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4.19 pm
Mr. Austin Mitchell (Great Grimsby) (Lab): This opportunity to debate the pre-Budget report is an excellent innovation. It should have produced an interesting debate-indeed, a compelling one-on the state of the economy, but all that it has produced are a lot of sterile platitudes about the interests of finance, which caused the recession in the first place, through risk-taking and excessive lending, as against the concerns that we on the Labour Benches have been trying to express about jobs, employment, production and the real economy of this country.
Nowhere was that contrast more typified than in the speech by the hon. Member for West Suffolk (Mr. Spring), who has just sat down. What he was saying, essentially, is that the problem is confidence. How do we get confidence? Only by returning a Conservative Government. How do we return a Conservative Government? By creating such a state of fear, alarm, panic, depression, horror and misery about this country's economic prospects that we just have to have one. That is a political strategy of knocking Britain and knocking our financial future. Frankly, it is damaging to the economy and to the jobs and the real people out there, and it is unworthy of the Opposition. What we should be debating is how to keep the economy going at a high level in the face of a recession that has been produced by the irresponsibility of the financial sector.
This pre-Budget report is a difficult one, because it is difficult to predict the future, as the right hon. Member for Hitchin and Harpenden (Mr. Lilley) said. Indeed, we cannot predict the future-he went on to predict it in the gloomiest possible terms, but his essential point was that we cannot predict it. We are probably out of the recession now, in the technical sense of several quarters of negative growth, but its effects will linger on, in more closures, more unemployment and more economic difficulties. That is what we must combat. We cannot now know how long we will have to do that; therefore, it is difficult to make firm assumptions about the economic future in the pre-Budget report.
The other problem with the pre-Budget report is that, because the Government feel obliged to look at the prospects for debt repayment and cutting the deficit, it predicts action in those areas. That has the result of moving the debate on to Conservative ground and the ground of a financial sector concerned with deficits and borrowing. However, in a recession, deficits and borrowing are not the problem; they are the solution. They are the only way of keeping the economy going at an effective level. In opposing deficits and borrowing, as they have done consistently for the past year, the Tories are preaching a system of economics that is not pre-Keynesian, but pre-Cro-Magnon.
In my view-it is a personal view, but it is echoed by several Members who have spoken, or are yet to speak, on the Government Benches-the big problem in the
economy is this. Although we have provided it with a stimulus, which has undoubtedly saved about 500,000 jobs-if we had not given the economy that stimulus, unemployment would now be at Tory levels, which they achieved twice in their period of government-that is not enough. The stimulus has to continue-indeed, we need a bigger stimulus-because that is the only way that we will get back to growth. The only way to deal with deficits and borrowing is through economic growth. With economic growth, those problems fade away.
Let us look at the amount of debt that the incoming Labour Government paid off in the first three years of their existence, in a very powerful performance. That happened because of growth. With growth now, we can achieve the same results. That is why we must stimulate the economy to get back to the level of growth that will pay off those debts as quickly as possible. That is the crucial issue: not moaning about debt and creating imaginary threats to our credit rating to frighten the City into supporting the Conservative party financially, which is essentially what the Opposition have done, but getting back to growth as soon as possible.
In the light of that, it is disappointing that the pre-Budget report does not envisage a stronger building performance, or a bigger spend on housing. The big expansion in housing was the main means of recovering the economy in the 1930s, before we moved on to the stimulus from rearmament. The housing drive in this country built many houses. I am sorry to say that this Government's performance on housing has been pathetic. The house-building rate is lower than it was in the 1950s; it is back at the 1920s level.
Kelvin Hopkins: I apologise to my hon. Friend for not being here for the beginning of his contribution. Does he agree that the Government would be well advised to concentrate their spending on direct job creation, and not just on reflating demand?
Mr. Mitchell: Absolutely. That is why I am arguing for a big housing programme. Housing means jobs; it stimulates demand. People need to buy carpets and furniture to put in their houses, although, in the main, the stimulus benefits employment in the construction industry. The kind of housing that we need to build is public housing for rent, because that is where the demand is now. That is what the 1.8 million people on council waiting lists around the country need. They cannot afford to buy, even after the fall in prices during the past year or so. We need a big housing drive, particularly for council housing, which has been the main area of inadequacy in our performance.
