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Mr. Mitchell: My right hon. Friend's interventions are very evocative of similar exchanges between us when he was a Minister-he was wrong then and he is wrong now. After previous devaluations, fears of a massive increase in inflation were not realised. There was an increase in inflation, but it was not substantial, and there was an even bigger increase in production and value added in this country. That is what we should aim for through the use of devaluation.
Tony Lloyd: Is not the reality of exchange rate policy that it is not about good or bad, strong or weak concepts, but about balance? The problem in the UK economy was that the balance was not right. The exchange rate was too high because it favoured the service industries and the financial sector at the expense of manufacturing. There was an imbalance and, as my hon. Friend is saying, the rectification process of some competitive exchange rate movement is good for manufacturing and for the whole economy because the balance will be better.
Mr. Mitchell: My hon. Friend puts his point in a moderate and balanced way, as is his wont as chairman of the parliamentary Labour party, and he is right. We want to rebalance the economy away from finance and towards manufacturing; devaluation and new competitiveness give us the opportunity to do so, because they will revive manufacturing and give us a chance to rebuild. They have done so in the past, but we have always let the opportunity drift away by letting prices and the exchange rate rise and by putting up interest rates to defeat inflation. We must not do that again. Manufacturing needs a long-term prospect of competitiveness.
Mr. MacShane: My hon. Friend is kind to give way in this Labour-Labour debate. What a shame that there is just a single Conservative here interested in manufacturing, but there is nothing new in that. I promise that this will be my last intervention. The alarming year-on-year inflation rate of 3 per. cent, which was announced this morning, is partly due to the fact that everything we bring into Britain-we are an importing nation-is now more expensive as a result of our devalued pound. To be frank, inflation, if it pushes up interest rates, will do far more damage to access to credit for manufacturing, as well as lower the purchasing power of my constituents. I am with my hon. Friend the Member for Manchester, Central (Tony Lloyd) on this matter, but the balance was not right. We must be careful not to see that go too far in the wrong direction, so that a devalued pound increases inflation.
Mr. Mitchell: I come back to the point I was making. That was not the experience in previous devaluations, which did boost manufacturing and productivity and did not increase inflation. They did not have the effects that my right hon. Friend is talking about, and I think my hon. Friend the Member for Luton, North (Kelvin Hopkins) wants to rebut his argument, too.
Kelvin Hopkins: We have a very good friend called John Mills, an excellent economist who has written a book that shows that every devaluation since 1931 has not produced inflation, but has actually produced the effect my hon. Friend is talking about.
Mr. Mitchell: I have taken many interruptions while making my main and straightforward point, but I am now moving on to more controversial ground, so I do so with some terror. Devaluation and competitiveness are necessary, but not sufficient, conditions for the revival of manufacturing. We must also have an industrial policy-words that have been anathema to the Government for a long time, and which certainly were to the previous Government-if we are to seize the opportunity we now have.
We are pouring money into the banks, which are still constricting the flow of credit and helpful funds and investment into manufacturing. One small example is that of a bed manufacturer in Grimsby, who came to me to explain that his mortgage had been closed down by the Royal Bank of Scotland. That is what the banks are doing. That stops the bed manufacturer operating and puts people out of work. It is callous brutality. Banks are not channelling funds as they should be, given the fact that we saved them. We should have given them the duty to channel funds into manufacturing, which is what industries need if they are to survive in the world.
The policy of quantitative easing, which basically means printing money to buy back Government debt, does not help manufacturing. It helps the financial sector, particularly the hedge funds, including foreign ones, which hold much of the debt. They then use the money to invest in assets and push up the stock market, which does not help manufacturing in any way. We are helping the banks, but not manufacturing. We need to help manufacturing more, and that is the first step in an industrial policy. I do not mean a policy of picking winners, which is a discredited idea; the market will effectively pick the winners as it develops and industry gains competitiveness. A strong manufacturing sector is the only way to spin off winners and innovations, which do not come in a sterile, dead environment or when manufacturing is declining. They come from a viable, lively and expanding base in manufacturing. The alternative to that is despair. Manufacturing can grow quickly, as the experience of China and the young dragon economies of the far east shows, but it needs the guarantee of profitability and competitiveness and the low costs that we now have, compared with international costs, to allow it to develop.
We need an industrial policy to facilitate that process in several ways. First, we should be saving those manufacturing industries and plants that will be necessary in the upswing but that are now being closed, because manufacturing has been particularly hard hit in the recession. It has been more seriously hit than most other sectors, with an 11 per cent. fall in output, because international demand has been greatly reduced. We can use the competitiveness produced by the devaluation only if there is strong international demand, yet manufacturing is suffering. We must help to save steel manufacturing on Teesside in the miraculous way my right hon. Friend the Member for Rotherham (Mr. MacShane) described. What about the Bosch plant in Wales, where there are 700 jobs? What about the Vestas plant on the Isle of Wight, which is the only manufacturer of the kind of green technology we are supposed to be developing? We must put our efforts into sustaining those plants and manufacturing, rather than into the banks.
