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2.10 pm

Sir Nicholas Winterton (Macclesfield) (Con): I am delighted to follow the right hon. Member for Rother Valley (Mr. Barron), who spoke with great passion about his constituency; as he knows, there is no better
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time to do that than just before a general election. I listened with care to what he said. He and I have quite a lot in common. He supported the mining industry, and when my colleague, Lord Heseltine, who was then in this House, sought to close virtually all the pits, I was one of a group of about 25 Conservative Members of Parliament who strongly supported the retention of our mining industry. I wish that we had kept more pits open than remain open today.

Mr. Cash: Will my hon. Friend give way?

Sir Nicholas Winterton: Hold on: I know what my hon. Friend is going to say. He, too, was one of those 25 Conservative Members of Parliament, and I commend him for the support that he gave to the coal industry, along with myself and others on the Government side of the House, as it was then. Perhaps the right hon. Member for Rother Valley will not particularly commend me for saying this, but the Union of Democratic Mineworkers undertook a service to this country that the people of this country should never forget. I knew Mr. Roy Lynk and Mr. Greatrex, and others, well, and they did a great service to this country.

The right hon. Gentleman is involved in another matter with which I was involved: he is Chairman of the Select Committee on Health. I had the honour of chairing that Committee for a length of time, and it was a challenge. Although I was ultimately removed from the chairmanship-in fact, that is not quite correct; I was not reappointed to the Committee in the new Parliament of 1992-I believe that the role that I played on that Committee was totally appropriate and closed the gap between this House and the medical profession and those who work in health care outside this House. I commend the right hon. Gentleman on the lead that he, too, has given.

Let me, though, give the right hon. Gentleman one piece of advice. He talked about the amount of investment that was being made in his constituency; I express the hope that that investment goes ahead. However, I remind him, and Ministers on the Treasury Bench, that that may not ultimately be in the hands of the present Government, if they retain office after the next election, or, for that matter, my own party, if we attain office. At the end of the day, this country's ability to borrow money will rest with the financial markets, because if the financial markets lose confidence in this country and its ability to run its economy in a sound and secure way, our triple A credit rating could be downgraded. If that happens, our ability to borrow money will become more difficult and the interest rates that we have to pay will rise, which means that taxation will rise and the impact on the economy will be very great.

The hon. Member for North Southwark and Bermondsey (Simon Hughes) talked about not proceeding with certain expensive defence projects, although he did not say how the Liberal Democrat party would guarantee the defence and security of our country. I have to say to him that the first priority of any Government of this country is the defence of the realm.

Simon Hughes: The hon. Gentleman knows that he has a lot of respect in this House. He is right about the first priority of a Government. We are clear that in the defence review that we all know will happen after
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the next election we must guarantee the funding to ensure that troops on the front line, whether they are from the Royal Navy, the Army, the Air Force or the Royal Marines, whom I was with last night, have what they need to do the job flexibly, responsibly and effectively. However, some things may not be affordable and, in our book, a like-for-like replacement for Trident is one of them.

Sir Nicholas Winterton: The hon. Gentleman makes his position and that of his party very clear. He will accept, however, that the present Government and my party disagree with him on this. We believe that a replacement for Trident is essential to the future security and defence of our country. That means, of course, that there are agreements across the Dispatch Box between Her Majesty's Opposition and the Government of the day.

Kelvin Hopkins rose-

Sir Nicholas Winterton: I am happy to give way to my very good friend from Luton; on matters relating to the European Union, he and I are as one.

Kelvin Hopkins: We do agree on certain matters, but not on this one. Why do we need an international nuclear weapon when Italy, Germany, Japan and many other countries feel no need to have such a weapon? Is it not just machismo and posturing?

Sir Nicholas Winterton: I have been in this House for quite a long time, with almost 39 years of uninterrupted service, and I have always believed that the nuclear deterrent is an essential part of the security of the world, and that we are part of that. We have contributed to the security of the world, and I believe that we should continue to do so.

I should like to make one further comment about the right hon. Member for Rother Valley. He and I have another thing in common, because he is committed to manufacturing industry. Ever since I came into this House in 1971, I have championed manufacturing industry, and I will go out of this House championing manufacturing industry. To me, it is essential. If we want a stable economy in this country, we cannot entirely rely on financial services or the service industries. The manufacturing base gives us that sound stability on which economic progress is founded.

Simon Hughes: I absolutely share the hon. Gentleman's view. I am really encouraged that there appears, at last, to be a realisation that playing the international financial markets has not given us the long-term economic security that we need. Whether from his great county of Cheshire or the inner-city docklands that I represent, people are desperate for the engineering, science and research skills of British people to be used. They are ready to do the jobs-give them a bit of encouragement and they will make and sell the best in the world.