One fifth of the population have a standard of living that is not adequate. They are, in a sense, deprived, and they need public housing. We have not built enough of it, but that is the only way of providing for the future. It is also a guarantee that, when the economy begins to recover, all the money does not go into escalating house prices as it did before. If we build a strong public housing sector, people will not be forced to buy when they cannot afford to maintain a mortgage. They will not be pushed into sub-prime ownership. What they really want and need is public housing for rent, and we provided that in the past through a housing drive. We now need a bigger housing and construction drive than the pre-Budget report proposes.
In America, a useful measure has been introduced whereby construction projects that are shovel-ready can be financed to go ahead. That is eminently sensible in a recession. In this country, 140 college building programmes were cancelled as a result of the debacle at the Learning and Skills Council. Most of those programmes were shovel-ready, including the £150 million project for the rebuilding of the Grimsby institute. That project should have been started. It would provide jobs and an economic stimulus. Why are we not doing it? The allowance for housing and construction in the pre-Budget report is inadequate. We need both in order to boost the economy, particularly in the construction industry, which is stalled everywhere.
There is also a need in this debate on the pre-Budget report to grapple with another issue that is more basic than the deficit and borrowing-namely, the need to rebalance the economy, which has been lop-sidedly developing a huge financial sector on a shrinking manufacturing and production base. No economy can function efficiently or generate growth and jobs when it is unbalanced in that way. The process of rebalancing it will be painful, but it must be started. I had hoped that the pre-Budget report would place a greater emphasis on this matter.
We cannot pay our way in the world now, because manufacturing has shrunk so much. It has been decimated in this country over the past few decades. It has been weakened partly by the rise to dominance-even to hegemony-of the financial sector and the City of London, under whose spell I am afraid the Government fell for far too long. The rise of the City has been damaging to the real economy of manufacturing for three reasons. The first is that the City and the financial sector would rather invest in Dubai than in Doncaster. They were never concerned with the industrial needs of this country. Secondly, the City does not exercise enough long-term thinking to support the manufacturing sector, while thirdly, of course, it always wants a high and stable exchange rate. Why? So it can manipulate money around the world to acquire assets overseas. The interests of manufacturing, however, lie in a low and competitive exchange rate, which allows more exports and the selling of products on the world markets.
Frank Dobson: Does my hon. Friend also agree that it is a remarkable irony that despite the massive growth in financial services to the disadvantage of manufacturing industry, manufacturing industry still provides a bigger proportion of our overseas earnings than the much-vaunted lot in the City?
Mr. Mitchell: Over the last decade or so, manufacturing has provided an average of about 60 per cent. of our overseas earnings, but it cannot now support the economy or jobs in the way it did in the past-unless it is expanded, unless it is rebuilt and unless we shift the balance in the economy back to production and away from financial manipulation. That is our future, which will be bleak unless we do that; it will be a future of increasing debt in order to pay for imports that we are not currently paying for.
For a couple of years our trade deficit has been higher than that of the Americans-a deficit that caused such a panic and alarm in the US. We should be alarmed and concerned about ours. All the experience of developing countries is that it is possible rapidly to
develop a strong manufacturing sector if policy is focused on that by having a low and competitive exchange rate. That is what all the developing countries-starting with Germany, now finishing with China-have done. They started from a low exchange rate, which makes exporting profitable, building up a powerful internationally traded sector, which then achieves economies of scale and follows a process of continuous causation and improvement.
Kelvin Hopkins: My hon. Friend correctly emphasises the importance of manufacturing. Is it not also worrying that if manufacturing is allowed to dwindle even further, recreating the necessary skills in manufacturing will be much more difficult?
Mr. Mitchell: That is absolutely true. We have networks of skills and surviving skills, which have been thrown on the scrapheap, but they could and should be mobilised for any expansion. It is true that we need a big training programme, as this is one of the bottlenecks in the expansion of manufacturing that needs to be cleared. That can be done through an industrial policy, which we have fought shy of for far too long, but which is necessary.
As I was saying, the big expansion overseas, based on a competitive exchange rate in overseas countries, shows that manufacturing can expand and rebuild. It can do so by having a lower competitive exchange rate. We now have the opportunity for a 25 per cent. devaluation, which would make industry and investment in this country profitable again, which it has not been for the last few years. It was certainly not profitable under Thatcherism, which was based on the policy of destroying manufacturing to weaken the trade unions and the power of the country's workers. It was based on the assumption that as a phoenix rises from ashes, the more ashes created in manufacturing areas, the better would be the future of this country.