Secondly, we need manufacturing policy to channel investment and provide venture capital. Thirdly, we need to break bottlenecks through training, particularly in skills. Fourthly, we need to ease the burdens on manufacturing. We have privatised all the utilities, with the result that they are imposing higher charges on manufacturing for energy, water and everything else; now, we are proposing to reduce the rebate on the climate change levy, which will hit manufacturing. It is crazy to impose such burdens when we need manufacturing to expand. We must concentrate on small and medium-sized plants.
Chris Ruane: My hon. Friend says that there is a need for interventions, and I think that that is a key dividing line between us and the Opposition. Will he give credit for the interventions the Government have made, such as the car scrappage and boiler scrappage schemes? In Wales we have the ProAct and ReAct schemes to keep people in jobs and training, and we have a £1 billion future jobs fund to keep young people in employment. The Government have made some interventions.
Mr. Mitchell: Absolutely, and my hon. Friend is right to correct me. Perhaps, in my impetuous enthusiasm for demanding a revival of manufacturing, I pitched the case too high. There have been useful interventions, such as the car scrappage scheme, but I want bigger and more effective interventions to sustain manufacturing, concentrating on the small and medium-sized firms that now make up the majority of our manufacturing. They need help with research, design, development and advice, and all that help can be provided by the Government.
We must, as the main part of the industrial policy, make manufacturing central to the preoccupations of the Government and to the activities of BIS, or whatever alphabetical soup the Department is now called. BIS has a second chance, and now we have that second chance, so I hope that it throws itself into a policy of sustaining and nurturing manufacturing, so that we produce more, sell more to the world and improve our standard of living and our productivity to stop the low, slow decline of manufacturing. Manufacturing is our future. We must seize it now or lose out for ever.
John Mason (Glasgow, East) (SNP): I congratulate the hon. Member for Great Grimsby (Mr. Mitchell) on securing the debate. The subject is incredibly important, and one that is well worth our spending our time on. I agree with much of what he said.
Manufacturing has a strong tradition in cities such as Glasgow, where I come from. We have moved away from the huge, heavy industries we once had, but we still have a lot of the smaller manufacturing industry and much of the service industry as well. It is disappointing that we do not have the huge steel industry we used to
have, or the railways and shipbuilding, but perhaps it was unrealistic to think that those could continue from the 19th century. However, there are many positives and potential in Scotland and across the wider UK. For example, aerospace is very positive, as are chemicals, pharmaceuticals, electronics and, certainly in Scotland, food and drink and high-quality textiles.
We need a balanced economy. We should not have all our eggs in one basket, be that basket financial or anything else. My father, who was an engineer, believed that the only people who contributed to the economy were engineers and that I made a huge mistake by becoming an accountant. Be that as it may, I certainly agree that we should re-emphasise manufacturing.
Exports, imports and the exchange rate are clearly part of the manufacturing equation, but I wish to make a few comments about the exchange rate. I believe that it is not where we should put all our faith for meeting the challenges that lie ahead; it is not a panacea for all our ills. I agreed with the hon. Member for Great Grimsby when he said that the exchange rate is not a phallic symbol. However, it is a mark of the strength or weakness of other people's faith in our economy, and where the exchange rate is says something about the UK at present. We need balance on such issues.
I find it strange that so few people have spoken out recently about the pound's lower level, because it is clearly making life difficult for many of our constituents. Anything they buy that has been brought in from overseas is more expensive, and many of our population nowadays expect to go on foreign holidays every so often, which also becomes much more expensive. There is a loss of well-being for our constituents as the exchange rate goes down.
Kelvin Hopkins: I have heard none of my constituents complaining at all about the depreciation of the pound. Many of them feel that their jobs are safer because we have a more competitive exchange rate, and they are pleased about the depreciation-and glad that we are not in the euro.
John Mason: Apart from the last point, in general I agree with the hon. Gentleman. However, as was correctly pointed out earlier, there must be a balance. I fear that it is a little simplistic to paint a lower exchange rate as all good. Yes, the exchange rate is a big part of the answer in the short term, but we need to look elsewhere in the long term.
Mr. Hoyle: The hon. Gentleman makes a good point, but does he not recognise that there is now a chance of manufacturing coming back to the UK because of where the pound is and because we are more competitive? We are seeing the results of that with inward investment coming back from Europe.
John Mason: Yes, I agree that there is certainly a short-term boost, and, from that point of view, it is welcome. I am not arguing against it, but my question is where we will be in 20, 50 or 100 years. Will we just keep on devaluing? Will that be our long-term answer, or will there be something else?
Clearly, wages and costs are higher here than in some other countries, so we find it difficult to compete. Part of the answer is higher-quality products, of which, from
a Scottish point of view, whisky is a good example. We can produce something of a quality that we believe other countries cannot compete with, and people are willing to pay more for it. However, if we take shipbuilding, yes, perhaps we can build a slightly better ship than can be built in some other countries, but the cost difference is huge. Can the shipbuilding industry survive long term on Ministry of Defence orders? Can we ever again compete in shipbuilding in the world market?
