International Competitiveness (Hansard, 9 December 1982)

§ 1. Mr. Tilley
asked the Chancellor of the Exchequer what level of increase or decrease in money wages would be required over a five year period to restore the United Kingdom's international competitiveness to its level of May 1979, assuming no change in the relative level of the exchange rate.

§ 9. Mr. Leighton
asked the Chancellor of the Exchequer what effect Her Majesty's Government's economic policy has had on the competitiveness of British manufactures since May 1979.

§ The Chief Secretary to the Treasury (Mr. Leon Brittan)
I should like to apologise on behalf of my right hon. and learned Friend the Chancellor of the Exchequer for his absence today. He is abroad attending one of a regular series of informal meetings of Finance Ministers of five countries.
The loss of cost competitiveness since May 1979 reflects the fact that United Kingdom unit labour costs have risen more quickly than those of our competitors. The extent of the wage restraint needed to regain this cost competitiveness depends upon wage settlements overseas as well as at home, and also on whether we can improve productivity more quickly than our competitors. The Government's economic policies are designed to encourage increased productivity by removing unnecessary controls from the productive parts of the economy and by exposing the public sector to competition wherever possible.

§ Mr. Tilley
Am I right in thinking that there are two ways to increase competitiveness, the first being to reduce the exchange rate and the other to reduce unit labour costs? As the Chancellor and the Government have said that they reject the idea that has been advanced by my right hon. and hon. Friends of a substantial devaluation, does the right hon. and learned Gentleman agree that the Government are unwilling to tell us how many pounds a week that would 962 cost simply because they dare not tell the British electorate that they intend, should they get a chance in the next five years, to make people internationally competitive by taking large sums of money out of their weekly wage packets?

§ Mr. Brittan
That is wholly incorrect. The hon. Gentleman has completely ignored productivity, which is another major component in competitiveness. He has also ignored the fact that the test of competitiveness is comparative and that what matters is not merely how much British unit labour costs increase but what happens in other countries.

§ Mr. Leighton
Is it not astonishing that a Government who continually prate about the need for increased competitiveness have presided over the greatest loss of competitiveness in living memory? Has the right hon. and learned Gentleman seen the report of the National Institute of Economic and Social Research and the London Business School, which apportions blame for the loss of that competitiveness as being up to 70 per cent. due to Government policy and the exchange rate and nil per cent. to the increase in real wages, as real wages have been decreasing?

§ Mr. Brittan
I do not accept that. I should be more impressed by what the hon. Gentleman said were it not for the fact that between the fourth quarter of 1976 and when the Government came to power competitiveness worsened by 28 per cent., and that from then until today it has fallen by 18 per cent.

§ Mr. Eggar
Would increased competitiveness as a result of the devaluation of sterling enable British manufacturers to export more competitively if they were unable to control wage costs?

§ Mr. Brittan
I do not believe that that is what would happen. Experience of past devaluations has shown that inflationary pressures that are caused by increased costs of imports quickly become apparent and that there is a rapid loss of any short-term benefit that may have been secured.

§ Mr. Richard Wainwright
Will the Chief Secretary, who is prone to cite the examples of other countries when trying to excuse British unemployment, study the findings of the European management forum, which were published earlier this week and which add up to the conclusion that during the past 12 months Britain has slipped back significantly in the OECD league of competitiveness?

§ Mr. Brittan
I shall look forward to studying the document to which the hon. Gentleman refers.

§ Mr. Peter Bottomley
Will my right hon. and learned Friend welcome the mention from the Opposition of the level of real wages? Will he emphasise that it is impossible to increase real wages by 5, 8 or 10 per cent. a year, and that the sooner we all settle for far smaller and more realistic pay settlements, the better it will be for all of us?

§ Mr. Brittan
It is true that the Opposition seem to be on a learning curve with regard to these matters. They seem to accept in their latest policy document that restraint in pay is necessary. The only difference between us is that they seem to take that for granted and seem, in the same document, to advance policies that are least calculated to achieve it.

§ Mr. Shore
First, we hope that the Chancellor of the Exchequer, who informed us that he would not be present today, will have a fruitful discussion with his colleagues.
Returning to the question of my hon. Friend the Member for Lambeth, Central (Mr. Tilley), as there is no evidence that productivity is improving relative to other countries—on the contrary, our productivity is slipping—and we have lost about 35 per cent. in cost competitiveness, does the Minister agree that the only way in which the Government can restore competitiveness is by cutting real wages and salaries?

§ Mr. Brittan
I do not accept the right hon. Gentleman's facts or his figures. The loss of competitiveness since the second quarter of 1979 is about 18 per cent., but it is significant that, after a sharp fall, cost competitiveness has improved by about 20 per cent. since the beginning of 1981.