Sir Nicholas Winterton: Let me mention another matter that, again, involves the right hon. Member for Rother Valley, who spoke with such passion about many of our famous manufacturing companies. Let us take steel as an example. Where is steel now? Who owns steel in this country? It is owned by an Indian company,
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Tata. When there is a recession, what is Tata likely to do? It is likely to make closures, as it is doing in the case of a smelting processing plant in Redcar in the north-east. It is a tragedy that we have allowed the core of our manufacturing base to be eroded and taken over by overseas interests, which will, when all is said and done, return to their own countries many of the profits that they make in the plants that they own in this country. Tata also owns Jaguar Land Rover. Those products made our country famous and are acquired and respected throughout the world. Why has the United Kingdom allowed the foundation of its manufacturing base to be purchased by overseas interests and, in some instances, taken abroad?

Kelvin Hopkins: I share entirely the hon. Gentleman's concerns about foreign ownership of our manufacturing. Not only did profits go overseas, but factories have been closed down and production taken overseas. Is not that one of the effects of privatisation? Some of the industries that the hon. Gentleman mentioned were publicly owned and would never have been bought by overseas companies had they remained so. I suggest that some be brought back into public ownership to protect them for the long-term future.

Sir Nicholas Winterton: The hon. Gentleman is a traditional Labour party member, and I respect him. He is utterly consistent-I, too, have been utterly consistent. I say to him in a very friendly way that there will be people in both our parties who say that we have been consistent, but consistently wrong. I do not believe that that is case. There is some justification for his view about public ownership, although I do not share it. I believe that companies have sold out and been taken over because of the structure of our tax system and for other reasons that relate to running large companies in this country. I would like many more companies to remain in the ownership of people who live in this country. The hon. Gentleman and I share that view.

Let me now consider the Budget. Although welcome growth is returning to world economies, even though it is a mere 0.4 per cent. in the United Kingdom, that must not be seen as the end of the crisis or the recession. Some might say that the Government's action to date has merely postponed the inevitable trouble that lies ahead because of the UK economy's underlying structural problems.

The banking crisis was a symptom of the problem, not necessarily the cause. Since the UK's departure from the exchange rate mechanism, our record of gross domestic product growth has consistently exceeded that of the rest of the European Union countries. The UK was renowned for its open markets, low regulation and relatively benign tax regime. Although markets here remained open, regulation and taxation increased markedly in the past decade, as did public expenditure and leverage. The result? The UK's growth was increasingly driven by unsustainable factors, which, if not reversed, will undermine our long-term potential for recovery. While the UK's economic advantages were eroded, growth was based on several one-off factors, and the underlying economy became unbalanced. As many of us know, it was biased towards property, finance and the public sector, all fuelled by high and increasing debt.

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The composition of the UK economy has evolved rapidly. Back in 1978, 26 per cent. of the population worked in the manufacturing sector. Today, that figure is just 8.9 per cent. In the same period, the proportion working in banking and finance rose from 10.5 to 20.1 per cent. As most of us know, the rise in public sector employment has also been significant, especially in the past decade, with more than 1 million public sector jobs created, taking the total in this country to 6.1 million. That trend has continued, even during the recent severe economic downturn, partially explaining the fact that unemployment has not risen as sharply as expected in the crisis. The Secretary of State for Work and Pensions highlighted that in her opening speech.

During my 39 years as a Member of Parliament, I have never forgotten that Macclesfield's economic success has historically been based on manufacturing industries, including textiles, pharmaceuticals, which the right hon. Member for Rother Valley mentioned, aerospace and paper and board. I have put the question to the Prime Minister, as I put it now to those on the Treasury Bench: does the Treasury agree that manufacturing industry is one of the only sources of non-inflationary, sustainable economic growth? Does it also agree that if it is to be competitive and succeed in future, it needs more regulation, particularly from the EU, and more taxation like it needs a hole in the head? I hope that Ministers agree and will refer to that when winding up the debate.

As a nation, we ignore at our peril the value of our manufacturing industries to the stability and future success of our economy. I repeat that manufacturing is the only source of sustainable, non-inflationary economic growth. As the right hon. Gentleman said, some of the problems that we have encountered recently are due to our forgetting that; we have not appreciated the value of manufacturing to our economy. The UK's manufacturing base is now relatively small, and although it should benefit from sterling's depreciation, it is sadly no longer significant enough to drive domestic GDP growth, at least in the short term.

The fall in the value of the pound, making UK goods cheaper abroad, might have been expected to boost sales overseas. The sharp fall in the value of the pound in the past year should be doing more to help exporters. Sterling's slide has also contributed to the rapid rise in fuel and oil prices, which add inevitably to industry's costs. The Government should drop the proposed 3p per litre rise in fuel, even though that will now be spread over some nine months. It is a heavy cost to industry as well as to the domestic driver.

On the face of it, a 6 per cent. drop in exports in January from December should be worrying-I believe that it is. If British companies are producing fewer goods and services than expected for overseas markets, that will hardly help the overall growth picture for the first quarter of this year. It is possible that the severe weather in January and February held up traffic from factories to ports, and therefore had an effect on exports.