As has already been touched on, some suggest that the answer is to cut our costs, that we should go down and down and try to meet other people's lowest costs. We hear from some quarters that we should get rid of the minimum wage, but I cannot agree that that is the answer. That seems to be the argument on pensions, too, which are obviously another cost. Some say that we have to get public sector pensions down, but that kind of answer and that kind of thinking just store up problems for the future.
Surely the other option in the seriously long term is that other countries' costs and standards have to rise. In my lifetime, there has been a huge change in countries such as South Korea, Hong Kong and Taiwan. When I was a child, one expected from them cheap and poor products, which were often the subject of jokes. Clearly, that has changed: one now gets good-quality products from such countries and, more recently, from countries such as India and China. Producing good-quality, competitive products means that countries get a decent price for their products and employees' standard of living starts to rise. We have certainly seen that in countries such as South Korea. Just look at the tourists coming here now who would never have come in the past. Clearly, they have money to spend that they did not have before. To mention whisky again, there has been a huge boost for the whisky industry and the Scottish economy because we can now sell to countries such as India and China. We could never have sold such a product to them in the past.
Fair trade-by that I mean small f and small t as well as capital F and capital T-must play a part in the equation in the long term. If we are trying to compete with workers in poorer countries, they must get a decent wage, which would help them and us. Only a few years ago, it was only tea and coffee that we would expect to get on fair trade, but this past Christmas I bought a decent quality, reasonably priced shirt for my brother and suddenly realised that it was a fair trade product, and that people were getting paid a decent price in some of those other countries.
In the long run, part of going ahead will involve putting pressure on shops and importers to ensure that suppliers are paid a fair wage. If we buy something in this county, we should ask where it has been made. Has child labour been used? I would say that public opinion is with us on this and that we can move in that direction. I accept that we cannot do that immediately, but, sadly, I go into some shops and look at the price of some clothes and think, "Who made these clothes? Has child labour been involved? What are the health and safety conditions?"
Surely, in the long term, fair trade has to be part of the answer. We should not try to stay elite compared with the rest of the world; instead, we should pull the rest of the world up with us. I accept that that is for the
long term-it is not a short-term goal-but it has to be part of the equation that would boost our manufacturing and allow us to export more overseas.
Kelvin Hopkins (Luton, North) (Lab): My hon. Friend the Member for Great Grimsby (Mr. Mitchell) will not be surprised to hear that I agree with everything that he said. I have come along enthusiastically to support his excellent contribution this morning.
I represent Luton, which was a large manufacturing town. I am pleased to say that it still has some manufacturing, but when I moved there 40 years ago, General Motors employed some 38,000 people in the conurbation. Now it employs fewer than 2,000, and we had difficulty saving the plant last year. We must express thanks to my noble Friend Lord Mandelson, the Business, Innovation and Skills Secretary, for helping to save Vauxhall. We still need to put in a new vehicle for beyond 2013, but at least we have saved it. That was about not only jobs and the local economy but local pride, which is important as well. My hon. Friend and others were right in saying that the Business Secretary has changed his view. I met him several times and have written to him at length several times pointing out that the debate is about not just Luton but about British manufacturing and saving manufacturing for the future as a basis for rebuilding and expanding it.
My hon. Friend spoke about foreign ownership. It is significant that Cadbury is apparently about to be sold today to a foreign owner, which is regrettable. It is noticeable that other countries such as Germany are far more reluctant than we are to allow their companies to be sold overseas. One cannot imagine Germany sitting idly by while BMW was sold to Rover, but, because British Aerospace wanted a bit of pocket money, we let Rover go for a song to BMW and did nothing about it.
While I have been a Member of Parliament, Luton has lost Electrolux, SKF is a tiny proportion of what it was, and many suppliers to the motor industry and other companies have lost jobs as well. We know that productivity has increased, that manufacturing is therefore much more capital-intensive and that there are fewer jobs in it, but the real evidence that we have a problem in manufacturing is, as my hon. Friend said, the trade deficit.
In 2006, the trade deficit in goods was £76 billion. It went up to £89 billion in 2007, and to £93 billion in 2008. It has started to come down since the depreciation, and is probably on track to be about £80 billion this year-still a massive sum, but the trend is at least pointing in the right direction. Depreciation has clearly been important. Obviously, we have had the J-curve effect where things get slightly worse before they get better; nevertheless, we are on the right track. If anybody thinks that the European Union helps, some £40 billion of that deficit is with the EU-not with poor or low-wage countries but with Germany. As I said in one intervention, something has gone right in Germany but not here.
Bob Spink: The hon. Gentleman knows what I am about to say. Does he accept that the £40 billion or £45 billion trade deficit with the EU blows apart the argument that is often made that, if we were to leave the EU, we would suffer the loss of jobs in this country? Quite the opposite would probably take place.
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