HC Deb 10 March 1981 vol 1000 cc758-9

There are still many businesses in Britain that lead the world. But the obstacles to recovery are none the less greater here than in other countries. Many parts of our industry have long been less dynamic than theirs. Years of high inflation, low productivity and delayed change have made our economy especially vulnerable, and reduced its ability to compete in both home and overseas markets. And so we are suffering more than others.

Those firms which have lagged behind have often been encouraged to do so in the misguided belief that change can be postponed indefinitely. Eventually, the combined pressures of competition and recession have compelled long-overdue moves to tackle these deep-seated weaknesses. They have been essential to the creation or preservation of secure jobs for the longer term. But, of course, the immediate effect has been to add to unemployment. Thus, nearly 300,000 jobs have been lost in the motor industry, steel, textiles and shipbuilding over the past 18 months.

As a nation we have carried the process of weakening our own economy a long stage further in the three years before the recession started. In each of the last three pay rounds, earnings in manufacturing industry rose by over 14 per cent. while the underlying improvement in productivity has been little more than 1 per cent. British unit labour costs have risen more than twice as fast as those of our foreign competitors.

Industry has had to adapt to a second huge increase in the price of energy. The world oil price is now three times what it was three years ago. Because of that, the North Sea has had the consequence of contributing to the sharp rise in sterling since 1977. Various other factors have also influenced the position of sterling, including changes in the fortunes of other major economies. Although the strong pound has conferred some benefit on British industry through cheaper imported materials, it has, of course, imposed real difficulty on businesses that sell against international competitors. That has been particularly true of those industries that were still seriously overmanned.

So, as consumers, we have benefited greatly from the strong pound and very often from large pay increases as well, while many companies have been hard pressed. Between 1977 and 1980, the real after-tax income of individuals rose by about one-sixth. But the real disposable income of industrial and commercial companies fell by one-quarter. And output rose by only 2 per cent. This contrast between the fortunes of individuals and businesses marks a striking imbalance. There is also a sharp difference—within the business sector itself—between the fortunes of the oil and banking sectors, on the one hand, and most manufacturing companies on the other.

In these circumstances, many manufacturing businesses have had to take drastic action in order to survive and they have sharply reduced the number of jobs that they were able to provide. Many factories had already gone a long way towards pricing themselves out of the market by earlier pay settlements. Many of those who secured big pay increases may have improved their own standard of living, but only at the cost of pushing their fellow workers out of a job.

Recently, however, there has been an increasingly constructive approach to these problems, at least in the private sector. The level of pay settlements has been falling significantly. Pay bargainers have begun to face up to the harsh truth that excessive pay is a major cause of unemployment. Most settlements in manufacturing since November have been below 10 per cent. That is in sharp contrast to the years that went before. Management and work force are at last joining together to tackle the problems of overmanning, restrictive practices, and out-of-date working methods. They understand that cutting unit labour costs is the way to become competitive again and to price themselves back into markets and jobs.

But the nationalised industries, many of them monopolies, are not subject to the same market disciplines as the private sector. They have often been slow to adapt. And when eventually they do adjust, the financial and social costs can be very heavy. But the cost of delaying change has often been even greater, in terms of markets lost and jobs destroyed. It is the need to make nationalised industries more responsive to market disciplines which lies behind the Government's vigorous programme to increase competition in, for example, transport and telecommunications, and wherever possible to return parts of the State-owned sector to private enterprise.

Nor have other parts of the public sector learnt these lessons at all quickly. Thus, the overall cost of the public sector has continued to grow in relation to the rest of the economy. Total spending programmes in 1980–81 are now expected to cost approaching £94 billion, compared with last year's Budget forecast of about £91½ billion. In addition, debt interest has cost £1 billion more than expected. The increase in the overall total would have been still greater had it not been for the notable success of my right hon. Friend the Prime Minister in negotiating refunds from the European Communities of some £600 million. The burden of public expenditure will be a recurrent theme in my speech.