I am afraid, I have to say, that that destructive process was continued under Labour because our concern was to fight inflation, which was done by keeping the pound high at an uncompetitive level, which subsidises imports. That also forces industry to cut its costs and shed labour in a pathetic and almost doomed attempt to stay competitive. This destruction continued and manufacturing shrank-to our shame, while we were in power-from 20 per cent. of GDP to perhaps 12 or probably 11 per cent. now in this recession. We must revive manufacturing and get it back to what it was.
But as I look at the policies we have adopted up to now, I see that we are not effectively achieving that. We have "saved the banks", but our treatment of the banks defies belief. Whatever happened to moral hazard? The Governor of the Bank of England goes on about it, but as soon as moral hazard is affected by the banks, which were brought by their own follies and excesses into a disastrous situation, we rush in with money to pour into them. Manufacturing does not get that money. We poured money into the banks-that is a large part of the borrowing that we are arguing about-and we probably had to do so to save the banks, but nothing is going to, for instance, the steel industry in Teesside. What has gone to Vestas on the Isle of Wight, which is the country's only remaining wind turbine producer? What has gone to the manufacturing firms that are closing down and shedding labour, making people redundant? What is happening to them? We shall need their production,
skills and output if there is to be any recovery of manufacturing and the economy, but we are allowing them to close down without Government support.
The Government have poured money into the banks, and all that the banks have done with it is build up their reserves. They have not passed it on or relaxed their credit arrangements. Manufacturing is experiencing a double whammy. Money is being poured into the organisations that caused the crisis in the first place rather than into manufacturing, which has suffered the consequences, and the organisations that caused the crisis in the first place-the banks-are starving manufacturing of credit, refusing to tide it over until it can inherit the better times.
This is a pathetic economic policy. Even the Government's policy of printing money-which is effectively what we are doing-does not really help manufacturing. What printing money does is, by buying back Government debt, buoy up the stock market and asset prices. It helps the financial sector, which holds the debt-primarily the hedge funds that have been selling that debt back to the Government at an inordinate profit to themselves-but it does nothing for manufacturing, the sector that we need to help and support.
All the devaluations of the past-the devaluations of 1949 and 1967, the Tory devaluation of 1972-73 and the classic devaluation of 1992, when we were forced out of the exchange rate mechanism-have boosted manufacturing. Productivity and growth have increased, and the whole economy has been stimulated. We cannot let the boost that we have provided now, with a 25 per cent. devaluation, slip away as the last few prizes of devaluation slipped away. We must maintain a competitive exchange rate.
More important, we must have an appropriate industrial policy. Exchange rate competitiveness, which means a low exchange rate, is a necessary but not sufficient condition for manufacturing revival. There has to be an industrial policy that will channel investment into manufacturing, help to see it through its difficulties, and break the bottlenecks. Whether we support planning, training, investment, research, design, development or marketing, we must help industry to move forward. We cannot wash our hands of manufacturing if we are to have a viable economy.
Mr. Timms: I am listening to my hon. Friend's speech with great interest. Like the rest of us, he will have been pleased to hear what the Engineering Employers Federation said the other day about manufacturers bringing manufacturing back to the United Kingdom, partly for the reason that he has cited-the exchange rate change-but also because of the benefits of greater reliability and better quality. Before the events of the last couple of years, engineering employers were talking of a renaissance in United Kingdom manufacturing. I think we can afford to be optimistic about the future.
Mr. Mitchell:
My right hon. Friend has made a valid point. I was delighted to hear the news that people who had been outsourcing-which produced a series of holes in the fabric of Britain's industrial society-are now bringing the work back to this country, partly because of the devaluation. I want that process to continue, but the Government, and my hon. Friends in general, must bear in mind that this manufacturing recovery is starting
from a low and damaged base. It must go a great deal further, and must be encouraged and supported by Government, before it can produce the effects that I have described.
We have a mountain to climb before we can again provide jobs for the people, pay our way in the world, and rebuild the manufacturing base from which innovation, productivity and national survival spring. That should have been the main message of the pre-Budget report, and because it is not, I am a little disappointed in it.
