Industrial Policy (Hansard, 9 June 1980)

§ 9. Mr. Cadbury
asked the Secretary of State for Industry to what extent the industrial policy of Her Majesty's Government is taking account of the effects on industry of the low real rate of return which industry is making, especially in the manufacturing sector.

§ Mr. Adam Butler
Raising the profitability of British industry from the dangerously low levels of recent years is a major objective of our economic and industrial policy.

§ Mr. Cadbury
My hon. Friend will be aware that industry's real rate of return is now down to about 2 per cent., which is dangerously low. Will he and his colleagues do more to encourage British management to explain economic reality to its employees so that we are more likely to get realistic pay settlements in the coming pay round?

§ Mr. Butler
I confirm that my hon. Friend's figure is about right for the present time. He might note that the figure has been in the region of 3 per cent. since 1974. One of the features of post-war British industrial history is that too much has been taken out in wages, and another is that insufficient profitability and investment have been allowed for. It is a message that must be put across again and again because the present profitability levels are too low, and that will prejudice jobs and prosperity in the future.

§ Mr. Woolmer
Will the Minister confirm his Department's latest official forecast that manufacturing investment will fall by between 8 and 12 per cent. this year, with another fall by the same amount next year? Is not a reduction in manufacturing investment of 25 per cent. in two years a disastrous record for the Conservative Government? Will the Secretary of State go to the Cabinet meeting on 16 July to demand the expansion of the economy, and not its destruction?

§ Mr. Butler
It is true that, faced with worldwide recession, the level of investment is likely to be lower in the coming year, and the forecasts are also lower. But investment depends upon a large number of factors : first, on profitability, and, secondly, on having the funds available for that investment. It also depends on confidence in the future, and confidence in the future will come about when the battle that we have waged against inflation is successful.

§ Mr. Kenneth Baker
Does my hon. Friend agree that the profitability of British industry is inhibited and reduced by two factors : on the one hand, as my hon. Friend said, by unrealistic wage settlements, and on the other by a very high level of interest rates? On the first the Government can exhort, and on the second they can act. When does my hon. Friend expect a steady and continuing reduction in interest rates?

§ Mr. Butler
This subject has already been raised, and it is rightly a matter of concern to the House. However, as the Prime Minister, the Chancellor of the Exchequer and my right hon. Friend have made clear on many occasions, a reduction in interest rates depends upon getting down both the public sector borrowing requirement and the level of public expenditure. When that is done, and when the money supply is clearly seen to be under control, interest rates can fall.

§ Mr. John Silkin
I take as an example the low-wage industry of textiles, where it is acknowledged that wage settlements do not play a part. As high interest rates and the high value of the pound are playing their part in that industry, and as the Government refuse to limit the penetration of imports and have cut down on regional assistance that might help, can the Minister say how the real rate of return is to be increased?

§ Mr. Butler
The right hon. Gentleman has moved some way from the point, but I do not think that his references to wage settlements in the textile industry are correct, because in certain sectors of that industry wage rates are good. In the textile industry, just as much as in any other, it is important that those settlements should be of moderate nature in the coming wage round. The right hon. Gentleman also alleged that the Government were doing nothing to deal with low-cost imports which affect the textile industry. He is as well aware as I am that Government support for the multi-fibre arrangement is strong. We have said that there will be another arrangement when the present one runs out. However, his party, and he personally, while supporting the multi-fibre arrangement, are apparently advocating a policy that would take us out of Europe and destroy that protection.

§ Mr. John Silkin
Is the hon. Gentleman really saying that where an industry, in part, has good wages, that means excessive wage settlements, because that was what he talked about earlier? Of course it does not. If he is saying that, can he tell us in what way the Government are preparing for a real rate of return—because that was the question—in this industry that will save it from extinction, or is he saying "I shall not deal with import penetration or increase the grants "?

§ Mr. Butler
The right hon. Gentleman's point was that there were low wage levels in the textile industry. I corrected him, because wage rates are high in certain sectors of that industry. As to the return on investment in the textile industry, there is at present a sufficient level of protection through the multi-fibre arrangement. That gives management and those who work in the industry the opportunity to put their house in order so that they can earn sufficient in the future.