I am happy to give credit where it is due, so I am pleased to say that some employer surveys suggest that there has been a modest rise in optimism among exporters. I hope that that is the reality and that it continues. UK manufacturers may have taken advantage of a weaker sterling to increase their profit margins rather than to increase sales. There is no doubt that the sharpest fall in
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the value of sterling since the war happened at a bad time for exporters to take proper advantage, and it is perhaps unsurprising that they tried to extract every last penny out of the demand that remained for their products and manufactured goods. However-and this is a worrying statistic-the trade gap in physical goods widened to £7.99 billion, well above the £7 billion that economists had forecast.

Mr. Randall: I am listening very intently to my hon. Friend. When I was younger, the balance of trade payments statistic was always put up-it was on the news and we were well aware of it-but in recent years it seems to have disappeared from our screens. Can he tell me why that is?

Sir Nicholas Winterton: My hon. Friend is indeed a good friend-he is the official Opposition's pairing Whip, so I need to be on good terms with him-but I cannot give him a reply to that question, because I do not know the answer. Although I am from time to time a provocative and controversial MP, I am prepared to tell the truth and to admit when I do not know the answer.

Kelvin Hopkins: May I be helpful on that theme? One reason why Governments have not focused so much on the balance of trade deficit is that we have a massive deficit with the rest of the European Union, and such a focus might make people less enthusiastic about that.

Sir Nicholas Winterton: I am only too delighted to agree with the hon. Gentleman. My love of the European Union-or lack of it-is extremely well known. Indeed, I tell the House that Europe needs us much more than we need it. There is a huge trade deficit with the countries of the EU. What is more-to add one more thing to build on what the hon. Gentleman said-before we joined the EU, we had a surplus of trade with the countries that then comprised the EU, and that has been totally reversed.

The goods trade gap with non-EU countries was also wider according to the last range of figures-it increased from £3.4 billion in December to £4.8 billion-after exports to countries outside the EU dropped by 12.5 per cent. on the month and imports increased by some 1.6 per cent. What we are witnessing is the result of the fact that the UK's growth was increasingly driven by unsustainable factors such as exorbitant public spending, which if not reversed will seriously undermine our long-term potential for recovery.

From 2000-01 to 2008-09, public expenditure increased from £364 billion to £617 billion. The current forecast from Her Majesty's Treasury-Ministers may wish to confirm this-is for £702 billion of spending by 2010-11. Government spending as a proportion of GDP has increased from 36.8 per cent. in 2000 to 43.2 per cent. today. That very substantial public sector pump-priming spend is both undesirable and, as one or two hon. Members have said, unsustainable. Given the recession in the private sector and continuing, accelerated public spending, Government spending is likely to be 48 per cent. of GDP by the end of this financial year. Does the Minister believe that that is sustainable? Government spending is back to levels last seen in the mid-1970s. It is estimated that pump-priming increased growth, albeit unsustainably, by 1 per cent. in the past decade.

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HM Treasury forecast a deficit of £175 billion for the current fiscal year-the current forecast is around £12 billion less than that-but that is almost twice as bad in percentage terms as the UK's deficit at the height of the International Monetary Fund crisis of the mid-1970s. There are effectively three ways of tackling that deficit, which were dealt with in a way by the Secretary of State for Work and Pensions, by my hon. Friend the Member for Tatton (Mr. Osborne) and by the hon. Member for North Southwark and Bermondsey at the beginning of the debate.

One way is to allow tax receipts to erode the deficit by stimulating GDP growth. That has been the Government's main approach, and it has resulted in a 0.4 per cent. increase in growth. The choice after that is therefore unpalatable: tax increases or spending cuts. If the UK is to rebuild long-term economic growth, there is no choice but to reduce significantly the excessive spending of the last decade, most of which was based on borrowed money.

Raising taxes would be counter-productive. The UK's tax advantage over most of our EU competitors has already been lost, and further tax rises, as I am sure most hon. Members agree, will further erode the UK's competitive position. Spending cuts in the short term will impact on tax revenues and Government growth assumptions, and tax increases will crowd out the private sector. Again, it was interesting that the right hon. Member for Rother Valley agreed that the site of the Orgreave coal depot has been developed by private enterprise, albeit assisted by the Government. That is what we want to see in many more parts of the country.

Throughout the 2000s, the Government's economy was an unsustainable engine for growth and we are now suffering the consequences. In my view, we need to build a new economic model based on saving, investment and exports, instead of the debt-fuelled model of the last decade. We simply cannot go on with the same irresponsible economic policies, which have been followed not only by the present Government but by Conservative Governments in the past. Those policies have recently given us the biggest boom and the biggest bust, and they now threaten our recovery with higher debts, higher instability, higher taxes, higher interest rates and-sadly-a possible increase in unemployment.

As the right hon. Gentleman also said, we are one of the great leaders in the world in advanced manufacturing. We have some of the greatest companies in the world operating from the UK as global players with huge strengths in new technology and innovation. I refer especially to AstraZeneca in my constituency. At its peak, it employed 7,500 people in my constituency and that of the shadow Chancellor, my hon. Friend the Member for Tatton. The importance to the local economy of that one firm cannot easily be described.

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