apprenticeships under his Government, particularly in the 1980s. All the apprenticeships budgets were cut. I notice that he did not really go into the issue of tax credits for companies such as Rolls-Royce. I can remember taking a delegation to meet one of his Ministers in the 1980s. I also remember the works convener saying, "You're going to have a lot of very expensive shelf-stackers because of how you are trying to assist companies such as Rolls-Royce." That is why we brought in tax credits.
Mr. Redwood: I want to live in the present and look forward to the future, not wallow in the past, but if we are talking about the past, I must say that there was a lot more manufacturing then than there is today. Many factories have closed on this Government's watch. There has been a massive jobs haemorrhage out of the manufacturing sector.
Christopher Fraser: About 2 million.
Mr. Redwood: Indeed, there are 2 million fewer jobs under this Government's tutelage, as my hon. Friend reminds me. That is a great tragedy.
Mr. Love: The primary reason for that haemorrhaging, not just over the past 11 or 12 years, but over a much longer period, was an over-inflated exchange rate for the pound. We now have a more competitive pound. We need to sustain that competitive element in the value of the pound. How does the right hon. Gentleman, as a liberal laissez-faire economist-if I may call him that-believe that we can achieve that?
Christopher Fraser: Such flattery!
Mr. Redwood: That is the nearest to flattery that I am going to get from Labour Members. I was about to say that the sharp devaluation of the pound last year and the little wobble in the pound in recent weeks are positive for those who wish to export, but negative in many other ways. They are causing much more price inflation in this country than anywhere else in the free world and have, of course, cut our living standards massively, because if we import a third of all that we need, and our currency falls in value by one fifth, we can see immediately that we will have lost an awful lot of purchasing power and will all be much worse off.
We need, however, to find the silver lining in this rather nasty cloud, and the hon. Member for Edmonton (Mr. Love) has rightly pointed to one: it is now possible to compete much more aggressively on price, as well as
on quality and product, off a British manufacturing base, because of the devaluation. It would be a tragedy if we threw that away.
So far, the export recovery is not nearly as vigorous as one might hope for, or expect, given that we had a devaluation of more than one fifth about a year ago. We are not seeing the follow-up that we would like to see. Why is that? I think that it is because of the points that I am making: manufacturers are not getting the orders or the financial support from the banks because the system is so skewed and asymmetrical.
Many businesses and manufacturers, because they cannot get the banking cash and are having to conserve and generate their own, are saying, "I'm not going to get many orders anyway, so I'm going to keep my prices up. I'm going to take advantage of the falling pound and will not go for volume, because I am not sure I'm going to get it and I certainly can't get the working capital."
Christopher Fraser: In addition to that, does my right hon. Friend agree that the problem is with the red tape that businesses in this country suffer from as a result of this Government focusing not on jobs and prosperity, but on bureaucracy?
Mr. Redwood: I was going to come to that; it is on my list of things that need fixing. We need access to working capital and more domestic orders to provide the volume that lowers the unit cost. We also need to keep control over the tax and regulatory burdens because most international businesses now look globally and do so on the numbers. They look at the costs, the cash flows and how easy it is to do business in each location. They do not have a romantic attachment to one country. I wish that they did-I wish that they shared my romantic attachment to my country and wanted to see success here-but they do not. They will look at the numbers and put the plant, the new jobs and the new projects in the place where they think that the numbers make sense. If the regulatory burden is too high, they will score that against the particular country-and regulation is a cost.
Labour Members like to portray me as the man who would have no regulation at all, but that is a grotesque distortion. I have strongly urged stronger regulation of certain things in banking, and of course we need strong safety regulations in manufacturing. However, the overall balance is wrong. There is too much regulation overall. It means that there is too much cost and that we have fewer jobs as a direct result.
Some voices on the Labour Benches have taken up an idea that I have launched into the public debate in recent years, which is that we should have regulatory budgets here. They have been adopted in Holland very successfully. The Dutch budgets do not go as far as I would like, because they just concentrate on the Government and regulation costs, whereas I also want them to include the impact cost on the businesses being targeted. However, the model is there and I urge the Government to do it, even at this late stage in this Parliament, because the sooner the signal is sent out that we want to start to curb and limit regulatory costs on businesses, the better it will be for generating new jobs here.