Mr. Deputy Speaker: Order. No time limit was applied to today's debate, but the average length of the speeches from the Back Benches has been about 20 minutes. On that basis, we will get only three more contributions. Speeches need to be half that length if everyone is to have an opportunity to speak. I appeal to Members to be as friendly as they can to their neighbours.
4.40 pm
Peter Luff (Mid-Worcestershire) (Con): I will do my best, Mr. Deputy Speaker.
On Tuesday, the Government's flagship Bill, the Fiscal Responsibility Bill, attracted the active interest of just two Government Back Benchers-and they both opposed the Bill. I am not entirely sure that the support that the Government have received from the Back Benches today will be much more welcome. That is not to say that I disagree with everything that all those Members have said. My good friend the hon. Member for Great Grimsby (Mr. Mitchell) spoke about the importance of manufacturing. I entirely agree. Nevertheless there are ways of getting there.
I hope that I will be present for the winding-up speeches. There are some issues about travel this evening and I apologise to Front Benchers if I am not here for their speeches. I will check my trains once I sit down.
"There were two tests for this Pre-Budget report. First, would it increase the credibility of government plans to restore the public finances? Second, would it be a platform for job creation and economic growth? The government has failed on both counts."
Those are not my words but those of the CBI director general speaking on the day of the pre-Budget report. It is not just big business that has spoken in that way. The Federation of Small Businesses reported that 44 per cent. of small businesses were less confident as a result of the PBR. I do not think that it has been said so far in the debate that we need to remember that the PBR bombed comprehensively on the day and calm and more careful consideration has not made it look much better.
It is important to remember that this is a tragedy not just for the corporate sector, small, large or medium, but for thousands of individuals. The number of 16 to 24-year-olds out of work was 952,000 in the three months to October, a quarterly rise of 6,000 and the highest figure since records began in 1992. The OECD said in September that Britain now has the highest level of youth unemployment in Europe. That for me, of all the shameful failures of this Government, is perhaps the most shameful. I think that that statistic is not properly understood outside this place. I can imagine what would happen if a Conservative Government presided
over youth unemployment on that scale. There would be shrieks of horror and outrage from Labour Members, who are very muted today, and tragically so.
I am grateful to the Chairman of the Treasury Committee for his thoughtful contribution to the debate. It was measured, as was the Treasury Committee report that came out yesterday. It is important to remember that it, too, called for much greater clarity over spending reduction plans. It expressed concern about future gilt sales and highlighted fears about Britain's future credit rating. The PBR is being debated in an extremely worrying situation.
I am fond of metaphors. I hope that this is an appropriate one. I see the Prime Minister a little like an arsonist who helped to start a blaze and then wants credit for stopping it from destroying the whole town. Stopping the blaze before it destroyed everything should not be a cause for congratulation if one is the author of the blaze itself.
Three specific and serious mistakes by the Prime Minister when he was Chancellor, which are the background to the PBR, led directly to the recession, or at least its severity. The first was excessive spending in the good times-not mending the roof while the sun was shining. In fact, I would add that his plans added holes to the roof, funded by taxes on the bubble of finance and housing-a bubble that could never endure.
The second problem is excessive debt, built up not just in the public sector, but in the private and corporate sectors, encouraged by the Prime Minister's false promise when he was Chancellor of an end to boom and bust. Thirdly, there was poor regulation of financial services. At least two of those factors were present in the United States of America too, but it will not do for the Prime Minister to claim that the problems that underlie the PBR have their origins in the States or the international economy. They have their origins here, too. The Prime Minister is to blame for the crisis that this country now faces. He has earned no right to be praised, as this country has been mired in the deepest recession since the 1930s and he is part of the reason for that.
It cannot be said too often that Britain is the only G20 country officially still in recession. We might come out of recession in the current quarter, but the fact remains that this has been a huge and severe recession. It has been a personal tragedy for many thousands of our fellow citizens, and the UK has suffered a 6 per cent. cut in the size of its economy, beaten in that regard only by Japan, Italy and, I think, Germany. We have lost that for ever; as growth returns, we will still have lost that part of our economy.
According to a construction survey, the British building industry suffered its 22nd successive monthly fall in activity in December, and employment in the contracting sector fell again last month. Many businesses still fear a double-dip recession, and consumer and business confidence is still fragile, to put it mildly. The PBR succeeded in denting consumer confidence further. Yet, for all this, the Prime Minister wants credit.
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