Mr. Love:
The first impact of a competitive exchange rate will be on import substitution. Then we would hope that, as the economies of Europe, in particular,
but also the United States, recover, we will be able to export. My concern-this was the question I asked the right hon. Gentleman originally-is this: when our economy begins to recover, it is likely that the exchange rate will appreciate, losing the advantage that we have had, so how do we prevent that from happening?
Mr. Redwood: Given the amount being printed and the amount that the Government want to borrow, we are in for a weak currency, unfortunately. I do not think that that is the worry; the worry is whether we get the response. That is the issue that I am trying to address. That was a good way for the hon. Gentleman to influence my speech. The answer is that we will not get enough of a response for import substitution or direct export unless we get these things right.
People have to have access to capital and land with planning permission, and to the right kind of factory space, with the right kind of floors, loadings and eaves heights, so that they can do modern manufacturing in a good environment. They need access to the skilled people, young and old, and they need very high-quality engineers and other such people to go in, take the risks and develop the products.
The world's manufacturers know how to drive a process for quality. We can make expensive items out of a high-cost labour base, and I am not one who wants to drive down wages. I want staff on high wages who are well rewarded and motivated because they are skilled. We do not need many of them, but we need to use them intelligently in successful manufacturing. In good manufacturing, labour costs might be only 10 or 15 per cent. of total selling price, so it is not the main driver. It is not impossible to run really good manufacturing out of a UK, US or German base, as we can see in many examples.
I am conscious that others wish to join in this very short debate. My conclusions are that we need to give every sensible incentive so that we can have this massive shift out of consuming and borrowing and into producing and making to tackle the balance of payments deficit and the very large deficits across the economy. We have the groundwork for that, with the large devaluation brought about by an incredibly sloppy money policy and by printing so many pounds. We must not throw that away or waste it.
The early evidence is that the reaction is not strong enough. That implies that the Government need to look at the availability of people, of buildings and land, of planning permission and of orders. If, for example, the Government had an energy policy that they could announce and activate, that would trigger a large number of orders for all kinds of things in the energy sector, but we have had dither and delay. If we had a proper transport policy that was more clearly defined, that could also trigger the sort of orders that we need.
I urge the Government not to rest on their lack of laurels or think that because they are printing so much money, the economy will suddenly come miraculously right. Printing money without things happening on the ground just causes inflation and far worse mess and distress. If we are to make anything out of the mess, we need now to put in place policies that create orders and create a sensible level of regulation and low taxation, so that people will want and be able to make things here and so that we can get people back into jobs.
1.20 pm
Tony Baldry (Banbury) (Con): I am rather bemused by this debate. It needs to be understood that the subjects for topical debates on Thursdays are chosen by the Leader of the House-that is, by the Government. On Monday, my right hon. Friend the Member for Wokingham (Mr. Redwood) and I spoke in a full-day debate on employment and industry. Tragically, by halfway through that debate there were only three Labour Members in the Chamber. They included the Minister, the Parliamentary Private Secretary and the Whip on duty-in other words, no Labour Back Bencher was present for the debate. However, in the course a full day's debate, at least four Labour MPs managed to speak. Today, unless something dramatic happens between now and the conclusion of this debate, not a single Labour MP will have come into the Chamber to support the Minister. I find that extraordinary.
I suspect that we know why this debate has been held today: because between now and the first Thursday in May next year, the Government will be desperate to try to create some kind of litany to give the impression that a recovery is taking place. However, one would have thought that a much more appropriate subject for a topical debate today would be the future of Royal Mail and what is happening in the postal dispute.
Madam Deputy Speaker (Sylvia Heal): Order. I can allow a passing reference to that, but the theme of this debate is the economic recovery.
Tony Baldry: It was only a passing reference because I have had only a sentence on that subject. However, on securing the recovery, there are many businesses in my constituency that will not have a recovery if they cannot get their goods and invoices out through the post.
Reading yesterday's Hansard, I found it rather curious that the Prime Minister said about the postal dispute that he would
"urge people to go to ACAS when that becomes the right thing to do".-[ Official Report, 21 October 2009; Vol. 497, c. 904.]
Surely trying to ensure that everyone goes to ACAS without precondition to try to resolve such disputes must always be the right thing to do. I am not entirely sure what the Prime Minister meant by the rather curious line that he took.
I am also surprised that the Government have not chosen to have a debate today on the dispute between the Chancellor and the Governor of the Bank of England. How we can have an economic recovery when the Chancellor and the Governor of the Bank of England are at loggerheads?
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